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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
     
þ   Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the fiscal year ended December 27, 2008
Or
     
o   Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the transition period from            to            .
Commission file number 0-20388
LITTELFUSE, INC.
(Exact name of registrant as specified in its charter)
     
Delaware
(State or other jurisdiction of
incorporation or organization)
  36-3795742
(I.R.S. Employer Identification No.)
     
800 East Northwest Highway,
Des Plaines, Illinois
(Address of principal executive offices)
  60016
(Zip Code)
847/824-1188
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
     
    Name of Each Exchange
Title of Each Class   On Which Registered
Common Stock, $.01 par value   Nasdaq Global Select Market
     Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o
     Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o  No þ
     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ  No o
     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þAccelerated filer o 
Non-accelerated filer o
(Do not check if a smaller reporting company)
Smaller reporting company o
     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ 
     The aggregate market value of 21,692,291 shares of voting stock held by non-affiliates of the registrant was approximately $713,459,451 based on the last reported sale price of the registrant’s Common Stock as reported on the Nasdaq Global Select Market on June 28, 2008.
     As of February 20, 2009, the registrant had outstanding 21,719,734 shares of Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
     Portions of the Littelfuse, Inc. Proxy Statement for the 2009 Annual Meeting of Stockholders (the “Proxy Statement”) are incorporated by reference into Part III of this Form 10-K.
 
 

 


 

TABLE OF CONTENTS
             
        Page
 
           
FORWARD-LOOKING STATEMENTS     3  
 
           
           
  Business     3  
  Risk Factors     10  
  Unresolved Staff Comments     15  
  Properties     15  
  Legal Proceedings     16  
  Submission of Matters to a Vote of Security Holders     16  
 
           
           
  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities     17  
  Selected Financial Data     17  
  Management’s Discussion and Analysis of Financial Condition and Results of Operations     18  
  Quantitative and Qualitative Disclosures About Market Risk     32  
  Financial Statements and Supplementary Data     34  
  Changes in and Disagreements With Accountants on Accounting and Financial Disclosure     71  
  Controls and Procedures     71  
  Other Information     72  
 
           
           
  Directors, Executive Officers and Corporate Governance     73  
  Executive Compensation     75  
  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters     75  
  Certain Relationships and Related Transactions, and Director Independence     75  
  Principal Accounting Fees and Services     75  
 
           
           
  Exhibits, Financial Statement Schedules     76  
 
  Schedule II — Valuation and Qualifying Accounts and Reserves     77  
 
  Signatures     78  
 
  Exhibit Index     79  
 EX-10.3
 EX-10.4
 EX-10.5
 EX-10.6
 EX-10.7
 EX-10.8
 EX-21.1
 EX-23.1
 EX-31.1
 EX-31.2
 EX-32.1

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FORWARD-LOOKING STATEMENTS
Certain statements contained in this Annual Report on Form 10-K that are not historical facts are intended to constitute “forward-looking statements” entitled to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995 (“PSRLA”). These statements may involve risks and uncertainties, including, but not limited to, risks relating to product demand and market acceptance, economic conditions, the impact of competitive products and pricing, product quality problems or product recalls, capacity and supply difficulties or constraints, coal mining exposures, failure of an indemnification for environmental liability, exchange rate fluctuations, commodity price fluctuations, the effect of our accounting policies, labor disputes, restructuring costs in excess of expectations, pension plan asset returns being less than assumed, integration of acquisitions and other risks that may be detailed in “Item 1A. Risk Factors” below and in our other Securities and Exchange Commission filings.
PART I
ITEM 1. BUSINESS.
GENERAL
Littelfuse, Inc. and its subsidiaries (the “company” or “Littelfuse”) is the world’s leading supplier of circuit protection products for the electronics industry, providing the broadest line of circuit protection solutions to worldwide customers. In the electronics market, the company supplies leading manufacturers such as Alcatel-Lucent, Celestica, Delta, Flextronics, Foxconn, Hewlett-Packard, Huawei, IBM, Intel, Jabil, LG, Motorola, Nokia, Panasonic, Quanta, Samsung, Sanmina-SCI, Seagate, Siemens and Sony.
The company is also the leading provider of circuit protection for the automotive industry and the third largest producer of electrical fuses in North America. In the automotive market, the company’s end customers include major automotive manufacturers in North America, Europe and Asia such as BMW, Chrysler, Daimler, Ford Motor, General Motors, Honda Motor, Hyundai and Toyota. The company also supplies wiring harness manufacturers and auto parts suppliers worldwide, including Alcoa Automotive, AutoZone, Delphi, Lear, Pep Boys, Siemens VDO, Sumitomo, Valeo and Yazaki. In the electrical market, the company supplies representative customers such as Abbott, Carrier, Dow Chemical, DuPont, GE, General Motors, Heinz, International Paper, John Deere, Lithonia Lighting, Marconi, Merck, Otis Elevator, Poland Springs, Procter & Gamble, Rockwell and 3M. See “Business Environment: Circuit Protection Market.”
Net sales by business unit segment for the periods indicated are as follows (in thousands):
                         
    Fiscal Year  
    2008     2007     2006  
Electronics
  $ 342,489     $ 348,957     $ 365,418  
Automotive
    126,867       135,109       123,620  
Electrical
    61,513       52,078       45,821  
 
                 
Total
  $ 530,869     $ 536,144     $ 534,859  
 
                 
The company operates in three geographic territories: the Americas; Europe; and Asia-Pacific. The company manufactures products and sells to customers in all three territories. There has been and continues to be a shift in the company’s revenues, and consequently manufacturing, to the Asia-Pacific region.

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Net sales in our three geographic territories, based upon the shipped to destination, are as follows (in thousands):
                         
    Fiscal Year  
    2008     2007     2006  
Americas
  $ 201,771     $ 204,305     $ 215,892  
Europe
    118,559       118,265       111,652  
Asia-Pacific
    210,539       213,574       207,315  
 
                 
Total
  $ 530,869     $ 536,144     $ 534,859  
 
                 
The company’s products are sold worldwide through a direct sales force and manufacturers’ representatives. For the year ended December 27, 2008, approximately 62.0% of the company’s net sales were to customers outside the United States (exports and foreign operations), including 19.4% in Hong Kong.
The company manufactures many of its products on fully integrated manufacturing and assembly equipment. The company maintains product quality through a Global Quality Management System with all manufacturing sites certified under ISO 9001:2000. In addition, several of the Littelfuse manufacturing sites are also certified under TS 16949 and ISO 14001.
References herein to “2006” or “fiscal 2006” refer to the fiscal year ended December 30, 2006. References herein to “2007” or “fiscal 2007” refer to the fiscal year ended December 29, 2007. References herein to “2008” or “fiscal 2008” refer to the fiscal year ended December 27, 2008.
The company’s annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports are available free of charge through the “Investors” section of the company’s Internet website (http://www.littelfuse.com), as soon as practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission (the “SEC”), accessible via a link to the website maintained by the SEC. Except as otherwise provided herein, such information is not incorporated by reference into this Annual Report on Form 10-K.
BUSINESS ENVIRONMENT: CIRCUIT PROTECTION MARKET
Electronic Products
Electronic circuit protection products are used to protect circuits in a multitude of electronic systems. The company’s product offering includes a complete line of overcurrent and overvoltage solutions, including (i) fuses and protectors, (ii) positive temperature coefficient (“PTC”) resettable fuses, (iii) varistors, (iv) polymer electrostatic discharge (“ESD”) suppressors, (v) discrete transient voltage suppression (“TVS”) diodes, TVS diode arrays and protection thyristors, (vi) gas discharge tubes, (vii) power switching components and (viii) fuseholders, blocks and related accessories.
Electronic fuses and protectors are devices that contain an element that melts in an overcurrent condition. Electronic miniature and subminiature fuses are designed to provide circuit protection in the limited space requirements of electronic equipment. The company’s fuses are used in a wide variety of electronic products, including wireless telephones, consumer electronics, computers, modems and telecommunications equipment. The company markets these products under the trademarked brand names PICO(R) II and NANO2(R) SMF.
Resettable fuses are PTC polymer devices that limit the current when an overcurrent condition exists and then reset themselves once the overcurrent condition has cleared. The company’s product line offers both radial leaded and surface mount products.

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Varistors are ceramic-based high-energy absorption devices that provide transient overvoltage and surge suppression for automotive, telecommunication, consumer electronics and industrial applications. The company’s product line offers both radial leaded and multilayer surface mount products.
Polymer ESD suppressors are polymer-based devices that protect an electronic system from failure due to rapid transfer of electrostatic charge to the circuit. The company’s PulseGuard(R) line of ESD suppressors is used in PC and PC peripherals, digital consumer electronics and wireless applications.
Discrete diodes, diode arrays and protection thyristors are fast switching silicon semiconductor structures. Discrete diodes protect a wide variety of applications from overvoltage transients such as ESD, inductive load switching or lightning, while diode arrays are used primarily as ESD suppressors. Protection thyristors are commonly used to protect telecommunications circuits from overvoltage transients such as those resulting from lightning. Applications include telephones, modems, data transmission lines and alarm systems. The company markets these products under the following trademarked brand names: TECCOR(R), SIDACtor(R) and Battrax(R).
Gas discharge tubes are very low capacitance devices designed to suppress any transient voltage event that is greater than the breakover voltage of the device. These devices are primarily used in telecom interface and conversion equipment applications as protection from overvoltage transients such as lightning.
Power switching components are used to regulate energy to various type loads most commonly found in industrial and home equipment. These components are easily activated from simple control circuits or interfaced to computers for more complex load control. Typical applications include heating, cooling, battery chargers and lighting.
In addition to the above products, the company is also a supplier of fuse holders (including OMNI-BLOK(R)), fuse blocks and fuse clips primarily to customers that purchase circuit protection devices from the company.
Automotive Products
Fuses are extensively used in automobiles, trucks, buses and off-road equipment to protect electrical circuits and the wires that supply electrical power to operate lights, heating, air conditioning, radios, windows and other controls. Currently, a typical automobile contains 30 to 100 fuses, depending upon the options installed. The fuse content per vehicle is expected to continue to grow as more electronic features are included in automobiles. The company also supplies fuses for the protection of electric and hybrid vehicles.
The company is a primary supplier of automotive fuses to United States, Asian and European automotive original equipment manufacturers (“OEM”), automotive component parts manufacturers and automotive parts distributors. The company also sells its fuses in the replacement parts market, with its products being sold through merchandisers, discount stores and service stations, as well as under private label by national firms. The company invented and owns most of the U.S. patents related to the blade-type fuse, which is the standard and most commonly used fuse in the automotive industry. The company’s automotive fuse products are marketed under trademarked brand names, including ATO(R), MINI(R), MAXI(TM), MIDI(R), MEGA(TM), MasterFuse(R), JCASE(R) and CablePro(TM).
A majority of the company’s automotive fuse sales are made to main-fuse box and wire harness manufacturers that incorporate the fuses into their products. The remaining automotive fuse sales are made directly to automotive manufacturers, retailers who sell automotive parts and accessories and distributors who in turn sell most of their products to wholesalers, service stations and non-automotive OEMs.

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Electrical Products
The company entered the electrical market in 1983 and manufactures and sells a broad range of low-voltage and medium-voltage circuit protection products as well as protection relays to electrical distributors and their customers in the construction, OEM and industrial maintenance and repair operations (“MRO”) markets.
Power fuses are used to protect circuits in various types of industrial equipment and in industrial and commercial buildings. They are rated and listed under one of many Underwriters’ Laboratories fuse classifications. Major applications for power fuses include protection from over-load and short-circuit currents in motor branch circuits, heating and cooling systems, control systems, lighting circuits and electrical distribution networks.
The company’s POWR-GARD(R) product line features the Indicator(TM) series power fuse used in both the OEM and MRO markets. The Indicator(TM) technology provides visual blown fuse indication at a glance, reducing maintenance and downtime on production equipment. The Indicator(TM) product offering is widely used in motor protection and industrial control panel applications.
Protection relays are used to protect personnel and equipment in industrial environments and commercial buildings from excessive currents, over voltages and electrical shock hazards called ground-faults. Major applications for protection relays include protection of motor, transformer and power line distribution circuits. Ground fault relays are used to protect personnel and equipment in wet environments such as underground mining or water treatment applications where there is a greater risk for electricity to come in contact with water and create a shock hazard.
PRODUCT DESIGN AND DEVELOPMENT
The company employs scientific, engineering and other personnel to continually improve its existing product lines and to develop new products at its research and engineering facilities in Des Plaines, Illinois; Irving, Texas; Swindon, U.K.; and Duensen, Germany. The Product Technology Department maintains a staff of engineers, chemists, material scientists and technicians whose primary responsibility to design and develop new products.
Proposals for the development of new products are initiated primarily by sales and marketing personnel with input from customers. The entire product development process usually ranges from a few months to 18 months based on the complexity of development, with continuous efforts to reduce the development cycle. During fiscal years 2008, 2007 and 2006, the company expended $24.1 million, $21.7 million and $18.7 million, respectively, on research, product design and development.
PATENTS, TRADEMARKS AND OTHER INTELLECTUAL PROPERTY
The company generally relies on patent and trademark laws and license and nondisclosure agreements to protect intellectual property and proprietary products. In cases where it is deemed necessary by management, key employees are required to sign an agreement that they will maintain the confidentiality of the company’s proprietary information and trade secrets.

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As of December 27, 2008, the company owned 184 patents in North America, 106 patents in the European Economic Community and 49 patents in other foreign countries. The company has also registered trademark protection for certain of its brand names and logos. The 184 North American patents are in the following product categories: 134 electronics; 35 automotive; and 15 electrical. Patents and licenses are amortized over a period of 4-50 years, with a weighted average life of 11.9 years. Distribution networks are amortized over a period of 4-20 years, with a weighted average life of 15.3 years. Trademarks and tradenames are amortized over a period of 5-20 years, with a weighted average life of 14.9 years. The company recorded amortization expense of $3.9 million, $3.3 million, and $3.1 million in 2008, 2007, and 2006, respectively, related to intangible assets.
New products are continually being developed to replace older products. The company regularly applies for patent protection on such new products. Although, in the aggregate, the company’s patents are important in the operation of its businesses, the company believes that the loss by expiration or otherwise of any one patent or group of patents would not materially affect its business.
License royalties amounted to $0.2 million, $0.3 million and $0.4 million for fiscal 2008, 2007 and 2006, respectively, and are included in other expense (income), net on the Consolidated Statements of Income.
MANUFACTURING
The company performs the majority of its own fabrication, stamps some of the metal components used in its fuses, holders and switches from raw metal stock and makes its own contacts and springs. In addition, the company fabricates silicon wafers for certain applications and performs its own plating (silver, nickel, zinc, tin and oxides). All thermoplastic molded component requirements used for such products as the ATO(R), MINI(R) and MAXI™ fuse product lines are met through the company’s in-house molding capabilities.
After components are stamped, molded, plated and readied for assembly, final assembly is accomplished on fully automatic and semi-automatic assembly machines. Quality assurance and operations personnel, using techniques such as statistical process control, perform tests, checks and measurements during the production process to maintain the highest levels of product quality and customer satisfaction.
The principal raw materials for the company’s products include copper and copper alloys, heat resistant plastics, zinc, melamine, glass, silver, raw silicon, solder and various gases. The company uses a sole source for several heat resistant plastics and for zinc, but believes that suitable alternative heat resistant plastics and zinc are available from other sources at comparable prices. All of the other raw materials are purchased from a number of readily available outside sources.
A computer-aided design and manufacturing system (CAD/CAM) expedites product development and machine design and our laboratories test new products, prototype concepts and production run samples. The company participates in “just-in-time” delivery programs with many of its major suppliers and actively promotes the building of strong cooperative relationships with its suppliers by utilizing early supplier involvement techniques and engaging them in pre-engineering product and process development.

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MARKETING
The company’s domestic sales and marketing staff of over 35 people maintain relationships with major OEMs and distributors. The company’s sales, marketing and engineering personnel interact directly with OEM engineers to ensure appropriate circuit protection and reliability within the parameters of the OEM’s circuit design. Internationally, the company maintains a sales and marketing staff of over 100 people with sales offices in the Netherlands, the U.K., Germany, Spain, Ireland, Italy, Singapore, Taiwan, Japan, Brazil, Hong Kong, Korea, China and India. The company also markets its products indirectly through a worldwide organization of over 60 manufacturers’ representatives and distributes through an extensive network of electronics, automotive and electrical distributors.
Electronics
The company uses manufacturers’ representatives to sell its electronics products and to call on major domestic and international OEMs and distributors. The company sells approximately 20 percent of its domestic products directly to OEMs, with the remainder sold through distributors nationwide.
In the Asia-Pacific region, the company maintains a direct sales staff and utilizes distributors in Japan, Singapore, Korea, Taiwan, China, Malaysia, Thailand, Hong Kong, India, Indonesia, Philippines, New Zealand and Australia. In Europe, the company maintains a direct sales force and utilizes manufacturers’ representatives and distributors to support a wide array of customers.
Automotive
The company maintains a direct sales force to service all the major automotive OEMs and system suppliers. Approximately 22 manufacturers’ representatives sell the company’s products to aftermarket fuse retailers such as AutoZone and Pep Boys. In Europe, the company uses both a direct sales force and manufacturers’ representatives to distribute its products to OEMs, major system suppliers and aftermarket distributors. In the Asia-Pacific region, the company uses both a direct sales force and distributors to supply to major OEMs and system suppliers.
Electrical
The company markets and sells its power fuses and protection relays through approximately 37 manufacturers’ representatives across North America. These representatives sell power fuse products through an electrical and industrial distribution network comprised of approximately 4,000 distributor buying locations. These distributors have customers that include electrical contractors, municipalities, utilities and factories (including both MRO and OEM).
The company’s field sales force (including regional sales managers and application engineers) and manufacturers’ representatives call on both distributors and end-users (consulting engineers, municipalities, utilities and OEMs) in an effort to educate these customers on the capabilities and characteristics of the company’s products.
BUSINESS SEGMENT INFORMATION
The company has three operating business unit segments: Electronics; Automotive; and Electrical. For information with respect to the company’s operations in its three reportable business unit segments for the fiscal year ended December 27, 2008, see Business Unit Segment Information included as part of “Item 8. Financial Statements and Supplementary Data,” which is incorporated herein by reference.

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CUSTOMERS
The company sells to over 10,000 customers worldwide. Net sales to Arrow Pemco Group were less than 10% for 2008 and 2007, respectively, but 10.6% for 2006. No other single customer accounted for more than 10% of net sales during the last three years. During the 2008, 2007 and 2006, net sales to customers outside the United States (exports and foreign operations) accounted for approximately 62.0%, 61.9% and 61.1%, respectively, of the company’s total net sales.
COMPETITION
The company’s products compete with similar products of other manufacturers, some of which have substantially greater financial resources than the company. In the electronics market, the company’s competitors include AVX, Bel Fuse, Bourns, Cooper Industries, EPCOS, On Semiconductor, STMicroelectronics and Tyco Electronics. In the automotive market, the company’s competitors include Cooper Industries, Pacific Engineering (a private company in Japan) and MTA (a private company in Italy). In the electrical market, the company’s major competitors include Cooper Industries and Ferraz Shawmut. The company believes that it competes on the basis of innovative products, the breadth of its product line, the quality and design of its products and the responsiveness of its customer service in addition to price.
BACKLOG
The backlog of unfilled orders at December 27, 2008, was approximately $53.9 million, compared to $77.2 million at December 29, 2007. Substantially all of the orders currently in backlog are scheduled for delivery in 2009.
EMPLOYEES
As of December 27, 2008, the company employed approximately 6,300 employees. Approximately four employees in the U.S., 1,022 employees in Mexico and 86 employees in Germany are covered by collective bargaining agreements. The U.S. agreement expires on March 31, 2009, the Mexico agreements expire February 28, 2010 for 484 employees and January 31, 2010 for 538 employees for Matamoros and Piedras Negras, respectively, and the Germany agreement expires April 30, 2010 for 6 employees and is under discussion for 80 employees. Overall, the company has historically maintained satisfactory employee relations, and many of its employees have long service with the company.
ENVIRONMENTAL REGULATION
The company is subject to numerous foreign, federal, state and local regulations relating to air and water quality, the disposal of hazardous waste materials, safety and health. Compliance with applicable environmental regulations has not significantly changed the company’s competitive position, capital spending or earnings in the past and the company does not presently anticipate that compliance with such regulations will change its competitive position, capital spending or earnings for the foreseeable future.

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The company employs an environmental engineer to monitor regulatory matters and believes that it is currently in compliance in all material respects with applicable environmental laws and regulations, except with respect to its facilities located in Ireland and Irving, Texas. The Ireland facility was acquired in October 1999 in connection with the acquisition from Harris Corporation of its suppression products division. Certain containment actions have been ongoing and full disclosure with appropriate agencies in Ireland has been initiated. The company received an indemnity from Harris Corporation with respect to these matters. The Irving, Texas facility lease was assumed in July 2003 in connection with the acquisition of Teccor Electronics, Inc. The company is taking the appropriate measures to bring this facility into compliance with Texas environmental laws, and the company also received an indemnity from Invensys plc with respect to this matter.
Littelfuse GmbH (formerly known as Heinrich Industries, AG), which was acquired by the company in May 2004, is responsible for maintaining coal mine shaft entrances. The company is compliant with German regulations pertaining to the maintenance of the mines and has an accrual related to these coal mine shafts based on an engineering study estimating the cost of remediating the dangers (such as a shaft collapse) of abandoned coal mine shafts in Germany. The reserve is calculated based upon the cost of remediating the shafts that the study deems most risky. Further information regarding the coal mine liability reserve is provided in Note 10 of the Notes to Consolidated Financial Statements included in this report.
ITEM 1A. RISK FACTORS.
Our business, financial condition and results of operations are subject to various risks and uncertainties, including the risk factors we have identified below. These factors are not necessarily listed in order of importance. We may amend or supplement the risk factors from time to time by other reports that we file with the SEC in the future.
Our industry is subject to intense competitive pressures.
We operate in markets that are highly competitive. We compete on the basis of price, quality, service and/or brand name across the industries and markets we serve. Competitive pressures could affect the prices we are able to charge our customers or the demand for our products.
We may not always be able to compete on price, particularly when compared to manufacturers with lower cost structures. Some of our competitors have substantially greater sales, financial and manufacturing resources and may have greater access to capital than Littelfuse. As other companies enter our markets or develop new products, competition may intensify further. Our failure to compete effectively could materially adversely affect our business, financial condition and results of operations.
We may be unable to manufacture and deliver products in a manner that is responsive to our customers’ needs.
The end markets for our products are characterized by technological change, frequent new product introductions and enhancements, changes in customer requirements and emerging industry standards. The introduction of products embodying new technologies and the emergence of new industry standards could render our existing products obsolete and unmarketable before we can recover any or all of our research, development and commercialization expenses on capital investments. Furthermore, the life cycles of our products may change and are difficult to estimate.

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Our future success will depend upon our ability to manufacture and deliver products in a manner that is responsive to our customers’ needs. We will need to develop and introduce new products and product enhancements on a timely basis that keep pace with technological developments and emerging industry standards and address increasingly sophisticated requirements of our customers. We invest heavily in research and development without knowing that we will recover these costs. Our competitors may develop products or technologies that will render our products non-competitive or obsolete. If we cannot develop and market new products or product enhancements in a timely and cost-effective manner, our business, financial condition and results of operations could be materially adversely affected.
Our business may be interrupted by labor disputes or other interruptions of supplies.
A work stoppage could occur at certain of our facilities, most likely as a result of disputes under collective bargaining agreements or in connection with negotiations of new collective bargaining agreements. In addition, we may experience a shortage of supplies for various reasons, such as financial distress, work stoppages, natural disasters or production difficulties that may affect one of our suppliers. A significant work stoppage, or an interruption or shortage of supplies for any reason, if protracted, could substantially adversely affect our business, financial condition and results of operations.
Our revenues may vary significantly from period to period.
Our revenues may vary significantly from one accounting period to another due to a variety of factors including:
    changes in our customers’ buying decisions;
 
    changes in demand for our products;
 
    our product mix;
 
    our effectiveness in managing manufacturing processes;
 
    costs and timing of our component purchases;
 
    the effectiveness of our inventory control;
 
    the degree to which we are able to utilize our available manufacturing capacity;
 
    our ability to meet delivery schedules;
 
    general economic and industry conditions; and
 
    local conditions and events that may affect our production volumes, such as labor conditions and political instability.
The bankruptcy or insolvency of a major customer could adversely affect us.
Certain of our major customers, such as those in the automotive industry and to a lesser extent the electronics industry, are suffering financial hardships due to current economic conditions. The bankruptcy or insolvency of a major customer could result in lower sales revenue and cause a material adverse effect on our business, financial condition and results of operations. In addition, the bankruptcy or insolvency of a major U.S. auto manufacturer or significant supplier likely could lead to substantial disruptions in the automotive supply base, resulting in lower demand for our products, which likely would cause a decrease in sales revenue and have a substantial adverse impact on our business, financial condition and results of operations.

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Our ability to manage currency or commodity price fluctuations or shortages is limited.
As a resource-intensive manufacturing operation, we are exposed to a variety of market and asset risks, including the effects of changes in foreign currency exchange rates, commodity prices and interest rates. We have multiple sources of supply for the majority of our commodity requirements. However, significant shortages that disrupt the supply of raw materials or result in price increases could affect prices we charge our customers, our product costs, and the competitive position of our products and services. We monitor and manage these exposures as an integral part of our overall risk management program, which recognizes the unpredictability of markets and seeks to reduce the potentially adverse effects on our results. Nevertheless, changes in currency exchange rates, commodity prices and interest rates cannot always be predicted. In addition, because of intense price competition and our high level of fixed costs, we may not be able to address such changes even if they are foreseeable. Substantial changes in these rates and prices could have a material adverse effect on our results of operations and financial condition. For additional discussion of interest rate, currency or commodity price risk, see “Item 7A. Quantitative and Qualitative Disclosures about Market Risks.”
Operations and supply sources located outside the United States, particularly in emerging markets, are subject to greater risks.
Our operating activities outside the United States contribute significantly to our revenues and earnings. Serving a global customer base and remaining competitive in the global market place may require that we place more production in countries outside the United States, including emerging markets, to capitalize on market opportunities and maintain a cost-efficient structure. In addition, we source a significant amount of raw materials and other components from third-party suppliers or joint-venture operations in low-cost countries. Our international operating activities are subject to a number of risks generally associated with international operations, including risks relating to the following:
    general economic conditions;
 
    currency fluctuations and exchange restrictions;
 
    import and export duties and restrictions;
 
    the imposition of tariffs and other import or export barriers;
 
    compliance with regulations governing import and export activities;
 
    current and changing regulatory requirements;
 
    political and economic instability;
 
    potentially adverse income tax consequences;
 
    transportation delays and interruptions;
 
    labor unrest;
 
    natural disasters;
 
    terrorist activities;
 
    public health concerns;
 
    difficulties in staffing and managing multi-national operations; and
 
    limitations on our ability to enforce legal rights and remedies.
Any of these factors could have a material adverse effect on our business, financial condition and results of operations.

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We may close, combine, sell or dispose certain subsidiaries, divisions or assets, which may reduce our sales volume and result in restructuring costs.
We are a company that, from time to time, seeks to optimize its manufacturing capabilities and efficiencies through restructurings, consolidations, plant closings or asset sales. We may make further specific determinations to consolidate, close or sell additional facilities. Possible adverse consequences related to such actions may include various charges for such items as idle capacity, disposition costs, severance costs, impairments of goodwill and possibly an immediate loss of revenues, in addition to normal or attendant risks and uncertainties. We may be unsuccessful in any of our current or future efforts to restructure or consolidate our business. Our plans to minimize or eliminate any loss of revenues during restructuring or consolidation may not be achieved. These activities may have a material adverse effect upon our business, financial condition or results of operations.
We engage in acquisitions and may encounter difficulties in integrating these businesses.
We are a company that, from time to time, seeks to grow through strategic acquisitions. We have in the past acquired a number of businesses or companies and additional product lines and assets. We intend to continue to expand and diversify our operations with additional acquisitions. The success of these transactions depends on our ability to integrate the assets and personnel acquired in these acquisitions. We may encounter difficulties in integrating acquisitions with our operations and may not realize the degree or timing of the benefits that we anticipated from an acquisition.
Environmental liabilities could adversely impact our financial position.
Federal, state and local laws and regulations impose various restrictions and controls on the discharge of materials, chemicals and gases used in our manufacturing processes or in our finished goods. These environmental regulations have required us to expend a portion of our resources and capital on relevant compliance programs. Under these laws and regulations, we could be held financially responsible for remedial measures if our current or former properties are contaminated or if we send waste to a landfill or recycling facility that becomes contaminated, even if we did not cause the contamination. We may be subject to additional common law claims if we release substances that damage or harm third parties. In addition, future changes in environmental laws or regulations may require additional investments in capital equipment or the implementation of additional compliance programs. Any failure to comply with new or existing environmental laws or regulations could subject us to significant liabilities and could have material adverse effects on our business, financial condition or results of operations.
In the conduct of our manufacturing operations, we have handled and do handle materials that are considered hazardous, toxic or volatile under federal, state and local laws. The risk of accidental release of such materials cannot be completely eliminated. In addition, we operate or own facilities located on or near real property that was formerly owned and operated by others. Certain of these properties were used in ways that involved hazardous materials. Contaminants may migrate from, within or through these properties. These releases or migrations may give rise to claims. Where third parties are responsible for contamination, the third parties may not have funds, or not make funds available when needed, to pay remediation costs imposed upon us under environmental laws and regulations.

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We derive a substantial portion of our revenues from customers in the automotive, consumer electronics and communications industries, and we are susceptible to trends and factors affecting those industries as well as the success of our customers’ products.
Net sales to the automotive, consumer electronics and communications industries represent a substantial portion of our revenues. Factors negatively affecting these industries and the demand for products also negatively affect our business, financial condition or results of operations. Any adverse occurrence, including industry slowdown, recession, political instability, costly or constraining regulations, armed hostilities, terrorism, excessive inflation, prolonged disruptions in one or more of our customers’ production schedules or labor disturbances, that results in significant decline in the volume of sales in these industries, or in an overall downturn in the business and operations of our customers in these industries, could materially adversely affect our business, financial condition or results of operations. For example, the automotive industry as well as the consumer electronics market is highly cyclical in nature and sensitive to changes in general economic conditions, consumer preferences and interest rates. In addition, the global automotive industry has overall manufacturing capacity far exceeding demand. To the extent that demand for certain of our customers’ products declines, the demand for our products may decline. Reduced demand relating to general economic conditions, consumer preferences, interest rates or industry over-capacity may have a material adverse effect upon our business, financial condition or results of operations.
The inability to maintain access to capital markets may adversely affect our business and financial results.
Our ability to invest in our businesses, make strategic acquisitions and refinance maturing debt obligations may require access to the capital markets and sufficient bank credit lines to support short-term borrowings. If we are unable to access the capital markets or bank credit facilities, we could experience a material adverse affect on our business, financial condition and results of operations.
Fixed costs may reduce operating results if our sales fall below expectations.
Our expense levels are based, in part, on our expectations for future sales. Many of our expenses, particularly those relating to capital equipment and manufacturing overhead, are relatively fixed. We might be unable to reduce spending quickly enough to compensate for reductions in sales. Accordingly, shortfalls in sales could materially and adversely affect our operating results.
The volatility of our stock price could affect the value of an investment in our stock and our future financial position.
The market price of our stock has fluctuated widely. Between December 29, 2007 and December 27, 2008, the closing sale price of our common stock ranged between a low of $11.48 and a high of $39.21, experiencing greater volatility over that time than the broader markets. The volatility of our stock price may be related to any number of factors, such as general economic conditions, industry conditions, analysts’ expectations concerning our results of operations, or the volatility of our revenues as discussed above under “Our Revenues May Vary Significantly from Period to Period.” The historic market price of our common stock may not be indicative of future market prices. We may not be able to sustain or increase the value of our common stock. Declines in the market price of our stock could adversely affect our ability to retain personnel with stock incentives, to acquire businesses or assets in exchange for stock and/or to conduct future financing activities with or involving our common stock.

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ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
ITEM 2. PROPERTIES.
LITTELFUSE FACILITIES
The company’s operations are located in 31 owned or leased facilities worldwide, representing an aggregate of 2,027,095 square feet. The U.S. corporate headquarters and the largest manufacturing facility currently are located in Des Plaines, Illinois. The company plans to close this manufacturing plant in 2009 and relocate its corporate headquarters to Chicago, Illinois. The company also has North American manufacturing facilities in Saskatoon, Canada, Irving, Texas and two plants in Mexico. The European headquarters and primary European distribution center is in the Netherlands, along with a manufacturing plant in Germany. Asia-Pacific operations include sales and distribution centers located in Singapore, Taiwan, Japan, China and Korea, with manufacturing plants in China, Taiwan and the Philippines. The company does not believe that it will encounter any difficulty in renewing its existing leases upon the expiration of their current terms. Management believes that the company’s facilities are adequate to meet its requirements for the foreseeable future.
The following table provides certain information concerning the company’s facilities:
                             
                    Lease    
        Size       Expiration   Primary
Location   Use   (sq. ft.)   Lease/Own   Date   Product
Des Plaines, Illinois
  Administrative, Engineering, Research and Testing     340,000     Owned         Auto, Electronics and Electrical
Chicago, Illinois
  Administrative, Engineering, Research and Testing     54,838     Leased     2024     Auto, Electronics and Electrical
Campbell, California
  Engineering     1,710     Leased     2011     Electronics
Irving, Texas
  Engineering, Manufacturing, Research and Testing     101,000     Leased     2010     Electronics
Brownsville, Texas
  Distribution     21,000     Leased     2009     Electronics
Birmingham, Michigan
  Sales     2,076     Leased     2011     Auto
Matamoros, Mexico
  Manufacturing     85,664     Leased     2010     Electronics
Arcola, Illinois
  Administrative     5,000     Leased     2009     Electrical
Piedras Negras, Mexico
  Administrative / Manufacturing     99,822     Leased     2015     Auto
Piedras Negras, Mexico
  Manufacturing     68,088     Leased     2012     Electrical
Piedras Negras, Mexico
  Manufacturing     164,785     Leased     2009     Auto
Eagle Pass, Texas
  Distribution     7,800     Leased     2011     Auto, Electronics and Electrical

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                    Lease    
        Size       Expiration   Primary
Location   Use   (sq. ft.)   Lease/Own   Date   Product
Swindon, U.K.
  Administrative, Marketing and Sales     5,000     Leased     2012     Electronics
Utrecht, the Netherlands
  Administrative, Distribution and Sales     34,642     Owned         Auto and Electronics
Essen, Germany
  Administrative     8,009     Leased     2011     Electronics and Auto
Essen, Germany
  Leased to third party     2,433     Owned        
Duensen, Germany
  Manufacturing and Sales     43,966     Owned         Auto
Singapore
  Sales and Distribution     8,663     Leased     2009     Electronics
Taipei, Taiwan
  Sales     4,000     Leased     2009     Electronics
Seoul, Korea
  Sales     4,590     Leased     2009     Electronics and Auto
Lipa City, Philippines
  Manufacturing     116,046     Owned         Electronics
Lipa City, Philippines
  Manufacturing     22,733     Leased     2009     Electronics
Dongguan, China
  Manufacturing     264,695     Leased     2013     Electronics
Suzhou, China
  Manufacturing     143,458     Owned         Electronics
Yang-Mei, Taiwan
  Administrative / Manufacturing, Sales, and Distribution     40,080     Owned         Electronics
Wuxi, China
  Manufacturing     220,068     Owned         Electronics
Hong Kong, China
  Sales     6,403     Leased     2009     Electronics
Yokohama, Japan
  Sales     6,726     Leased     2009     Electronics
Sao Paulo, Brazil
  Sales     800     Leased     2009     Electronics and Auto
Dundalk, Ireland
  Manufacturing     120,000     Owned         Electronics and Auto
Saskatoon, Canada
  Manufacturing     23,000     Leased     2009     Electrical
Properties with lease expirations in 2009 renew at various times throughout the year. The company does not anticipate any material impact as a result of such expirations.
ITEM 3. LEGAL PROCEEDINGS.
The company is not a party to any legal proceedings that it believes will have a material adverse effect upon the conduct of its business or its financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to the company’s stockholders during the fourth quarter of fiscal 2008.

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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Shares of the company’s common stock are traded under the symbol “LFUS” on the Nasdaq Global Select Market. As of February 20, 2009, there were 144 holders of record of the company’s common stock.
Stock Performance Graph
The following stock performance graph and related information shall not be deemed “soliciting material” or “filed” with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filings under the Securities Act of 1933 or Securities Act of 1934, each as amended, except to the extent that the company specifically incorporates it by reference into such filing.
The following stock performance graph compares the five-year cumulative total return on Littelfuse common stock to the five-year cumulative total returns on the Russell 2000 Index and the Dow Jones Electrical Components and Equipment Industry Group Index. The company believes that the Russell 2000 Index and the Dow Jones Electrical Components and Equipment Industry Group Index represent a broad market index and peer industry group for total return performance comparison. The stock performance shown on the graph below represents historical stock performance and is not necessarily indicative of future stock price performance.
The Dow Jones Electrical Components and Equipment Industry Group Index includes the common stock of American Superconductor Corp.; Amphenol Corp.; Anaren Microwave, Inc.; Arrow Electronics, Inc.; Avnet, Inc.; AVX Corp.; Benchmark Electronics, Inc.; C&D Technologies, Inc.; Capstone Turbine Corp.; Commscope, Inc.; CTS Corp.; Emerson; Fuelcell Energy, Inc.; General Cable Corp.; Hubbell Inc. Class B; Jabil Circuit, Inc.; KEMET Corp.; Littelfuse, Inc.; Methode Electronics, Inc.; Molex, Inc. and Molex, Inc. Class A; Park Electrochemical Corp.; Plexus Corp.; Plug Power, Inc.; Power-One, Inc.; Powerwave Technologies, Inc.; Regal-Beloit Corp.; Sanmina Corp.; SPX Corp.; Technitrol, Inc.; Thomas & Betts Corp.; Three-Five Systems, Inc.; Valence Technology, Inc.; Vicor Corp.; and Vishay Intertechnology, Inc.
(LINE GRAPH)
In the case of the Russell 2000 Index and the Dow Jones Electrical Components and Equipment Industry Group Index, a $100 investment made on December 31, 2003 and reinvestment of all dividends is assumed. In the case of the company, a $100 investment made on December 31, 2003 is assumed (the company paid no dividends in 2004, 2005, 2006, 2007, or 2008). Returns are at December 31 of each year, with the exception of 2004, 2006, 2007 and 2008 for the company, which are at January 1, 2005, December 30, 2006, December 29, 2007 and December 27, 2008, respectively, which in each case was the last day of the company’s respective fiscal year.
The company has not paid any cash dividends in its history. Future dividend policy will be determined by the Board of Directors based upon its evaluation of earnings, cash availability and general business prospects. Currently, there are restrictions on the payment of dividends contained in the company’s credit agreements that relate to the maintenance of a minimum net worth and certain financial ratios.
The company’s Board of Directors authorized the repurchase of up to 1,000,000 shares of the company’s common stock under a program for the period May 1, 2008 to April 30, 2009. The company did not repurchase any shares of its common stock during the fourth quarter of fiscal 2008.
The table below provides information with respect to the company’s quarterly stock prices during fiscal 2008 and 2007:
                                                                 
    2008   2007
    4Q   3Q   2Q   1Q   4Q   3Q   2Q   1Q
 
High
  $ 31.98     $ 37.55     $ 39.21     $ 34.29     $ 37.28     $ 37.65     $ 44.99     $ 41.45  
Low
    11.48       29.28       32.89       26.90       30.48       31.00       33.69       30.16  
Quarter close
    15.54       33.91       32.89       33.58       33.19       35.69       33.77       40.16  
 
ITEM 6. SELECTED FINANCIAL DATA.
The information presented below provides selected financial data of the company during the past five fiscal years and should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and Notes to Consolidated Financial Statements set forth in Item 7 and Item 8, respectively, for the respective years presented (amounts in thousands, except per share data):
                                         
    2008   2007   2006*   2005*   2004*
 
Net sales
  $ 530,869     $ 536,144     $ 534,859     $ 467,089     $ 476,833  
Gross profit
    143,669       171,537       161,263       144,552       173,797  
Operating income
    8,495       51,309       28,858       26,966       57,003  
Income from continuing operations
    8,016       36,835       23,236       16,582       36,361  
Net income
    8,016       36,835       23,824       17,710       36,028  
Per share of common stock:
                                       
Income from continuing operations
                                       
- Basic
    0.37       1.66       1.04       0.74       1.64  
- Diluted
    0.37       1.64       1.03       0.73       1.61  
Cash and cash equivalents
    70,937       64,943       56,704       21,947       28,583  
Total assets
    538,928       491,365       464,966       403,931       425,769  
Long-term debt, less current portion
    72,000       1,223       1,785             1,364  
 
 
*   Results reflect Efen GmbH as a discontinued operation. Refer to Note 6 of the Notes to Consolidated Financial Statements for more information.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Littelfuse, Inc. and its subsidiaries (“Littelfuse” or the “company”) design, manufacture, and sell circuit protection devices for use in the electronics, automotive and electrical markets throughout the world. The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is designed to provide the reader with information that will assist in understanding the company’s Consolidated Financial Statements, the changes in certain key items in those financial statements from year to year, and the primary factors that accounted for those changes, as well as how certain accounting principles affect the Consolidated Financial Statements. The discussion also provides information about the financial results of the various business segments to provide a better understanding of how those segments and their results affect the financial condition and results of operations of Littelfuse as a whole.
Business Segment Information
Statement of Financial Accounting Standards (“SFAS”) No. 131, “Disclosures about Segments of an Enterprise and Related Information” (“SFAS 131”), establishes annual and interim reporting standards for an enterprise’s operating segments and related disclosures about its products, services, geographic areas and major customers. An operating segment is defined as a component of an enterprise that engages in business activities from which it may earn revenues and incur expenses, and about which separate financial information is regularly evaluated by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources. The CODM, as defined by SFAS 131, is the company’s President and Chief Executive Officer.
The company reports its operations by three business unit segments: Electronics; Automotive; and Electrical. The following table is a summary of the company’s operating segments’ net sales by business unit and geography (in thousands):
                         
    Fiscal Year  
    2008     2007     2006*  
Business Unit
                       
Electronics
  $ 342.5     $ 348.9     $ 365.5  
Automotive
    126.9       135.1       123.6  
Electrical
    61.5       52.1       45.8  
 
                 
Total
  $ 530.9     $ 536.1     $ 534.9  
 
                 
 
                       
Geography**
                       
Americas
  $ 201.8     $ 204.3     $ 216.0  
Europe
    118.6       118.2       111.6  
Asia-Pacific
    210.5       213.6       207.3  
 
                 
Total
  $ 530.9     $ 536.1     $ 534.9  
 
                 
 
*   Amounts exclude Efen GmbH (“Efen”) since the date of the Littelfuse GmbH (formerly known as Heinrich Industries, AG) acquisition.
 
**   Sales are defined based upon shipped to destination.
Business unit segment information is described more fully in Note 15 of the Notes to Consolidated Financial Statements. The following discussion provides an analysis of the information contained in the Consolidated Financial Statements and accompanying notes beginning on page 37 at December 27, 2008 and December 29, 2007, and for the three fiscal years ended December 27, 2008, December 29, 2007 and December 30, 2006.

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Results of Operations — 2008 Compared with 2007
Net sales decreased slightly in the current year to $530.9 million compared to $536.1 million in 2007. These results reflected sales declines in the Automotive segment of $8.2 million or 6% to $126.9 million, along with a decrease in sales in the Electronics segment of $6.4 million or 2% to $342.5 million, largely offset by an increase in sales in the Electrical segment of $9.4 million or 18% to $61.5 million.
The decrease in automotive sales was due primarily to the weakened passenger car market across all geographies, resulting in sharp declines in global car production, particularly in the fourth quarter of 2008, as OEMs took extended plant shutdowns. The negative impact from declines in volume were partially offset by favorable currency effects of $5.0 million, mainly due to the strong the euro, which experienced a higher annual average translation rate of 1.475 in 2008 compared to 1.369 in 2007.
The decrease in electronics sales primarily reflected weaker demand as consumers continued to lose confidence in the economy and cut back on spending, particularly in the fourth quarter of 2008. In addition, many customers in Asia, particularly contract manufacturers and original design manufacturers, had extensive plant shutdowns, and electronics distributors reduced inventories in response to weak demand and the uncertain outlook for 2009. The negative impact from declines in volume were partially offset by net favorable currency effects of $1.8 million, largely due to the strength of the euro and to a lesser extent the yen, partially offset by the negative impact from sales denominated in Korean won, which experienced a drop of more than 13% in the annual average translation rate in 2008 compared to 2007.
The increase in electrical sales was due in part to new OEM business and price increases over the prior year and improvements in the industrial market. In addition, current year sales include $3.9 million from Startco Engineering Ltd. (“Startco”), acquired at the beginning of the fourth quarter of 2008, and $1.3 million from Shock Block Corporation (“Shock Block”), acquired during the first quarter of 2008.
On a geographic basis, sales in the Americas decreased $2.5 million or 1% in 2008 compared to 2007 due to decreased automotive sales of $8.4 million and lower electronics sales of $3.5 million, partially offset by increased electrical sales of $9.4 million. Automotive and electronics sales declined sharply in the fourth quarter of 2008 as economic concerns led to a deterioration in consumer confidence and reduced spending. As a result, the automotive OEMs sharply cut production rates and shut down assembly lines for much of December and electronics distributors reduced inventories. The electrical sales increase was due primarily to price increases over the prior year and sales from newly-acquired companies.
Europe sales remained steady in 2008 compared to 2007, reflecting a modest increase of $0.4 million. Current year results reflected favorable currency effects of $9.6 million offset by lower automotive sales due to a sharp decline in fourth quarter car production, which was down 22% year-over-year, and lower electronics sales due to decreased demand from electronics distributors.
Asia-Pacific sales decreased $3.1 million or 1% in 2008 compared to the prior year mainly due to lower electronics sales, which reflected weakness across all major end markets, from consumer products to IT infrastructure spending for telecom equipment. This decrease was partially offset by higher automotive sales, which reflected continued share gain in the growing Asian markets outside of Japan. Current year results included unfavorable currency translation effects of $3.1 million primarily due to a sharp decline in the Korean won.

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Gross profit was $143.7 million or 27.1% of sales in 2008 compared to $171.5 million or 32.0% of sales in 2007. The decline in gross profit margin percentage in 2008 reflected a $5.7 million non-cash charge related to settlement of the Ireland pension plan, recorded in accordance with SFAS No. 88, “Employer’s Accounting for Settlements and Curtailments of Defined Benefit Pension Plans for Termination Benefits.” The decrease also reflected a $3.2 million charge related to impairment of certain manufacturing assets in China along with higher costs for transportation, materials and utilities driven primarily by the increase in the price of oil and commodity metals for much of 2008. Higher costs related to plant transfer activities also contributed to the margin decline.
The company also recorded approximately $8.8 million of restructuring charges in cost of sales in the current year, primarily due to the closure of the Matamoros, Mexico manufacturing facility, along with severance and retention expense at the Irving, Texas, Des Plaines, Illinois and Swindon, U.K. facilities, compared to $7.6 million of restructuring charges in the prior year primarily related to the closure of the Des Plaines, Illinois manufacturing facility, along with severance and retention expense in Ireland and Germany.
Total operating expense was $135.2 million or 25.5% of net sales for 2008 compared to $120.2 million or 22.4% of net sales for 2007. Fiscal year 2007 included an $8.0 million gain on the sale of property in Ireland. In addition, selling, general and administrative expenses increased $3.9 million to $107.2 million in 2008 from $103.3 million in 2007 due primarily to currency effects. Research and development costs increased $2.4 million to $24.1 million in 2008 compared to $21.7 million in 2007 due to increased spending on new product development for the electronics and automotive markets.
Operating income was $8.5 million or 1.6% of net sales in 2008 compared to $51.3 million or 9.6% of net sales in the prior year. The decrease in operating income in the current year was due primarily to the special charges described above and higher costs due to transfer-related activities and higher commodity prices.
Interest expense increased to $3.4 million in 2008 compared to $1.6 million for 2007 primarily due to a $1.1 million charge to revalue an interest rate swap transaction recorded in accordance with SFAS No. 157, “Fair Value Measurement,” as well as increased costs due to higher long-term debt resulting from the $80 million term loan agreement the company entered into on September 29, 2008. Other income, net, consisting of interest income, royalties, non-operating income and foreign currency items, was $5.6 million in 2008 compared to $1.5 million in the prior year. The increase reflected a net improvement of approximately $3.9 million in foreign currency translation effects (primarily due to the strengthening of the US dollar against the Korean won, Philippine peso and euro) and a $1.1 million credit related to an exemption from Japanese output taxes paid in 2007 that was recovered in 2008, partially offset by a $2.8 million non-cash charge related to marking down the company’s investment in Polytronics Technology Corporation Ltd. (“Polytronics”) to its lower market value, recorded in accordance with SFAS No. 115 “Accounting for Certain Investments in Debt and Equity Securities,” which requires that the value of securities held for resale be marked to market if the loss is deemed “other than temporary.”
Income from continuing operations before income taxes was $10.6 million in 2008 compared to $51.3 million in 2007. Income tax expense was $2.6 million in 2008 compared to $14.5 million in the prior year. The 2008 effective income tax rate was 24.5% compared to 28.2% in 2007. The decrease in the 2008 effective tax rate reflects the mix of income earned in lower tax jurisdictions partially offset by a $1.1 million unfavorable impact from marking down the company’s investment in Polytronics for which no tax benefit is available.

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Results of Operations — 2007 Compared with 2006
Net sales increased slightly in 2007 to $536.1 million compared to $534.9 million in 2006. These results were led by the Automotive segment, which had an increase in sales of $11.5 million or 9% to $135.1 million, along with an increase in sales in the Electrical segment of $6.3 million or 14% to $52.1 million, largely offset by a decrease in sales in the Electronics segment of $16.6 million or 5% to $348.9 million. The increase in automotive sales was due to growth in the off-road truck and bus product lines, new passenger vehicle products and favorable currency effects of $5.6 million, mainly due to the strengthening of the euro. Electrical sales increased primarily due to price increases over the prior year and improvements in the industrial market. The decrease in electronics sales reflected weaker distributor demand in the Americas and Asia-Pacific, partially offset by favorable currency effects of $5.2 million, largely due to the strengthening of the euro.
On a geographic basis, sales in the Americas decreased $11.7 million or 5% in 2007 compared to 2006. Within the Americas, the electronics business declined $19.9 million, reflecting inventory rationalization at distributors and weaker telecom demand. Automotive sales increased $0.9 million due to growth in the off-road truck and bus product lines and new passenger vehicle products. The electrical business increased $6.2 million due to price increases over the prior year and improvements in the industrial market.
Europe sales increased $6.6 million or 6% in 2007 compared to 2006. The increase in European sales was primarily due to increased automotive sales of $8.6 million, partially offset by a $2.0 million decrease in electronics sales. The automotive sales increase reflected favorable currency effects of $5.6 million due to the strengthening euro and growth in both the passenger vehicle and off-road truck and bus product lines. Lower electronics sales were due to decreased demand from electronics distributors, partially offset by favorable currency effects of $4.4 million due to the strengthening euro.
Asia-Pacific sales increased $6.3 million or 3% compared to the prior year. The increase in Asia-Pacific sales was mainly the result of higher electronics sales due to improved demand for digital consumer products. Automotive sales increased by $0.7 million reflecting continued share gain in the growing Asian markets outside of Japan.
Gross profit was $171.5 million or 32.0% of sales in 2007 compared to $161.3 million or 30.2% of sales in 2006. The gross profit margin percentage improvement resulted primarily from lower restructuring charges in 2007 compared to 2006.
Selling, general and administrative expenses decreased $7.3 million to $103.3 million in 2007 from $110.6 million in 2006, primarily due to lower employee bonus expense in 2007 and the recognition of $5.3 million in higher restructuring and asset impairment charges in 2006. As a percentage of net sales, selling, general and administrative expenses decreased to 19.3% in 2007 from 20.7% in 2006. Research and development costs increased $3.0 million to $21.7 million due to increased spending on new product development for the electronics and automotive markets. In 2007, a gain of $8.0 million was recognized on the sale of real estate in Ireland. Total operating expenses, including the gain on Ireland property and intangible amortization, were 22.4% of net sales in 2007, compared to 24.8% of net sales in 2006.
Operating income in 2007 increased 77.8% to $51.3 million or 9.6% of sales compared to $28.9 million or 5.4% of sales in the prior year. The changes in operating income and operating margin were due mainly to lower restructuring charges and decreased bonus expense in 2007 as described above.

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Other income, net, consisting of interest income, royalties, non-operating income and foreign currency items, was $1.5 million in 2007 compared to $2.2 million in the prior year. The decrease was primarily due to foreign currency effects.
Income from continuing operations before income taxes was $51.3 million in 2007 compared to $29.4 million in 2006. Income tax expense was $14.5 million in 2007 compared to $6.2 million in the prior year. The 2007 effective income tax rate was 28.2% compared to 21.0% in 2006. The 2006 effective tax rate reflects certain adjustments including a $1.4 million benefit resulting from a German tax law change and recognition of a $1.8 million benefit related to net operating losses from an acquired group of companies. Income from continuing operations was $36.8 million in 2007 compared to $23.2 million in 2006. In 2006, the company sold the Efen business and accounted for this business as a discontinued operation that reported income, net of taxes, of $0.6 million. Net income in 2007 was $36.8 million compared to $23.8 million in the prior year.
Liquidity and Capital Resources
The company historically has financed capital expenditures through cash flows from operations. Despite the recent adverse changes in market conditions, management expects that cash flows from operations and available lines of credit will be sufficient to support both the company’s operations and its debt obligations for the foreseeable future.
Term Loan
On September 29, 2008, the company entered into a Loan Agreement with various lenders that provides the company with a five-year term loan facility of up to $80.0 million for the purposes of (i) refinancing certain existing indebtedness; (ii) funding working capital needs; and (iii) funding capital expenditures and other lawful corporate purposes, including permitted acquisitions. The Loan Agreement also contains an expansion feature, pursuant to which the company may from time to time request incremental loans in an aggregate principal amount not to exceed $40.0 million. The company had $80.0 million outstanding at December 27, 2008. Further information regarding this arrangement is provided in Note 7 of the Notes to Consolidated Financial Statements included in this report.
The Loan Agreement requires the company to meet certain financial tests, including a consolidated leverage ratio and a consolidated interest coverage ratio. The Loan Agreement also contains additional affirmative and negative covenants which, among other things, impose certain limitations on the company’s ability to merge with other companies, create liens on its property, incur additional indebtedness, enter into transactions with affiliates except on an arm’s length basis, dispose of property, or issue dividends or make distributions. At December 27, 2008, and for the year then ended, the company was in compliance with these covenants. The new Loan Agreement does not impact the existing debt covenants in the revolving credit facility described below.
Revolving Credit Facility
The company has an unsecured domestic financing arrangement consisting of a credit agreement with banks that provides a $75.0 million revolving credit facility, with a potential increase of up to $125.0 million upon request of the company and agreement with the lenders, which expires on July 21, 2011. At December 27, 2008, the company had available $75.0 million of borrowing capacity under the revolving credit facility at an interest rate of LIBOR plus 0.50% (0.97% as of December 27, 2008). The company also had $2.8 million available in letters of credit at December 27, 2008. No amounts were outstanding under these letters of credit at December 27, 2008.

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The domestic bank credit agreement contains covenants that, among other matters, impose limitations on the incurrence of additional indebtedness, future mergers, sales of assets, payment of dividends, and changes in control, as defined in the agreement. In addition, the company is required to satisfy certain financial covenants and tests relating to, among other matters, interest coverage, working capital, leverage and net worth. At December 27, 2008, and for the year then ended, the company was in compliance with these covenants.
Other Obligations
The company has an unsecured bank line of credit in Japan that provides a 700 million yen (an equivalent of $7.8 million at December 27, 2008) revolving credit facility at an interest rate of TIBOR plus 0.625% (1.51% as of December 27, 2008). The revolving line of credit becomes due on July 21, 2011. The company had no outstanding borrowings on the yen facility at December 27, 2008.
The company had an unsecured bank line of credit in Taiwan that provided a 35.0 million Taiwanese dollar revolving credit facility at an interest rate of two-years time deposit plus 0.145%. The revolving line of credit was due on August 18, 2009. The company also had a foreign fixed rate mortgage loan outstanding totaling approximately 32.0 million Taiwanese dollars with maturity dates through August 2013. The company chose to repay the outstanding balances on both debt instruments in June 2008, resulting in uses of cash totaling the equivalent of $1.7 million. As a result, the line of credit was closed on June 28, 2008.
The company started 2008 with $64.9 million of cash. Net cash provided by operating activities in 2008 was approximately $40.6 million in the year and included $8.0 million in net income and $44.8 million in non-cash adjustments (primarily $32.2 million in depreciation and amortization, $6.0 million related to impairment of assets / investments and $5.7 million related to the Ireland pension settlement), partially offset by $12.2 million in changes to operating assets and liabilities. Further information regarding the impairments is provided in Notes 5 and 11, and information regarding the pension settlement is provided in Note 12, of the Notes to Consolidated Financial Statements included in this report.
Changes in various operating assets and liabilities (including short-term and long-term items) that negatively impacted cash flows in 2008 consisted of decreases in accrued payroll and severance ($15.7 million), net decreases in accrued expenses ($6.6 million), increases in inventories ($6.6 million) and increases in prepaid expenses and other current assets ($6.4 million), partially offset by decreases in accounts receivable ($23.1 million). Days sales outstanding in accounts receivable declined to 43 days at year-end 2008, compared to 58 days at year-end 2007 and 60 days at year-end 2006. The improvement in days sales outstanding was due primarily to the decline in sales and corresponding accounts receivable balances during the fourth quarter of 2008 along with a reduction in past-due electronics accounts. Days inventory outstanding was 63 days at year-end 2008, compared to 59 days at year-end 2007 and 67 days at year-end 2006. The increase in days inventory outstanding in 2008 was due primarily to the decline in sales along with a temporary planned increase of inventory balances in anticipation of plant transfers from our Des Plaines, Illinois facility to our Piedras Negras, Mexico manufacturing facility.
Net cash used in investing activities in 2008 was approximately $94.3 million and included $51.3 million in purchases of property, plant and equipment (primarily related to the company’s plant expansion and new facilities in the Asia-Pacific region, along with manufacturing process improvements, new facilities and product introductions in Mexico) and $47.5 million for the acquisition of two businesses (Startco, acquired at the beginning of the fourth quarter of 2008, and Shock Block, acquired during the first quarter of 2008), partially offset by $4.5 million in cash receipts from the sale of two production facilities (one in Eltville, Germany related to the Efen business, which discontinued its operations in 2006, and the other in Arcola, Illinois, which transferred its operations to Mexico). Further information regarding the acquisitions of businesses is provided in Note 2 of the Notes to Consolidated Financial Statements included in this report.

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Net cash provided by financing activities in 2008 was approximately $62.0 million, which included $66.6 million in net proceeds from debt and $1.9 million in cash proceeds from the exercise of stock options, partially offset by $6.6 million in repurchases of the company’s common stock. The net proceeds from debt include $80.0 million in gross proceeds under the company’s term loan discussed above. Further information regarding the company’s debt is provided in Note 7 of the Notes to Consolidated Financial Statements included in this report.
The effect of exchange rate changes decreased cash by $2.3 million in 2008. The net cash provided by operating activities and financing activities, less net cash used in investing plus the effect of exchange rate changes, resulted in a $6.0 million increase in cash and cash equivalents in 2008. This left the company with a cash balance of $70.9 million at the end of 2008.
The ratio of current assets to current liabilities was 3.1 to 1 at year-end 2008, compared to 2.4 to 1 at year-end 2007 and 2.3 to 1 at year-end 2006. The change in the current ratio at the end of the 2008 compared to the prior year reflected decreased current liabilities in 2008, primarily related to lower accrued severance associated with the closure of the Ireland facility and reduced short-term debt due to repayment of all outstanding balances related to the company’s revolving credit facility. The carrying amounts of total debt increased $66.7 million in 2008, compared to a decrease of $12.8 million in 2007 and $2.4 million in 2006, due to the $80 million loan agreement the company executed in 2008. The ratio of long-term debt to equity was 0.2 to 1 at year-end 2008, compared to 0.0 to 1 at year-end 2007 and 0.1 to 1 at year-end 2006. Further information regarding the company’s debt is provided in Note 7 of the Notes to Consolidated Financial Statements included in this report.
The company started 2007 with $56.7 million of cash. Net cash provided by operating activities was $59.9 million in the year. Net cash used in investing activities was $34.8 million and included $40.5 million in purchases of property, plant and equipment and $4.5 million for the acquisition of a business, partially offset by $8.6 million from the sale of real estate in Ireland. Net cash used in financing activities was $22.3 million and included net payments of debt ($12.8 million) and repurchases of the company’s common stock ($16.4 million), partially offset by cash proceeds from the exercise of stock options ($6.3 million) and the excess tax benefit on share-based compensation ($0.6 million). The effect of exchange rate changes increased cash by $5.4 million. The net cash provided by operating activities, less net cash used in financing and investing activities plus the effect of exchange rate changes, resulted in a $8.2 million net increase in cash. This left the company with a cash balance of $64.9 million at the end of 2007.
Net operating assets (including short-term and long-term items) decreased $5.5 million in 2007. The major factors contributing to the change in net operating assets were decreases in inventories, partially offset by decreases in accrued payroll and increases in prepaid expenses and other current assets. Days sales outstanding in accounts receivable decreased to 58 days at year-end 2007 compared to 60 days at year-end 2006. The improvement in days sales outstanding was due primarily to a reduction in past-due electronics accounts. Days inventory outstanding was 59 days at year-end 2007 compared to 67 days at year-end 2006. The improvement in days inventory outstanding was the result of lean manufacturing and logistics initiatives and improved inventory planning.
The ratio of current assets to current liabilities was 2.4 to 1 at year-end 2007, compared to 2.3 to 1 at year-end 2006 and 2.0 to 1 at year-end 2005. The ratio of long-term debt to equity was 0.0 to 1 at year-end 2007 compared to 0.1 to 1 at year-end 2006.

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The company’s capital expenditures were $51.3 million in 2008, $40.5 million in 2007 and $19.6 million in 2006. The company expects capital expenditures in 2009 will be approximately $27.0 million with the largest part related to completing construction of the new wafer fabrication facility in China to support ongoing manufacturing transfers and new product introductions. The company anticipates that cash from operating activities will be above the capital spending plan in 2009 and future capital expenditures will return to the historical average of approximately 5% of sales beginning in 2010.
The company’s Board of Directors has authorized the company to repurchase up to 1 million shares of its common stock, from time to time, depending on market conditions. The company repurchased 218,000 common shares for $6.6 million in 2008, 500,000 common shares for $16.4 million in 2007, and 329,000 common shares for $10.3 million in 2006.
Contractual Obligations
The following table summarizes contractual obligations and commitments as of December 27, 2008:
                                         
(In thousands)   Total   < 1 Year   > 1 - < 3 Years   > 3 - < 5 Years   > 5 Years
 
Term loan
  $ 80,000     $ 8,000     $ 16,000     $ 56,000     $  
Interest payments
    15,957       3,925       7,211       4,821        
Supplemental Executive Retirement Plan
    1,922                         1,922  
Pension plan funding
    1,935       1,935                    
Interest rate swap
    1,056       1,056                    
Zinc swap
    680       680                    
Operating lease payments*
    38,538       6,498       7,859       4,259       19,922  
 
Total
  $ 140,088     $ 22,094     $ 31,070     $ 65,080     $ 21,844  
 
 
*   Included in “Operating lease payments” is future rental expense under a new lease agreement for office space related to the company’s U.S. corporate headquarters, which is being relocated in Chicago, Illinois in the first quarter of 2009. The lease commences January 2009 and expires December 2024. Refer to Note 16 of the Notes to Consolidated Financial Statements for more information.
Off-Balance Sheet Arrangements
As of December 27, 2008, the company did not have any off-balance sheet arrangements, as defined under the U.S. Securities and Exchange Commission rules. Specifically, the company was not liable for guarantees of indebtedness owed by third parties; the company was not directly liable for the debt of any unconsolidated entity, and the company did not have any retained or contingent interest in assets; and the company does not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities. In June 2008 and October 2008, the company entered into derivative financial instruments, as defined by SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”). Further information regarding these arrangements is provided in Note 8 of the Notes to Consolidated Financial Statements included in this report.
Recent Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 establishes a framework for measuring fair value by providing a standard definition of fair value as it applies to assets and liabilities. SFAS 157, which does not require any new fair value measurements, clarifies the application of other accounting pronouncements that require or permit fair value measurements. SFAS 157 must be applied prospectively beginning January 1, 2008. The impact of the adoption of SFAS 157 is more fully described in Note 8 of the Notes to Consolidated Financial Statements included in this report.

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In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an Amendment of FASB Statements No. 87, 88, 106, and 132(R)” (“SFAS 158”). SFAS 158 requires the recognition of the overfunded or underfunded status of a defined benefit postretirement plan as an asset or a liability in the balance sheet, with changes in the funded status recorded through comprehensive income in the year in which those changes occur. The company adopted SFAS 158 at December 30, 2006. The impact of the adoption of SFAS 158 is more fully described in Note 12 of the Notes to Consolidated Financial Statements included in this report.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115” (“SFAS 159”). SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value at specified election dates. SFAS 159 is expected to expand the use of fair value measurement, but does not eliminate disclosure requirements included in other accounting standards, including those in SFAS 157. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The adoption of SFAS 159 did not have a material impact on the company’s Consolidated Financial Statements.
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51” (“SFAS 160”). SFAS 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008, with earlier adoption prohibited. SFAS 160 requires the recognition of a noncontrolling interest (minority interest) as equity in the consolidated financial statements and separate from the parent’s equity. The amount of net earnings attributable to the noncontrolling interest will be included in consolidated net income on the face of the Consolidated Statements of Income. SFAS 160 also amends certain of ARB No. 51’s consolidation procedures for consistency with the requirements of SFAS 141(R) and includes expanded disclosure requirements regarding the interests of the parent and its noncontrolling interest. The company is evaluating the impact of adopting SFAS 160 on its Consolidated Financial Statements.
In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (“SFAS 141(R)”), which replaces SFAS No. 141, “Business Combinations” (“SFAS 141”). SFAS 141(R) retains the underlying concepts of SFAS 141 in that all business combinations are still required to be accounted for at fair value under the acquisition method of accounting, but SFAS 141(R) changed the method of applying the acquisition method in a number of significant aspects. Acquisition costs generally will be expensed as incurred; noncontrolling interests will be valued at fair value at the acquisition date; in-process research and development will be recorded at fair value as an indefinite-lived intangible asset at the acquisition date; restructuring costs associated with a business combination generally will be expensed subsequent to the acquisition date; and changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally will affect income tax expense. SFAS 141(R) is effective on a prospective basis for all business combinations for which the acquisition date is on or after the beginning of the first annual period subsequent to December 15, 2008, with the exception of the accounting for valuation allowances on deferred taxes and acquired tax contingencies. SFAS 141(R) amends SFAS 109, “Accounting for Income Taxes,” such that adjustments made to valuation allowances on deferred taxes and acquired tax contingencies associated with acquisitions that closed prior to the effective date of SFAS 141(R) would also apply the provisions of SFAS 141(R). Early adoption is not permitted. The company is evaluating the impact of adopting SFAS 141(R) on its Consolidated Financial Statements.

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In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“SFAS 161”). The new standard requires enhanced disclosure about a company’s derivatives and hedging to help investors understand their impact on a company’s financial position, financial performance and cash flows. SFAS 161 is effective for periods beginning after November 15, 2008, with early application encouraged. The company is evaluating the impact of adopting SFAS 161 on its Consolidated Financial Statements.
Critical Accounting Policies and Estimates
Certain of the accounting policies as discussed below require the application of significant judgment by management in selecting the appropriate estimates and assumptions for calculating amounts to record in the financial statements. Actual results could differ from those estimates and assumptions, impacting the reported results of operations and financial position. Significant accounting policies are more fully described in the Notes to Consolidated Financial Statements included elsewhere in this Annual Report. Certain accounting policies, however, are considered to be critical in that they are most important to the depiction of the company’s financial condition and results of operations and their application requires management’s subjective judgment in making estimates about the effect of matters that are inherently uncertain. The company believes the following accounting policies are the most critical to aid in fully understanding and evaluating its reported financial results, as they require management’s most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain. The company has reviewed these critical accounting policies and related disclosures with the Audit Committee of its Board of Directors.
Net Sales
Revenue Recognition: The company recognizes revenue on product sales in the period in which the sales process is complete. This generally occurs when products are shipped (FOB origin) to the customer in accordance with the terms of the sale, the risk of loss has been transferred, collectibility is reasonably assured and the pricing is fixed and determinable. At the end of each period, for those shipments where title to the products and the risk of loss and rewards of ownership do not transfer until the product has been received by the customer, the company adjusts revenues and cost of sales for the delay between the time that the products are shipped and when they are received by the customer. The company’s distribution channels are primarily through direct sales and independent third party distributors.
Revenue & Billing: The company accepts orders from customers based on long term purchasing contracts and written sales agreements. Contract pricing and selling agreement terms are based on market factors, costs, and competition. Pricing normally is negotiated as an adjustment (premium or discount) from the company’s published price lists. The customer is invoiced when the company’s products are shipped to them in accordance with the terms of the sales agreement.
Returns & Credits: Some of the terms of the company’s sales agreements and normal business conditions provide customers (distributors) the ability to receive price adjustments on products previously shipped and invoiced. This practice is common in the industry and is referred to as a “ship and debit” program. This program allows the distributor to debit the company for the difference between the distributors’ contracted price and a lower price for specific transactions. Under certain circumstances (usually in a competitive situation or large volume opportunity), a distributor will request authorization to reduce its price to its buyer. If the company approves such a reduction, the distributor is authorized to “debit” its account for the difference between the contracted price and the lower approved price. The company establishes reserves for this program based on historic activity and actual authorizations for the debit and recognizes these debits as a reduction of revenue in accordance with the guidance of FASB’s Emerging Issues Task Force (“EITF”) Issue No. 01-09, paragraph 9 “Accounting for Consideration Given by a Vendor to a Customer.”

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The company has a return to stock policy whereby a customer with previous authorization from Littelfuse management can return previously purchased goods for full or partial credit. The company establishes an estimated allowance for these returns based on historic activity. Sales revenue and cost of sales are reduced to anticipate estimated returns in accordance with SFAS No. 48, “Revenue Recognition When Right of Return Exists” (“SFAS 48”).
The company properly meets all of the criteria of SFAS 48 for recognizing revenue when the right of return exists under Staff Accounting Bulletin 104 (Revenue Recognition). Specifically, the company meets those requirements because:
  1.   The company’s selling price is fixed or determinable at the date of the sale.
 
  2.   The company has policies and procedures to accept only credit worthy customers with the ability to pay the company.
 
  3.   The company’s customers are obligated to pay the company under the contract and the obligation is not contingent on the resale of the product. (All “ship and debit” and “returns to stock” require specific circumstances and authorization.)
 
  4.   The risk ownership transfers to the company’s customers upon shipment and is not changed in the event of theft, physical destruction or damage of the product.
 
  5.   The company bills at the ship date and establishes a reserve to reduce revenue from the in transit time until the product is delivered for FOB destination sales.
 
  6.   The company’s customers acquiring the product for resale have economic substance apart from that provided by Littelfuse. All distributors are independent of the company.
 
  7.   The company does not have any obligations for future performance to bring about resale of the product by its customers.
 
  8.   The company can reasonably estimate the amount of future returns.
Volume Rebates: The company offers incentives to certain customers to achieve specific quarterly or annual sales targets. If customers achieve their sales targets, they are entitled to rebates. The company estimates the future cost of these rebates and recognizes this estimated cost as a reduction to revenue as products are sold.
Allowance for Doubtful Accounts: The company evaluates the collectibility of its trade receivables based on a combination of factors. The company regularly analyzes its significant customer accounts and, when the company becomes aware of a specific customer’s inability to meet its financial obligations, the company records a specific reserve for bad debt to reduce the related receivable to the amount the company reasonably believes is collectible. The company also records allowances for all other customers based on a variety of factors including the length of time the receivables are past due, the financial health of the customer, macroeconomic considerations and past experience. Historically, the allowance for doubtful accounts has been adequate to cover bad debts. If circumstances related to specific customers change, the estimates of the recoverability of receivables could be further adjusted.
Inventory
The company performs regular detailed assessments of inventory, which include a review of, among other factors, demand requirements, product life cycle and development plans, component cost trends, product pricing, shelf life and quality issues. Based on the analysis, the company records adjustments to inventory for excess quantities, obsolescence or impairment when appropriate to reflect inventory at net realizable value. Historically, inventory reserves have been adequate to reflect inventory at net realizable values.

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Goodwill and Other Intangible Assets
The company annually tests goodwill for impairment on the first day of our fiscal fourth quarter as required by SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”), or if there is an event or change in circumstances that indicates the asset may be impaired. Management determined the fair value of each of its business unit segments by using a discounted cash flow model (which includes forecasted five-year income statement and working capital projections, a market-based weighted average cost of capital and terminal values after five years) to estimate market value. The company has defined its reportable segments as its reporting units for goodwill accounting.
As of the most recent annual test conducted on September 28, 2008, the company concluded the fair value of each of the reporting units exceeded its carrying value of invested capital and therefore, no goodwill impairment existed. Specifically, the Company noted that its headroom, defined as the excess of fair value over the carrying value of invested capital, was 51%, 95% and 115% for its electronics, automotive and electrical reporting units, respectively, at September 28, 2008. Certain key assumptions used in the annual test included:
                         
    Electronics   Automotive   Electrical
Discount rate
    14.4 %     14.4 %     14.4 %
Long-term growth rate
    1.5 %     2.5 %     5.0 %
In addition, the company performed a sensitivity test at September 28, 2008 that showed a 100 basis point increase in its discount rate or a 100 basis point decrease in the long-term growth rate for each reporting unit would not have changed the company’s conclusion that no goodwill impairment existed at September 28, 2008.
The goodwill of a reporting unit also must be tested between annual tests if an event occurs or circumstances change that more likely than not reduce the fair value of the reporting unit below its carrying value. As a result of the downturn in the U.S. and global economies, the Littelfuse share price and market capitalization decreased in the fourth quarter. Throughout the fourth quarter, management considered whether there were any indicators that the company’s goodwill was impaired.
The company concluded that no indicators of impairment were present and therefore an additional impairment test during the fourth quarter was determined to not be required. The company’s conclusion was based on its review of its market capitalization throughout the fourth quarter plus a reasonable control premium, when compared to the company’s carrying value of its invested capital. Throughout the fourth quarter, the company’s fair value estimate based on its market capitalization plus a reasonable control premium consistently exceeded its carrying value of invested capital.
The company’s conclusion that no impairment indicator was present also was based on its expectations for fiscal 2009 when compared to the forecast presented in its September 28, 2008 goodwill impairment test. Given the company’s headroom by reporting unit at its September 28, 2008 test date, the company performed a sensitivity test on its September 28, 2008 annual test showing the impact of using the revised 2009 forecasts to determine if an indicator of impairment was present in any of its reporting units. The company concluded that although the value of the entity as a whole and each respective reporting unit had declined from its September 28, 2008 test date, the decline in value did not indicate that any reporting unit’s fair value would have fallen below its carrying value of invested capital.

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The company will continue to perform a goodwill impairment test as required on an annual basis and on an interim basis, if certain conditions exist. Factors the company considers important, which could result in changes to its estimates, include underperformance relative to historical or projected future operating results and declines in acquisitions and trading multiples.
Long-Lived Assets
The company evaluates long-lived assets on an ongoing basis. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the related asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the asset to future undiscounted cash flows expected to be generated by the asset. If the asset is determined to be impaired, the impairment recognized is measured by the amount by which the carrying value of the asset exceeds its fair value. The company’s estimates of future cash flows from such assets could be impacted if it underperforms relative to historical or projected future operating results.
Environmental Liabilities
Environmental liabilities are accrued based on estimates of the probability of potential future environmental exposure. Expenses related to on-going maintenance of environmental sites are expensed as incurred. If actual or estimated probable future losses exceed the company’s recorded liability for such claims, it would record additional charges as other expense during the period in which the actual loss or change in estimate occurred.
Pension and Supplemental Executive Retirement Plan
Littelfuse has a number of company-sponsored defined benefit plans primarily in North America, Europe and the Asia-Pacific region. Historically these plans have been accounted for using SFAS No. 87, “Employers’ Accounting for Pensions” (“SFAS 87”), and the company recognized the net unfunded status of the plan on the balance sheet. The company adopted SFAS 158 effective December 30, 2006, which requires the full unfunded status of the plan to be recognized. Actuarial gains and losses and prior service costs and credits are now recognized as a component of accumulated other comprehensive income. Accounting for pensions requires estimating the future benefit cost and recognizing the cost over the employee’s expected period of employment with the company. Certain assumptions are required in the calculation of pension costs and obligations. These assumptions include the discount rate, salary scales and the expected long-term rate of return on plan assets. The discount rate is intended to represent the rate at which pension benefit obligations could be settled by purchase of an annuity contract. These assumptions are subject to change based on stock and bond market returns and other economic factors. Actual results that differ from the company’s assumptions are accumulated and amortized over future periods and therefore, generally affect its recognized expense and accrued liability in such future periods. While the company believes that its assumptions are appropriate given current economic conditions and its actual experience, significant differences in results or significant changes in the company’s assumptions may materially affect its pension obligations and related future expense. Further information regarding these plans is provided in Note 12 of the Notes to Consolidated Financial Statements included in this report.

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Stock-based Compensation
Stock-based compensation expense is recorded for stock-option grants and performance-based restricted stock awards based upon the fair values of the awards. The fair value of stock option awards is estimated at the grant date using the Black-Scholes option pricing model, which includes assumptions for volatility, expected term, risk-free interest rate and dividend yield. Expected volatility is based on implied volatilities from traded options on Littelfuse stock, historical volatility of Littelfuse stock and other factors. Historical data is used to estimate employee termination experience and the expected term of the options. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. The company has not paid any cash dividends in its history.
The performance-based restricted stock awards granted prior to 2008 vest in thirds over a three-year period (following the three-year performance period), and are paid annually as they vest, one half in the company’s common stock and one half in cash. The performance-based restricted stock awards granted in 2008 vest after a three-year performance period and are paid completely in the company’s common stock at the end of the performance period. The fair value of performance-based restricted stock awards that are paid in common stock is measured at the market price on the grant date, and the fair value of the portion paid in cash is measured at the current market price of a share.
The number of shares issued is based on the company attaining certain financial performance goals relating to return on net tangible assets (“RONTA”) for performance-based restricted stock granted prior to 2008, or return on net assets (“RONA”) for performance-based restricted stock granted in 2008, as well as earnings before interest, taxes, depreciation and amortization (“EBITDA”) during the three-year performance period after the grant date. Stock-based compensation expense for performance-based restricted stock awards is based on the fair values and the company’s current estimate of the probable number of shares to be issued (based on the probable outcome at the end of the performance period). As the company’s estimate of the probable outcome changes in future periods, stock-based compensation expense is adjusted accordingly.
Total stock-based compensation expense was $5.1 million and $5.0 million in 2008 and 2007, respectively. Further information regarding this expense is provided in Note 13 of the Notes to Consolidated Financial Statements included in this report.
Income Taxes
The company accounts for income taxes in accordance with SFAS No. 109 “Accounting for Income Taxes.” Deferred taxes are recognized for the future effects of temporary differences between financial and income tax reporting using tax rates in effect for the years in which the differences are expected to reverse. The company recognizes deferred taxes for temporary differences, operating loss carryforwards and tax credit carryforwards. Deferred tax assets are reduced by a valuation allowance if it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. Federal and state income taxes are provided on the portion of foreign income that is expected to be remitted to the U.S. and be taxable.

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In June 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109, Accounting for Income Taxes” (“FIN 48”). FIN 48 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under FIN 48, the company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. FIN 48 also provides guidance on derecognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures.
The company adopted the provisions of FIN 48 on December 31, 2006 and had no adjustments to the retained earnings balance as a result of the implementation. Further information regarding income taxes and the company’s adoption of FIN 48, including a detailed reconciliation of current year activity, is provided in Note 14 of the Notes to Consolidated Financial Statements included in this report.
Outlook
The company’s automotive and electronics markets weakened significantly in the fourth quarter of 2008 as a result of the sharp downturn in the global economy. The company believes this weakness could continue through much of 2009. The electrical business, which held up well through most of 2008, has slowed recently and could be further impacted by declining non-residential construction in 2009.
In 2005 the company initiated a phased transition to consolidate its manufacturing into fewer facilities in low-cost locations in China, the Philippines and Mexico. These manufacturing transfer programs remain on or ahead of schedule and are expected to generate at least $20 million in cost savings in 2009 and significant additional savings in 2010.
In addition, the company recently began executing a plan which for 2009 is expected to reduce operating expenses by approximately $15 million and manufacturing costs by approximately $8 million over and above the $20 million in transfer-related savings. These cost savings are expected to significantly reduce the company’s breakeven point by the second quarter of 2009 and are expected to position the company for much-improved profitability when the global economy recovers.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The company is exposed to market risk from changes in interest rates, foreign exchange rates and commodities.
Interest Rates
The company had $80 million in debt outstanding at December 27, 2008, in the form of a term loan, which is described above in Item 7 under Liquidity and Capital Resources. In order to reduce interest rate risk and effectively manage its exposure to fluctuations in the adjustable interest rate of the loan, the company entered into a one-year interest rate swap transaction with JPMorgan Chase Bank, N.A. on October 29, 2008. The interest rate swap is for a notional amount of $65 million and allows the company to pay a fixed annual rate of 2.85% on the notional amount and requires JPMorgan Chase Bank, N.A. to pay a floating rate tied to the one-month U.S. dollar LIBOR. While the remaining portion of this debt has a variable interest rate, the company’s interest expense is not materially sensitive to changes in interest rate levels since debt levels and potential interest expense increases are insignificant relative to earnings.

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Foreign Exchange Rates
The majority of the company’s operations consist of manufacturing and sales activities in foreign countries. The company has manufacturing facilities in Mexico, Canada, Germany, China, Taiwan and the Philippines. During 2008, sales to customers outside the U.S. were 62.0% of total net sales. Substantially all sales in Europe are denominated in euros and substantially all sales in the Asia-Pacific region are denominated in U.S. dollars, Japanese yen, South Korean won, Chinese yuan and Taiwanese dollars.
The company’s foreign exchange exposures result primarily from sale of products in foreign currencies, foreign currency denominated purchases, employee-related and other costs of running operations in foreign countries and translation of balance sheet accounts denominated in foreign currencies. The company’s most significant long exposure is to the euro, with lesser long exposures to the Canadian dollar, Japanese yen and Korean won. The company’s most significant short exposures are to the Mexican peso, Philippine peso and Chinese yuan. Changes in foreign exchange rates could affect the company’s sales, costs, balance sheet values and earnings. The company uses netting and offsetting intercompany account management techniques to reduce known foreign currency exposures where possible and also, from time to time, utilizes derivative instruments to hedge certain foreign currency exposures deemed to be material.
Commodities
The company uses various metals in the manufacturing of its products, including copper, zinc, tin, gold and silver. Prices of these commodities can and do fluctuate significantly, which can impact the company’s earnings. The most significant of these exposures is to copper, where at current prices and volumes, a 10% price change would affect pre-tax profit by approximately $0.6 million. During the second quarter of 2008, the company entered into a one-year swap agreement to mitigate its exposure to fluctuations in the price of zinc. Further information regarding this commodity contract is provided in Note 8 of the Notes to Consolidated Financial Statements.
The company purchases a particular type of silicon as a raw material for many of its semiconductor products. Market demand for this commodity has fluctuated significantly during 2008. As a result, there is a risk of market shortages for silicon in 2009. The company is taking actions to secure adequate sources of supply to meet its expected future demand for this material.
The cost of oil has fluctuated dramatically during 2008. Consequently, there is a risk that a return to high prices for oil and electricity in 2009 could have a significant impact on the company’s transportation and utility expenses.
While the company is exposed to significant changes in certain commodity prices and foreign currency exchange rates, the company actively monitors these exposures and takes various actions to mitigate any negative impacts of these exposures.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
     
Index   Page
  35
  36
  37
  38
  39
  40
  41
  48
  50
  50
  51
  52
  52
  54
  56
  59
  59
  59
  63
  65
  68
  70
  70
  71
  71

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of Littelfuse, Inc.
We have audited the accompanying consolidated balance sheets of Littelfuse, Inc. and subsidiaries (Company) as of December 27, 2008, and December 29, 2007, and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the three years in the period ended December 27, 2008. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Littelfuse, Inc. and subsidiaries at December 27, 2008 and December 29, 2007, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 27, 2008, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Littelfuse Inc. and subsidiaries’ internal control over financial reporting as of December 27, 2008, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 25, 2009, expressed an unqualified opinion thereon.
/s/ ERNST & YOUNG LLP
Chicago, Illinois
February 25, 2009

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of Littelfuse, Inc.
We have audited Littelfuse, Inc.’s internal control over financial reporting as of December 27, 2008, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Littelfuse, Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Form 10-K. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Littelfuse, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 27, 2008, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Littelfuse, Inc. and subsidiaries as of December 27, 2008, and December 29, 2007, and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the three years in the period ended December 27, 2008, and our report dated February 25, 2009 expressed an unqualified opinion thereon.
/s/ ERNST & YOUNG LLP
Chicago, Illinois
February 25, 2009

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CONSOLIDATED BALANCE SHEETS
                 
(In thousands of USD)   December 27, 2008   December 29, 2007
 
ASSETS
               
Current assets:
               
Cash and cash equivalents
  $ 70,937     $ 64,943  
Accounts receivable, less allowances
(2008 — $12,770; 2007 — $12,997)
    62,126       85,607  
Inventories
    66,679       58,845  
Deferred income taxes
    11,693       10,986  
Prepaid expenses and other current assets
    17,968       14,789  
 
Total current assets
    229,403       235,170  
Property, plant, and equipment:
               
Land
    11,089       12,573  
Buildings
    68,165       49,321  
Equipment
    301,835       282,416  
Accumulated depreciation
    (220,939 )     (199,748 )
 
Net property, plant and equipment
    160,150       144,562  
Intangible assets, net of amortization:
               
Patents, licenses and software
    8,077       9,231  
Distribution network
    11,577       13,823  
Customer lists, trademarks and tradenames
    2,954       1,192  
Goodwill
    106,961       73,462  
Investments
    3,436       6,544  
Deferred income taxes
    15,235       6,141  
Other assets
    1,135       1,240  
 
Total assets
  $ 538,928     $ 491,365  
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
Current liabilities:
               
Accounts payable
  $ 18,854     $ 27,889  
Accrued payroll
    17,863       19,441  
Accrued expenses
    17,220       11,595  
Accrued severance
    8,393       21,092  
Accrued income taxes
    2,570       4,484  
Current portion of long-term debt
    8,000       12,086  
 
Total current liabilities
    72,900       96,587  
Long-term debt, less current portion
    72,000       1,223  
Accrued severance
    7,200       8,912  
Accrued post-retirement benefits
    41,637       18,371  
Other long-term liabilities
    11,483       12,858  
Shareholders’ equity:
               
Preferred stock, par value $0.01 per share: 1,000,000 shares authorized; no shares issued and outstanding
           
Common stock, par value $0.01 per share: 34,000,000 shares authorized; shares issued and outstanding, 2008 — 21,719,734; 2007 — 21,869,824
    217       219  
Additional paid-in capital
    124,384       118,765  
Notes receivable from officers — common stock
          (5 )
Accumulated other comprehensive income (loss)
    (10,123 )     17,361  
Retained earnings
    219,230       217,074  
 
Total shareholders’ equity
    333,708       353,414  
 
Total liabilities and shareholders’ equity
  $ 538,928     $ 491,365  
 
See accompanying notes.

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CONSOLIDATED STATEMENTS OF INCOME
                         
    Year Ended
(In thousands of USD, except per share amounts)   December 27, 2008     December 29, 2007     December 30, 2006  
 
 
                       
Net sales
  $ 530,869     $ 536,144     $ 534,859  
Cost of sales
    387,200       364,607       373,596  
 
Gross profit
    143,669       171,537       161,263  
 
                       
Selling, general and administrative expenses
    107,239       103,258       110,581  
Research and development expenses
    24,069       21,700       18,708  
Gain on sale of Ireland property
          (8,037 )      
Amortization of intangibles
    3,866       3,307       3,116  
 
Operating income
    8,495       51,309       28,858  
 
                       
Interest expense
    3,440       1,557       1,626  
Other expense (income), net
    (5,568 )     (1,536 )     (2,174 )
 
Income from continuing operations before income taxes
    10,623       51,288       29,406  
Income taxes
    2,607       14,453       6,170  
 
Income from continuing operations
    8,016       36,835       23,236  
Discontinued operations (net of tax expense of $409)
                588  
 
Net income
  $ 8,016     $ 36,835     $ 23,824  
 
 
                       
Income per share:
                       
Basic:
                       
Continuing operations
  $ 0.37     $ 1.66     $ 1.04  
Discontinued operations
                0.03  
 
                 
Net income
  $ 0.37     $ 1.66     $ 1.07  
 
                 
Diluted:
                       
Continuing operations
  $ 0.37     $ 1.64     $ 1.03  
Discontinued operations
                0.03  
 
                 
Net income
  $ 0.37     $ 1.64     $ 1.06  
 
                 
 
                       
Weighted-average shares and equivalent shares outstanding:
                       
Basic
    21,722       22,231       22,305  
Diluted
    21,826       22,394       22,434  
 
See accompanying notes.

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CONSOLIDATED STATEMENTS OF CASH FLOWS
                         
    Year Ended
(In thousands of USD)   December 27, 2008   December 29, 2007   December 30, 2006
 
OPERATING ACTIVITIES
                       
Net income
  $ 8,016     $ 36,835     $ 23,824  
Adjustments to reconcile net income to net cash provided by operating activities:
                       
Depreciation
    28,333       25,429       25,375  
Impairment of assets
    3,169       767       4,374  
Impairment of investments
    2,787              
Amortization of intangibles
    3,866       3,307       3,116  
Provision for bad debts
    286       31       127  
Gain on sale of property, plant and equipment
    (511 )     (8,037 )      
Stock-based compensation
    5,058       4,957       5,187  
Deferred income taxes
    (3,947 )     2,151       (8,341 )
Pension settlement expenses (curtailment gains)
    5,725       1,506       (322 )
Changes in operating assets and liabilities:
                       
Accounts receivable
    23,080       (280 )     2,843  
Inventories
    (6,593 )     9,112       1,240  
Accounts payable and accrued expenses
    (3,129 )     (5,307 )     (10,329 )
Accrued payroll and severance
    (15,705 )     (3,046 )     30,620  
Accrued income taxes
    (3,462 )     (3,071 )     1,850  
Prepaid expenses and other
    (6,398 )     (4,414 )     1,351  
 
Net cash provided by operating activities
    40,575       59,940       80,915  
 
                       
INVESTING ACTIVITIES
                       
Purchases of property, plant and equipment
    (51,288 )     (40,501 )     (19,613 )
Purchase of businesses, net of cash acquired
    (47,465 )     (4,507 )     (37,841 )
Sale of business and property, plant and equipment
    4,479             14,901  
Sale of Ireland property
          8,593        
Deposit on sale of building
          1,607        
 
Net cash used in investing activities
    (94,274 )     (34,808 )     (42,553 )
 
                       
FINANCING ACTIVITIES
                       
Proceeds from debt
    190,500       89,200       43,273  
Payments of debt
    (123,912 )     (101,991 )     (45,626 )
Proceeds from exercise of stock options
    1,857       6,316       5,734  
Notes receivable, common stock
    5       5       7  
Purchases of common stock
    (6,623 )     (16,433 )     (10,262 )
Excess tax benefit on share-based compensation
    172       610       468  
 
Net cash provided by (used in) financing activities
    61,999       (22,293 )     (6,406 )
Effect of exchange rate changes on cash
    (2,306 )     5,400       2,801  
 
Increase in cash and cash equivalents
    5,994       8,239       34,757  
Cash and cash equivalents at beginning of year
    64,943       56,704       21,947  
 
Cash and cash equivalents at end of year
  $ 70,937     $ 64,943     $ 56,704  
 
See accompanying notes.

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CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
                                                 
                    Notes   Accum.        
                    Rec.   Other        
    Common   Addl. Paid   Common   Comp. Inc.   Retained    
(In thousands of USD)   Stock   in Capital   Stock   (Loss)   Earnings   Total
 
Balance at January 1, 2006
  $ 222     $ 99,078     $ (17 )   $ (2,426 )   $ 180,209     $ 277,066  
Comprehensive income:
                                               
Net income for the year
                            23,824       23,824  
Min. pension liability adj.*
                      1,546             1,546  
Unrealized gain on invest.*
                      (467 )           (467 )
Foreign currency trans. adj.
                      9,025             9,025  
 
Comprehensive income
                                            33,928  
Payments on notes receivable
                7                   7  
Adoption of SFAS 158*
                      (7,689 )           (7,689 )
Stock-based comp. — SFAS 123(R)
          5,187                         5,187  
Purchase of 329,000 shares of common stock
    (3 )     (1,148 )                 (9,111 )     (10,262 )
Stock options exercised, including tax impact of $779
    2       5,426                         5,428  
 
Balance at December 30, 2006
  $ 221     $ 108,543     $ (10 )   $ (11 )   $ 194,922     $ 303,665  
Comprehensive income:
                                               
Net income for the year
                            36,835       36,835  
Min. pension liability adj.*
                      4,123             4,123  
Unrealized gain on invest.*
                      668             668  
Foreign currency trans. adj.
                      12,581             12,581  
 
Comprehensive income
                                            54,207  
Payments on notes receivable
                5                   5  
Stock-based comp. — SFAS 123(R)
          4,957                         4,957  
Purchase of 500,000 shares of common stock
    (5 )     (1,745 )                 (14,683 )     (16,433 )
Stock options exercised, including tax impact of $728
    3       7,010                         7,013  
 
Balance at December 29, 2007
  $ 219     $ 118,765     $ (5 )   $ 17,361     $ 217,074     $ 353,414  
Comprehensive income (loss):
                                               
Net income for the year
                            8,016       8,016  
Change in net unrealized gain on derivatives*
                      (403 )           (403 )
Min. pension liability adj.*
                      (11,653 )           (11,653 )
Unrealized loss on invest.*
                      (2,892 )           (2,892 )
Transfer of investment loss to income*
                      2,787             2,787  
Foreign currency trans. adj.
                      (15,323 )           (15,323 )
 
Comprehensive income (loss)
                                            (19,468 )
Payments on notes receivable
                5                   5  
Stock-based comp. — SFAS 123(R)
          5,058                         5,058  
Purchase of 218,000 shares of common stock
    (2 )     (761 )                 (5,860 )     (6,623 )
Stock options exercised, including tax impact of ($361)
          1,322                         1,322  
 
Balance at December 27, 2008
  $ 217     $ 124,384     $     $ (10,123 )   $ 219,230     $ 333,708  
 
*   Including related tax impact.
See accompanying notes.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies and Other Information
Nature of Operations: Littelfuse, Inc. and its subsidiaries (the “company”) design, manufacture, and sell circuit protection devices for use in the automotive, electronic and electrical markets throughout the world.
Fiscal Year: The company’s fiscal years ended December 27, 2008, December 29, 2007, and December 30, 2006 and contained 52 weeks each.
Basis of Presentation: The Consolidated Financial Statements include the accounts of Littelfuse, Inc. and its subsidiaries. All significant intercompany accounts and transactions have been eliminated. The company’s Consolidated Financial Statements were prepared in accordance with generally accepted accounting principles in the United States of America and include the assets, liabilities, revenues and expenses of all wholly-owned subsidiaries and majority-owned subsidiaries over which the company exercises control.
Use of Estimates: The process of preparing financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts of assets and liabilities at the date of the Consolidated Financial Statements, and the reported amounts of revenues and expenses and the accompanying notes. The company evaluates and updates its assumptions and estimates on an ongoing basis and may employ outside experts to assist in its evaluation, as considered necessary. Actual results could differ from those estimates.
Cash Equivalents: All highly liquid investments, with a maturity of three months or less when purchased, are considered to be cash equivalents.
Investments: The company has determined that all of its investment securities are to be classified as available-for-sale. Available-for-sale securities are carried at fair value with the unrealized gains and losses reported in “Shareholders’ Equity” as a component of “Accumulated Other Comprehensive Income (Loss).” Realized gains and losses and declines in unrealized value judged to be other-than-temporary on available-for-sale securities are included in other expense (income), net. The cost of securities sold is based on the specific identification method. Interest and dividends on securities classified as available-for-sale are included in interest income.
Fair Value of Financial Instruments: The company’s financial instruments include cash and cash equivalents, accounts receivable, investments, derivative instruments and long-term debt. The carrying values of such financial instruments approximate their estimated fair values.
Accounts Receivable: The company performs credit evaluations of customers’ financial condition and generally does not require collateral. Credit losses are provided for in the financial statements based upon specific knowledge of a customer’s inability to meet its financial obligations to the company. Historically, credit losses have consistently been within management’s expectations and have not been a material amount. A receivable is considered past due if payments have not been received within agreed upon invoice terms. Write-offs are recorded at the time a customer receivable is deemed uncollectible.
The company also maintains allowances against accounts receivable for the settlement of rebates and sales discounts to customers. These allowances are based upon specific customer sales and sales discounts as well as actual historical experience.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies and Other Information, continued
Inventories: Inventories are stated at the lower of cost or market (first in, first out method), which approximates current replacement cost. The company maintains excess and obsolete allowances against inventory to reduce the carrying value to the expected net realizable value. These allowances are based upon a combination of factors including historical sales volume, market conditions, lower of cost or market analysis and expected realizable value of the inventory.
Property, Plant and Equipment: Land, buildings, and equipment are carried at cost. Depreciation is calculated using the straight-line method with useful lives of 21 years for buildings, seven to nine years for equipment, seven years for furniture and fixtures, five years for tooling and three years for computer equipment.
Goodwill: The company annually tests goodwill for impairment on the first day of our fiscal fourth quarter as required by SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”), or if there is an event or change in circumstances that indicates the asset may be impaired. Management determined the fair value of each of its business unit segments by using a discounted cash flow model (which includes forecasted five-year income statement and working capital projections, a market-based weighted average cost of capital and terminal values after five years) to estimate market value. The company has defined its reportable segments as its reporting units for goodwill accounting.
As of the most recent annual test conducted on September 28, 2008, the company concluded the fair value of each of the reporting units exceeded its carrying value of invested capital and therefore, no goodwill impairment existed. Specifically, the Company noted that its headroom, defined as the excess of fair value over the carrying value of invested capital, was 51%, 95% and 115% for its electronics, automotive and electrical reporting units, respectively, at September 28, 2008. Certain key assumptions used in the annual test included:
             
    Electronics   Automotive   Electrical
Discount rate
  14.4%   14.4%   14.4%
Long-term growth rate
    1.5%     2.5%     5.0%
In addition, the company performed a sensitivity test at September 28, 2008 that showed a 100 basis point increase in its discount rate or a 100 basis point decrease in the long-term growth rate for each reporting unit would not have changed the company’s conclusion that no goodwill impairment existed at September 28, 2008.
The goodwill of a reporting unit also must be tested between annual tests if an event occurs or circumstances change that more likely than not reduce the fair value of the reporting unit below its carrying value. As a result of the downturn in the U.S. and global economies, the Littelfuse share price and market capitalization decreased in the fourth quarter. Throughout the fourth quarter, management considered whether there were any indicators that the company’s goodwill was impaired.
The company concluded that no indicators of impairment were present and therefore an additional impairment test during the fourth quarter was determined to not be required. The company’s conclusion was based on its review of its market capitalization throughout the fourth quarter plus a reasonable control premium, when compared to the company’s carrying value of its invested capital. Throughout the fourth quarter, the company’s fair value estimate based on its market capitalization plus a reasonable control premium consistently exceeded its carrying value of invested capital.

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1. Summary of Significant Accounting Policies and Other Information, continued
The company’s conclusion that no impairment indicator was present also was based on its expectations for fiscal 2009 when compared to the forecast presented in its September 28, 2008 goodwill impairment test. Given the company’s headroom by reporting unit at its September 28, 2008 test date, the company performed a sensitivity test on its September 28, 2008 annual test showing the impact of using the revised 2009 forecasts to determine if an indicator of impairment was present in any of its reporting units. The company concluded that although the value of the entity as a whole and each respective reporting unit had declined from its September 28, 2008 test date, the decline in value did not indicate that any reporting unit’s fair value would have fallen below its carrying value of invested capital.
The company will continue to perform a goodwill impairment test as required on an annual basis and on an interim basis, if certain conditions exist. Factors the company considers important, which could result in changes to its estimates, include underperformance relative to historical or projected future operating results and declines in acquisitions and trading multiples. Due to the diverse end user base and non-discretionary product demand, the company does not believe its future operating results will vary significantly relative to its historical and projected future operating results.
Other Intangible Assets: Trademarks and tradenames are amortized using the straight-line method over estimated useful lives that have a range of five to 20 years. Patents and licenses are amortized using the straight-line method or an accelerated method over estimated useful lives that have a range of four to 50 years. The distribution networks are amortized on either a straight-line or accelerated basis over estimated useful lives that have a range of four to 20 years. Other intangible assets are also tested for impairment when there is a significant event that may cause the asset to be impaired.
Environmental Liabilities: Environmental liabilities are accrued based on engineering studies estimating the cost of remediating sites. Expenses related to on-going maintenance of environmental sites are expensed as incurred. If actual or estimated probable future losses exceed the company’s recorded liability for such claims, the company would record additional charges during the period in which the actual loss or change in estimate occurred.
Pension and Other Post-retirement Benefits: Accounting for pensions requires estimating the future benefit cost and recognizing the cost over the employee’s expected period of employment with the company. Certain assumptions are required in the calculation of pension costs and obligations. These assumptions include the discount rate, salary scales and the expected long-term rate of return on plan assets. The discount rate is intended to represent the rate at which pension benefit obligations could be settled by purchase of an annuity contract. These assumptions are subject to change based on stock and bond market returns and other economic factors. Actual results that differ from the company’s assumptions are accumulated and amortized over future periods and therefore generally affect its recognized expense and accrued liability in such future periods. While the company believes that its assumptions are appropriate given current economic conditions and its actual experience, significant differences in results or significant changes in the company’s assumptions may materially affect its pension obligations and related future expense.

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1. Summary of Significant Accounting Policies and Other Information, continued
In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an Amendment of FASB Statements No. 87, 88, 106, and 132(R)” (“SFAS 158”). SFAS 158 requires the recognition of the overfunded or underfunded status of a defined benefit postretirement plan as an asset or a liability in the balance sheet, with changes in the funded status recorded through comprehensive income in the year in which those changes occur. The company adopted SFAS 158 on December 30, 2006. The impact of the adoption of SFAS 158 is more fully described in Note 12 of the Notes to Consolidated Financial Statements.
Reclassifications: Certain items in the 2007 and 2006 financial statements have been reclassified to conform to the 2008 presentation.
Revenue Recognition: The company recognizes revenue on product sales in the period in which the sales process is complete. This generally occurs when products are shipped (FOB origin) to the customer in accordance with the terms of the sale, the risk of loss has been transferred, collectibility is reasonably assured and the pricing is fixed and determinable. At the end of each period, for those shipments where title to the products and the risk of loss and rewards of ownership do not transfer until the product has been received by the customer, the company adjusts revenues and cost of sales for the delay between the time that the products are shipped and when they are received by the customer. The company’s distribution channels are primarily through direct sales and independent third party distributors.
Revenue & Billing: The company accepts orders from customers based on long term purchasing contracts and written sales agreements. Contract pricing and selling agreement terms are based on market factors, costs, and competition. Pricing normally is negotiated as an adjustment (premium or discount) from the company’s published price lists. The customer is invoiced when the company’s products are shipped to them in accordance with the terms of the sales agreement.
Returns & Credits: Some of the terms of the company’s sales agreements and normal business conditions provide customers (distributors) the ability to receive price adjustments on products previously shipped and invoiced. This practice is common in the industry and is referred to as a “ship and debit” program. This program allows the distributor to debit the company for the difference between the distributors’ contracted price and a lower price for specific transactions. Under certain circumstances (usually in a competitive situation or large volume opportunity), a distributor will request authorization to reduce its price to its buyer. If the company approves such a reduction, the distributor is authorized to “debit” its account for the difference between the contracted price and the lower approved price. The company establishes reserves for this program based on historic activity and actual authorizations for the debit and recognizes these debits as a reduction of revenue in accordance with the guidance in Emerging Issues Task Force (“EITF”) Issue No. 01-09, paragraph 9 “Accounting for Consideration Given by a Vendor to a Customer.”
The company has a return to stock policy whereby a customer with prior authorization from Littelfuse management can return previously purchased goods for full or partial credit. The company establishes an estimated allowance for these returns based on historic activity. Sales revenue and cost of sales are reduced to anticipate estimated returns in accordance with SFAS No. 48, “Revenue Recognition When Right of Return Exists” (“SFAS 48”).

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1. Summary of Significant Accounting Policies and Other Information, continued
The company properly meets all of the criteria of SFAS 48 for recognizing revenue when the right of return exists under Staff Accounting Bulletin (“SAB”) No. 104 (Revenue Recognition). Specifically, the company meets those requirements because:
  1.   The company’s selling price is fixed or determinable at the date of the sale.
 
  2.   The company has policies and procedures to accept only credit worthy customers with the ability to pay the company.
 
  3.   The company’s customers are obligated to pay the company under the contract and the obligation is not contingent on the resale of the product. (All “ship and debit” and “returns to stock” require specific circumstances and authorization.)
 
  4.   The risk ownership transfers to the company’s customers upon shipment and is not changed in the event of theft, physical destruction or damage of the product.
 
  5.   The company bills at the ship date and establishes a reserve to reduce revenue from the in transit time until the product is delivered for FOB destination sales.
 
  6.   The company’s customers acquiring the product for resale have economic substance apart from that provided by Littelfuse, and all distributors are independent of the company.
 
  7.   The company does not have any obligations for future performance to bring about resale of the product by its customers.
 
  8.   The company can reasonably estimate the amount of future returns.
Volume Rebates: The company offers incentives to certain customers to achieve specific quarterly or annual sales targets. If customers achieve their sales targets, they are entitled to rebates. The company estimates the future cost of these rebates and recognizes this estimated cost as a reduction to revenue as products are sold.
Allowance for Doubtful Accounts: The company evaluates the collectibility of its trade receivables based on a combination of factors. The company regularly analyzes its significant customer accounts and, when the company becomes aware of a specific customer’s inability to meet its financial obligations, the company records a specific reserve for bad debt to reduce the related receivable to the amount the company reasonably believes is collectible. The company also records allowances for all other customers based on a variety of factors including the length of time the receivables are past due, the financial health of the customer, macroeconomic considerations and past experience. Historically, the allowance for doubtful accounts has been adequate to cover bad debts. If circumstances related to specific customers change, the estimates of the recoverability of receivables could be further adjusted. However, due to the company’s diverse customer base and lack of credit concentration, the company does not believe its estimates would be materially impacted by changes in its assumptions.
Advertising Costs: The company expenses advertising costs as incurred, which amounted to $2.3 million in 2008, $1.8 million in 2007, and $1.5 million in 2006, and are included as a component of selling, general and administrative expenses.
Shipping and Handling Fees and Costs: Amounts billed to customers related to shipping and handling are classified as revenue. Costs incurred for shipping and handling of $6.5 million, $5.7 million, and $5.7 million in 2008, 2007, and 2006, respectively, are classified in selling, general and administrative expenses.

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1. Summary of Significant Accounting Policies and Other Information, continued
Restructuring Costs: The company incurred severance charges and plant closure expenses as part of the company’s on-going cost reduction efforts. These charges are included in cost of sales, selling, general and administrative expenses, or research and development expenses depending on the personnel being included in the charge. See Note 9 for additional information on restructuring costs.
Foreign Currency Translation: The company’s foreign subsidiaries use the local currency or the U.S. dollar as their functional currency, as appropriate. Assets and liabilities are translated using exchange rates at the balance sheet date, and revenues and expenses are translated at weighted average rates. The amount of foreign currency conversion gain recognized in the income statement related to currency translation was $2.3 million, $2.9 million, and $2.1 million in 2008, 2007, and 2006, respectively and is included as a component of other expense (income), net. Adjustments from the translation process are recognized in “Shareholders’ Equity” as a component of “Accumulated Other Comprehensive Income (Loss).”
Stock-based Compensation: In December 2004, the FASB issued SFAS No. 123(R), “Share-Based Payment” (“SFAS 123(R)”). SFAS 123(R) requires public companies to recognize compensation expense for the cost of awards of equity compensation using a fair value method. The company adopted SFAS 123(R) on January 1, 2006 (i.e., the first quarter of 2006) using the modified prospective method. The company made the one-time election to adopt the transition method described in FASB Staff Position (“FSP”) No. FAS 123(R)-3, “Transition Election Related to Accounting for the Tax Effect of Share-Based Payment Awards.” Under SFAS 123(R), benefits of tax deductions in excess of recognized compensation expense are now reported as a financing cash flow, rather than an operating cash flow as prescribed under the prior accounting rules. Prior to January 1, 2006, the company applied Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) to account for its stock-based compensation plans. Under APB 25, no compensation expense was recognized for non-qualified stock option awards as long as the exercise price of the awards on the date of grant was equal to the then current market price of the company’s stock. However, the company did recognize compensation expense in connection with the issuance of restricted stock.
On certain occasions, the company has granted stock options for a fixed number of shares with an exercise price below that of the underlying stock on the date of the grant and recognizes compensation expense accordingly. This compensation expense has not been material. See Note 13 for additional information on stock-based compensation.
Income Taxes: The company accounts for income taxes in accordance with SFAS No. 109 “Accounting for Income Taxes.” Deferred taxes are recognized for the future effects of temporary differences between financial and income tax reporting using tax rates in effect for the years in which the differences are expected to reverse. The company recognizes deferred taxes for temporary differences, operating loss carryforwards and tax credit carryforwards. Deferred tax assets are reduced by a valuation allowance if it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. Federal and state income taxes are provided on the portion of foreign income that is expected to be remitted to the U.S. and be taxable.
The company adopted the provisions of FIN 48 on December 31, 2006 and had no adjustments to the retained earnings balance as a result of the implementation. Further information regarding the company’s adoption of FIN 48, including a detailed reconciliation of current year activity is provided in Note 14.

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1. Summary of Significant Accounting Policies and Other Information, continued
Accounting Pronouncements: In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 establishes a framework for measuring fair value by providing a standard definition of fair value as it applies to assets and liabilities. SFAS 157, which does not require any new fair value measurements, clarifies the application of other accounting pronouncements that require or permit fair value measurements. SFAS 157 must be applied prospectively beginning January 1, 2008. The impact of the adoption of SFAS 157 is more fully described in Note 8 of the Notes to Consolidated Financial Statements included in this report.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115” (“SFAS 159”). SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value at specified election dates. SFAS 159 is expected to expand the use of fair value measurement, but does not eliminate disclosure requirements included in other accounting standards, including those in SFAS 157. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The adoption of SFAS 159 did not have a material impact on the company’s Consolidated Financial Statements.
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51” (“SFAS 160”). SFAS 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008, with earlier adoption prohibited. SFAS 160 requires the recognition of a noncontrolling interest (minority interest) as equity in the consolidated financial statements and separate from the parent’s equity. The amount of net earnings attributable to the noncontrolling interest will be included in consolidated net income on the face of the Consolidated Statements of Income. SFAS 160 also amends certain of ARB No. 51’s consolidation procedures for consistency with the requirements of SFAS 141(R) and includes expanded disclosure requirements regarding the interests of the parent and its noncontrolling interest. The company is evaluating the impact of adopting SFAS 160 on its Consolidated Financial Statements.
In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (“SFAS 141(R)”), which replaces SFAS No. 141, “Business Combinations” (“SFAS 141”). SFAS 141(R) retains the underlying concepts of SFAS 141 in that all business combinations are still required to be accounted for at fair value under the acquisition method of accounting, but SFAS 141(R) changed the method of applying the acquisition method in a number of significant aspects. Acquisition costs generally will be expensed as incurred; noncontrolling interests will be valued at fair value at the acquisition date; in-process research and development will be recorded at fair value as an indefinite-lived intangible asset at the acquisition date; restructuring costs associated with a business combination generally will be expensed subsequent to the acquisition date; and changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally will affect income tax expense. SFAS 141(R) is effective on a prospective basis for all business combinations for which the acquisition date is on or after the beginning of the first annual period subsequent to December 15, 2008, with the exception of the accounting for valuation allowances on deferred taxes and acquired tax contingencies. SFAS 141(R) amends SFAS 109 such that adjustments made to valuation allowances on deferred taxes and acquired tax contingencies associated with acquisitions that closed prior to the effective date of SFAS 141(R) would also apply the provisions of SFAS 141(R). Early adoption is not permitted. The company is evaluating the impact of adopting SFAS 141(R) on its Consolidated Financial Statements.

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1. Summary of Significant Accounting Policies and Other Information, continued
In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“SFAS 161”). The new standard requires enhanced disclosure about a company’s derivatives and hedging to help investors understand their impact on a company’s financial position, financial performance and cash flows. SFAS 161 is effective for periods beginning after November 15, 2008, with early application encouraged. The company is evaluating the impact of adopting SFAS 161 on its Consolidated Financial Statements.
2. Acquisition of Business
In June 2006, the company announced that it had signed a definitive agreement to acquire the assets of Song Long Electronics Co., Ltd. (“Song Long”). On July 31, 2007, the company acquired the assets of Song Long for approximately $5.5 million and acquisition costs of approximately $0.5 million, of which approximately $0.8 million was paid in 2006. From July 31, 2007 and thereafter, the results of operations of Song Long are included in the company’s Consolidated Statements of Income. The company funded the acquisition with cash and has continued to operate Song Long’s electronics business subsequent to the acquisition. The Song Long acquisition strengthens the company’s position in the circuit protection industry, moving operations closer to customers in the Asia-Pacific region.
The acquisition was accounted for using the purchase method of accounting and the operations of Song Long are included in the company’s consolidated results from the date of the acquisition. At the acquisition date, the purchase price allocations were based on preliminary estimates. These estimates were subject to revision after the company completed final negotiation of working capital adjustments to the purchase price and fair value analysis. During the fourth quarter of 2007, the company completed the final negotiation, which resulted in an addition to the purchase price of approximately $0.3 million of acquisition costs, the assumption of $1.5 million of accounts payable and the holdback of $1.0 million subject to the fulfillment of certain contractual obligations by the seller. These obligations were fulfilled and payments totaling $1.0 million were made during the first quarter of 2008.
At June 28, 2008, the company completed its final purchase price allocations and determined that no material value was obtained from other identifiable intangible assets. All Song Long goodwill and assets are recorded in the Electronics business unit segment and reflected in the Asia-Pacific geographical area. Pro forma financial information is not presented due to amounts not being materially different than actual results. Goodwill for the acquisition is expected to be deductible for tax purposes.
The following table sets forth the purchase price allocation for the acquisition of Song Long in accordance with the purchase method of accounting with adjustments to record the acquired assets and liabilities of Song Long at their estimated fair market or net realizable values.
         
Song Long purchase price allocation (in thousands):
       
Inventory
  $ 1,186  
Property, plant and equipment
    1,290  
Goodwill
    5,311  
Current liabilities
    (1,500 )
 
     
 
  $ 6,287  
 
     

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2. Acquisition of Business, continued
On February 29, 2008, the company acquired Shock Block Corporation (“Shock Block”), a leading manufacturer in ground fault technology located in Dallas, Texas, for $9.2 million less a holdback of $0.9 million subject to the fulfillment of certain contractual obligations by the seller. From February 29, 2008 and thereafter, the results of operations of Shock Block are included in the company’s Consolidated Statements of Income. The company primarily acquired customer lists and intellectual property rights, including trademarks and tradenames. The customer lists were assigned a useful life of seven years. The company funded the acquisition with cash and has continued to operate Shock Block’s electrical business subsequent to the acquisition. The Shock Block acquisition expands the company’s portfolio of protection products for commercial and industrial applications and strengthens the company’s position in the circuit protection industry.
The acquisition was accounted for using the purchase method of accounting and the operations of Shock Block are included in the company’s consolidated results from the date of the acquisition. The following table sets forth the preliminary purchase price allocations for Shock Block’s assets in accordance with the purchase method of accounting with adjustments to record the acquired assets at their estimated fair market or net realizable values.
         
Shock Block purchase price allocation (in thousands):
       
Goodwill
  $ 7,595  
Customer lists
    2,442  
Other assets, net
    91  
Deferred tax liability
    (928 )
 
     
 
  $ 9,200  
 
     
All Shock Block goodwill and other assets are recorded in the Electrical business unit segment and reflected in the Americas geographical area. Pro forma financial information is not presented due to amounts not being materially different than actual results. Goodwill for the above acquisition is not expected to be deductible for tax purposes.
On September 17, 2008, the company announced that it had signed a definitive agreement to acquire the stock of Startco Engineering Ltd. (“Startco”), a leading manufacturer in ground-fault protection products and custom-power distribution centers located in Saskatchewan, Canada. On September 30, 2008, the company completed the purchase of Startco for approximately $38.9 million. From September 30, 2008 and thereafter, the results of operations of Startco are included in the company’s Consolidated Statements of Income. The company funded the acquisition with proceeds from a Loan Agreement discussed in Note 7.
The Startco acquisition strengthens the company’s position in the industrial ground-fault protection business and provides industrial power distribution design and manufacturing capabilities that strengthen the company’s position within the growing mining industry. The acquisition was accounted for using the purchase method of accounting and the operations of Startco are included in the company’s consolidated results from the date of the acquisition.
The following table sets forth the preliminary purchase price allocations for Startco’s assets in accordance with the purchase method of accounting with adjustments to record the acquired assets at their estimated fair market or net realizable values.

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2. Acquisition of Business, continued
         
Startco purchase price allocation (in thousands):
       
Cash
  $ 701  
Accounts receivable, net
    3,488  
Inventories
    2,950  
Property, plant and equipment
    5,000  
Goodwill
    32,325  
Other Assets
    32  
Current liabilities
    (5,610 )
 
     
 
  $ 38,886  
 
     
All Startco goodwill and other assets are recorded in the Electrical business unit segment and reflected in the Americas geographical area based on preliminary estimates of fair values during the fourth quarter of 2008. These estimates are subject to revision after the company completes its fair value analysis, which may result in an allocation to identifiable intangible assets. Pro forma financial information is not presented due to amounts not being materially different than actual results. Goodwill for the above acquisition is not expected to be deductible for tax purposes.
Pro forma financial information is not presented in the aggregate for the aforementioned acquisitions due to amounts not being materially different than actual results.
3. Inventories
The components of inventories at December 27, 2008 and December 29, 2007 are as follows (in thousands):
                 
    2008     2007  
Raw materials
  $ 22,642     $ 19,758  
Work in process
    11,524       11,292  
Finished goods
    32,513       27,795  
 
           
Total
  $ 66,679     $ 58,845  
 
           
4. Goodwill and Other Intangible Assets
The amounts for goodwill and changes in the carrying value by operating segment are as follows at December 27, 2008 and December 29, 2007 (in thousands):
                                                         
    2008   Additions*   Adjust.**   2007   Additions   Adjust.***   2006
 
Electronics
  $ 35,671     $ 66     $ (707 )   $ 36,312     $ 5,293     $ (223 )   $ 31,242  
Automotive
    24,393             (771 )     25,164             1,012       24,152  
Electrical
    46,897       40,079       (5,168 )     11,986             (120 )     12,106  
 
Total
  $ 106,961     $ 40,145     $ (6,646 )   $ 73,462     $ 5,293     $ 669     $ 67,500  
 
*   Electrical additions include $32.3 million related to the Startco acquisition and $7.6 million related to the Shock Block acquisition.
 
**   Adjustments reflect the impact of changes in exchange rates.
 
***   Adjustments reflect the impact of changes in exchange rates as well as the partial reversal of an unrecognized tax benefit.

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4. Goodwill and Other Intangible Assets, continued
The company recorded amortization expense of $3.9 million, $3.3 million, and $3.1 million in 2008, 2007, and 2006, respectively. The details of other intangible assets and related future amortization expense of existing intangible assets at December 27, 2008 and December 29, 2007 are as follows:
                                                 
    As of December 27, 2008   As of December 29, 2007
    Weighted   Gross           Weighted   Gross    
    Average   Carrying   Accumulated   Average   Carrying   Accumulated
(in thousands)   Useful Life   Value*   Amortization   Useful Life   Value   Amortization
 
Patents, licenses and software
    11.9     $ 34,121     $ 26,044       11.7     $ 34,156     $ 24,925  
Distribution network
    15.3       28,622       17,045       15.3       28,975       15,152  
Customer lists, trademarks and tradenames
    14.9       8,142       5,188       18.2       5,832       4,640  
 
Total
          $ 70,885     $ 48,277             $ 68,963     $ 44,717  
 
*   Increase to gross carrying value for customer lists, trademarks and tradenames reflects a $2.4 million addition related to the Shock Block acquisition. Decreases to gross carrying values for distribution network and patents, licenses and software are primarily due to the impact of changes in exchange rates.
Estimated amortization expense related to intangible assets with definite lives at December 27, 2008 is as follows (in thousands):
         
2009
  $ 3,687  
2010
    3,524  
2011
    3,467  
2012
    2,733  
2013
    2,291  
2014 and thereafter
    6,906  
 
     
 
  $ 22,608  
 
     
5. Investments
Included in investments are shares of Polytronics Technology Corporation Ltd. (“Polytronics”), a Taiwanese company, and an immaterial investment (approximately $0.5 million at December 27, 2008 and at December 29, 2007) in Sumi Motherson, an Indian company, that were acquired as part of the Littelfuse GmbH (formerly known as Heinrich Industries, AG) acquisition. The company’s Polytronics shares held at the end of fiscal 2008 and 2007 represent approximately 8.0% and 8.2%, respectively of total Polytronics shares outstanding. The fair value of the Polytronics investment was 2.1 million (approximately $2.9 million) at December 27, 2008 and 4.5 million (approximately $6.0 million) at December 29, 2007. Included in 2007 other comprehensive income (loss) was an unrealized gain of $1.1 million, net of tax of $0.4 million, due to the increase in fair market value. The remaining movement year over year was due to the impact of changes in exchange rates.

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5. Investments, continued
The investment in Polytronics stock has traded significantly below its acquisition cost of 4.1 million (approximately $4.3 million) since June 2008 and has not traded above that amount during the past six months. Given the current global economic conditions and severity of the decline in market value of the stock, management concluded as of December 27, 2008 that it is more likely than not the loss is “other than temporary.” Accordingly, SFAS No. 115 “Accounting for Certain Investments in Debt and Equity Securities,” requires the cost basis of the security be adjusted down to the fair value as of the measurement date with a resulting charge to earnings as a realized loss. Consequently, the company recorded a realized loss on investment of 2.0 million (approximately $2.8 million) to other (income) expense, net for the fiscal year ended December 27, 2008.
6. Discontinued Operations
In December 2005, the company announced its plan to sell the Efen business, which consisted of production and sales facilities in Uebigau and Eltville, Germany and Kaposvar, Hungary. The company obtained Efen as part of its acquisition of Littelfuse GmbH (formerly known as Heinrich Industries, AG) in May 2004. Results of operations for Efen have been reclassified and presented as discontinued operations for 2006.
In February 2006, the company sold the Efen product line for 9.5 million (approximately $11.6 million). In connection with the sale, an after tax gain of $0.1 million was recognized. The results of Efen were no longer recorded in the Consolidated Statements of Income after the first quarter of 2006.
Efen’s operating results are summarized as follows for the periods ending December 30, 2006 (in thousands):
         
Net sales
  $ 3,789  
Income before taxes
    773  
Income taxes
    324  
Net income
    449 *
 
*   Additionally, for the period ended December 30, 2006, discontinued operations in the Consolidated Statements of Income includes a gain on the sale of assets of $139 (net of tax of $85).
7. Debt
The carrying amounts of long-term debt at December 27, 2008 and December 29, 2007 are as follows:
                 
In thousands   2008     2007  
Term loan
  $ 80,000     $  
Revolving credit facility
          11,517  
Other obligations
          1,792  
 
           
 
    80,000       13,309  
Less: Current maturities
    8,000       12,086  
 
           
Total
  $ 72,000     $ 1,223  
 
           

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Debt, continued
Term Loan
On September 29, 2008, the company entered into a Loan Agreement with various lenders that provides the company with a five-year term loan facility of up to $80.0 million for the purposes of (i) refinancing certain existing indebtedness; (ii) funding working capital needs; and (iii) funding capital expenditures and other lawful corporate purposes, including permitted acquisitions. The Loan Agreement also contains an expansion feature, pursuant to which the company may from time to time request incremental loans in an aggregate principal amount not to exceed $40.0 million. The company had $80 million outstanding on the term loan at December 27, 2008.
At the company’s option, any loan under the Loan Agreement bears interest at a rate equal to the applicable rate, as determined in accordance with the pricing grid set forth in the Loan Agreement, plus one of the following indexes: (i) LIBOR or (ii) the Base Rate (defined as the higher of (a) the prime rate publicly announced from time to time by the Agent under the Loan Agreement and (b) the federal funds rate plus 0.50%). Overdue amounts bear a fee of 2.0% per annum above the applicable rate. The actual interest rate paid on the term loan was approximately 3.2% at December 27, 2008.
The Loan Agreement requires the company to meet certain financial tests, including a consolidated leverage ratio and a consolidated interest coverage ratio. The Loan Agreement also contains additional affirmative and negative covenants which, among other things, impose certain limitations on the company’s ability to merge with other companies, create liens on its property, incur additional indebtedness, enter into transactions with affiliates except on an arm’s length basis, dispose of property, or issue dividends or make distributions. At December 27, 2008, and for the year then ended, the company was in compliance with these covenants. The new Loan Agreement does not impact the existing debt covenants in the revolving credit facility described below.
Revolving Credit Facility
The company has an unsecured domestic financing arrangement consisting of a credit agreement with banks that provides a $75.0 million revolving credit facility, with a potential increase of up to $125.0 million upon request of the company and agreement with the lenders, which expires on July 21, 2011. At December 27, 2008, the company had available $75.0 million of borrowing capacity under the revolving credit facility at an interest rate of LIBOR plus 0.50% (0.97% as of December 27, 2008). The company also had $2.8 million and $2.5 million available in letters of credit at December 27, 2008 and December 29, 2007, respectively. No amounts were outstanding under these letters of credit at December 27, 2008 and December 29, 2007.
The domestic bank credit agreement contains covenants that, among other matters, impose limitations on the incurrence of additional indebtedness, future mergers, sales of assets, payment of dividends, and changes in control, as defined in the agreement. In addition, the company is required to satisfy certain financial covenants and tests relating to, among other matters, interest coverage, working capital, leverage and net worth. At December 27, 2008, and for the year then ended, the company was in compliance with these covenants.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Debt, continued
Other Obligations
The company has an unsecured bank line of credit in Japan that provides a 700 million yen (an equivalent of $7.8 million) revolving credit facility at an interest rate of TIBOR plus 0.625% (1.51% as of December 27, 2008). The revolving line of credit becomes due on July 21, 2011. The company had no outstanding borrowings on the yen facility at December 27, 2008 and December 29, 2007.
The company had an unsecured bank line of credit in Taiwan that provided a 35.0 million Taiwanese dollar revolving credit facility at an interest rate of two-years time deposit plus 0.145%. The revolving line of credit was due on August 18, 2009. The company also had a foreign fixed rate mortgage loan outstanding totaling approximately 32.0 million Taiwanese dollars with maturity dates through August 2013. The company chose to repay the outstanding balances on both debt instruments in June 2008, resulting in uses of cash totaling the equivalent of $1.7 million. As a result, the line of credit was closed on June 28, 2008. The company had the equivalent of $0.6 million outstanding on the Taiwanese dollar facility and the equivalent of $1.2 million outstanding on the foreign fixed rate mortgage loan outstanding at December 29, 2007.
Interest paid on debt was approximately $3.4 million in 2008, $1.4 million in 2007, and $1.6 million in 2006. Aggregate maturities of obligations at December 27, 2008, are as follows (in thousands):
         
2009
  $ 8,000  
2010
    8,000  
2011
    8,000  
2012
    8,000  
2013
    48,000  
2014 and thereafter
     
 
     
 
  $ 80,000  
 
     
8. Financial Instruments, Derivatives and Fair Value Measures
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”), which provides a standard definition of fair value as it applies to assets and liabilities, establishes a framework for measuring fair value and expands disclosures about fair value measurements, but it does not require any new fair value measurements. SFAS 157 clarifies the application of other accounting pronouncements that require or permit fair value measurements and sets out a fair value hierarchy that distinguishes between assumptions based on market data obtained from independent sources (observable inputs) and those based on an entity’s own assumptions (unobservable inputs). Under SFAS 157, fair value measurements are disclosed by level within that hierarchy, with the highest priority assigned to quoted prices in active markets for identical assets or liabilities (Level 1), the next priority using observable prices that are based on inputs not quoted on active markets, but corroborated by market data (Level 2) and the lowest priority assigned to unobservable inputs (Level 3). SFAS 157 must be applied prospectively beginning January 1, 2008.
Derivative Transactions
The company is exposed to credit-related losses in the event of nonperformance by counterparties to derivative financial instruments, but we do not expect any counterparties to fail to meet their obligations given their high credit ratings. The company does not hold derivatives for trading or speculative purposes.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Financial Instruments, Derivatives and Fair Value Measures, continued
Securities Available for Sale
Included in the company’s investments are shares of Polytronics, a Taiwanese company whose shares are traded on the Taiwan Stock Exchange, and which is designated as a Level 1 financial instrument under SFAS 157. The fair value of this investment was $2.9 million at December 27, 2008 and $6.5 million at December 29, 2007, based on the quoted market price at the close of business corresponding to each date. Unrealized gains (losses), net of taxes related to this investment are included in other comprehensive income. The remaining movement in the fair value of this investment is due to the impact of changes in exchange rates, which is included as a component of the currency translation adjustments in other comprehensive income. As of December 27, 2008, management evaluated the decline in market value and concluded that it is more likely than not that the loss is other than temporary. As a result, the company recorded a realized loss on investment of approximately $2.8 million to other (income) expense, net for the fiscal year ended December 27, 2008. Further information regarding this investment is provided in Note 5.
Commodity Risk Management
In June 2008, the company entered into an immaterial one-year swap agreement to manage its exposure to fluctuations in the cost of zinc, which is used extensively in the manufacturing process of certain products. The swap agreement is recognized in the Consolidated Balance Sheet at fair value and is designated as a Level 2 financial instrument under SFAS 157. Fair value is determined based on quoted futures prices for the underlying commodity. Furthermore, the swap agreement is designated as a cash flow hedge in accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”), with changes in the fair value included in other comprehensive income to the extent the hedge is effective. The ineffective portion of changes in the fair value is recognized immediately in the Consolidated Statements of Income. Amounts included in other comprehensive income are reclassified into cost of sales in the period in which the hedged transaction is recognized in earnings. As of December 27, 2008, the fair value of the swap agreement was a $0.7 million liability that was included in accrued expenses on the Consolidated Balance Sheet.
Interest Rate Swap Transaction
On October 29, 2008, the company entered into a one-year interest rate swap transaction with JPMorgan Chase Bank, N.A. to manage its exposure to fluctuations in the adjustable interest rate of the Loan Agreement. The swap agreement, designated as a Level 2 financial instrument under SFAS 157, is for a notional amount of $65.0 million and requires the company to pay a fixed annual rate of 2.85% and JPMorgan Chase Bank, N.A. to pay a floating rate tied to the one-month U.S. dollar LIBOR. Upon inception of the transaction, the company did not elect hedge accounting treatment as the interest rate swap term was short-term in nature and was not deemed a material transaction. As of December 27, 2008, the fair value of the swap agreement was a $1.1 million liability that was included in accrued expenses on the Consolidated Balance Sheet. Changes in the fair value are included as a component of interest expense in the Consolidated Statements of Income for the year ending December 27, 2008.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Restructuring
During 2005, the company announced a downsizing of its Ireland operation and outsourcing of more of its varistor manufacturing to lower cost Asian subcontractors. A liability of $4.9 million was recorded related to redundancy costs for the manufacturing operation associated with this downsizing. This restructuring impacted approximately 35 associates in various production and support related roles. These costs were paid in 2005 and 2006. In the second quarter of 2006, an additional $17.1 million, consisting of $20.0 million of accrued severance less a statutory rebate of $2.9 million recorded as a current asset, was recorded as part of cost of sales related to the closure of the entire facility. This restructuring is part of the company’s strategy to expand operations in Asia-Pacific in order to be closer to current and potential customers and take advantage of lower manufacturing costs. This additional restructuring impacted approximately 131 employees. Restructuring charges are based upon each associate’s current salary and length of service with the company. These costs will be paid through 2009. The additions in 2007 and 2008 primarily relate to retention costs that were incurred during the transition period. In both instances, all charges related to the downsizing/closure of the Ireland facility were recorded in “Other Operating Income (Loss)” for business unit segment reporting purposes. A summary of activity of this liability is as follows:
         
Ireland restructuring (in thousands)        
 
Balance at December 30, 2006
  $ 22,608  
Additions
    977  
Payments
    (3,801 )
Exchange rate impact
    1,977  
 
Balance at December 29, 2007
    21,761  
Additions
    200  
Payments
    (20,657 )
Exchange rate impact
    347  
 
Balance at December 27, 2008
  $ 1,651  
 
During 2006, the company recorded a $5.0 million charge related to the downsizing of the Littelfuse GmbH (formerly known as Heinrich Industries, AG) operations. Manufacturing related charges of $2.3 million were recorded as part of cost of sales and non-manufacturing related charges of $2.7 million were recorded as part of selling, general and administrative expenses. These charges were primarily for redundancy costs to be paid through 2008. The additions in 2007 and 2008 primarily relate to retention costs that were incurred during the transition period. All charges related to this downsizing were recorded in “Other Operating Income (Loss)” for business unit segment reporting purposes. This restructuring impacted approximately 52 associates in various technical, production, administrative and support employees. A summary of activity of this liability is as follows:
         
Littelfuse GmbH restructuring (in thousands)        
 
Balance at December 30, 2006
  $ 4,363  
Additions
    850  
Payments
    (4,733 )
 
Balance at December 29, 2007
    480  
Additions
    99  
Payments
    (498 )
 
Balance at December 27, 2008
  $ 81  
 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Restructuring, continued
During December 2006, the company announced the closure of its Irving, Texas facility and the transfer of its semiconductor wafer manufacturing from Irving, Texas to Wuxi, China in a phased transition from 2007 to 2010. A liability of $1.9 million was recorded related to redundancy costs for the manufacturing operation associated with this downsizing. This charge was recorded as part of cost of sales and included in “Other Operating Income (Loss)” for business unit segment reporting purposes. The total cost expected to be incurred through 2010 is $6.5 million. The additions in 2007 and 2008 primarily relate to retention costs that were incurred during the transition period. The amounts not yet recognized primarily relate to retention costs that will be incurred over the remaining closure period. This restructuring impacted approximately 180 associates in various production and support related roles and will be paid over the period 2007 to 2010. A summary of activity of this liability is as follows:
         
Irving restructuring (in thousands)        
 
Balance at December 30, 2006
  $ 1,890  
Additions
    1,446  
Payments
    (362 )
 
Balance at December 29, 2007
    2,974  
Additions
    2,176  
Payments
    (600 )
 
Balance at December 27, 2008
  $ 4,550  
 
During March 2007, the company announced the closure of its Des Plaines and Elk Grove, Illinois facilities and the transfer of its manufacturing from Des Plaines, Illinois to the Philippines and Mexico in a phased transition from 2007 to 2009. A liability of $3.5 million was recorded related to redundancy costs for the manufacturing and distribution operations associated with this downsizing. Manufacturing related charges of $3.0 million were recorded as part of cost of sales and non-manufacturing related charges of $0.5 million were recorded as part of selling, general and administrative expenses. All charges related to this downsizing were recorded in “Other Operating Income (Loss)” for business unit segment reporting purposes. The total cost expected to be incurred through 2009 is $7.1 million. The additions in 2007 and 2008 primarily relate to retention costs that were incurred during the transition period. The amounts not yet recognized primarily relate to retention costs that will be incurred over the remaining closure period. This restructuring impacts approximately 307 associates in various production and support related roles and the costs relating to the restructuring will be paid over the period 2007 to 2009. A summary of activity of this liability is as follows:
         
Des Plaines restructuring (in thousands)        
 
Balance at December 30, 2006
  $ 102  
Additions
    4,963  
Payments
    (355 )
 
Balance at December 29, 2007
    4,710  
Additions
    3,435  
Payments
    (3,087 )
 
Balance at December 27, 2008
  $ 5,058  
 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Restructuring, continued
In March 2008, the company announced the closure of its Matamoros, Mexico facility and the transfer of its semiconductor assembly and test operation from Matamoros, Mexico to its Wuxi, China facility and various subcontractors in the Asia-Pacific region in a phased transition over two years. A total liability of $4.4 million was recorded related to redundancy costs for the manufacturing operations associated with this downsizing, of which $0.4 million related to associates located at the company’s Irving, Texas facility and which are reflected in corresponding restructuring liability above. This charge was recorded as part of cost of sales and included in “Other Operating Income (Loss)” for business unit segment reporting purposes. The total cost expected to be incurred through 2009 is $6.3 million. Amounts not yet recognized primarily relate to retention costs that will be incurred over the remaining transition period. This restructuring impacts approximately 950 associates in various production and support related roles and will be paid through 2009. A summary of activity of this liability is as follows:
         
Matamoros restructuring (in thousands)        
 
Balance at December 29, 2007
  $  
Additions
    4,520  
Payments
    (650 )
Exchange rate impact
    (759 )
 
Balance at December 27, 2008
  $ 3,111  
 
In September 2008, the company announced the closure of its Swindon, U.K. facility, resulting in restructuring charges of $0.8 million, consisting of $0.3 million that was recorded as part of cost of sales and $0.5 million that was recorded as part of research and development expenses. These charges, which impact 10 associates, were primarily for redundancy costs and will be paid through 2009. Restructuring charges are based upon each associate’s current salary and length of service with the company. All charges related to the closure of the Swindon facility were recorded in “Other Operating Income (Loss)” for business unit segment reporting purposes. The total cost expected to be incurred through 2009 is $1.1 million. Amounts not yet recognized primarily relate to retention costs that will be incurred over the remaining transition period. A summary of activity of this liability is as follows:
         
Swindon, U.K. restructuring (in thousands)        
 
Balance at December 29, 2007
  $  
Additions
    992  
Payments
    (158 )
 
Balance at December 27, 2008
  $ 834  
 
In December 2008, the company announced a reduction in workforce at its Des Plaines, Illinois corporate headquarters in a phased transition from 2008 to 2009. A liability of $0.9 million was recorded associated with this downsizing. Manufacturing related charges of $0.3 million were recorded as part of cost of sales and non-manufacturing related charges of $0.6 million were recorded as part of selling, general and administrative expenses. All charges related to this downsizing were recorded in “Other Operating Income (Loss)” for business unit segment reporting purposes. The total cost expected to be incurred through 2009 is $1.4 million. The amounts not yet recognized primarily relate to retention costs that will be incurred over the remaining closure period. This restructuring impacts approximately 40 associates in various production and support related roles and the costs relating to the restructuring will be paid in 2009.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. Coal Mine Liability
Included in other long-term liabilities is an accrual related to a former coal mining operation at Littelfuse GmbH (formerly known as Heinrich Industries, AG) for the amounts of 3.7 million ($5.2 million) and 4.0 million ($5.9 million) in 2008 and 2007, respectively. The accrual, which is not discounted, is based on an engineering study estimating the cost of remediating the dangers (such as a shaft collapse) of abandoned coal mine shafts in Germany.
11. Asset Impairments
During 2008, the company recorded a charge of approximately $3.2 million within cost of sales related to asset impairments incurred primarily in China. The charge was associated mainly with the discontinuation of equipment used to manufacture gas discharge tubes as the company has determined to utilize a third party manufacturer for its production beginning in 2009. During 2007, the company recorded a charge of approximately $0.8 million within cost of sales related to asset impairments incurred primarily in China and Germany. During 2006, the company recorded a charge of approximately $4.4 million for the write-down of Littelfuse GmbH (formerly known as Heinrich Industries, AG) real estate and fixed assets. $2.7 million of this write-down was recorded to reduce the carrying value of property located in Witten, Germany, consisting primarily of land and buildings used for manufacturing and administrative offices, as a result of entering into agreements to sell the property. The sale was completed in the fourth quarter of 2006. The remaining $1.7 million charge related to a reduction in the carrying value of certain long-term assets located at the same facility to record them at fair value in anticipation of their future sale. $0.8 million of the total charge was recorded within cost of sales and $3.6 million within selling, general and administrative expenses.
12. Benefit Plans
The company has a company-sponsored defined benefit pension plan covering substantially all of its North American employees. The amount of the retirement benefit is based on years of service and final average pay. The plan also provides post-retirement medical benefits to retirees and their spouses if the retiree has reached age 62 and has provided at least ten years of service prior to retirement. Such benefits generally cease once the retiree attains age 65. The company also has company-sponsored defined benefit pension plans covering employees in the U.K., Ireland, Germany, Japan, Taiwan and the Netherlands. The amount of the retirement benefits provided under the plans is based on years of service and final average pay. Liabilities resulting from the plan that covers employees in the Netherlands are settled annually through the purchase of insurance contracts. Separate from the foreign pension data presented below, net periodic expense for the plan covering the Netherlands employees was $0.2 million, $0.1 million, and $0.1 million in 2008, 2007, and 2006, respectively.
The company’s contributions are made in amounts sufficient to satisfy legal requirements. The minimum funding requirement, in accordance with the Employee Retirement Income Securities Act of 1974 (“ERISA”) Current Liability amount, is $1.9 million for 2009.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. Benefit Plans, continued
Total pension expense was $9.8 million, $6.7 million, and $3.7 million in 2008, 2007, and 2006, respectively. The increase in pension expense in 2008 was primarily due to the settlement of the Ireland plan and the resulting settlement loss. The increase in pension expense in 2007 was largely due to the wind down of the U.K. plan and the resulting settlement loss. Benefit plan related information is as follows:
                                                 
    2008   2007
(in thousands)   U.S.   Foreign   Total   U.S.   Foreign   Total
 
Change in benefit obligation:
                                               
Benefit obligation at beginning of year
  $ 67,867     $ 48,955     $ 116,822     $ 68,530     $ 51,249     $ 119,779  
Service cost
    3,241       848       4,089       3,329       1,170       4,499  
Interest cost
    4,294       2,150       6,444       4,069       2,371       6,440  
Plan participant contributions
          126       126             288       288  
Curtailment loss (gain)
                            (657 )     (657 )
Settlement loss (gain)
          (37,233 )     (37,233 )                  
Net actuarial gain
    (2,644 )     (517 )     (3,161 )     (4,599 )     (4,235 )     (8,834 )
Benefits paid from the trust
    (3,523 )     (979 )     (4,502 )     (3,462 )     (5,337 )     (8,799 )
Benefits paid directly by company
          (922 )     (922 )           (864 )     (864 )
Other
          852       852                    
Effect of exchange rate movements
          (911 )     (911 )           4,970       4,970  
 
Benefit obligation at end of year
  $ 69,235     $ 12,369     $ 81,604     $ 67,867     $ 48,955     $ 116,822  
 
 
                                               
Change in plan assets at fair value:
                                               
Fair value of plan assets at beginning of year
  $ 61,324     $ 40,077     $ 101,401     $ 56,563     $ 35,498     $ 92,061  
Actual return on plan assets
    (19,420 )     133       (19,287 )     3,223       78       3,301  
Employer contributions
          178       178       5,000       5,795       10,795  
Plan participant contributions
          126       126             288       288  
Benefits paid
    (3,523 )     (979 )     (4,502 )     (3,462 )     (5,337 )     (8,799 )
Settlement loss (gain)
          (37,233 )     (37,233 )                  
Effect of exchange rate movements
          (285 )     (285 )           3,755       3,755  
Other
    (66 )           (66 )                  
 
Fair value of plan assets at end of year
    38,315       2,017       40,332       61,324       40,077       101,401  
 
Net amount recognized/unfunded status
  $ (30,920 )   $ (10,352 )   $ (41,272 )   $ (6,543 )   $ (8,878 )   $ (15,421 )
 
 
                                               
Amounts recognized in the Consolidated Balance Sheet consist of:
                                               
Prepaid benefit cost
  $     $ 365     $ 365     $     $ 2,950     $ 2,950  
Accrued benefit liability
    (30,920 )     (10,717 )     (41,637 )     (6,543 )     (11,828 )     (18,371 )
 
Net liability recognized
  $ (30,920 )   $ (10,352 )   $ (41,272 )   $ (6,543 )   $ (8,878 )   $ (15,421 )
 
Accumulated other comprehensive loss
  $ 23,680     $ (1,693 )   $ 21,987     $ 1,795     $ 4,363     $ 6,158  
 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. Benefit Plans, continued
Amounts recognized in accumulated other comprehensive loss, pre-tax consist of:
                                                 
    2008   2007
(in thousands)   U.S.   Foreign   Total   U.S.   Foreign   Total
 
Net actuarial loss
  $ 23,604     $ (1,597 )   $ 22,007     $ 1,709     $ 5,438     $ 7,147  
Prior service (cost) credit
    76       (96 )     (20 )     86       (102 )     (16 )
Net transition obligation
                            (973 )     (973 )
 
Net amount recognized / occurring, pre-tax
  $ 23,680     $ (1,693 )   $ 21,987     $ 1,795     $ 4,363     $ 6,158  
 
The estimated net actuarial loss which will be amortized from accumulated other comprehensive loss into benefit cost in 2009 is $0.1 million.
                                                 
    U.S.   Foreign
(in thousands)   2008   2007   2006   2008   2007   2006
 
Components of net periodic benefit cost:
                                               
Service cost
  $ 3,241     $ 3,329     $ 3,192     $ 848     $ 1,170     $ 1,124  
Interest cost
    4,294       4,069       3,799       2,150       2,371       2,043  
Expected return on plan assets
    (5,053 )     (4,697 )     (4,228 )     (1,353 )     (1,513 )     (2,117 )
Amortization of prior service cost
    10       10       10       (13 )     (14 )     (13 )
Amortization of transition asset
                      (75 )     (92 )     (113 )
Amortization of losses
          14       57       63       522       308  
 
Total cost of the plan for the year
    2,492       2,725       2,830       1,620       2,444       1,232  
Expected plan participants’contrib.
                                   
 
Net periodic benefit cost
    2,492       2,725       2,830       1,620       2,444       1,232  
Settlement loss (curtailment gain)
                      5,725       1,506       (322 )
 
Total expense for the year
  $ 2,492     $ 2,725     $ 2,830     $ 7,345     $ 3,950     $ 910  
 
Weighted average assumptions used to determine net periodic benefit cost for the years 2008, 2007 and 2006 are as follows:
                                                 
    U.S.   Foreign
    2008   2007   2006   2008   2007   2006
 
Discount rate
    6.5 %     6.0 %     6.0 %     5.2 %     4.5 %     4.2 %
Expected return on plan assets
    8.5 %     8.5 %     8.5 %     4.2 %     4.0 %     6.7 %
Compensation increase rate
    4.5 %     4.5 %     4.5 %     3.5 %     3.5 %     3.2 %
Measurement dates
    1/01/08       1/01/07       1/01/06       1/01/08       1/01/07       1/01/06  
 
The accumulated benefit obligation for the U.S. defined benefits plans was $63.0 million and $57.8 million at December 27, 2008 and December 29, 2007, respectively. The accumulated benefit obligation for the foreign plan was $12.9 million and $44.5 million at December 27, 2008 and December 29, 2007, respectively. The significant change in domestic plan assets in 2008 is due to the general economic slowdown during the latter half of 2008. The significant change in foreign plan assets in 2008 is related to settlement of the company’s Ireland pension plan.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. Benefit Plans, continued
Weighted average assumptions used to determine benefit obligations at year-end 2008, 2007 and 2006 are as follows:
                                                 
    U.S.   Foreign
    2008   2007   2006   2008   2007   2006
Discount rate
    6.4 %     6.5 %     6.0 %     6.6 %     5.2 %     4.5 %
Compensation increase rate
    4.5 %     4.5 %     4.5 %     4.0 %     3.5 %     3.5 %
Measurement dates
    12/31/08       12/31/07       12/31/06       12/31/08       12/31/07       12/31/06  
Expected benefit payments to be paid to participants for the fiscal year ending are as follows (in thousands):
                 
Year   U.S.   Foreign
2009
  $ 3,795     $ 1,147  
2010
    4,348       2,246  
2011
    4,266       993  
2012
    4,150       1,735  
2013
    4,163       1,236  
Defined Benefit Plan Assets
Based upon analysis of the target asset allocation and historical returns by type of investment, the company has assumed that the expected long-term rate of return will be 8.5% on domestic plan assets and 4.2% on foreign plan assets. Assets are invested to maximize long-term return taking into consideration timing of settlement of the retirement liabilities and liquidity needs for benefits payments. U.S. defined benefit pension assets were invested as follows and were not materially different from the target asset allocation:
                                 
    U.S. Asset Allocation   Foreign Asset Allocation
    2008   2007   2008   2007
Equity securities
    68 %     73 %     33 %     2 %
Debt securities
    32 %     27 %     32 %     83 %
Property
                5 %     0 %
Cash
                30 %     15 %
 
 
    100 %     100 %     100 %     100 %
 
Defined Contribution Plans
The company also maintains a 401(k) savings plan covering substantially all U.S. employees. The company matches 50% of the employee’s annual contributions for the first 4% of the employee’s gross wages. Employees vest in the company contributions after two years of service. Company matching contributions amounted to $0.6 million in each of the years 2008, 2007 and 2006, respectively. The company provides additional retirement benefits for certain key executives through its unfunded defined contribution Supplemental Executive Retirement Plan. The charge to expense for this plan amounted to $0.4 million, $0.3 million and $0.3 million in each of the years 2008, 2007 and 2006, respectively.

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13. Shareholders’ Equity
Equity Plans: The company has stock option plans authorizing the granting of both incentive and nonqualified options and other stock rights of up to 5,925,000 shares of common stock to employees and directors. The stock options granted prior to 2002 vest over a five-year period and are exercisable over a ten-year period commencing from the date of vesting. The stock options granted in 2002 through February 2005 vest over a five-year period and are exercisable over a ten-year period commencing from the date of the grant. Stock options granted after February 2005 vest over a three, four or five-year period and are exercisable over either a seven or ten-year period commencing from the date of the grant.
The company also has performance share agreements under its equity-based compensation plans pursuant to which a target amount of performance share awards are granted based on the company attaining certain financial performance goals relating to return on net tangible assets (for performance shares granted prior to 2008) or return on net assets (for performance shares granted in 2008) and earnings before interest, taxes, depreciation and amortization over a three-year performance period. The performance-based restricted stock awards granted prior to 2008 vest in thirds over a three-year period (following the three-year performance period), and are paid annually as they vest, one half in the company’s common stock and one half in cash. The performance-based restricted stock awards granted in 2008 vest after a three-year performance period and are paid completely in the company’s common stock at the end of the performance period. The fair value of the performance-based restricted stock awards that are paid in common stock is measured at the market price on the grant date, and the fair value of the portion paid in cash is measured at the current market price of a share.
The following table provides a reconciliation of outstanding stock options for the fiscal year ended December 27, 2008.
                                 
                    Wtd. Average   Aggregate
    Shares Under   Wtd. Average   Rem. Contract   Intrinsic
    Option   Price   Life (Years)   Value ($000s)
 
Outstanding Dec. 29, 2007
    2,010,104     $ 31.19                  
Granted
    290,640       33.20                  
Exercised
    (55,711 )     24.72                  
Forfeited
    (153,835 )     33.43                  
 
                               
Outstanding Dec. 27, 2008
    2,091,198       31.47       5.3     $ 117  
 
                               
Exercisable Dec. 27, 2008
    1,207,584       29.48       4.9       117  
 
                               
The total intrinsic value of options exercised during 2008, 2007, and 2006 was $0.5 million, $2.9 million, and $2.1 million, respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. Shareholders’ Equity, continued
The following table provides a reconciliation of nonvested performance share awards (including only awards to be paid in the company’s common stock) for the twelve month period ending December 27, 2008.
                 
            Weighted Average
            Grant-Date Fair
    Shares   Value
Nonvested December 29, 2007
    49,167     $ 35.51  
Granted
    40,550       30.27  
Vested
    (6,334 )     25.07  
Forfeited
    (18,000 )     34.33  
 
               
Nonvested December 27, 2008
    65,383       33.60  
 
               
The company recognizes compensation cost of all share-based awards as an expense on a straight-line basis over the vesting period of the awards. At December 27, 2008, the unrecognized compensation cost for options and performance shares was $9.4 million before tax, and will be recognized over a weighted-average period of 2.3 years. The following table shows total stock-based compensation expense included in selling, general and administrative expenses in the Consolidated Statements of Income during 2008, 2007 and 2006 (in thousands).
                         
    2008     2007     2006  
Pre-tax stock-based compensation
  $ 5,058     $ 4,957     $ 5,187  
Income tax
    (2,064 )     (1,880 )     (1,889 )
 
                 
Stock-based compensation expense, net
  $ 2,994     $ 3,077     $ 3,298  
 
                 
The company uses the Black-Scholes option valuation model to determine the fair value of awards granted. The weighted average fair value of and related assumptions for options granted were as follows:
                         
    2008   2007   2006
Weighted average fair value of options granted
  $ 11.65     $ 14.05     $ 13.90  
Assumptions:
                       
Risk-free interest rate
    3.31 %     4.46 %     4.89 %
Expected dividend yield
    0 %     0 %     0 %
Expected stock price volatility
    34.8 %     35.7 %     39.0 %
Expected life of options
  4.7 years     4.7 years     4.8 years  
Expected volatilities are based on both historical volatility of the company’s stock price and implied volatility of exchange-traded options on the company’s stock. The expected life of options is based on historical data for options granted by the company and the SEC simplified method. The risk-free rates are based on yields available at the time of grant on U.S. Treasury bonds with maturities consistent with the expected life assumption.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. Shareholders’ Equity, continued
Accumulated Other Comprehensive Income (Loss): The components of accumulated other comprehensive income (loss) at the end of fiscal year 2008 and 2007 were as follows (in thousands):
                 
    December 27, 2008     December 29, 2007  
Minimum pension liability adjustment*
  $ (15,488 )   $ (3,835 )
Gain (loss) on investments**
          105  
Gain (loss) on derivative instruments***
    (403 )      
Foreign currency translation adjustment
    5,768       21,091  
 
           
Total
  $ (10,123 )   $ 17,361  
 
           
 
*   net of tax of $6,499 and $2,323 for 2008 and 2007, respectively.
 
**   net of tax of ($65) for 2007.
 
***   net of tax of $247 for 2008.
Preferred Stock: The Board of Directors may authorize the issuance of preferred stock from time to time in one or more series with such designations, preferences, qualifications, limitations, restrictions, and optional or other special rights as the Board may fix by resolution.
14. Income Taxes
In June 2006, the FASB issued FIN 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109, Accounting for Income Taxes.” FIN 48 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under FIN 48, the company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. FIN 48 also provides guidance on derecognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures.
The company adopted the provisions of FIN 48 on December 31, 2006 and had no adjustments to the retained earnings balance as a result of the implementation. A reconciliation of the beginning and ending amount of unrecognized tax benefits as of December 27, 2008 and December 29, 2007 is as follows (in thousands):
         
Balance at December 31, 2006
  $ 8,311  
Additions for tax positions of prior years
    121  
Settlements
    (706 )
Reductions based on lapse of statute
    (3,947 )
 
     
Balance at December 29, 2007
    3,779  
Settlements
    (179 )
Reductions based on lapse of statute
    (845 )
 
     
Balance at December 27, 2008
  $ 2,755  
 
     

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. Income Taxes, continued
The amount of unrecognized tax benefits at December 27, 2008 was approximately $2.8 million. Of this total, approximately $1.4 million represents the amount of unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate in future periods. The company reasonably expects an approximate $2.1 million decrease in unrecognized tax benefits in the next 12 months due to settlements or lapse of tax statutes of limitations. None of the positions included in unrecognized tax benefits are related to tax positions for which the ultimate deductibility is highly certain, but for which there is uncertainty about the timing of such deductibility. The U.S. federal statute of limitations remains open for 2004 onward. Foreign and U.S. state statute of limitations generally range from three to six years. The company is currently under examination in several foreign jurisdictions.
The company recognizes accrued interest and penalties associated with uncertain tax positions as part of income tax expense. As of December 27, 2008, the company had approximately $0.2 million of accrued interest and penalties. Of this total, approximately $0.1 million represents the amount of interest and penalties that, if recognized, would favorably affect the effective tax rate in future periods.
Domestic and foreign income (loss) from continuing operations before income taxes is as follows (in thousands):
                         
    2008     2007     2006  
Domestic
  $ (15,284 )   $ 2,149     $ 2,655  
Foreign
    25,907       49,139       26,751  
 
                 
Income from continuing operations before income taxes
  $ 10,623     $ 51,288     $ 29,406  
 
                 
Federal, state, and foreign income tax (benefit) expense consists of the following (in thousands):
                         
    2008     2007     2006  
Current:
                       
Federal
  $ (215 )   $ (1,871 )   $ 8,678  
State
    268       1,146       144  
Foreign
    6,501       13,027       5,689  
 
                 
Subtotal
    6,554       12,302       14,511  
 
                 
 
                       
Deferred:
                       
Federal and State
    (4,849 )     2,033       (6,731 )
Foreign
    902       118       (1,610 )
 
                 
Subtotal
    (3,947 )     2,151       (8,341 )
 
                 
 
                       
Provision for income taxes
  $ 2,607     $ 14,453     $ 6,170  
 
                 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. Income Taxes, continued
A reconciliation between income taxes computed on income before income taxes at the federal statutory rate and the provision for income taxes is provided below (in thousands):
                         
    2008   2007   2006
 
Tax expense at statutory rate of 35%
  $ 3,718     $ 17,951     $ 10,292  
State and local taxes, net of federal tax benefit
    (322 )     483       45  
Foreign income tax rate differential
    (1,168 )     (962 )     (1,374 )
Foreign losses for which no tax benefit is available
    1,068       32       203  
Tax on unremitted earnings
    (257 )     (140 )     (276 )
Domestic net operating loss carryover
                (1,780 )
Contingent tax reserves
    (140 )     (2,783 )     (230 )
Other, net
    (292 )     (128 )     (710 )
 
Provision for income taxes
  $ 2,607     $ 14,453     $ 6,170  
 
Deferred income taxes are provided for the tax effects of temporary differences between the financial reporting bases and the tax bases of the company’s assets and liabilities. Significant components of the company’s deferred tax assets and liabilities at December 27, 2008 and December 29, 2007 are as follows (in thousands):
                 
    2008   2007
 
DEFERRED TAX ASSETS:
               
Accrued expenses
  $ 26,435     $ 14,698  
Foreign tax credit carryforwards
    6,962        
R&D credit carryforwards
    518        
AMT credit carryforwards
    1,318       1,502  
Accrued restructuring
    3,744       9,348  
Domestic and foreign net operating loss carryforwards
    3,659       6,627  
Other
    391        
 
Gross deferred tax assets
    43,027       32,175  
Less: Valuation allowance
    (708 )     (708 )
 
Total deferred tax assets
    42,319       31,467  
 
 
               
DEFERRED TAX LIABILITIES:
               
Tax depreciation and amortization in excess of book
    15,391       13,920  
Other
          420  
 
Total deferred tax liabilities
    15,391       14,340  
 
 
               
 
NET DEFERRED TAX ASSETS
  $ 26,928     $ 17,127  
 
The deferred tax asset valuation allowance is related to deferred tax assets from foreign net operating losses. The remaining domestic and foreign net operating losses either have no expiration date or are expected to be utilized prior to expiration. The foreign tax credit carryforwards begin to expire in 2015. The company paid income taxes of approximately $8.8 million, $16.7 million and $10.0 million in 2008, 2007 and 2006, respectively. U.S. income taxes were not provided for on a cumulative total of approximately $28 million of undistributed earnings for certain non-U.S. subsidiaries as of December 27, 2008, and accordingly, no deferred tax liability has been established relative to these earnings. The determination of the deferred tax liability associated with the distribution of these earnings is not practicable. The company has two subsidiaries in China and one subsidiary in the Philippines that are currently taxed at an income tax rate less than the statutory income tax rate imposed in the jurisdictions. The “tax holidays” for these subsidiaries are set to expire within the next four years.

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15. Business Unit Segment Information
SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information” (“SFAS 131”), establishes annual and interim reporting standards for an enterprise’s operating segments and related disclosures about its products, services, geographic areas and major customers. An operating segment is defined as a component of an enterprise that engages in business activities from which it may earn revenues and incur expenses, and about which separate financial information is regularly evaluated by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources. The CODM, as defined by SFAS 131, is the company’s President and Chief Executive Officer (“CEO”).
The company reports its operations by the following business unit segments: Electronics; Automotive; and Electrical.
  Electronics. Provides circuit protection components and expertise to leading global manufacturers of a wide range of electronic products including mobile phones, computers, LCD TVs, telecommunications equipment, medical devices, lighting products and white goods. The Electronics business segment has the broadest product offering in the industry including fuses and protectors, positive temperature coefficient (“PTC”) resettable fuses, varistors, polymer electrostatic discharge (“ESD”) suppressors, discreet transient voltage suppression (“TVS”) diodes, TVS diode arrays and protection thyristors, gas discharge tubes, power switching components and fuseholders, blocks and related accessories.
 
  Automotive. Provides circuit protection products to the worldwide automotive original equipment manufacturers (“OEM”) and parts distributors of passenger automobiles, trucks, buses and off-road equipment. The company also sells its fuses in the automotive replacement parts market. Products include blade fuses, high current fuses, battery cable protectors and varistors.
 
  Electrical. Provides circuit protection products and hazard assessments for industrial and commercial customers. Products include power fuses and other circuit protection devices that are used in commercial and industrial buildings and large equipment such as HVAC systems, elevators and machine tools.
Each of the operating segments is directly responsible for sales, marketing and research and development. Manufacturing, purchasing, logistics, customer service, finance, information technology and human resources are shared functions that are allocated back to the three operating segments. The CEO allocates resources to and assesses the performance of each operating segment using information about its revenue and operating income (loss) before interest and taxes, but does not evaluate the operating segments using discrete asset information.
Sales, marketing and research and development expenses are charged directly into each operating segment. All other functions are shared by the operating segments and expenses for these shared functions are allocated to the operating segments and included in the operating results reported below. The company does not report inter-segment revenue because the operating segments do not record it. The company does not allocate interest and other income, interest expense, or taxes to operating segments. Although the CEO uses operating income to evaluate the segments, operating costs included in one segment may benefit other segments. Except as discussed above, the accounting policies for segment reporting are the same as for the company as a whole.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. Business Unit Segment Information, continued
In accordance with SFAS 131, the company has provided this business unit segment information for all comparable prior periods. Segment information is summarized as follows (in thousands):
                         
    2008     2007     2006  
Net sales
                       
Electronics
  $ 342,489     $ 348,957     $ 365,418  
Automotive
    126,867       135,109       123,620  
Electrical
    61,513       52,078       45,821  
 
                 
Total net sales
  $ 530,869     $ 536,144     $ 534,859  
 
                 
 
                       
Operating income (loss)
                       
Electronics
  $ 1,745     $ 19,814     $ 37,819  
Automotive
    2,216       18,900       13,700  
Electrical
    15,471       11,989       9,936  
Other*
    (10,937 )     606       (32,597 )
 
                 
Total operating income
    8,495       51,309       28,858  
 
                       
Interest expense
    3,440       1,557       1,626  
Other expense (income), net
    (5,568 )     (1,536 )     (2,174 )
 
                 
Income from continuing operations before income taxes
    10,623       51,288       29,406  
 
                 
 
*   Included in “Other” Operating income (loss) for 2008 are special items such as restructuring charges related to the closure of the company’s Matamoros, Mexico facility ($4.4 million — see Note 9) and Ireland pension settlement charge ($5.7 million — see Note 12). Included in “Other” Operating income (loss) for 2007 is the gain on sale of property in Ireland ($8.0 million), partially offset by restructuring charges related to the closure of the company’s Des Plaines, Illinois facility ($3.5 million — see Note 9) and related write-down of manufacturing assets ($1.9 million). Included in “Other” Operating income (loss) for 2006 are restructuring charges related to the closure of the company’s Ireland facility ($17.1 million — see Note 9), Irving, Texas facility ($1.9 million — see Note 9), and the downsizing of the Littelfuse GmbH (formerly known as Heinrich Industries, AG) operations ($4.3 million — see Note 9) and related write-down of manufacturing assets ($4.4 million).
The company’s revenues and identifiable assets (total assets less intangible assets and investments) by geographical area for the fiscal years ended 2008, 2007 and 2006 are as follows (in thousands):
                         
    2008     2007     2006  
Net sales
                       
Americas
  $ 201,771     $ 204,305     $ 215,892  
Europe
    118,559       118,265       111,652  
Asia-Pacific
    210,539       213,574       207,315  
 
                 
Total net sales
  $ 530,869     $ 536,144     $ 534,859  
 
                 
 
                       
Identifiable assets
                       
Americas
  $ 183,221     $ 165,074     $ 227,322  
Europe
    79,312       136,881       159,639  
Asia-Pacific
    170,471       164,730       148,526  
 
                 
Combined total
    433,004       466,685       535,487  
Eliminations
    (27,081 )     (79,572 )     (169,900 )
 
                 
Consolidated total
  $ 405,923     $ 387,113     $ 365,587  
 
                 
For the year ended December 27, 2008, approximately 62.0% of the company’s net sales were to customers outside the United States (exports and foreign operations) including 19.4% in Hong Kong. Sales to Arrow Pemco Group were less than 10% for 2008 and 2007, respectively, but 10.6% for 2006. No other single customer accounted for more than 10% of net sales during the last three years.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. Lease Commitments
The company leases certain office and warehouse space as well as certain machinery and equipment under non-cancelable operating leases. Rental expense under these leases was approximately $6.0 million in 2008, $4.4 million in 2007, and $5.3 million in 2006.
Rent expense is recognized on a straight-line basis over the term of the leases. The difference between straight-line basis rent and the amount paid has been recorded as accrued lease obligations. The company also has leases that have lease renewal provisions. As of December 27, 2008, all operating leases outstanding were with third parties. The company did not have any capital leases as of December 27, 2008.
In February 2008, the company entered into an agreement to lease office space for its U.S. headquarters, which will be located in Chicago, Illinois. The lease, with a stated commencement date of January 1, 2009, expires December 31, 2024 and contains two five-year renewal options. In addition, the lease contains leasehold improvement incentives and rent abatement for the first year of the lease. The company expects to recognize rental expense for this lease on a straight-line basis over the term of the lease, including base rent and all considerations received. Annual rental expense under this lease will be approximately $1.4 million.
Future minimum payments for all non-cancelable operating leases with initial terms of one year or more at December 27, 2008, are as follows (in thousands):
         
2009
  $ 6,498  
2010
    4,427  
2011
    3,431  
2012
    2,338  
2013
    1,922  
2014 and thereafter
    19,922  
 
     
 
  $ 38,538  
 
     
17. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share:
                         
(In thousands, except per share amounts)   2008   2007   2006
Numerator:
                       
Income from continuing operations
  $ 8,016     $ 36,835     $ 23,236  
Denominator:
                       
Denominator for basic earnings per share —
                       
Weighted-average shares
    21,722       22,231       22,305  
Effect of dilutive securities:
                       
Common stock equivalents
    104       163       129  
Denominator for diluted earnings per share —
                       
Adjusted for weighted-average shares & assumed conversions
    21,826       22,394       22,434  
Basic earnings per share
  $ 0.37     $ 1.66     $ 1.04  
Diluted earnings per share
  $ 0.37     $ 1.64     $ 1.03  
The following potential shares of common stock attributable to stock options were excluded from the earnings per share calculation because their effect would be anti-dilutive: 1,322,540 in 2008; 906,215 in 2007; and 1,121,293 in 2006.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18. Selected Quarterly Financial Data (Unaudited)
The quarterly periods listed in the table below for 2008 are for the 13-weeks ending December 27, 2008, September 27, 2008, June 28, 2008 and March 29, 2008, respectively. The quarterly periods for 2007 are for the 13-weeks ending December 29, 2007, September 29, 2007, June 30, 2007 and March 31, 2007, respectively.
(In thousands, except per share data)
                                                                 
    2008   2007
    4Qa   3Qb   2Q   1Qc   4Q   3Qd   2Q   1Qe
 
Net sales
  $ 105,887     $ 141,448     $ 149,826     $ 133,708     $ 134,966     $ 140,215     $ 129,149     $ 131,814  
Gross profit
    21,826       35,900       47,462       38,481       42,656       46,289       41,271       41,321  
Operating income (loss)
    (13,108 )     2,011       13,304       6,288       9,979       20,227       11,612       9,491  
Net income (loss)
    (9,225 )     3,988       9,141       4,112       7,938       14,294       8,382       6,221  
Net income (loss) per share:
                                                               
Basic
    (0.42 )     0.18       0.42       0.19       0.36       0.64       0.38       0.28  
Diluted
    (0.42 )     0.18       0.42       0.19       0.36       0.64       0.38       0.28  
 
a —   In the fourth quarter of 2008, the company recorded a $3.2 million charge related to the write-down of manufacturing assets and a $2.8 million charge from marking down the company’s investment in Polytronics to its lower market value.
 
b —   In the third quarter of 2008, the company recorded a $5.7 million non-cash charge related to settlement of the Ireland pension plan.
 
c —   In the first quarter of 2008, the company recorded a $4.4 million restructuring charge related to the closure of its Matamoros, Mexico facility and the corresponding transfer of manufacturing operations to its Wuxi, China facility.
 
d —   In the third quarter of 2007, the company recorded an $8.0 million gain on the sale of land in Ireland.
 
e —   In the first quarter of 2007, the company recorded a $3.5 million restructuring charge related to the closure of its Des Plaines and Elk Grove, Illinois facilities and the transfer of its manufacturing from Des Plaines, Illinois to the Philippines and Mexico.
19. Subsequent Event
The company has undertaken several cost savings initiatives to reduce operating expenses for 2009, including the decision to freeze additional pension benefits related to the U.S.-based Littelfuse, Inc. Retirement Plan effective April 1, 2009, pending approval of a plan amendment by the Board of Directors. Management estimates that pension expense for fiscal year 2009 would decrease by approximately $1.7 million as a result of this decision.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES.
Section 404 of the Sarbanes-Oxley Act of 2002 requires management to include in this Annual Report on Form 10-K a report on management’s assessment of the effectiveness of the company’s internal control over financial reporting, as well as an attestation report from the company’s independent registered accounting firm on the effectiveness of the company’s internal control over financial reporting.

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Management’s Report on Internal Control over Financial Reporting
The management of Littelfuse is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Exchange Act Rule 13a-15(f). Littelfuse’s internal control system was designed to provide reasonable assurance to its management and the Board of Directors regarding the preparation and fair presentation of published financial statements.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Littelfuse’s management assessed the effectiveness of the company’s internal control over financial reporting as of December 27, 2008, based upon the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this assessment, the company’s management concluded that, as of December 27, 2008, the company’s internal control over financial reporting is effective.
Littelfuse’s independent registered public accounting firm, Ernst & Young LLP, has audited the effectiveness of the company’s internal control over financial reporting as of December 27, 2008. Their report appears on page 36.
Changes in Internal Control over Financial Reporting
There was no change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
Disclosure Controls and Procedures
The company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the company’s Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to the company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
As of December 27, 2008, the Chief Executive Officer and Chief Financial Officer of the company evaluated the effectiveness of the disclosure controls and procedures of the company and concluded that these disclosure controls and procedures were effective.
ITEM 9B. OTHER INFORMATION.
None.

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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
Executive Officers of the Registrant
The executive officers of the company are as follows:
             
Name   Age   Position
Gordon Hunter
    57     Chairman of the Board of Directors, President and Chief Executive Officer
 
           
Philip G. Franklin
    57     Vice President, Operations Support, Chief Financial Officer and Treasurer
 
           
Dal Ferbert
    54     Vice President and General Manager of the Electrical Business Unit
 
           
Dieter Roeder
    52     Vice President and General Manager of the Automotive Business Unit
 
           
David R. Samyn
    48     Vice President and General Manager of the Electronics Business Unit
 
           
David W. Heinzmann
    45     Vice President of Global Operations
 
           
Ryan K. Stafford
    41     General Counsel and Vice President, Human Resources
 
           
Paul Dickinson
    37     Vice President and General Manager, Semiconductor Products
 
           
Mary S. Muchoney
    63     Corporate Secretary
Officers of Littelfuse are elected by the Board of Directors and serve at the discretion of the Board.
Gordon Hunter was elected as the Chairman of the Board of Directors of the company and President and Chief Executive Officer effective January 1, 2005. Mr. Hunter served as Chief Operating Officer of the company from November 2003 to January 2005. Mr. Hunter has been a member of the Board of Directors of the company since June 2002, where he has served as Chairman of the Technology Committee. Prior to joining Littelfuse, Mr. Hunter was employed with Intel Corporation, where he was Vice President, Intel Communications Group, and General Manager, Optical Products Group, responsible for managing the access and optical communications business segments, from 2002 to 2003. Mr. Hunter was CEO for Calmar Optcom during 2001. From 1997 to 2002, he also served as a Vice President for Raychem Corporation. His experience includes 20 years with Raychem Corporation in the United States and Europe, with responsibilities in sales, marketing, engineering and general management.
Philip G. Franklin, Vice President, Operations Support, Chief Financial Officer and Treasurer, joined the company in 1998 and is responsible for finance and accounting, investor relations, mergers and acquisitions, information systems and customer service. Prior to Littelfuse, Mr. Franklin was Vice President and Chief Financial Officer for OmniQuip International, a private equity sponsored roll-up in the construction equipment industry, which he helped take public. Before that, Mr. Franklin served as Chief Financial Officer for both Monarch Marking Systems, a subsidiary of Pitney Bowes, and Hill Refrigeration, a company controlled by Sam Zell. Earlier in his career, he worked in a variety of finance and general management positions at FMC Corporation.
Dal Ferbert, Vice President and General Manager, Electrical Business Unit, is responsible for the management of daily operations, sales, marketing and strategic planning efforts of the Electrical Business Unit (POWR-GARD Products). Mr. Ferbert joined the company in 1976 as a member of the electronic distributor sales team. From 1980 to 1989 he served in the Materials Management Department as a buyer and then Purchasing Manager. In 1990, he was promoted to National Sales Manager of the Electrical Business Unit and then promoted to his current position in 2004.

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Executive Officers of the Registrant, continued
Dieter Roeder, Vice President and General Manager, Automotive Business Unit, is responsible for marketing, sales, product development and customer relationships for all automotive business units. Mr. Roeder joined the company in 2005 leading the Automotive Business Unit’s European sales team, based in Germany, before he was promoted to his current position in August 2007. Prior to joining the company, Mr. Roeder served as Director of Business Development Europe for TDS Automotive from 2002 to 2005. Before that, Mr. Roeder spent ten years with Raychem GmbH (later Tyco Electronics) where he had various sales and marketing responsibilities within the European automotive industry.
David R. Samyn, Vice President and General Manager, Electronics Business Unit, is responsible for marketing, sales, product development and manufacturing for all electronics customers and products. Mr. Samyn joined the company’s management team in January 2003 as General Manager of the Electronics Business Unit. Prior to joining the company, Mr. Samyn served as Vice President — Global Sales with Airfiber, Inc., an optical wireless telecom company in San Diego, CA from 2001 to 2003. Before that, Mr. Samyn spent five years with ADC Telecommunications where he had global sales and marketing responsibilities.
David W. Heinzmann, Vice President, Global Operations, is responsible for Littelfuse’s manufacturing and supply chain groups for all three of the company’s business units. Mr. Heinzmann began his career at the company in 1985 and possesses a broad range of experience within the organization. He has held positions as a Manufacturing Manager, Quality Manager, Plant Manager and Product Development Manager. Mr. Heinzmann also served as Director of Global Operations of the Electronics Business Unit from early 2000 through 2003. He served as Vice President and General Manager, Automotive Business Unit, from 2004 through August 2007 and then was promoted to his current position.
Ryan K. Stafford, General Counsel and Vice President, Human Resources, is responsible the company’s legal, compliance, internal audit and human resources functions. Mr. Stafford joined the company’s management team in January 2007. Prior to joining the company, Mr. Stafford served as Vice President of China Operations for Tyco Engineered Products & Services from 2005 to 2006 and Vice President and General Counsel of it from 2001 to 2005. He served as Associate General Counsel for Grinnell Corporation from 1998 to 2001. Prior to that he was with the law firm Sulloway & Hollis P.L.L.C.
Paul Dickinson, Vice President and General Manager, Semiconductor Products, is responsible for the marketing, sales, product development and strategic planning efforts of the company’s semiconductor products. Mr. Dickinson joined the company in 1993 and has held a broad range of positions with responsibility for corporate and international accounting and finance. Most recently, Mr. Dickinson served as Vice President, Corporate Development and Treasurer from 2005 through 2008, with responsibility for corporate acquisition, strategy, treasury, tax and finance functions. Mr. Dickinson was promoted to his current position in August 2008.
Mary S. Muchoney has served as Corporate Secretary since 1991, after joining Littelfuse in 1977. She is responsible for providing all secretarial and administrative functions for the President and Littelfuse Board of Directors. Ms. Muchoney is a member of the Society of Corporate Secretaries & Governance Professionals, as well as honorary member of the Society’s Silver Quill Society.

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The information set forth under “Election of Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the Proxy Statement is incorporated herein by reference. The company maintains a code of conduct, which applies to all associates, executive officers and directors. The company’s code of conduct meets the requirements of a “code of ethics” as defined by Item 406 of Regulation S-K and applies to our chief executive officer, chief financial officer and chief accounting officer as well as all other executive officers and associates. The code of conduct is available for public viewing on the company’s web site at www.littelfuse.com under the heading “Investors — Corporate Governance.”
If the company makes substantive amendments to the code of conduct or grants any waiver to its chief executive officer, chief financial officer or persons performing similar functions, Littelfuse will disclose the nature of such amendment or waiver on its website or in a Current Report on Form 8-K in accordance with applicable rules and regulations. The information contained on or connected to the company’s website is not incorporated by reference into this Form 10-K and should not be considered part of this or any other report Littelfuse files or furnishes with the SEC. There have been no material changes to the procedures by which security holders may recommend nominees to the company’s Board of Directors in 2008.
ITEM 11. EXECUTIVE COMPENSATION.
The information set forth under “Election of Directors — Compensation of Directors” and “Executive Compensation” in the Proxy Statement is incorporated herein by reference, except the section captioned “Compensation Committee Report” is hereby “furnished” and not “filed” with this Annual Report on Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The information set forth under “Ownership of Littelfuse, Inc. Common Stock” and “Compensation Plan Information” in the Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
The information set forth under “Certain Relationships and Related Transactions” and “Election of Directors” in the Proxy Statement is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
The information set forth under “Audit and Non-Audit Fees” in the Proxy Statement is incorporated herein by reference.

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PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
(a)   Financial Statements and Schedules
  (1)   The following Financial Statements are filed as a part of this report:
  (i)   Report of Independent Registered Public Accounting Firm (page 35).
 
  (ii)   Consolidated Balance Sheets as of December 27, 2008 and December 29, 2007 (page 37).
 
  (iii)   Consolidated Statements of Income for the years ended December 27, 2008, December 29, 2007, and December 30, 2006 (page 38).
 
  (iv)   Consolidated Statements of Cash Flows for the years ended December 27, 2008, December 29, 2007, and December 30, 2006 (page 39).
 
  (v)   Consolidated Statements of Shareholders’ Equity for the years ended December 27, 2008, December 29, 2007, and December 30, 2006 (page 40).
 
  (vi)   Notes to Consolidated Financial Statements (pages 41-71).
  (2)   The following Financial Statement Schedule is submitted herewith for the periods indicated therein.
  (i)   Schedule II-Valuation and Qualifying Accounts and Reserves (page 77).
    All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and, therefore, have been omitted.
  (3)   Exhibits. See Exhibit Index on pages 79-81.

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SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(In thousands of USD)
                                         
                                     
    Balance at     Charged to                     Balance at  
    Beginning     Costs and                     End of  
Description   Of Year     Expenses(1)     Deductions(2)     Other(3)     Year  
 
                                       
Year ended December 27, 2008
                                       
Allowance for losses on accounts receivable
  $ 738     $ 286     $ 77     $ (51 )   $ 896  
 
                             
Reserves for sales discounts and allowances
  $ 12,259     $ 47,081     $ 47,400     $ (66 )   $ 11,874  
 
                             
 
                                       
Year ended December 29, 2007
                                       
Allowance for losses on accounts receivable
  $ 983     $ 31     $ 309     $ 33      $ 738  
 
                             
Reserves for sales discounts and allowances
  $ 16,520     $ 45,970     $ 50,424     $ 193      $ 12,259  
 
                             
 
                                       
Year ended December 30, 2006
                                       
Allowance for losses on accounts receivable
  $ 2,165     $ 127     $ 1,383     $ 74      $ 983  
 
                             
Reserves for sales discounts and allowances
  $ 9,738     $ 23,819     $ 17,244     $ 207      $ 16,520  
 
                             
 
(1) —   Includes provision for doubtful accounts, sales returns, and sales discounts granted to customers.
 
(2) —   Represents uncollectible accounts written off, net of recoveries and credits issued to customers.
 
(3) —   Represents translation adjustments.

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SIGNATURES
     Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
         
  Littelfuse, Inc.
 
 
  By  /s/ Gordon Hunter    
    Gordon Hunter,   
    Chairman of the Board of Directors,
President and Chief Executive Officer 
 
 
Date: February 25, 2009
     Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
     
/s/ Gordon Hunter
 
Gordon Hunter
  Chairman of the Board of Directors, President and
Chief Executive Officer (Principal Executive Officer)
 
   
/s/ Tzau-Jin Chung
 
Tzau-Jin Chung
  Director
 
   
/s/ John P. Driscoll
 
John P. Driscoll
  Director
 
   
/s/ Anthony Grillo
 
Anthony Grillo
  Director
 
   
/s/ John E. Major
 
John E. Major
  Director
 
   
/s/ William P. Noglows
 
William P. Noglows
  Director
 
   
/s/ Ronald L. Schubel
 
Ronald L. Schubel
  Director
 
   
/s/ Philip G. Franklin
 
Philip G. Franklin
  Vice President, Operations Support, Chief Financial Officer and Treasurer (Principal Financial and Principal Accounting Officer)

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EXHIBIT INDEX
The following documents listed below that have been previously filed with the SEC (1934 Act File No. 0-20388) are incorporated herein by reference:
     
Exhibit No.   Description
 
   
3.1
  Certificate of Incorporation, as amended to date (filed as Exhibit 3(I) to the company’s Form 10-K for the fiscal year ended January 3, 1998).
 
   
3.2
  Certificate of Designations of Series A Preferred Stock (filed as Exhibit 4.2 to the company’s Current Report on Form 8-K dated December 1, 1995).
 
   
3.3
  Bylaws, as amended to date (filed as Exhibit 3.1 to the company’s Current Report on Form 8-K dated October 26, 2007).
 
   
10.1
  Amendment to Non-Qualified Stock Option Agreement and Agreement for Deferred Compensation between Littelfuse, Inc. and Gordon Hunter (filed as Exhibit 10.27 to the company’s Form 10-K for the fiscal year ended December 31, 2005).
 
   
10.2
  Amended and Restated Employment Agreement dated as of December 31, 2007, between Littelfuse, Inc. and Gordon Hunter (filed as Exhibit 10.1 to the company’s Form 10-K for the fiscal year ended December 29, 2007).
 
   
10.3*
  Change of Control Agreement effective as of January 1, 2009, between Littelfuse, Inc. and Gordon Hunter.
 
   
10.4*
  Change of Control Agreement effective as of January 1, 2009, between Littelfuse, Inc. and Philip G. Franklin.
 
   
10.5*
  Change of Control Agreement effective as of January 1, 2009, between Littelfuse, Inc. and David R. Samyn.
 
   
10.6*
  Change of Control Agreement effective as of January 1, 2009, between Littelfuse, Inc. and David W. Heinzmann.
 
   
10.7*
  Change of Control Agreement effective as of January 1, 2009, between Littelfuse, Inc. and Hugh Dalsen Ferbert.
 
   
10.8*
  Change of Control Agreement effective as of January 1, 2009, between Littelfuse, Inc. and Ryan K. Stafford.
 
   
10.9
  Summary of Director Compensation (filed as Exhibit 10.18 to the company’s Form 10-K for the fiscal year ended December 29, 2007).
 
   
10.10
  Littelfuse, Inc. 401(k) Savings Plan (filed as Exhibit 4.8 to the company’s Form 10-K for the fiscal year ended December 31, 1992).
 
   
10.11
  1993 Stock Plan for Employees and Directors of Littelfuse, Inc., as amended (filed as Exhibit 10.1 to the company’s Form 10-Q for the quarterly period ended July 2, 2005).
 
   
10.12
  Form of Non-Qualified Stock Option Agreement under the 1993 Stock Plan for Employees and Directors of Littelfuse, Inc. for employees of the company (filed as Exhibit 99.1 to the company’s Current Report on Form 8-K dated November 8, 2004).
 
   
10.13
  Form of Performance Shares Agreement under the 1993 Stock Plan for Employees and Directors of Littelfuse, Inc. (filed as Exhibit 10.23 to the company’s Form 10-K for the fiscal year ended January 1, 2005).

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Exhibit No.   Description
 
   
10.14
  Form of Non-Qualified Stock Option Agreement under the 1993 Stock Plan for Employees and Directors of Littelfuse, Inc. for non-employee directors of the company (filed as Exhibit 10.24 to the company’s Form 10-K for the fiscal year ended January 1, 2005).
 
   
10.15
  Stock Plan for New Directors of Littelfuse, Inc., as amended (filed as Exhibit 10.2 to the company’s Form 10-Q for the quarterly period ended July 2, 2005).
 
   
10.16
  Stock Plan for Employees and Directors of Littelfuse, Inc., as amended (filed as Exhibit 10.3 to the company’s Form 10-Q for the quarterly period ended July 2, 2005).
 
   
10.17
  Littelfuse, Inc. Equity Incentive Compensation Plan (filed as Exhibit A to the company’s Proxy Statement for Annual Meeting of Stockholders held on May 5, 2006).
 
   
10.18
  Form of Non-Qualified Stock Option Agreement under the Littelfuse, Inc. Equity Incentive Compensation Plan (filed as Exhibit 99.4 to the company’s Current Report on Form 8-K dated May 5, 2006).
 
   
10.19
  Form of Performance Shares Agreement under the Littelfuse, Inc. Equity Incentive Compensation Plan (filed as Exhibit 99.1 to the company’s Current Report on Form 8-K dated March 12, 2008).
 
   
10.20
  Form of Stock Option Agreement under the Littelfuse, Inc. Equity Incentive Compensation Plan (filed as Exhibit 99.1 to the company’s Current Report on Form 8-K dated April 25, 2008).
 
   
10.21
  Form of Restricted Stock Award Agreement under the Littelfuse, Inc. Equity Incentive Compensation Plan (filed as Exhibit 99.2 to the company’s Current Report on Form 8-K dated April 25, 2008).
 
   
10.22
  Littelfuse, Inc. Outside Directors’ Stock Option Plan (filed as Exhibit B to the company’s Proxy Statement for Annual Meeting of Stockholders held on May 5, 2006).
 
   
10.23
  Form of Non-Qualified Stock Option Agreement under the Littelfuse, Inc. Outside Directors Stock Option Plan (filed as Exhibit 99.6 to the company’s Current Report on Form 8-K dated May 5, 2006).
 
   
10.24
  Littelfuse, Inc. Outside Directors’ Equity Plan (filed as Exhibit A to the company’s Proxy Statement for Annual Meeting of Stockholders held on April 27, 2007).
 
   
10.25
  Form of Stock Option Award Agreement under the Littelfuse, Inc. Outside Directors’ Equity Plan (filed as Exhibit 99.3 to the company’s Current Report on Form 8-K dated April 25, 2008).
 
   
10.26
  Form of Restricted Stock Unit Award Agreement under the Littelfuse, Inc. Outside Directors’ Equity Plan (filed as Exhibit 99.4 to the company’s Current Report on Form 8-K dated April 25, 2008).
 
   
10.27
  Amended and Restated Littelfuse, Inc. Supplemental Executive Retirement Plan (filed as Exhibit 10.3 to the company’s Form 10-K for the fiscal year ended December 29, 2007).
 
   
10.28
  Amended and Restated Littelfuse, Inc. Deferred Compensation Plan for Non-employee Directors (filed as Exhibit 10.4 to the company’s Form 10-K for the fiscal year ended December 29, 2007).
 
   
10.29
  Amended and Restated Littelfuse, Inc. Retirement Plan (filed as Exhibit 10.13 to the company’s Form 10-K for the fiscal year ended December 29, 2007).
 
   
10.30
  Littelfuse, Inc. 2008 Annual Incentive Plan (filed as Exhibit A to the company’s Proxy Statement for Annual Meeting of Stockholders held on April 25, 2008).

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Exhibit No.   Description
 
   
10.31
  Bank credit agreement among Littelfuse, Inc., as borrower, the lenders named therein and the Bank of America N.A., as agent, dated as of July 21, 2006 (filed as Exhibit 10.1 to the company’s Form 10-Q for the quarterly period ended September 30, 2006).
 
   
10.32
  First Amendment, dated as of September 29, 2008, to that certain Credit Agreement, dated as of July 21, 2006, among Littelfuse, Inc., the lenders named therein and Bank of America, N.A., as agent (filed as Exhibit 10.2 to the company’s Form 10-Q for the quarterly period ended September 27, 2008).
 
   
10.33
  Loan Agreement, dated as of September 29, 2008, among Littelfuse, Inc., the lenders named therein and JPMorgan Chase Bank, N.A., as agent (filed as Exhibit 10.1 to the company’s Form 10-Q for the quarterly period ended September 27, 2008).
 
   
14.1
  Code of Conduct (filed as Exhibit 14.1 to the company’s Current Report on Form 8-K dated October 24, 2008).
 
   
21.1*
  Subsidiaries.
 
   
23.1*
  Consent of Independent Registered Public Accounting Firm.
 
   
31.1*
  Rule 13a-14(a)/15d-14(a) certification of Gordon Hunter.
 
   
31.2*
  Rule 13a-14(a)/15d-14(a) certification of Philip G. Franklin.
 
   
32.1+
  Section 1350 certification.
Exhibits 10.1 through 10.30 are management contracts or compensatory plans or arrangements.
 
*   Filed with this Report.
 
+   Furnished with this Report.

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Exhibit 10.3
CHANGE OF CONTROL AGREEMENT
for

Gordon Hunter
     THIS AGREEMENT is made effective as of the 1st day of January, 2009, by and between LITTELFUSE, INC., a Delaware corporation (hereinafter referred to as the “Company”), and the executive named above (hereinafter referred to as the “Executive”);
WITNESSETH:
     WHEREAS, the Board of Directors of the Company (hereinafter referred to as the “Board”) has determined that it is in the best interests of the Company and its stockholders to provide the Executive with certain protections against the uncertainties usually created by a Change of Control (as such term is hereinafter defined); and
     WHEREAS, the Board wishes to better enable the Executive to devote his full time, attention and energy to the business of the Company prior to and after a Change of Control, thereby benefiting the Company and its stockholders;
     NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged and confessed, the Company and the Executive hereby agree as follows:
     Section 1. Certain Definitions. (a) The “Effective Date” shall mean the first date during the Change of Control Period (as defined in Section 1(b) hereof) on which a Change of Control (as defined in Section 2 hereof) occurs. Notwithstanding anything to the contrary contained in this Agreement, if a Change of Control occurs and if the Executive separates from service with the Company prior to the date on which the Change of Control occurs, and if it is reasonably demonstrated by the Executive that such separation from service (i) was at the direct or indirect request of a third party who theretofore had taken any steps intended to effect a Change of Control or (ii) otherwise arose in connection with or in anticipation of a Change of Control, then for all purposes of this Agreement the “Effective Date” shall mean the date immediately prior to the date of such separation from service.
     (b) The “Change of Control Period” shall mean the period commencing on January 1, 2009 and ending on December 31, 2011.
     Section 2. Change of Control. For the purpose of this Agreement, a “Change of Control” shall mean:
     (a) The acquisition by any one person or more than one person acting as a group (within the meaning of Treasury Regulation Section 1.409A-3(i)(5)(v)(B)), other than the Company or any employee benefit plan (or related trust) sponsored or maintained by the Company or any affiliated company (as defined in Section 4), (a “Person”) of any of stock of the Company that, together with stock held by such Person, constitutes more than 40% of the total fair market value or total voting power of the stock of the Company. For purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control: (i) the acquisition of additional stock by a Person who is considered to own more than 50% of the total

 


 

fair market value or total voting power of the stock of the Company, (ii) any acquisition in which the Company does not remain outstanding thereafter and (iii) any acquisition pursuant to a transaction which complies with subsection (c) of this Section 2. An increase in the percentage of stock owned by any one Person as a result of a transaction in which the Company acquires its stock in exchange for property will be treated as an acquisition of stock for purposes of this subsection;
     (b) The replacement of individuals who, as of the date hereof, constitute a majority of the Board, during any twelve (12) month period by directors whose appointment or election is not endorsed by a majority of the Board before the date of the appointment or election, provided that, if the Company is not the relevant corporation for which no other corporation is a majority shareholder for purposes of Treasury Regulation Section 1.409A-3(i)(5)(iv)(A)(2), this subsection (b) shall be applied instead with respect to the members of the board of the directors of such relevant corporation for which no other corporation is a majority shareholder;
     (c) The acquisition by any one person or more than one person acting as a group (within the meaning of Treasury Regulation Section 1.409A-3(i)(5)(vi)(D)), other than the Company or any employee benefit plan (or related trust) sponsored or maintained by the Company or any affiliated company (as defined in Section 4), during the 12-month period ending on the date of the most recent acquisition by such person or persons, of ownership of stock of the Company possessing 30% or more of the total voting power of the stock of the Company. For purposes of this subsection (c), the following acquisitions shall not constitute a Change of Control: (i) the acquisition of additional control by a person or more than one person acting as a group who are considered to effectively control the Company within the meaning of Treasury Regulation Section 1.409A-3(i)(5)(vi) and (ii) any acquisition pursuant to a transaction which complies with subsection (a) of this Section 2; or
     (d) The acquisition by any individual person or more than one person acting as a group (within the meaning of Treasury Regulation Section 1.409A-3(i)(5)(vii)(C)), other than a transfer to a related person within the meaning of Treasury Regulation Section 1.409A-3(i)(5)(vii)(B), during the 12-month period ending on the date of the most recent acquisition by such person or persons, of assets from the Company that have a total gross fair market value equal to or more than 40% of the total gross fair market value of all of the assets of the Company immediately prior to such acquisition(s). For purposes of this subsection (d), “gross fair market value” means the value of the assets of the Company, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets.
The above definition of “Change of Control” shall be interpreted by the Board, in good faith, to apply in a similar manner to transactions involving partnerships and partnership interests, and to comply with Section 409A of the Internal Revenue Code and Treasury Regulations and official guidance issued thereunder from time to time (“Section 409A”).
     Section 3. Service Period. The Company hereby agrees to continue to retain the services of the Executive, and the Executive hereby agrees to provide services to the Company and its successors, subject to the terms and conditions of this Agreement, for the period commencing on the Effective Date and ending on the second anniversary of such date (the “Service Period”).

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     Section 4. Terms of Service.
     (a) Position and Duties. (i) During the Service Period, (A) the Executive’s position (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned at any time during the 120-day period immediately preceding the Effective Date and (B) the Executive’s services shall be performed at the location where the Executive was providing services to the Company or its affiliated companies immediately preceding the Effective Date or any office or location less than 20 miles from such location.
     (ii) During the Service Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive’s reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Service Period it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions, and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive’s responsibilities as an employee or service provider of the Company in accordance with this Agreement.
     (b) Compensation. (i) Base Salary. During the Service Period, the Executive shall receive an annual base salary (hereinafter referred to as the “Annual Base Salary”), which shall be paid at a monthly rate, equal to at least twelve times the highest monthly base salary paid or payable, including any base salary which has been earned but deferred, to the Executive by the Company and its affiliated companies in respect of the twelve-month period immediately preceding the month in which the Effective Date occurs. During the Service Period, the Annual Base Salary shall be reviewed no more than 12 months after the last salary increase awarded to the Executive prior to the Effective Date and thereafter at least annually. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. Annual Base Salary shall not be reduced after any such increase and the term Annual Base Salary as used in this Agreement shall refer to Annual Base Salary as so increased. As used in this Agreement, the term “affiliated companies” shall include any company controlled by, controlling or under common control with the Company.
     (ii) Annual Bonus. In addition to the Annual Base Salary, the Executive shall be awarded, for each fiscal year ending during the Service Period, an annual bonus (hereinafter referred to as the “Annual Bonus”) in cash at least equal to the Executive’s highest bonus under the Company’s incentive bonus program or any comparable bonus under any predecessor or successor plan, for the last three full fiscal years prior to the Effective Date (annualized in the event that the Executive was not employed by the Company for the whole of such fiscal year) (hereinafter referred to as the “Recent Annual Bonus”). Each such Annual Bonus shall be paid no later than the fifteenth day of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect to defer the receipt of such Annual Bonus. Any such deferral election shall be made not later than the first day of the fiscal year for

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which the Annual Bonus is paid, and shall be made in accordance with policies adopted by the Company in compliance with Section 409A.
     (iii) Incentive, Savings and Retirement Plans. During the Service Period, the Executive shall be entitled to participate in all incentive, savings and retirement plans, practices, policies and programs applicable generally to other peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with incentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable), savings opportunities and retirement benefit opportunities, in each case, less favorable, in the aggregate, than the most favorable of those provided by the Company and its affiliated companies for the Executive under such plans, practices, policies and programs as in effect at any time during the 120-day period immediately preceding the Effective Date or if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies.
     (iv) Welfare Benefit Plans. During the Service Period, the Executive and/or the Executive’s family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other peer executives of the Company and its affiliated companies. In the event such plans, practices, policies and programs provide the Executive with benefits which are less favorable, in the aggregate, than the most favorable of such plans, practices, policies and programs in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies, then the Company shall provide individual insurance policies or reimburse the Executive, on at least a monthly basis, to cover any difference in the benefits received by the Executive.
     (v) Expenses. During the Service Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the most favorable policies, practices and procedures of the Company and its affiliated companies in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive and to the extent that any resulting change in reimbursement or payment dates would comply with Section 409A, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies.
     (vi) Fringe Benefits. During the Service Period, the Executive shall be entitled to fringe benefits, including, without limitation, tax and financial planning services, payment of club dues, and, if applicable, use of an automobile and payment of related expenses, in accordance with the most favorable plans, practices, programs and policies of the Company and its affiliated companies in effect for the Executive at any time during

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the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive and to the extent that any resulting change in reimbursement or payment dates would comply with Section 409A, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies.
     (vii) Office and Support Staff. During the Service Period, the Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and to exclusive personal secretarial and other assistance, at least equal to the most favorable of the foregoing provided to the Executive by the Company and its affiliated companies at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive and to the extent that any resulting change in reimbursement or payment dates would comply with Section 409A, as provided generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies.
     (viii) Vacation. During the Service Period, the Executive shall be entitled to paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company and its affiliated companies as in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies.
The requirements of paragraphs 4(b)(iii) through (viii) shall not apply to the extent prohibited by applicable law or to the extent such participation would cause the applicable plan, practice, policy, or program to fail nondiscrimination or coverage tests imposed thereon by applicable law.
     Section 5. Separation from Service.
     (a) Disability. If the Company determines in good faith that the Disability of the Executive has occurred during the Service Period (pursuant to the definition of Disability set forth below), it may terminate Executive’s service effective upon the date the Company provides written notice to the Executive. For purposes of this Agreement, “Disability” shall mean the Executive is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months; or, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than 3 months under an accident and health plan covering employees of the Company.
     (b) Cause. The Company may terminate the Executive’s service during the Service Period for Cause. For purposes of this Agreement, “Cause” shall mean:
     (i) the willful and continued failure of the Executive to perform substantially the Executive’s duties with the Company (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial

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performance is delivered to the Executive by the Board which specifically identifies the manner in which the Board believes that the Executive has not substantially performed the Executive’s duties and such failure is not cured within sixty (60) calendar days after receipt of such written demand; or
     (ii) the willful engaging by the Executive in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company.
     For purposes of this provision, any act or failure to act on the part of the Executive in violation or contravention of any order, resolution or directive of the Board shall be considered “willful” unless such order, resolution or directive is illegal or in violation of the certificate of incorporation or by-laws of the Company; provided, however, that no other act or failure to act on the part of the Executive, shall be considered “willful,” unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive’s action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Chief Executive Officer or General Counsel of the Company or based upon the advice of outside counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. The cessation of employment of the Executive shall not be deemed to be for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, the Executive is guilty of the conduct described in subparagraph (i) or (ii) above, and specifying the particulars thereof in detail.
     (c) Good Reason. The Executive’s service may be terminated by the Executive for Good Reason. For purposes of this Agreement, “Good Reason” shall mean:
     (i) the Executive is not elected to, or is removed from, any elected office of the Company which the Executive held immediately prior to the Effective Date;
     (ii) the assignment to the Executive of any duties materially inconsistent in any respect with the Executive’s position, authority, duties or responsibilities as contemplated by Section 4(a) hereof, or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive;
     (iii) any failure by the Company to comply with any of the provisions of this Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive;

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     (iv) the Company’s requiring the Executive to travel on Company business to a substantially greater extent than required immediately prior to the Effective Date; or
     (v) any purported termination by the Company of the Executive’s employment otherwise than as expressly permitted by this Agreement.
     For purposes of this Section 5(c), a good faith determination of “Good Reason” made by the Executive shall be conclusive.
     (d) Notice of Termination. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 13(b) hereof. For purposes of this Agreement, a “Notice of Termination” means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s service under the provision so indicated, and (iii) specifies the termination date. To qualify as “Good Reason,” the Executive must provide such notice within 90 days following the initial existence of the condition described in (c)(i) through (v) above, upon notice of which the Company shall have 30 days during which it may remedy the condition, in which case “Good Reason” shall not exist. The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive’s or the Company’s rights hereunder.
     (e) Separation from Service. All references to “separation from service,” “termination of service” and words of similar import shall have the same meaning as “separation from service” as defined by Section 409A. By way of illustration, and without limiting the generality of the foregoing, the following principals shall apply:
     (i) The Executive shall not be considered to have separated from service so long as the Executive is on military leave, sick leave, or other bona fide leave of absence if the period of such leave does not exceed six months, or if longer, so long as the Executive retains a right to reemployment with the Company under an applicable statute or by contract.
     (ii) Regardless of whether his employment has been formally terminated, the Executive will be considered to have separated from service as of the date it is reasonably anticipated that no further services will be performed by the Executive for the Company, or that the level of bona fide services the Executive will perform after such date will permanently decrease to no more than 20% of the average level of bona fide services performed over the immediately preceding 36-month period (or the full period of employment if the Executive has been employed for less than 36 months). For purposes of the preceding test, during any paid leave of absence the Executive shall be considered to have been performing services at the level commensurate with the amount of compensation received, and unpaid leaves of absence shall be disregarded.

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     (iii) For purposes of determining whether the Executive has separated from service, all services provided for the Company, or for any other entity that is part of a controlled group that includes the Company as defined in Section 414(b) or (c) of the Internal Revenue Code (“Code”), shall be taken into account, whether provided as an employee or as a consultant or other independent contractor; provided that the Executive shall not be considered to have not separated from service solely by reason of service as a non-employee director of the Company or any other such entity.
     Section 6. Obligations of the Company upon Separation.
     (a) Good Reason; Other Than for Cause, Death or Disability. If, during the Service Period, the Company causes the Executive to separate from service other than for Cause or Disability, or the Executive shall voluntarily separate from service for Good Reason as described in Section 5(c), the following provisions shall apply:
     (i) The Company shall pay to the Executive the amounts set forth in Sections A and B below.
  A.   The sum of the following (“Accrued Obligations”):
  (1)   the Executive’s Annual Base Salary through the separation from service to the extent not theretofore paid, payable on the next regularly scheduled payroll date, plus
 
  (2)   an amount, equal to the Executive’s highest Annual Bonus or bonus paid under the Company’s incentive bonus program or any comparable bonus under any predecessor or successor plan, for the last three fiscal years ending prior to the separation from service (“Highest Annual Bonus”), multiplied by a fraction, the numerator of which is the number of days in the fiscal year through the separation from service, and the denominator of which is 365, payable in a lump sum on the 30th day following the separation from service, plus
 
  (3)   any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon), paid in accordance with the Executive’s deferral elections in effect under any such deferral program, plus
 
  (4)   any accrued but unpaid vacation pay, paid in a lump sum on the 30th day following the separation from service.
  B.   The amount equal to the product of (1) two multiplied by (2) the sum of (x) the Executive’s Annual Base Salary plus (y) the Highest Annual Bonus (the “Lump Sum Severance”), which shall be paid in a single lump sum payment six months after the Executive’s separation from service; provided that the Executive shall receive installment payments equal to all 409A Severance Payments that would have been paid pursuant to Section

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      5(d) of the Amended and Restated Employment Agreement, dated as of December 31, 2007, between the Executive and the Company (the “Employment Agreement”), if the Executive had been terminated pursuant to said Section 5(d) prior to the Effective Date, paid at the same time that such 409A Severance Payments would have been paid pursuant to said Section 5(d), and the balance, if any, of the Lump Sum Severance shall be paid in a lump sum on the first day that is at least six months after the Executive’s separation from service; provided further that if the sum of such 409A Severance Payments exceeds the Lump Sum Severance, the 409A Severance Payments shall be reduced, in reverse order of payment, until the sum of the 409A Severance Payments equals the Lump Sum Severance; and provided further that if the Executive dies at any time after the separation from service the entire remaining unpaid balance of the Lump Sum Severance shall be paid to his estate or designated beneficiary within 30 days after the date of his death.
     (ii) The Company shall reimburse the Executive for the additional premium costs incurred by the Executive, in excess of the active employee rate for the Executive’s peer group, to continue group medical coverage for the Executive and/or the Executive’s family under Section 4980B of the Code and applicable state laws (“COBRA”) for the maximum period of time as permitted by law. The Executive shall submit to the Company satisfactory evidence of premium costs incurred within 30 days following the date such costs were incurred. Within 30 days following receipt of such evidence, the Company shall pay to the Executive such reimbursement, plus additional severance pay in an amount such that the net amount of such reimbursement and additional severance pay, after all applicable tax withholding, equals the difference between the full COBRA premium and the premium charged to active employees in Executive’s peer group. Following the end of COBRA coverage, the Company shall reimburse the Executive for the additional premium costs incurred by the Executive, in excess of the former employee COBRA rate for the Executive’s peer group, for the purchase of an individual insurance policy providing medical coverage to the Executive and/or the Executive’s family which is substantially similar to the coverage provided by the Company’s group medical plan. In no event shall the combined period of reimbursable coverage under COBRA and any individual insurance policy exceed two years from separation from service.
     (iii) For a period of up to 2 years after the separation from service, the Company shall provide monthly outplacement services to the Executive at reasonable levels as provided to peer executives of the Company, for the purpose of assisting the Executive to seek new employment; provided, however, that the Company shall have no further obligations to provide such outplacement services once the Executive has accepted employment with any third party.
     (iv) Notwithstanding anything to the contrary set forth in any stock option plans pursuant to which the Executive has been granted any stock options or other rights to acquire securities of the Company or its Affiliates, as defined in Rule 12b-2 of the General Rules and Regulations under the Exchange Act (the “Plans”), any option or right granted to the Executive under any of the Plans shall be exercisable by the Executive

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until the earlier of (x) the date on which the option or right terminates in accordance with the terms of its grant, or (y) the expiration of 12 months after the separation from service.
     (v) To the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies (such other amounts and benefits shall hereinafter be referred to collectively as the “Other Benefits”).
     (vi) Notwithstanding anything to the contrary contained in any employment agreement, benefit plan or other document, in the event the Executive’s employment shall be terminated during the Service Period by the Executive for Good Reason or by the Company other than for Cause or Disability, on and after the separation from service the Executive shall not be bound or prejudiced by any non-competition agreement benefiting the Company or its subsidiaries.
     (b) Death. If the Executive dies during the Service Period, this Agreement shall terminate without further obligations by the Company to the Executive’s legal representatives under this Agreement, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive’s estate or beneficiary, as applicable, at the time and in the form as provided in Paragraph 6(a)(i)(A) above. With respect to the provision of Other Benefits, the term “Other Benefits” as utilized in this Section 6(b) shall include, without limitation, and the Executive’s estate and/or beneficiaries shall be entitled to receive, benefits at least equal to the most favorable benefits provided by the Company and affiliated companies to the estates and beneficiaries of peer executives of the Company and such affiliated companies under such plans, programs, practices and policies relating to death benefits, if any, as in effect with respect to other peer executives and their beneficiaries at any time during the 120-day period immediately preceding the Effective Date.
     (c) Disability. If the Company causes the Executive to separate from service by reason of the Executive’s Disability during the Service Period as set forth in Section 5(a), this Agreement shall terminate without further obligations by the Company to the Executive under this Agreement, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive at the time and in the form provided in Paragraph 6(a)(i)(A). With respect to the provision of Other Benefits, the term “Other Benefits” as utilized in this Section 6(c) shall include, and the Executive shall be entitled after the Executive’s separation from service to receive, disability and other benefits at least equal to the most favorable of those generally provided by the Company and its affiliated companies to disabled executives and/or their families in accordance with such plans, programs, practices and policies relating to disability, if any, as in effect generally with respect to other peer executives and their families at any time during the 120-day period immediately preceding the Effective Date.
     (d) Cause; Other than for Good Reason. If the Company causes the Executive to separate from service for Cause during the Service Period as described in Section 5(b), this Agreement shall terminate without further obligations to the Executive other than the obligation to pay to the Executive (x) his Annual Base Salary through the separation from service, payable

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on the next regularly scheduled payroll date, (y) the amount of any compensation previously deferred by the Executive (which shall be paid at the time and in the form it would otherwise have been paid had this Agreement not applied), and (z) Other Benefits, in each case to the extent theretofore unpaid. If the Executive voluntarily separates from service during the Service Period, excluding a termination for Good Reason as described in Section 5(c), this Agreement shall terminate without further obligations of the Company to the Executive under this Agreement, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. In such case, all Accrued Obligations shall be paid to the Executive at the time and in the form provided in Section 6(a)(i)(A) and the Company shall timely pay or provide the Other Benefits to the Executive. In no event shall the Executive be liable to the Company for any damages caused by such voluntary termination by the Executive nor shall the Executive be in any way restricted from being employed by any other party after such voluntary termination.
     Section 7. Code Section 409A Payment Limits. To the maximum extent possible, the provisions of this Agreement shall be construed in such a manner that no amounts payable to the Executive are subject to the additional tax and interest provided in Section 409A(a)(1)(B) of the Code. If any payment (whether cash or in-kind), including but not limited to reimbursements and Other Benefits, would constitute a “deferral of compensation” under Section 409A and a payment date that complies with Section 409A(a)(2) of the Code is not otherwise provided for such benefit either in this Agreement or a Company program or policy, then such payment shall be made not later than 2 1/2 months after the end of the calendar year in which the payment is no longer subject to a substantial risk of forfeiture. Any receipts or other proof of expenses (if required) shall be submitted to the Company by the Executive no later than one month after the end of the calendar year in which the payment is no longer subject to a substantial risk of forfeiture. Notwithstanding any provision in this Agreement to the contrary, if at the time of separation from service the Executive is a “specified employee” within the meaning of Section 409A, any cash or in-kind payments which constitute a “deferral of compensation” under Section 409A and which would otherwise become due under this Agreement during the first 6 months (or such longer period as required by Section 409A) after separation from service shall be delayed and all such delayed payments shall be paid in full in the 7th month after the separation from service, and all subsequent payments shall be paid in accordance with their original payment schedule. To the extent that any insurance premiums or other benefit contributions constituting a “deferral of compensation” become subject to the above delay, the Executive shall be responsible for paying such amounts directly to the insurer or other third party and shall receive reimbursement from the Company for such amounts in the 7th month as described above. The above specified employee delay shall not apply to any payments that are excepted from coverage by Section 409A, such as those payments covered by the short-term deferral exception described in Treasury Regulations Section 1.409A-1(b)(4).
     Section 8. Nonexclusivity of Rights. Nothing in this Agreement shall prevent or limit the Executive’s continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which the Executive may qualify, nor, subject to Section 13(f) hereof, shall anything herein limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or any of its affiliated companies. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to his or her separation

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from service shall be payable in accordance with such plan, policy, practice or program or contract or agreement, except as explicitly modified by this Agreement.
     Section 9. Full Settlement. The Company’s obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and such amounts shall not be reduced whether or not the Executive obtains other employment. To the extent that any amount due hereunder has become subject to a bona fide dispute, payment of such amount may be delayed until no later than the end of the first taxable year of the Executive in which the Company and the Executive enter into a legally binding settlement of such dispute, the Company concedes that the amount is payable, or the Company is required to make such payment pursuant to a final and nonappealable judgment or other binding decision, as set forth in Treasury Regulation Section 1.409A-3(g), and any such payment shall include interest on such delayed amount from the original due date thereof until paid at the prime rate from time to time reported in The Wall Street Journal during said period, plus, to the fullest extent permitted by law, the amount of all legal fees and expenses which the Executive reasonably incurs as a result of any contest by the Company, the Executive or others in which the Executive is the prevailing party.
     Section 10. Certain Additional Payments by the Company. (a) Anything in this Agreement to the contrary notwithstanding and except as set forth below, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section, except as provided in the last sentence of this paragraph (a)) (hereinafter referred to collectively as a “Payment”) would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the “Excise Tax”), then the Executive shall be entitled to receive an additional payment (a “Gross-Up Payment”) in an amount such that, after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. Regardless of whether the Executive is subject to an Excise Tax, in the event that the Company fails to make any payment at the time or in the form required by Section 6, and as a result it is subsequently determined that Executive is subject to the additional tax and interest provided in Section 409A(a)(1)(B) of the Code with respect to any portion of such payment (such additional tax, together with any interest and penalties thereon, are hereinafter collectively referred to as the “Section 409A Penalty”) then Executive shall also be entitled to receive an additional payment (a “Section 409A Gross-Up”) calculated in the same manner as a Gross-Up Payment by substituting “Section 409A Penalty” for “Excise Tax” for all purposes of this Section. The Section 409A Gross-Up shall be considered a Payment for purposes of calculation of any Gross-Up Penalty.

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     (b) Subject to the provisions of paragraph (c) hereof, all determinations required to be made under this Section, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by Ernst & Young LLP or such other independent certified public accounting firm as may be designated by the Executive (hereinafter referred to as the “Accounting Firm”) which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, the Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section, shall be paid by the Company to the Executive within five days of the receipt of the Accounting Firm’s determination. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made (hereinafter referred to as the “Underpayment”) consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to paragraph (c) hereof and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive.
     (c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall:
     (i) give the Company any information reasonably requested by the Company relating to such claim,
     (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company,
     (iii) cooperate with the Company in good faith in order effectively to contest such claim, and

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     (iv) permit the Company to participate in any proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this paragraph (c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or to contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance. The Company’s control of any such contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority.
     (d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to paragraph (c) hereof, the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company’s complying with the requirements of paragraph (c) hereof) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to paragraph (c) hereof, a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid.
     (e) Anything else contained herein to the contrary notwithstanding, in no event shall any Gross-Up Payment be paid to the Executive later than the last day of the year following the year in which the Executive pays to the applicable taxing authority the Excise Tax with respect to which the Gross-Up Payment is due. The preceding sentence is included solely in order to satisfy the requirements of Section 409A, and is not to be construed to permit a delay in the time at which a Gross-Up Payment would otherwise be paid.

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     Section 11. Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Executive during the Executive’s service with the Company or any of its affiliated companies and which shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). After Executive’s separation from service with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this Section 11 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. The provisions of this Section 11 shall survive any termination of this Agreement or the Executive’s separation of service with the Company.
     Section 12. Successors. (a) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive’s legal representatives.
     (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns.
     (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, the term “Company” shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law or otherwise.
     Section 13. Miscellaneous. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Illinois, without reference to principles of conflict of laws. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives.

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     (b) Each notice, request, demand, approval or other communication which may be or is required to be given under this Agreement shall be in writing and shall be deemed to have been properly given when delivered personally at the address set forth below for the intended party during normal business hours at such address, when sent by facsimile or other electronic transmission to the respective facsimile transmission numbers of the parties set forth below with telephone confirmation of receipt, or when sent by recognized overnight courier or by the United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows:
     If to the Company:
Littelfuse, Inc.
800 E. Northwest Highway
Des Plaines, Illinois 60016
Attention: All members of the Board of Directors
Facsimile: (847) 824-3864
Confirm: (847) 391-0304
     If to the Executive, to the last address shown in the records of the Company.
     Notices shall be given to such other addressee or address, or both, or by way of such other facsimile transmission number, as a particular party may from time to time designate by written notice to the other party hereto. Each notice, request, demand, approval or other communication which is sent in accordance with this Section shall be deemed given and received for all purposes of this Agreement as of two business days after the date of deposit thereof for mailing in a duly constituted United States post office or branch thereof, one business day after deposit with a recognized overnight courier service or upon confirmation of receipt of any facsimile transmission. Notice given to a party hereto by any other method shall only be deemed to be given and received when actually received in writing by such party.
     (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.
     (d) The Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation.
     (e) The Executive’s or the Company’s failure to insist upon strict compliance with any provision of this Agreement or the failure to promptly assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to separate from service for Good Reason pursuant to Section 5(c)(i)-(v) hereof, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement.
     (f) The Executive and the Company acknowledge that, except as may otherwise be provided under any other written agreement between the Executive and the Company, the

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employment or other service of the Executive by or with the Company is “at will” and, subject to Section 1(a) hereof and/or any other written agreement between the Executive and the Company, prior to the Effective Date, the Executive’s employment and/or service and/or this Agreement may be terminated by either the Executive or the Company at any time prior to the Effective Date upon written notice to the other party, in which case the Executive shall have no further rights under this Agreement. From and after the Effective Date, this Agreement shall supersede any other agreement between the parties with respect to the subject matter hereof.
     (g) This Agreement may be executed in two or more counterparts, all of which taken together shall constitute one and the same agreement.
     IN WITNESS WHEREOF, the parties hereto have executed this Change of Control Agreement on the dates set forth below.
                 
Date: January 22, 2009
      EXECUTIVE

 
 
 
     
 
 
 
               
 
     
LITTELFUSE, INC.
 
 
Date: ________________________________
      By         
 
             
 
        Its       
 
               

17

Exhibit 10.4
CHANGE OF CONTROL AGREEMENT
for

Philip G. Franklin
     THIS AGREEMENT is made effective as of the 1st day of January, 2009, by and between LITTELFUSE, INC., a Delaware corporation (hereinafter referred to as the “Company”), and the executive named above (hereinafter referred to as the “Executive”);
WITNESSETH:
     WHEREAS, the Board of Directors of the Company (hereinafter referred to as the “Board”) has determined that it is in the best interests of the Company and its stockholders to provide the Executive with certain protections against the uncertainties usually created by a Change of Control (as such term is hereinafter defined); and
     WHEREAS, the Board wishes to better enable the Executive to devote his full time, attention and energy to the business of the Company prior to and after a Change of Control, thereby benefiting the Company and its stockholders;
     NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged and confessed, the Company and the Executive hereby agree as follows:
     Section 1. Certain Definitions.
     (a) The “Effective Date” shall mean the first date during the Change of Control Period (as defined in Section 1(b) hereof) on which a Change of Control (as defined in Section 2 hereof) occurs. Notwithstanding anything to the contrary contained in this Agreement, if a Change of Control occurs and if the Executive separates from service with the Company prior to the date on which the Change of Control occurs, and if it is reasonably demonstrated by the Executive that such separation from service (i) was at the direct or indirect request of a third party who theretofore had taken any steps intended to effect a Change of Control or (ii) otherwise arose in connection with or in anticipation of a Change of Control, then for all purposes of this Agreement the "Effective Date” shall mean the date immediately prior to the date of such separation from service.
     (b) The “Change of Control Period” shall mean the period commencing on January 1, 2009 and ending on December 31, 2011.
     Section 2. Change of Control. For the purpose of this Agreement, a “Change of Control” shall mean:
     (a) The acquisition by any one person or more than one person acting as a group (within the meaning of Treasury Regulation Section 1.409A-3(i)(5)(v)(B)), other than the Company or any employee benefit plan (or related trust) sponsored or maintained by the Company or any affiliated company (as defined in Section 4), (a “Person”) of any of stock of the Company that, together with stock held by such Person, constitutes more than 40% of the total fair market value or total voting power of the stock of the Company. For purposes of this

 


 

subsection (a), the following acquisitions shall not constitute a Change of Control: (i) the acquisition of additional stock by a Person who is considered to own more than 50% of the total fair market value or total voting power of the stock of the Company, (ii) any acquisition in which the Company does not remain outstanding thereafter and (iii) any acquisition pursuant to a transaction which complies with subsection (c) of this Section 2. An increase in the percentage of stock owned by any one Person as a result of a transaction in which the Company acquires its stock in exchange for property will be treated as an acquisition of stock for purposes of this subsection;
     (b) The replacement of individuals who, as of the date hereof, constitute a majority of the Board, during any twelve (12) month period by directors whose appointment or election is not endorsed by a majority of the Board before the date of the appointment or election, provided that, if the Company is not the relevant corporation for which no other corporation is a majority shareholder for purposes of Treasury Regulation Section 1.409A-3(i)(5)(iv)(A)(2), this subsection (b) shall be applied instead with respect to the members of the board of the directors of such relevant corporation for which no other corporation is a majority shareholder;
     (c) The acquisition by any one person or more than one person acting as a group (within the meaning of Treasury Regulation Section 1.409A-3(i)(5)(vi)(D)), other than the Company or any employee benefit plan (or related trust) sponsored or maintained by the Company or any affiliated company (as defined in Section 4), during the 12-month period ending on the date of the most recent acquisition by such person or persons, of ownership of stock of the Company possessing 30% or more of the total voting power of the stock of the Company. For purposes of this subsection (c), the following acquisitions shall not constitute a Change of Control: (i) the acquisition of additional control by a person or more than one person acting as a group who are considered to effectively control the Company within the meaning of Treasury Regulation Section 1.409A-3(i)(5)(vi) and (ii) any acquisition pursuant to a transaction which complies with subsection (a) of this Section 2; or
     (d) The acquisition by any individual person or more than one person acting as a group (within the meaning of Treasury Regulation Section 1.409A-3(i)(5)(vii)(C)), other than a transfer to a related person within the meaning of Treasury Regulation Section 1.409A-3(i)(5)(vii)(B), during the 12-month period ending on the date of the most recent acquisition by such person or persons, of assets from the Company that have a total gross fair market value equal to or more than 40% of the total gross fair market value of all of the assets of the Company immediately prior to such acquisition(s). For purposes of this subsection (d), “gross fair market value” means the value of the assets of the Company, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets.
The above definition of “Change of Control” shall be interpreted by the Board, in good faith, to apply in a similar manner to transactions involving partnerships and partnership interests, and to comply with Section 409A of the Internal Revenue Code and Treasury Regulations and official guidance issued thereunder from time to time (“Section 409A”).
     Section 3. Service Period. The Company hereby agrees to continue to retain the services of the Executive, and the Executive hereby agrees to provide services to the Company and its successors, subject to the terms and conditions of this Agreement, for the period

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commencing on the Effective Date and ending on the second anniversary of such date (the “Service Period”).
     Section 4. Terms of Service.
     (a) Position and Duties.
     (i) During the Service Period, (A) the Executive’s position (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned at any time during the 120-day period immediately preceding the Effective Date and (B) the Executive’s services shall be performed at the location where the Executive was providing services to the Company or its affiliated companies immediately preceding the Effective Date or any office or location less than 20 miles from such location.
     (ii) During the Service Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive’s reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Service Period it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions, and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive’s responsibilities as an employee or service provider of the Company in accordance with this Agreement.
     (b) Compensation. (i) Base Salary. During the Service Period, the Executive shall receive an annual base salary (hereinafter referred to as the “Annual Base Salary”), which shall be paid at a monthly rate, equal to at least twelve times the highest monthly base salary paid or payable, including any base salary which has been earned but deferred, to the Executive by the Company and its affiliated companies in respect of the twelve-month period immediately preceding the month in which the Effective Date occurs. During the Service Period, the Annual Base Salary shall be reviewed no more than 12 months after the last salary increase awarded to the Executive prior to the Effective Date and thereafter at least annually. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. Annual Base Salary shall not be reduced after any such increase and the term Annual Base Salary as used in this Agreement shall refer to Annual Base Salary as so increased. As used in this Agreement, the term “affiliated companies” shall include any company controlled by, controlling or under common control with the Company.
     (i) Annual Bonus. In addition to the Annual Base Salary, the Executive shall be awarded, for each fiscal year ending during the Service Period, an annual bonus (hereinafter referred to as the “Annual Bonus”) in cash at least equal to the Executive’s highest bonus under the Company’s incentive bonus program or any comparable bonus under any predecessor or successor plan, for the last three full fiscal years prior to the

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Effective Date (annualized in the event that the Executive was not employed by the Company for the whole of such fiscal year) (hereinafter referred to as the “Recent Annual Bonus”). Each such Annual Bonus shall be paid no later than the fifteenth day of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect to defer the receipt of such Annual Bonus. Any such deferral election shall be made not later than the first day of the fiscal year for which the Annual Bonus is paid, and shall be made in accordance with policies adopted by the Company in compliance with Section 409A.
     (ii) Incentive, Savings and Retirement Plans. During the Service Period, the Executive shall be entitled to participate in all incentive, savings and retirement plans, practices, policies and programs applicable generally to other peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with incentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable), savings opportunities and retirement benefit opportunities, in each case, less favorable, in the aggregate, than the most favorable of those provided by the Company and its affiliated companies for the Executive under such plans, practices, policies and programs as in effect at any time during the 120-day period immediately preceding the Effective Date or if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies.
     (iii) Welfare Benefit Plans. During the Service Period, the Executive and/or the Executive’s family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other peer executives of the Company and its affiliated companies. In the event such plans, practices, policies and programs provide the Executive with benefits which are less favorable, in the aggregate, than the most favorable of such plans, practices, policies and programs in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies, then the Company shall provide individual insurance policies or reimburse the Executive, on at least a monthly basis, to cover any difference in the benefits received by the Executive.
     (iv) Expenses. During the Service Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the most favorable policies, practices and procedures of the Company and its affiliated companies in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive and to the extent that any resulting change in reimbursement or payment dates would comply with Section 409A, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies.

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     (v) Fringe Benefits. During the Service Period, the Executive shall be entitled to fringe benefits, including, without limitation, tax and financial planning services, payment of club dues, and, if applicable, use of an automobile and payment of related expenses, in accordance with the most favorable plans, practices, programs and policies of the Company and its affiliated companies in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive and to the extent that any resulting change in reimbursement or payment dates would comply with Section 409A, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies.
     (vi) Office and Support Staff. During the Service Period, the Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and to exclusive personal secretarial and other assistance, at least equal to the most favorable of the foregoing provided to the Executive by the Company and its affiliated companies at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive and to the extent that any resulting change in reimbursement or payment dates would comply with Section 409A, as provided generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies.
     (vii) Vacation. During the Service Period, the Executive shall be entitled to paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company and its affiliated companies as in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies.
The requirements of paragraphs 4(b)(iii) through (viii) shall not apply to the extent prohibited by applicable law or to the extent such participation would cause the applicable plan, practice, policy, or program to fail nondiscrimination or coverage tests imposed thereon by applicable law.
     Section 5. Separation from Service.
     (a) Disability. If the Company determines in good faith that the Disability of the Executive has occurred during the Service Period (pursuant to the definition of Disability set forth below), it may terminate Executive’s service effective upon the date the Company provides written notice to the Executive. For purposes of this Agreement, “Disability” shall mean the Executive is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months; or, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than 3 months under an accident and health plan covering employees of the Company.

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     (b) Cause. The Company may terminate the Executive’s service during the Service Period for Cause. For purposes of this Agreement, “Cause” shall mean:
     (i) the willful and continued failure of the Executive to perform substantially the Executive’s duties with the Company (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the Board which specifically identifies the manner in which the Board believes that the Executive has not substantially performed the Executive’s duties and such failure is not cured within sixty (60) calendar days after receipt of such written demand; or
     (ii) the willful engaging by the Executive in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company.
     For purposes of this provision, any act or failure to act on the part of the Executive in violation or contravention of any order, resolution or directive of the Board shall be considered “willful” unless such order, resolution or directive is illegal or in violation of the certificate of incorporation or by-laws of the Company; provided, however, that no other act or failure to act on the part of the Executive, shall be considered “willful,” unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive’s action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Chief Executive Officer or General Counsel of the Company or based upon the advice of outside counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. The cessation of employment of the Executive shall not be deemed to be for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, the Executive is guilty of the conduct described in subparagraph (i) or (ii) above, and specifying the particulars thereof in detail.
     (c) Good Reason. The Executive’s service may be terminated by the Executive for Good Reason. For purposes of this Agreement, “Good Reason” shall mean:
     (i) the Executive is not elected to, or is removed from, any elected office of the Company which the Executive held immediately prior to the Effective Date;
     (ii) the assignment to the Executive of any duties materially inconsistent in any respect with the Executive’s position, authority, duties or responsibilities as contemplated by Section 4(a) hereof, or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive;

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     (iii) any failure by the Company to comply with any of the provisions of this Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive;
     (iv) the Company’s requiring the Executive to travel on Company business to a substantially greater extent than required immediately prior to the Effective Date; or
     (v) any purported termination by the Company of the Executive’s employment otherwise than as expressly permitted by this Agreement.
     For purposes of this Section 5(c), a good faith determination of “Good Reason” made by the Executive shall be conclusive.
     (d) Notice of Termination. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 13(b) hereof. For purposes of this Agreement, a “Notice of Termination” means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s service under the provision so indicated, and (iii) specifies the termination date. To qualify as “Good Reason,” the Executive must provide such notice within 90 days following the initial existence of the condition described in (c)(i) through (v) above, upon notice of which the Company shall have 30 days during which it may remedy the condition, in which case “Good Reason” shall not exist. The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive’s or the Company’s rights hereunder.
     (e) Separation from Service. All references to “separation from service,” “termination of service” and words of similar import shall have the same meaning as “separation from service” as defined by Section 409A. By way of illustration, and without limiting the generality of the foregoing, the following principals shall apply:
     (i) The Executive shall not be considered to have separated from service so long as the Executive is on military leave, sick leave, or other bona fide leave of absence if the period of such leave does not exceed six months, or if longer, so long as the Executive retains a right to reemployment with the Company under an applicable statute or by contract.
     (ii) Regardless of whether his employment has been formally terminated, the Executive will be considered to have separated from service as of the date it is reasonably anticipated that no further services will be performed by the Executive for the Company, or that the level of bona fide services the Executive will perform after such date will permanently decrease to no more than 20% of the average level of bona fide services performed over the immediately preceding 36-month period (or the full period of

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employment if the Executive has been employed for less than 36 months). For purposes of the preceding test, during any paid leave of absence the Executive shall be considered to have been performing services at the level commensurate with the amount of compensation received, and unpaid leaves of absence shall be disregarded.
     (iii) For purposes of determining whether the Executive has separated from service, all services provided for the Company, or for any other entity that is part of a controlled group that includes the Company as defined in Section 414(b) or (c) of the Internal Revenue Code (“Code”), shall be taken into account, whether provided as an employee or as a consultant or other independent contractor; provided that the Executive shall not be considered to have not separated from service solely by reason of service as a non-employee director of the Company or any other such entity.
     Section 6. Obligations of the Company upon Separation.
     (a) Good Reason; Other Than for Cause, Death or Disability. If, during the Service Period, the Company causes the Executive to separate from service other than for Cause or Disability, or the Executive shall voluntarily separate from service for Good Reason as described in Section 5(c), the following provisions shall apply:
     (i) The Company shall pay to the Executive the amounts set forth in Sections A and B below.
  A.   The sum of the following (“Accrued Obligations”):
  (1)   the Executive’s Annual Base Salary through the separation from service to the extent not theretofore paid, payable on the next regularly scheduled payroll date, plus
 
  (2)   an amount, equal to the Executive’s highest Annual Bonus or bonus paid under the Company’s incentive bonus program or any comparable bonus under any predecessor or successor plan, for the last three fiscal years ending prior to the separation from service (“Highest Annual Bonus”), multiplied by a fraction, the numerator of which is the number of days in the fiscal year through the separation from service, and the denominator of which is 365, payable in a lump sum on the 30th day following the separation from service, plus
 
  (3)   any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon), paid in accordance with the Executive’s deferral elections in effect under any such deferral program, plus
 
  (4)   any accrued but unpaid vacation pay, paid in a lump sum on the 30th day following the separation from service.

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  B.   The amount equal to the product of (1) two multiplied by (2) the sum of (x) the Executive’s Annual Base Salary plus (y) the Highest Annual Bonus, which shall be paid in a lump sum on the 30th day following the separation from service.
     (ii) The Company shall credit, as of the separation from service, the account of the Executive under the Littelfuse, Inc. Supplemental Executive Retirement Plan or any successor plan (hereinafter referred to as the “SERP”) with an amount equal to the sum of the two respective amounts which would be credited to the account of the Executive under the SERP on the two Valuation Dates (as such term is defined in the SERP) next succeeding the separation from service assuming (A) the Executive would not incur a separation from service until said second Valuation Date (hereinafter said period from the separation from service until said second Valuation Date is referred to as the “Assumed Service Period”), (B) the Compensation (as such term is defined in the SERP) of the Executive during each fiscal year during the Assumed Service Period would be equal to the amount of the Compensation of the Executive during the most recently ended Plan Year (as such term is defined in the SERP) prior to the separation from service, and (C) the Company would continue the SERP up to and including said second Valuation Date; provided, however, that if the Executive would reach age 62 prior to the expiration of the Assumed Service Period, no amounts shall be credited to the Account of the Executive under the SERP for any Valuation Date occurring after the date that the Executive would reach age 62; and provided further that nothing contained herein shall be construed to alter the time or form of payment of the Executive’s benefit under the SERP.
     (iii) The Company shall reimburse the Executive for the additional premium costs incurred by the Executive, in excess of the active employee rate for the Executive’s peer group, to continue group medical coverage for the Executive and/or the Executive’s family under Section 4980B of the Code and applicable state laws (“COBRA”) for the maximum period of time as permitted by law. The Executive shall submit to the Company satisfactory evidence of premium costs incurred within 30 days following the date such costs were incurred. Within 30 days following receipt of such evidence, the Company shall pay to the Executive such reimbursement, plus additional severance pay in an amount such that the net amount of such reimbursement and additional severance pay, after all applicable tax withholding, equals the difference between the full COBRA premium and the premium charged to active employees in Executive’s peer group. Following the end of COBRA coverage, the Company shall reimburse the Executive for the additional premium costs incurred by the Executive, in excess of the former employee COBRA rate for the Executive’s peer group, for the purchase of an individual insurance policy providing medical coverage to the Executive and/or the Executive’s family which is substantially similar to the coverage provided by the Company’s group medical plan. In no event shall the combined period of reimbursable coverage under COBRA and any individual insurance policy exceed two years from separation from service.
     (iv) For a period of up to 2 years after the separation from service, the Company shall provide monthly outplacement services to the Executive at reasonable levels as provided to peer executives of the Company, for the purpose of assisting the

9


 

Executive to seek new employment; provided, however, that the Company shall have no further obligations to provide such outplacement services once the Executive has accepted employment with any third party.
     (v) Notwithstanding anything to the contrary set forth in any stock option plans pursuant to which the Executive has been granted any stock options or other rights to acquire securities of the Company or its Affiliates, as defined in Rule 12b-2 of the General Rules and Regulations under the Exchange Act (the “Plans”), any option or right granted to the Executive under any of the Plans shall be exercisable by the Executive until the earlier of (x) the date on which the option or right terminates in accordance with the terms of its grant, or (y) the expiration of 12 months after the separation from service.
     (vi) To the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies (such other amounts and benefits shall hereinafter be referred to collectively as the “Other Benefits”).
     (vii) Notwithstanding anything to the contrary contained in any employment agreement, benefit plan or other document, in the event the Executive’s employment shall be terminated during the Service Period by the Executive for Good Reason or by the Company other than for Cause or Disability, on and after the separation from service the Executive shall not be bound or prejudiced by any non-competition agreement benefiting the Company or its subsidiaries, and any provisions contained in the SERP which would penalize the Executive for being employed by a competitor, including, without limitation, Section 3.6(c) thereof, shall not apply in any respect to the Executive and, effective as of the separation from service, the Company waives any right to enforce any such provisions against the Executive.
     (b) Death. If the Executive dies during the Service Period, this Agreement shall terminate without further obligations by the Company to the Executive’s legal representatives under this Agreement, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive’s estate or beneficiary, as applicable, at the time and in the form as provided in Paragraph 6(a)(i)(A) above. With respect to the provision of Other Benefits, the term “Other Benefits” as utilized in this Section 6(b) shall include, without limitation, and the Executive’s estate and/or beneficiaries shall be entitled to receive, benefits at least equal to the most favorable benefits provided by the Company and affiliated companies to the estates and beneficiaries of peer executives of the Company and such affiliated companies under such plans, programs, practices and policies relating to death benefits, if any, as in effect with respect to other peer executives and their beneficiaries at any time during the 120-day period immediately preceding the Effective Date.
     (c) Disability. If the Company causes the Executive to separate from service by reason of the Executive’s Disability during the Service Period as set forth in Section 5(a), this Agreement shall terminate without further obligations by the Company to the Executive under this Agreement, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive at the time and

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in the form provided in Paragraph 6(a)(i)(A). With respect to the provision of Other Benefits, the term “Other Benefits” as utilized in this Section 6(c) shall include, and the Executive shall be entitled after the Executive’s separation from service to receive, disability and other benefits at least equal to the most favorable of those generally provided by the Company and its affiliated companies to disabled executives and/or their families in accordance with such plans, programs, practices and policies relating to disability, if any, as in effect generally with respect to other peer executives and their families at any time during the 120-day period immediately preceding the Effective Date.
     (d) Cause; Other than for Good Reason. If the Company causes the Executive to separate from service for Cause during the Service Period as described in Section 5(b), this Agreement shall terminate without further obligations to the Executive other than the obligation to pay to the Executive (x) his Annual Base Salary through the separation from service, payable on the next regularly scheduled payroll date, (y) the amount of any compensation previously deferred by the Executive (which shall be paid at the time and in the form it would otherwise have been paid had this Agreement not applied), and (z) Other Benefits, in each case to the extent theretofore unpaid. If the Executive voluntarily separates from service during the Service Period, excluding a termination for Good Reason as described in Section 5(c), this Agreement shall terminate without further obligations of the Company to the Executive under this Agreement, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. In such case, all Accrued Obligations shall be paid to the Executive at the time and in the form provided in Section 6(a)(i)(A) and the Company shall timely pay or provide the Other Benefits to the Executive. In no event shall the Executive be liable to the Company for any damages caused by such voluntary termination by the Executive nor shall the Executive be in any way restricted from being employed by any other party after such voluntary termination.
     Section 7. Code Section 409A Payment Limits. To the maximum extent possible, the provisions of this Agreement shall be construed in such a manner that no amounts payable to the Executive are subject to the additional tax and interest provided in Section 409A(a)(1)(B) of the Code. If any payment (whether cash or in-kind), including but not limited to reimbursements and Other Benefits, would constitute a “deferral of compensation” under Section 409A and a payment date that complies with Section 409A(a)(2) of the Code is not otherwise provided for such benefit either in this Agreement or a Company program or policy, then such payment shall be made not later than 2 1/2 months after the end of the calendar year in which the payment is no longer subject to a substantial risk of forfeiture. Any receipts or other proof of expenses (if required) shall be submitted to the Company by the Executive no later than one month after the end of the calendar year in which the payment is no longer subject to a substantial risk of forfeiture. Notwithstanding any provision in this Agreement to the contrary, if at the time of separation from service the Executive is a “specified employee” within the meaning of Section 409A, any cash or in-kind payments which constitute a “deferral of compensation” under Section 409A and which would otherwise become due under this Agreement during the first 6 months (or such longer period as required by Section 409A) after separation from service shall be delayed and all such delayed payments shall be paid in full in the 7th month after the separation from service, and all subsequent payments shall be paid in accordance with their original payment schedule. To the extent that any insurance premiums or other benefit contributions constituting a “deferral of compensation” become subject to the above delay, the Executive shall be responsible for paying such amounts directly to the insurer or other third party and shall

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receive reimbursement from the Company for such amounts in the 7th month as described above. The above specified employee delay shall not apply to any payments that are excepted from coverage by Section 409A, such as those payments covered by the short-term deferral exception described in Treasury Regulations Section 1.409A-1(b)(4).
     Section 8. Nonexclusivity of Rights. Nothing in this Agreement shall prevent or limit the Executive’s continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which the Executive may qualify, nor, subject to Section 13(f) hereof, shall anything herein limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or any of its affiliated companies. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to his or her separation from service shall be payable in accordance with such plan, policy, practice or program or contract or agreement, except as explicitly modified by this Agreement.
     Section 9. Full Settlement. The Company’s obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and such amounts shall not be reduced whether or not the Executive obtains other employment. To the extent that any amount due hereunder has become subject to a bona fide dispute, payment of such amount may be delayed until no later than the end of the first taxable year of the Executive in which the Company and the Executive enter into a legally binding settlement of such dispute, the Company concedes that the amount is payable, or the Company is required to make such payment pursuant to a final and nonappealable judgment or other binding decision, as set forth in Treasury Regulation Section 1.409A-3(g), and any such payment shall include interest on such delayed amount from the original due date thereof until paid at the prime rate from time to time reported in The Wall Street Journal during said period, plus, to the fullest extent permitted by law, the amount of all legal fees and expenses which the Executive reasonably incurs as a result of any contest by the Company, the Executive or others in which the Executive is the prevailing party.
     Section 10. Certain Additional Payments by the Company. (a) Anything in this Agreement to the contrary notwithstanding and except as set forth below, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section, except as provided in the last sentence of this paragraph (a)) (hereinafter referred to collectively as a “Payment”) would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the “Excise Tax”), then the Executive shall be entitled to receive an additional payment (a “Gross-Up Payment”) in an amount such that, after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with

12


 

respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. Regardless of whether the Executive is subject to an Excise Tax, in the event that the Company fails to make any payment at the time or in the form required by Section 6, and as a result it is subsequently determined that Executive is subject to the additional tax and interest provided in Section 409A(a)(1)(B) of the Code with respect to any portion of such payment (such additional tax, together with any interest and penalties thereon, are hereinafter collectively referred to as the “Section 409A Penalty”) then Executive shall also be entitled to receive an additional payment (a “Section 409A Gross-Up”) calculated in the same manner as a Gross-Up Payment by substituting “Section 409A Penalty” for “Excise Tax” for all purposes of this Section. The Section 409A Gross-Up shall be considered a Payment for purposes of calculation of any Gross-Up Penalty.
     (b) Subject to the provisions of paragraph (c) hereof, all determinations required to be made under this Section, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by Ernst & Young LLP or such other independent certified public accounting firm as may be designated by the Executive (hereinafter referred to as the “Accounting Firm”) which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, the Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section, shall be paid by the Company to the Executive within five days of the receipt of the Accounting Firm’s determination. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made (hereinafter referred to as the “Underpayment”) consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to paragraph (c) hereof and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive.
     (c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall:

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     (i) give the Company any information reasonably requested by the Company relating to such claim,
     (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company,
     (iii) cooperate with the Company in good faith in order effectively to contest such claim, and
     (iv) permit the Company to participate in any proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this paragraph (c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or to contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance. The Company’s control of any such contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority.
     (d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to paragraph (c) hereof, the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company’s complying with the requirements of paragraph (c) hereof) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to paragraph (c) hereof, a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid.

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     (e) Anything else contained herein to the contrary notwithstanding, in no event shall any Gross-Up Payment be paid to the Executive later than the last day of the year following the year in which the Executive pays to the applicable taxing authority the Excise Tax with respect to which the Gross-Up Payment is due. The preceding sentence is included solely in order to satisfy the requirements of Section 409A, and is not to be construed to permit a delay in the time at which a Gross-Up Payment would otherwise be paid.
     Section 11. Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Executive during the Executive’s service with the Company or any of its affiliated companies and which shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). After Executive’s separation from service with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this Section 11 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. The provisions of this Section 11 shall survive any termination of this Agreement or the Executive’s separation of service with the Company.
     Section 12. Successors. (a) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive’s legal representatives.
     (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns.
     (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, the term “Company” shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law or otherwise.
     Section 13. Miscellaneous. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Illinois, without reference to principles of conflict of laws. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives.
     (b) Each notice, request, demand, approval or other communication which may be or is required to be given under this Agreement shall be in writing and shall be deemed to have been properly given when delivered personally at the address set forth below for the intended party during normal business hours at such address, when sent by facsimile or other electronic transmission to the respective facsimile transmission numbers of the parties set forth below with

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telephone confirmation of receipt, or when sent by recognized overnight courier or by the United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows:
     If to the Company:
Littelfuse, Inc.
800 E. Northwest Highway
Des Plaines, Illinois 60016
Attention: President
Facsimile: (847) 824-3864
Confirm: (847) 391-0304
     If to the Executive, to the last address shown in the records of the Company.
     Notices shall be given to such other addressee or address, or both, or by way of such other facsimile transmission number, as a particular party may from time to time designate by written notice to the other party hereto. Each notice, request, demand, approval or other communication which is sent in accordance with this Section shall be deemed given and received for all purposes of this Agreement as of two business days after the date of deposit thereof for mailing in a duly constituted United States post office or branch thereof, one business day after deposit with a recognized overnight courier service or upon confirmation of receipt of any facsimile transmission. Notice given to a party hereto by any other method shall only be deemed to be given and received when actually received in writing by such party.
     (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.
     (d) The Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation.
     (e) The Executive’s or the Company’s failure to insist upon strict compliance with any provision of this Agreement or the failure to promptly assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to separate from service for Good Reason pursuant to Section 5(c)(i)-(v) hereof, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement.
     (f) The Executive and the Company acknowledge that, except as may otherwise be provided under any other written agreement between the Executive and the Company, the employment or other service of the Executive by or with the Company is “at will” and, subject to Section 1(a) hereof and/or any other written agreement between the Executive and the Company, prior to the Effective Date, the Executive’s employment and/or service and/or this Agreement may be terminated by either the Executive or the Company at any time prior to the Effective Date upon written notice to the other party, in which case the Executive shall have no further

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rights under this Agreement. From and after the Effective Date, this Agreement shall supersede any other agreement between the parties with respect to the subject matter hereof.
     (g) This Agreement may be executed in two or more counterparts, all of which taken together shall constitute one and the same agreement.
     IN WITNESS WHEREOF, the parties hereto have executed this Change of Control Agreement on the dates set forth below.
                 
Date: January 22, 2009
      EXECUTIVE

 
 
 
     
 
 
 
               
 
     
LITTELFUSE, INC.
 
 
Date: ________________________________
      By         
 
             
 
        Its       
 
               

17

Exhibit 10.5
CHANGE OF CONTROL AGREEMENT
for

David R. Samyn
     THIS AGREEMENT is made effective as of the 1st day of January, 2009, by and between LITTELFUSE, INC., a Delaware corporation (hereinafter referred to as the “Company”), and the executive named above (hereinafter referred to as the “Executive”);
WITNESSETH:
     WHEREAS, the Board of Directors of the Company (hereinafter referred to as the “Board”) has determined that it is in the best interests of the Company and its stockholders to provide the Executive with certain protections against the uncertainties usually created by a Change of Control (as such term is hereinafter defined); and
     WHEREAS, the Board wishes to better enable the Executive to devote his full time, attention and energy to the business of the Company prior to and after a Change of Control, thereby benefiting the Company and its stockholders;
     NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged and confessed, the Company and the Executive hereby agree as follows:
     Section 1. Certain Definitions. (a) The “Effective Date” shall mean the first date during the Change of Control Period (as defined in Section 1(b) hereof) on which a Change of Control (as defined in Section 2 hereof) occurs. Notwithstanding anything to the contrary contained in this Agreement, if a Change of Control occurs and if the Executive separates from service with the Company prior to the date on which the Change of Control occurs, and if it is reasonably demonstrated by the Executive that such separation from service (i) was at the direct or indirect request of a third party who theretofore had taken any steps intended to effect a Change of Control or (ii) otherwise arose in connection with or in anticipation of a Change of Control, then for all purposes of this Agreement the “Effective Date” shall mean the date immediately prior to the date of such separation from service.
     (b) The “Change of Control Period” shall mean the period commencing on January 1, 2009 and ending on December 31, 2011.
     Section 2. Change of Control. For the purpose of this Agreement, a “Change of Control” shall mean:
     (a) The acquisition by any one person or more than one person acting as a group (within the meaning of Treasury Regulation Section 1.409A-3(i)(5)(v)(B)), other than the Company or any employee benefit plan (or related trust) sponsored or maintained by the Company or any affiliated company (as defined in Section 4), (a “Person”) of any of stock of the Company that, together with stock held by such Person, constitutes more than 40% of the total fair market value or total voting power of the stock of the Company. For purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control: (i) the acquisition of additional stock by a Person who is considered to own more than 50% of the total

 


 

fair market value or total voting power of the stock of the Company, (ii) any acquisition in which the Company does not remain outstanding thereafter and (iii) any acquisition pursuant to a transaction which complies with subsection (c) of this Section 2. An increase in the percentage of stock owned by any one Person as a result of a transaction in which the Company acquires its stock in exchange for property will be treated as an acquisition of stock for purposes of this subsection;
     (b) The replacement of individuals who, as of the date hereof, constitute a majority of the Board, during any twelve (12) month period by directors whose appointment or election is not endorsed by a majority of the Board before the date of the appointment or election, provided that, if the Company is not the relevant corporation for which no other corporation is a majority shareholder for purposes of Treasury Regulation Section 1.409A-3(i)(5)(iv)(A)(2), this subsection (b) shall be applied instead with respect to the members of the board of the directors of such relevant corporation for which no other corporation is a majority shareholder;
     (c) The acquisition by any one person or more than one person acting as a group (within the meaning of Treasury Regulation Section 1.409A-3(i)(5)(vi)(D)), other than the Company or any employee benefit plan (or related trust) sponsored or maintained by the Company or any affiliated company (as defined in Section 4), during the 12-month period ending on the date of the most recent acquisition by such person or persons, of ownership of stock of the Company possessing 30% or more of the total voting power of the stock of the Company. For purposes of this subsection (c), the following acquisitions shall not constitute a Change of Control: (i) the acquisition of additional control by a person or more than one person acting as a group who are considered to effectively control the Company within the meaning of Treasury Regulation Section 1.409A-3(i)(5)(vi) and (ii) any acquisition pursuant to a transaction which complies with subsection (a) of this Section 2; or
     (d) The acquisition by any individual person or more than one person acting as a group (within the meaning of Treasury Regulation Section 1.409A-3(i)(5)(vii)(C)), other than a transfer to a related person within the meaning of Treasury Regulation Section 1.409A-3(i)(5)(vii)(B), during the 12-month period ending on the date of the most recent acquisition by such person or persons, of assets from the Company that have a total gross fair market value equal to or more than 40% of the total gross fair market value of all of the assets of the Company immediately prior to such acquisition(s). For purposes of this subsection (d), “gross fair market value” means the value of the assets of the Company, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets.
     The above definition of “Change of Control” shall be interpreted by the Board, in good faith, to apply in a similar manner to transactions involving partnerships and partnership interests, and to comply with Section 409A of the Internal Revenue Code and Treasury Regulations and official guidance issued thereunder from time to time (“Section 409A”).
     Section 3. Service Period. The Company hereby agrees to continue to retain the services of the Executive, and the Executive hereby agrees to provide services to the Company and its successors, subject to the terms and conditions of this Agreement, for the period commencing on the Effective Date and ending on the second anniversary of such date (the “Service Period”).

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     Section 4. Terms of Service.
     (a) Position and Duties. (i) During the Service Period, (A) the Executive’s position (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned at any time during the 120-day period immediately preceding the Effective Date and (B) the Executive’s services shall be performed at the location where the Executive was providing services to the Company or its affiliated companies immediately preceding the Effective Date or any office or location less than 20 miles from such location.
     (ii) During the Service Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive’s reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Service Period it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions, and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive’s responsibilities as an employee or service provider of the Company in accordance with this Agreement.
     (b) Compensation. (i) Base Salary. During the Service Period, the Executive shall receive an annual base salary (hereinafter referred to as the “Annual Base Salary”), which shall be paid at a monthly rate, equal to at least twelve times the highest monthly base salary paid or payable, including any base salary which has been earned but deferred, to the Executive by the Company and its affiliated companies in respect of the twelve-month period immediately preceding the month in which the Effective Date occurs. During the Service Period, the Annual Base Salary shall be reviewed no more than 12 months after the last salary increase awarded to the Executive prior to the Effective Date and thereafter at least annually. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. Annual Base Salary shall not be reduced after any such increase and the term Annual Base Salary as used in this Agreement shall refer to Annual Base Salary as so increased. As used in this Agreement, the term "affiliated companies” shall include any company controlled by, controlling or under common control with the Company.
     (ii) Annual Bonus. In addition to the Annual Base Salary, the Executive shall be awarded, for each fiscal year ending during the Service Period, an annual bonus (hereinafter referred to as the “Annual Bonus”) in cash at least equal to the Executive’s highest bonus under the Company’s incentive bonus program or any comparable bonus under any predecessor or successor plan, for the last three full fiscal years prior to the Effective Date (annualized in the event that the Executive was not employed by the Company for the whole of such fiscal year) (hereinafter referred to as the “Recent Annual Bonus”). Each such Annual Bonus shall be paid no later than the fifteenth day of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect to defer the receipt of such Annual Bonus. Any such deferral election shall be made not later than the first day of the fiscal year for

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which the Annual Bonus is paid, and shall be made in accordance with policies adopted by the Company in compliance with Section 409A.
     (iii) Incentive, Savings and Retirement Plans. During the Service Period, the Executive shall be entitled to participate in all incentive, savings and retirement plans, practices, policies and programs applicable generally to other peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with incentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable), savings opportunities and retirement benefit opportunities, in each case, less favorable, in the aggregate, than the most favorable of those provided by the Company and its affiliated companies for the Executive under such plans, practices, policies and programs as in effect at any time during the 120-day period immediately preceding the Effective Date or if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies.
     (iv) Welfare Benefit Plans. During the Service Period, the Executive and/or the Executive’s family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other peer executives of the Company and its affiliated companies. In the event such plans, practices, policies and programs provide the Executive with benefits which are less favorable, in the aggregate, than the most favorable of such plans, practices, policies and programs in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies, then the Company shall provide individual insurance policies or reimburse the Executive, on at least a monthly basis, to cover any difference in the benefits received by the Executive.
     (v) Expenses. During the Service Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the most favorable policies, practices and procedures of the Company and its affiliated companies in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive and to the extent that any resulting change in reimbursement or payment dates would comply with Section 409A, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies.
     (vi) Fringe Benefits. During the Service Period, the Executive shall be entitled to fringe benefits, including, without limitation, tax and financial planning services, payment of club dues, and, if applicable, use of an automobile and payment of related expenses, in accordance with the most favorable plans, practices, programs and policies of the Company and its affiliated companies in effect for the Executive at any time during

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the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive and to the extent that any resulting change in reimbursement or payment dates would comply with Section 409A, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies.
     (vii) Office and Support Staff. During the Service Period, the Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and to exclusive personal secretarial and other assistance, at least equal to the most favorable of the foregoing provided to the Executive by the Company and its affiliated companies at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive and to the extent that any resulting change in reimbursement or payment dates would comply with Section 409A, as provided generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies.
     (viii) Vacation. During the Service Period, the Executive shall be entitled to paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company and its affiliated companies as in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies.
The requirements of paragraphs 4(b)(iii) through (viii) shall not apply to the extent prohibited by applicable law or to the extent such participation would cause the applicable plan, practice, policy, or program to fail nondiscrimination or coverage tests imposed thereon by applicable law.
     Section 5. Separation from Service.
     (a) Disability. If the Company determines in good faith that the Disability of the Executive has occurred during the Service Period (pursuant to the definition of Disability set forth below), it may terminate Executive’s service effective upon the date the Company provides written notice to the Executive. For purposes of this Agreement, “Disability” shall mean the Executive is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months; or, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than 3 months under an accident and health plan covering employees of the Company.
     (b) Cause. The Company may terminate the Executive’s service during the Service Period for Cause. For purposes of this Agreement, “Cause” shall mean:
     (i) the willful and continued failure of the Executive to perform substantially the Executive’s duties with the Company (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial

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performance is delivered to the Executive by the Board which specifically identifies the manner in which the Board believes that the Executive has not substantially performed the Executive’s duties and such failure is not cured within sixty (60) calendar days after receipt of such written demand; or
     (ii) the willful engaging by the Executive in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company.
     For purposes of this provision, any act or failure to act on the part of the Executive in violation or contravention of any order, resolution or directive of the Board shall be considered “willful” unless such order, resolution or directive is illegal or in violation of the certificate of incorporation or by-laws of the Company; provided, however, that no other act or failure to act on the part of the Executive, shall be considered “willful,” unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive’s action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Chief Executive Officer or General Counsel of the Company or based upon the advice of outside counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. The cessation of employment of the Executive shall not be deemed to be for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, the Executive is guilty of the conduct described in subparagraph (i) or (ii) above, and specifying the particulars thereof in detail.
     (c) Good Reason. The Executive’s service may be terminated by the Executive for Good Reason. For purposes of this Agreement, “Good Reason” shall mean:
     (i) the Executive is not elected to, or is removed from, any elected office of the Company which the Executive held immediately prior to the Effective Date;
     (ii) the assignment to the Executive of any duties materially inconsistent in any respect with the Executive’s position, authority, duties or responsibilities as contemplated by Section 4(a) hereof, or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive;
     (iii) any failure by the Company to comply with any of the provisions of this Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive;

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     (iv) the Company’s requiring the Executive to travel on Company business to a substantially greater extent than required immediately prior to the Effective Date; or
     (v) any purported termination by the Company of the Executive’s employment otherwise than as expressly permitted by this Agreement.
     For purposes of this Section 5(c), a good faith determination of “Good Reason” made by the Executive shall be conclusive.
     (d) Notice of Termination. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 13(b) hereof. For purposes of this Agreement, a “Notice of Termination” means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s service under the provision so indicated, and (iii) specifies the termination date. To qualify as “Good Reason,” the Executive must provide such notice within 90 days following the initial existence of the condition described in (c)(i) through (v) above, upon notice of which the Company shall have 30 days during which it may remedy the condition, in which case “Good Reason” shall not exist. The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive’s or the Company’s rights hereunder.
     (e) Separation from Service. All references to “separation from service,” “termination of service” and words of similar import shall have the same meaning as “separation from service” as defined by Section 409A. By way of illustration, and without limiting the generality of the foregoing, the following principals shall apply:
     (i) The Executive shall not be considered to have separated from service so long as the Executive is on military leave, sick leave, or other bona fide leave of absence if the period of such leave does not exceed six months, or if longer, so long as the Executive retains a right to reemployment with the Company under an applicable statute or by contract.
     (ii) Regardless of whether his employment has been formally terminated, the Executive will be considered to have separated from service as of the date it is reasonably anticipated that no further services will be performed by the Executive for the Company, or that the level of bona fide services the Executive will perform after such date will permanently decrease to no more than 20% of the average level of bona fide services performed over the immediately preceding 36-month period (or the full period of employment if the Executive has been employed for less than 36 months). For purposes of the preceding test, during any paid leave of absence the Executive shall be considered to have been performing services at the level commensurate with the amount of compensation received, and unpaid leaves of absence shall be disregarded.

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     (iii) For purposes of determining whether the Executive has separated from service, all services provided for the Company, or for any other entity that is part of a controlled group that includes the Company as defined in Section 414(b) or (c) of the Internal Revenue Code (“Code”), shall be taken into account, whether provided as an employee or as a consultant or other independent contractor; provided that the Executive shall not be considered to have not separated from service solely by reason of service as a non-employee director of the Company or any other such entity.
     Section 6. Obligations of the Company upon Separation.
     (a) Good Reason; Other Than for Cause, Death or Disability. If, during the Service Period, the Company causes the Executive to separate from service other than for Cause or Disability, or the Executive shall voluntarily separate from service for Good Reason as described in Section 5(c), the following provisions shall apply:
     (i) The Company shall pay to the Executive the amounts set forth in Sections A and B below.
     A. The sum of the following (“Accrued Obligations”):
(1) the Executive’s Annual Base Salary through the separation from service to the extent not theretofore paid, payable on the next regularly scheduled payroll date, plus
(2) an amount, equal to the Executive’s highest Annual Bonus or bonus paid under the Company’s incentive bonus program or any comparable bonus under any predecessor or successor plan, for the last three fiscal years ending prior to the separation from service (“Highest Annual Bonus”), multiplied by a fraction, the numerator of which is the number of days in the fiscal year through the separation from service, and the denominator of which is 365, payable in a lump sum on the 30th day following the separation from service, plus
(3) any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon), paid in accordance with the Executive’s deferral elections in effect under any such deferral program, plus
(4) any accrued but unpaid vacation pay, paid in a lump sum on the 30th day following the separation from service.
     B. The amount equal to the product of (1) two multiplied by (2) the sum of (x) the Executive’s Annual Base Salary plus (y) the Highest Annual Bonus, which shall be paid in a lump sum on the 30th day following the separation from service.
     (iii) The Company shall reimburse the Executive for the additional premium costs incurred by the Executive, in excess of the active employee rate for the Executive’s

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peer group, to continue group medical coverage for the Executive and/or the Executive’s family under Section 4980B of the Code and applicable state laws (“COBRA”) for the maximum period of time as permitted by law. The Executive shall submit to the Company satisfactory evidence of premium costs incurred within 30 days following the date such costs were incurred. Within 30 days following receipt of such evidence, the Company shall pay to the Executive such reimbursement, plus additional severance pay in an amount such that the net amount of such reimbursement and additional severance pay, after all applicable tax withholding, equals the difference between the full COBRA premium and the premium charged to active employees in Executive’s peer group. Following the end of COBRA coverage, the Company shall reimburse the Executive for the additional premium costs incurred by the Executive, in excess of the former employee COBRA rate for the Executive’s peer group, for the purchase of an individual insurance policy providing medical coverage to the Executive and/or the Executive’s family which is substantially similar to the coverage provided by the Company’s group medical plan. In no event shall the combined period of reimbursable coverage under COBRA and any individual insurance policy exceed two years from separation from service.
     (iv) For a period of up to 2 years after the separation from service, the Company shall provide monthly outplacement services to the Executive at reasonable levels as provided to peer executives of the Company, for the purpose of assisting the Executive to seek new employment; provided, however, that the Company shall have no further obligations to provide such outplacement services once the Executive has accepted employment with any third party.
     (v) Notwithstanding anything to the contrary set forth in any stock option plans pursuant to which the Executive has been granted any stock options or other rights to acquire securities of the Company or its Affiliates, as defined in Rule 12b-2 of the General Rules and Regulations under the Exchange Act (the “Plans”), any option or right granted to the Executive under any of the Plans shall be exercisable by the Executive until the earlier of (x) the date on which the option or right terminates in accordance with the terms of its grant, or (y) the expiration of 12 months after the separation from service.
     (vi) To the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies (such other amounts and benefits shall hereinafter be referred to collectively as the “Other Benefits”).
     (vii) Notwithstanding anything to the contrary contained in any employment agreement, benefit plan or other document, in the event the Executive’s employment shall be terminated during the Service Period by the Executive for Good Reason or by the Company other than for Cause or Disability, on and after the separation from service the Executive shall not be bound or prejudiced by any non-competition agreement benefiting the Company or its subsidiaries.
     (b) Death. If the Executive dies during the Service Period, this Agreement shall terminate without further obligations by the Company to the Executive’s legal representatives

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under this Agreement, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive’s estate or beneficiary, as applicable, at the time and in the form as provided in Paragraph 6(a)(i)(A) above. With respect to the provision of Other Benefits, the term “Other Benefits” as utilized in this Section 6(b) shall include, without limitation, and the Executive’s estate and/or beneficiaries shall be entitled to receive, benefits at least equal to the most favorable benefits provided by the Company and affiliated companies to the estates and beneficiaries of peer executives of the Company and such affiliated companies under such plans, programs, practices and policies relating to death benefits, if any, as in effect with respect to other peer executives and their beneficiaries at any time during the 120-day period immediately preceding the Effective Date.
     (c) Disability. If the Company causes the Executive to separate from service by reason of the Executive’s Disability during the Service Period as set forth in Section 5(a), this Agreement shall terminate without further obligations by the Company to the Executive under this Agreement, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive at the time and in the form provided in Paragraph 6(a)(i)(A). With respect to the provision of Other Benefits, the term “Other Benefits” as utilized in this Section 6(c) shall include, and the Executive shall be entitled after the Executive’s separation from service to receive, disability and other benefits at least equal to the most favorable of those generally provided by the Company and its affiliated companies to disabled executives and/or their families in accordance with such plans, programs, practices and policies relating to disability, if any, as in effect generally with respect to other peer executives and their families at any time during the 120-day period immediately preceding the Effective Date.
     (d) Cause; Other than for Good Reason. If the Company causes the Executive to separate from service for Cause during the Service Period as described in Section 5(b), this Agreement shall terminate without further obligations to the Executive other than the obligation to pay to the Executive (x) his Annual Base Salary through the separation from service, payable on the next regularly scheduled payroll date, (y) the amount of any compensation previously deferred by the Executive (which shall be paid at the time and in the form it would otherwise have been paid had this Agreement not applied), and (z) Other Benefits, in each case to the extent theretofore unpaid. If the Executive voluntarily separates from service during the Service Period, excluding a termination for Good Reason as described in Section 5(c), this Agreement shall terminate without further obligations of the Company to the Executive under this Agreement, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. In such case, all Accrued Obligations shall be paid to the Executive at the time and in the form provided in Section 6(a)(i)(A) and the Company shall timely pay or provide the Other Benefits to the Executive. In no event shall the Executive be liable to the Company for any damages caused by such voluntary termination by the Executive nor shall the Executive be in any way restricted from being employed by any other party after such voluntary termination.
     Section 7. Code Section 409A Payment Limits. To the maximum extent possible, the provisions of this Agreement shall be construed in such a manner that no amounts payable to the Executive are subject to the additional tax and interest provided in Section 409A(a)(1)(B) of the Code. If any payment (whether cash or in-kind), including but not limited to reimbursements and Other Benefits, would constitute a “deferral of compensation” under Section 409A and a

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payment date that complies with Section 409A(a)(2) of the Code is not otherwise provided for such benefit either in this Agreement or a Company program or policy, then such payment shall be made not later than 2 1/2 months after the end of the calendar year in which the payment is no longer subject to a substantial risk of forfeiture. Any receipts or other proof of expenses (if required) shall be submitted to the Company by the Executive no later than one month after the end of the calendar year in which the payment is no longer subject to a substantial risk of forfeiture. Notwithstanding any provision in this Agreement to the contrary, if at the time of separation from service the Executive is a “specified employee” within the meaning of Section 409A, any cash or in-kind payments which constitute a “deferral of compensation” under Section 409A and which would otherwise become due under this Agreement during the first 6 months (or such longer period as required by Section 409A) after separation from service shall be delayed and all such delayed payments shall be paid in full in the 7th month after the separation from service, and all subsequent payments shall be paid in accordance with their original payment schedule. To the extent that any insurance premiums or other benefit contributions constituting a “deferral of compensation” become subject to the above delay, the Executive shall be responsible for paying such amounts directly to the insurer or other third party and shall receive reimbursement from the Company for such amounts in the 7th month as described above. The above specified employee delay shall not apply to any payments that are excepted from coverage by Section 409A, such as those payments covered by the short-term deferral exception described in Treasury Regulations Section 1.409A-1(b)(4).
     Section 8. Nonexclusivity of Rights. Nothing in this Agreement shall prevent or limit the Executive’s continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which the Executive may qualify, nor, subject to Section 13(f) hereof, shall anything herein limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or any of its affiliated companies. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to his or her separation from service shall be payable in accordance with such plan, policy, practice or program or contract or agreement, except as explicitly modified by this Agreement.
     Section 9. Full Settlement. The Company’s obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and such amounts shall not be reduced whether or not the Executive obtains other employment. To the extent that any amount due hereunder has become subject to a bona fide dispute, payment of such amount may be delayed until no later than the end of the first taxable year of the Executive in which the Company and the Executive enter into a legally binding settlement of such dispute, the Company concedes that the amount is payable, or the Company is required to make such payment pursuant to a final and nonappealable judgment or other binding decision, as set forth in Treasury Regulation Section 1.409A-3(g), and any such payment shall include interest on such delayed amount from the original due date thereof until paid at the prime rate from time to time reported in The Wall Street Journal during said period, plus, to the fullest extent permitted by law, the

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amount of all legal fees and expenses which the Executive reasonably incurs as a result of any contest by the Company, the Executive or others in which the Executive is the prevailing party.
     Section 10. Certain Additional Payments by the Company. (a) Anything in this Agreement to the contrary notwithstanding and except as set forth below, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section, except as provided in the last sentence of this paragraph (a)) (hereinafter referred to collectively as a “Payment”) would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the “Excise Tax”), then the Executive shall be entitled to receive an additional payment (a “Gross-Up Payment”) in an amount such that, after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. Regardless of whether the Executive is subject to an Excise Tax, in the event that the Company fails to make any payment at the time or in the form required by Section 6, and as a result it is subsequently determined that Executive is subject to the additional tax and interest provided in Section 409A(a)(1)(B) of the Code with respect to any portion of such payment (such additional tax, together with any interest and penalties thereon, are hereinafter collectively referred to as the “Section 409A Penalty”) then Executive shall also be entitled to receive an additional payment (a “Section 409A Gross-Up”) calculated in the same manner as a Gross-Up Payment by substituting “Section 409A Penalty” for “Excise Tax” for all purposes of this Section. The Section 409A Gross-Up shall be considered a Payment for purposes of calculation of any Gross-Up Penalty.
     (b) Subject to the provisions of paragraph (c) hereof, all determinations required to be made under this Section, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by Ernst & Young LLP or such other independent certified public accounting firm as may be designated by the Executive (hereinafter referred to as the “Accounting Firm”) which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, the Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section, shall be paid by the Company to the Executive within five days of the receipt of the Accounting Firm’s determination. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made (hereinafter referred to as the “Underpayment”) consistent with the calculations

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required to be made hereunder. In the event that the Company exhausts its remedies pursuant to paragraph (c) hereof and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive.
     (c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall:
     (i) give the Company any information reasonably requested by the Company relating to such claim,
     (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company,
     (iii) cooperate with the Company in good faith in order effectively to contest such claim, and
     (iv) permit the Company to participate in any proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this paragraph (c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or to contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance. The Company’s

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control of any such contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority.
     (d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to paragraph (c) hereof, the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company’s complying with the requirements of paragraph (c) hereof) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to paragraph (c) hereof, a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid.
     (e) Anything else contained herein to the contrary notwithstanding, in no event shall any Gross-Up Payment be paid to the Executive later than the last day of the year following the year in which the Executive pays to the applicable taxing authority the Excise Tax with respect to which the Gross-Up Payment is due. The preceding sentence is included solely in order to satisfy the requirements of Section 409A, and is not to be construed to permit a delay in the time at which a Gross-Up Payment would otherwise be paid.
     Section 11. Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Executive during the Executive’s service with the Company or any of its affiliated companies and which shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). After Executive’s separation from service with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this Section 11 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. The provisions of this Section 11 shall survive any termination of this Agreement or the Executive’s separation of service with the Company.
     Section 12. Successors. (a) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive’s legal representatives.
     (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns.
     (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the

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Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, the term “Company” shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law or otherwise.
     Section 13. Miscellaneous. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Illinois, without reference to principles of conflict of laws. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives.
     (b) Each notice, request, demand, approval or other communication which may be or is required to be given under this Agreement shall be in writing and shall be deemed to have been properly given when delivered personally at the address set forth below for the intended party during normal business hours at such address, when sent by facsimile or other electronic transmission to the respective facsimile transmission numbers of the parties set forth below with telephone confirmation of receipt, or when sent by recognized overnight courier or by the United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows:
     If to the Company:
Littelfuse, Inc.
800 E. Northwest Highway
Des Plaines, Illinois 60016
Attention: President
Facsimile: (847) 824-3864
Confirm: (847) 391-0304

If to the Executive, to the last address shown in the records of the Company.
     Notices shall be given to such other addressee or address, or both, or by way of such other facsimile transmission number, as a particular party may from time to time designate by written notice to the other party hereto. Each notice, request, demand, approval or other communication which is sent in accordance with this Section shall be deemed given and received for all purposes of this Agreement as of two business days after the date of deposit thereof for mailing in a duly constituted United States post office or branch thereof, one business day after deposit with a recognized overnight courier service or upon confirmation of receipt of any facsimile transmission. Notice given to a party hereto by any other method shall only be deemed to be given and received when actually received in writing by such party.
     (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.
     (d) The Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation.

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     (e) The Executive’s or the Company’s failure to insist upon strict compliance with any provision of this Agreement or the failure to promptly assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to separate from service for Good Reason pursuant to Section 5(c)(i)-(v) hereof, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement.
     (f) The Executive and the Company acknowledge that, except as may otherwise be provided under any other written agreement between the Executive and the Company, the employment or other service of the Executive by or with the Company is “at will” and, subject to Section 1(a) hereof and/or any other written agreement between the Executive and the Company, prior to the Effective Date, the Executive’s employment and/or service and/or this Agreement may be terminated by either the Executive or the Company at any time prior to the Effective Date upon written notice to the other party, in which case the Executive shall have no further rights under this Agreement. From and after the Effective Date, this Agreement shall supersede any other agreement between the parties with respect to the subject matter hereof.
     (g) This Agreement may be executed in two or more counterparts, all of which taken together shall constitute one and the same agreement.
     IN WITNESS WHEREOF, the parties hereto have executed this Change of Control Agreement on the dates set forth below.
                 
Date: January 22, 2009
      EXECUTIVE

 
 
 
     
 
 
 
               
 
     
LITTELFUSE, INC.
 
 
Date: ________________________________
      By         
 
             
 
        Its       
 
               

16

Exhibit 10.6
CHANGE OF CONTROL AGREEMENT
for

David W. Heinzmann
     THIS AGREEMENT is made effective as of the 1st day of January, 2009, by and between LITTELFUSE, INC., a Delaware corporation (hereinafter referred to as the “Company”), and the executive named above (hereinafter referred to as the “Executive”);
WITNESSETH:
     WHEREAS, the Board of Directors of the Company (hereinafter referred to as the “Board”) has determined that it is in the best interests of the Company and its stockholders to provide the Executive with certain protections against the uncertainties usually created by a Change of Control (as such term is hereinafter defined); and
     WHEREAS, the Board wishes to better enable the Executive to devote his full time, attention and energy to the business of the Company prior to and after a Change of Control, thereby benefiting the Company and its stockholders;
     NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged and confessed, the Company and the Executive hereby agree as follows:
     Section 1. Certain Definitions. (a) The “Effective Date” shall mean the first date during the Change of Control Period (as defined in Section 1(b) hereof) on which a Change of Control (as defined in Section 2 hereof) occurs. Notwithstanding anything to the contrary contained in this Agreement, if a Change of Control occurs and if the Executive separates from service with the Company prior to the date on which the Change of Control occurs, and if it is reasonably demonstrated by the Executive that such separation from service (i) was at the direct or indirect request of a third party who theretofore had taken any steps intended to effect a Change of Control or (ii) otherwise arose in connection with or in anticipation of a Change of Control, then for all purposes of this Agreement the “Effective Date” shall mean the date immediately prior to the date of such separation from service.
     (b) The “Change of Control Period” shall mean the period commencing on January 1, 2009 and ending on December 31, 2011.
     Section 2. Change of Control. For the purpose of this Agreement, a “Change of Control” shall mean:
     (a) The acquisition by any one person or more than one person acting as a group (within the meaning of Treasury Regulation Section 1.409A-3(i)(5)(v)(B)), other than the Company or any employee benefit plan (or related trust) sponsored or maintained by the Company or any affiliated company (as defined in Section 4), (a “Person”) of any of stock of the Company that, together with stock held by such Person, constitutes more than 40% of the total fair market value or total voting power of the stock of the Company. For purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control: (i) the acquisition of additional stock by a Person who is considered to own more than 50% of the total

 


 

fair market value or total voting power of the stock of the Company, (ii) any acquisition in which the Company does not remain outstanding thereafter and (iii) any acquisition pursuant to a transaction which complies with subsection (c) of this Section 2. An increase in the percentage of stock owned by any one Person as a result of a transaction in which the Company acquires its stock in exchange for property will be treated as an acquisition of stock for purposes of this subsection;
     (b) The replacement of individuals who, as of the date hereof, constitute a majority of the Board, during any twelve (12) month period by directors whose appointment or election is not endorsed by a majority of the Board before the date of the appointment or election, provided that, if the Company is not the relevant corporation for which no other corporation is a majority shareholder for purposes of Treasury Regulation Section 1.409A-3(i)(5)(iv)(A)(2), this subsection (b) shall be applied instead with respect to the members of the board of the directors of such relevant corporation for which no other corporation is a majority shareholder;
     (c) The acquisition by any one person or more than one person acting as a group (within the meaning of Treasury Regulation Section 1.409A-3(i)(5)(vi)(D)), other than the Company or any employee benefit plan (or related trust) sponsored or maintained by the Company or any affiliated company (as defined in Section 4), during the 12-month period ending on the date of the most recent acquisition by such person or persons, of ownership of stock of the Company possessing 30% or more of the total voting power of the stock of the Company. For purposes of this subsection (c), the following acquisitions shall not constitute a Change of Control: (i) the acquisition of additional control by a person or more than one person acting as a group who are considered to effectively control the Company within the meaning of Treasury Regulation Section 1.409A-3(i)(5)(vi) and (ii) any acquisition pursuant to a transaction which complies with subsection (a) of this Section 2; or
     (d) The acquisition by any individual person or more than one person acting as a group (within the meaning of Treasury Regulation Section 1.409A-3(i)(5)(vii)(C)), other than a transfer to a related person within the meaning of Treasury Regulation Section 1.409A-3(i)(5)(vii)(B), during the 12-month period ending on the date of the most recent acquisition by such person or persons, of assets from the Company that have a total gross fair market value equal to or more than 40% of the total gross fair market value of all of the assets of the Company immediately prior to such acquisition(s). For purposes of this subsection (d), “gross fair market value” means the value of the assets of the Company, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets.
     The above definition of “Change of Control” shall be interpreted by the Board, in good faith, to apply in a similar manner to transactions involving partnerships and partnership interests, and to comply with Section 409A of the Internal Revenue Code and Treasury Regulations and official guidance issued thereunder from time to time (“Section 409A”).
     Section 3. Service Period. The Company hereby agrees to continue to retain the services of the Executive, and the Executive hereby agrees to provide services to the Company and its successors, subject to the terms and conditions of this Agreement, for the period commencing on the Effective Date and ending on the second anniversary of such date (the “Service Period”).

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     Section 4. Terms of Service.
     (a) Position and Duties. (i) During the Service Period, (A) the Executive’s position (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned at any time during the 120-day period immediately preceding the Effective Date and (B) the Executive’s services shall be performed at the location where the Executive was providing services to the Company or its affiliated companies immediately preceding the Effective Date or any office or location less than 20 miles from such location.
     (ii) During the Service Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive’s reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Service Period it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions, and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive’s responsibilities as an employee or service provider of the Company in accordance with this Agreement.
     (b) Compensation. (i) Base Salary. During the Service Period, the Executive shall receive an annual base salary (hereinafter referred to as the “Annual Base Salary”), which shall be paid at a monthly rate, equal to at least twelve times the highest monthly base salary paid or payable, including any base salary which has been earned but deferred, to the Executive by the Company and its affiliated companies in respect of the twelve-month period immediately preceding the month in which the Effective Date occurs. During the Service Period, the Annual Base Salary shall be reviewed no more than 12 months after the last salary increase awarded to the Executive prior to the Effective Date and thereafter at least annually. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. Annual Base Salary shall not be reduced after any such increase and the term Annual Base Salary as used in this Agreement shall refer to Annual Base Salary as so increased. As used in this Agreement, the term “affiliated companies” shall include any company controlled by, controlling or under common control with the Company.
     (ii) Annual Bonus. In addition to the Annual Base Salary, the Executive shall be awarded, for each fiscal year ending during the Service Period, an annual bonus (hereinafter referred to as the “Annual Bonus”) in cash at least equal to the Executive’s highest bonus under the Company’s incentive bonus program or any comparable bonus under any predecessor or successor plan, for the last three full fiscal years prior to the Effective Date (annualized in the event that the Executive was not employed by the Company for the whole of such fiscal year) (hereinafter referred to as the “Recent Annual Bonus”). Each such Annual Bonus shall be paid no later than the fifteenth day of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect to defer the receipt of such Annual Bonus. Any such deferral election shall be made not later than the first day of the fiscal year for

3


 

which the Annual Bonus is paid, and shall be made in accordance with policies adopted by the Company in compliance with Section 409A.
     (iii) Incentive, Savings and Retirement Plans. During the Service Period, the Executive shall be entitled to participate in all incentive, savings and retirement plans, practices, policies and programs applicable generally to other peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with incentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable), savings opportunities and retirement benefit opportunities, in each case, less favorable, in the aggregate, than the most favorable of those provided by the Company and its affiliated companies for the Executive under such plans, practices, policies and programs as in effect at any time during the 120-day period immediately preceding the Effective Date or if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies.
     (iv) Welfare Benefit Plans. During the Service Period, the Executive and/or the Executive’s family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other peer executives of the Company and its affiliated companies. In the event such plans, practices, policies and programs provide the Executive with benefits which are less favorable, in the aggregate, than the most favorable of such plans, practices, policies and programs in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies, then the Company shall provide individual insurance policies or reimburse the Executive, on at least a monthly basis, to cover any difference in the benefits received by the Executive.
     (v) Expenses. During the Service Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the most favorable policies, practices and procedures of the Company and its affiliated companies in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive and to the extent that any resulting change in reimbursement or payment dates would comply with Section 409A, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies.
     (vi) Fringe Benefits. During the Service Period, the Executive shall be entitled to fringe benefits, including, without limitation, tax and financial planning services, payment of club dues, and, if applicable, use of an automobile and payment of related expenses, in accordance with the most favorable plans, practices, programs and policies of the Company and its affiliated companies in effect for the Executive at any time during

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the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive and to the extent that any resulting change in reimbursement or payment dates would comply with Section 409A, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies.
     (vii) Office and Support Staff. During the Service Period, the Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and to exclusive personal secretarial and other assistance, at least equal to the most favorable of the foregoing provided to the Executive by the Company and its affiliated companies at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive and to the extent that any resulting change in reimbursement or payment dates would comply with Section 409A, as provided generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies.
     (viii) Vacation. During the Service Period, the Executive shall be entitled to paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company and its affiliated companies as in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies.
The requirements of paragraphs 4(b)(iii) through (viii) shall not apply to the extent prohibited by applicable law or to the extent such participation would cause the applicable plan, practice, policy, or program to fail nondiscrimination or coverage tests imposed thereon by applicable law.
     Section 5. Separation from Service.
     (a) Disability. If the Company determines in good faith that the Disability of the Executive has occurred during the Service Period (pursuant to the definition of Disability set forth below), it may terminate Executive’s service effective upon the date the Company provides written notice to the Executive. For purposes of this Agreement, “Disability” shall mean the Executive is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months; or, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than 3 months under an accident and health plan covering employees of the Company.
     (b) Cause. The Company may terminate the Executive’s service during the Service Period for Cause. For purposes of this Agreement, “Cause” shall mean:
     (i) the willful and continued failure of the Executive to perform substantially the Executive’s duties with the Company (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial

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performance is delivered to the Executive by the Board which specifically identifies the manner in which the Board believes that the Executive has not substantially performed the Executive’s duties and such failure is not cured within sixty (60) calendar days after receipt of such written demand; or
     (ii) the willful engaging by the Executive in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company.
     For purposes of this provision, any act or failure to act on the part of the Executive in violation or contravention of any order, resolution or directive of the Board shall be considered “willful” unless such order, resolution or directive is illegal or in violation of the certificate of incorporation or by-laws of the Company; provided, however, that no other act or failure to act on the part of the Executive, shall be considered “willful,” unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive’s action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Chief Executive Officer or General Counsel of the Company or based upon the advice of outside counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. The cessation of employment of the Executive shall not be deemed to be for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, the Executive is guilty of the conduct described in subparagraph (i) or (ii) above, and specifying the particulars thereof in detail.
     (c) Good Reason. The Executive’s service may be terminated by the Executive for Good Reason. For purposes of this Agreement, “Good Reason” shall mean:
     (i) the Executive is not elected to, or is removed from, any elected office of the Company which the Executive held immediately prior to the Effective Date;
     (ii) the assignment to the Executive of any duties materially inconsistent in any respect with the Executive’s position, authority, duties or responsibilities as contemplated by Section 4(a) hereof, or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive;
     (iii) any failure by the Company to comply with any of the provisions of this Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive;

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     (iv) the Company’s requiring the Executive to travel on Company business to a substantially greater extent than required immediately prior to the Effective Date; or
     (v) any purported termination by the Company of the Executive’s employment otherwise than as expressly permitted by this Agreement.
     For purposes of this Section 5(c), a good faith determination of “Good Reason” made by the Executive shall be conclusive.
     (d) Notice of Termination. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 13(b) hereof. For purposes of this Agreement, a “Notice of Termination” means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s service under the provision so indicated, and (iii) specifies the termination date. To qualify as “Good Reason,” the Executive must provide such notice within 90 days following the initial existence of the condition described in (c)(i) through (v) above, upon notice of which the Company shall have 30 days during which it may remedy the condition, in which case “Good Reason” shall not exist. The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive’s or the Company’s rights hereunder.
     (e) Separation from Service. All references to “separation from service,” “termination of service” and words of similar import shall have the same meaning as “separation from service” as defined by Section 409A. By way of illustration, and without limiting the generality of the foregoing, the following principals shall apply:
     (i) The Executive shall not be considered to have separated from service so long as the Executive is on military leave, sick leave, or other bona fide leave of absence if the period of such leave does not exceed six months, or if longer, so long as the Executive retains a right to reemployment with the Company under an applicable statute or by contract.
     (ii) Regardless of whether his employment has been formally terminated, the Executive will be considered to have separated from service as of the date it is reasonably anticipated that no further services will be performed by the Executive for the Company, or that the level of bona fide services the Executive will perform after such date will permanently decrease to no more than 20% of the average level of bona fide services performed over the immediately preceding 36-month period (or the full period of employment if the Executive has been employed for less than 36 months). For purposes of the preceding test, during any paid leave of absence the Executive shall be considered to have been performing services at the level commensurate with the amount of compensation received, and unpaid leaves of absence shall be disregarded.

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     (iii) For purposes of determining whether the Executive has separated from service, all services provided for the Company, or for any other entity that is part of a controlled group that includes the Company as defined in Section 414(b) or (c) of the Internal Revenue Code (“Code”), shall be taken into account, whether provided as an employee or as a consultant or other independent contractor; provided that the Executive shall not be considered to have not separated from service solely by reason of service as a non-employee director of the Company or any other such entity.
     Section 6. Obligations of the Company upon Separation.
     (a) Good Reason; Other Than for Cause, Death or Disability. If, during the Service Period, the Company causes the Executive to separate from service other than for Cause or Disability, or the Executive shall voluntarily separate from service for Good Reason as described in Section 5(c), the following provisions shall apply:
     (i) The Company shall pay to the Executive the amounts set forth in Sections A and B below.
     A. The sum of the following (“Accrued Obligations”):
(1) the Executive’s Annual Base Salary through the separation from service to the extent not theretofore paid, payable on the next regularly scheduled payroll date, plus
(2) an amount, equal to the Executive’s highest Annual Bonus or bonus paid under the Company’s incentive bonus program or any comparable bonus under any predecessor or successor plan, for the last three fiscal years ending prior to the separation from service (“Highest Annual Bonus”), multiplied by a fraction, the numerator of which is the number of days in the fiscal year through the separation from service, and the denominator of which is 365, payable in a lump sum on the 30th day following the separation from service, plus
(3) any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon), paid in accordance with the Executive’s deferral elections in effect under any such deferral program, plus
(4) any accrued but unpaid vacation pay, paid in a lump sum on the 30th day following the separation from service.
     B. The amount equal to the product of (1) two multiplied by (2) the sum of (x) the Executive’s Annual Base Salary plus (y) the Highest Annual Bonus, which shall be paid in a lump sum on the 30th day following the separation from service.
     (iii) The Company shall reimburse the Executive for the additional premium costs incurred by the Executive, in excess of the active employee rate for the Executive’s

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peer group, to continue group medical coverage for the Executive and/or the Executive’s family under Section 4980B of the Code and applicable state laws (“COBRA”) for the maximum period of time as permitted by law. The Executive shall submit to the Company satisfactory evidence of premium costs incurred within 30 days following the date such costs were incurred. Within 30 days following receipt of such evidence, the Company shall pay to the Executive such reimbursement, plus additional severance pay in an amount such that the net amount of such reimbursement and additional severance pay, after all applicable tax withholding, equals the difference between the full COBRA premium and the premium charged to active employees in Executive’s peer group. Following the end of COBRA coverage, the Company shall reimburse the Executive for the additional premium costs incurred by the Executive, in excess of the former employee COBRA rate for the Executive’s peer group, for the purchase of an individual insurance policy providing medical coverage to the Executive and/or the Executive’s family which is substantially similar to the coverage provided by the Company’s group medical plan. In no event shall the combined period of reimbursable coverage under COBRA and any individual insurance policy exceed two years from separation from service.
     (iv) For a period of up to 2 years after the separation from service, the Company shall provide monthly outplacement services to the Executive at reasonable levels as provided to peer executives of the Company, for the purpose of assisting the Executive to seek new employment; provided, however, that the Company shall have no further obligations to provide such outplacement services once the Executive has accepted employment with any third party.
     (v) Notwithstanding anything to the contrary set forth in any stock option plans pursuant to which the Executive has been granted any stock options or other rights to acquire securities of the Company or its Affiliates, as defined in Rule 12b-2 of the General Rules and Regulations under the Exchange Act (the “Plans”), any option or right granted to the Executive under any of the Plans shall be exercisable by the Executive until the earlier of (x) the date on which the option or right terminates in accordance with the terms of its grant, or (y) the expiration of 12 months after the separation from service.
     (vi) To the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies (such other amounts and benefits shall hereinafter be referred to collectively as the “Other Benefits”).
     (vii) Notwithstanding anything to the contrary contained in any employment agreement, benefit plan or other document, in the event the Executive’s employment shall be terminated during the Service Period by the Executive for Good Reason or by the Company other than for Cause or Disability, on and after the separation from service the Executive shall not be bound or prejudiced by any non-competition agreement benefiting the Company or its subsidiaries.
     (b) Death. If the Executive dies during the Service Period, this Agreement shall terminate without further obligations by the Company to the Executive’s legal representatives

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under this Agreement, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive’s estate or beneficiary, as applicable, at the time and in the form as provided in Paragraph 6(a)(i)(A) above. With respect to the provision of Other Benefits, the term “Other Benefits” as utilized in this Section 6(b) shall include, without limitation, and the Executive’s estate and/or beneficiaries shall be entitled to receive, benefits at least equal to the most favorable benefits provided by the Company and affiliated companies to the estates and beneficiaries of peer executives of the Company and such affiliated companies under such plans, programs, practices and policies relating to death benefits, if any, as in effect with respect to other peer executives and their beneficiaries at any time during the 120-day period immediately preceding the Effective Date.
     (c) Disability. If the Company causes the Executive to separate from service by reason of the Executive’s Disability during the Service Period as set forth in Section 5(a), this Agreement shall terminate without further obligations by the Company to the Executive under this Agreement, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive at the time and in the form provided in Paragraph 6(a)(i)(A). With respect to the provision of Other Benefits, the term “Other Benefits” as utilized in this Section 6(c) shall include, and the Executive shall be entitled after the Executive’s separation from service to receive, disability and other benefits at least equal to the most favorable of those generally provided by the Company and its affiliated companies to disabled executives and/or their families in accordance with such plans, programs, practices and policies relating to disability, if any, as in effect generally with respect to other peer executives and their families at any time during the 120-day period immediately preceding the Effective Date.
     (d) Cause; Other than for Good Reason. If the Company causes the Executive to separate from service for Cause during the Service Period as described in Section 5(b), this Agreement shall terminate without further obligations to the Executive other than the obligation to pay to the Executive (x) his Annual Base Salary through the separation from service, payable on the next regularly scheduled payroll date, (y) the amount of any compensation previously deferred by the Executive (which shall be paid at the time and in the form it would otherwise have been paid had this Agreement not applied), and (z) Other Benefits, in each case to the extent theretofore unpaid. If the Executive voluntarily separates from service during the Service Period, excluding a termination for Good Reason as described in Section 5(c), this Agreement shall terminate without further obligations of the Company to the Executive under this Agreement, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. In such case, all Accrued Obligations shall be paid to the Executive at the time and in the form provided in Section 6(a)(i)(A) and the Company shall timely pay or provide the Other Benefits to the Executive. In no event shall the Executive be liable to the Company for any damages caused by such voluntary termination by the Executive nor shall the Executive be in any way restricted from being employed by any other party after such voluntary termination.
     Section 7. Code Section 409A Payment Limits. To the maximum extent possible, the provisions of this Agreement shall be construed in such a manner that no amounts payable to the Executive are subject to the additional tax and interest provided in Section 409A(a)(1)(B) of the Code. If any payment (whether cash or in-kind), including but not limited to reimbursements and Other Benefits, would constitute a “deferral of compensation” under Section 409A and a

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payment date that complies with Section 409A(a)(2) of the Code is not otherwise provided for such benefit either in this Agreement or a Company program or policy, then such payment shall be made not later than 2 1/2 months after the end of the calendar year in which the payment is no longer subject to a substantial risk of forfeiture. Any receipts or other proof of expenses (if required) shall be submitted to the Company by the Executive no later than one month after the end of the calendar year in which the payment is no longer subject to a substantial risk of forfeiture. Notwithstanding any provision in this Agreement to the contrary, if at the time of separation from service the Executive is a “specified employee” within the meaning of Section 409A, any cash or in-kind payments which constitute a “deferral of compensation” under Section 409A and which would otherwise become due under this Agreement during the first 6 months (or such longer period as required by Section 409A) after separation from service shall be delayed and all such delayed payments shall be paid in full in the 7th month after the separation from service, and all subsequent payments shall be paid in accordance with their original payment schedule. To the extent that any insurance premiums or other benefit contributions constituting a “deferral of compensation” become subject to the above delay, the Executive shall be responsible for paying such amounts directly to the insurer or other third party and shall receive reimbursement from the Company for such amounts in the 7th month as described above. The above specified employee delay shall not apply to any payments that are excepted from coverage by Section 409A, such as those payments covered by the short-term deferral exception described in Treasury Regulations Section 1.409A-1(b)(4).
     Section 8. Nonexclusivity of Rights. Nothing in this Agreement shall prevent or limit the Executive’s continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which the Executive may qualify, nor, subject to Section 13(f) hereof, shall anything herein limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or any of its affiliated companies. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to his or her separation from service shall be payable in accordance with such plan, policy, practice or program or contract or agreement, except as explicitly modified by this Agreement.
     Section 9. Full Settlement. The Company’s obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and such amounts shall not be reduced whether or not the Executive obtains other employment. To the extent that any amount due hereunder has become subject to a bona fide dispute, payment of such amount may be delayed until no later than the end of the first taxable year of the Executive in which the Company and the Executive enter into a legally binding settlement of such dispute, the Company concedes that the amount is payable, or the Company is required to make such payment pursuant to a final and nonappealable judgment or other binding decision, as set forth in Treasury Regulation Section 1.409A-3(g), and any such payment shall include interest on such delayed amount from the original due date thereof until paid at the prime rate from time to time reported in The Wall Street Journal during said period, plus, to the fullest extent permitted by law, the

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amount of all legal fees and expenses which the Executive reasonably incurs as a result of any contest by the Company, the Executive or others in which the Executive is the prevailing party.
     Section 10. Certain Additional Payments by the Company. (a) Anything in this Agreement to the contrary notwithstanding and except as set forth below, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section, except as provided in the last sentence of this paragraph (a)) (hereinafter referred to collectively as a "Payment”) would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax”), then the Executive shall be entitled to receive an additional payment (a “Gross-Up Payment”) in an amount such that, after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. Regardless of whether the Executive is subject to an Excise Tax, in the event that the Company fails to make any payment at the time or in the form required by Section 6, and as a result it is subsequently determined that Executive is subject to the additional tax and interest provided in Section 409A(a)(1)(B) of the Code with respect to any portion of such payment (such additional tax, together with any interest and penalties thereon, are hereinafter collectively referred to as the “Section 409A Penalty”) then Executive shall also be entitled to receive an additional payment (a “Section 409A Gross-Up”) calculated in the same manner as a Gross-Up Payment by substituting “Section 409A Penalty” for “Excise Tax” for all purposes of this Section. The Section 409A Gross-Up shall be considered a Payment for purposes of calculation of any Gross-Up Penalty.
     (b) Subject to the provisions of paragraph (c) hereof, all determinations required to be made under this Section, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by Ernst & Young LLP or such other independent certified public accounting firm as may be designated by the Executive (hereinafter referred to as the “Accounting Firm”) which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, the Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section, shall be paid by the Company to the Executive within five days of the receipt of the Accounting Firm’s determination. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made (hereinafter referred to as the “Underpayment”) consistent with the calculations

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required to be made hereunder. In the event that the Company exhausts its remedies pursuant to paragraph (c) hereof and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive.
     (c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall:
     (i) give the Company any information reasonably requested by the Company relating to such claim,
     (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company,
     (iii) cooperate with the Company in good faith in order effectively to contest such claim, and
     (iv) permit the Company to participate in any proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this paragraph (c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or to contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance. The Company’s

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control of any such contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority.
     (d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to paragraph (c) hereof, the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company’s complying with the requirements of paragraph (c) hereof) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to paragraph (c) hereof, a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid.
     (e) Anything else contained herein to the contrary notwithstanding, in no event shall any Gross-Up Payment be paid to the Executive later than the last day of the year following the year in which the Executive pays to the applicable taxing authority the Excise Tax with respect to which the Gross-Up Payment is due. The preceding sentence is included solely in order to satisfy the requirements of Section 409A, and is not to be construed to permit a delay in the time at which a Gross-Up Payment would otherwise be paid.
     Section 11. Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Executive during the Executive’s service with the Company or any of its affiliated companies and which shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). After Executive’s separation from service with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this Section 11 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. The provisions of this Section 11 shall survive any termination of this Agreement or the Executive’s separation of service with the Company.
     Section 12. Successors. (a) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive’s legal representatives.
     (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns.
     (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the

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Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, the term “Company” shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law or otherwise.
     Section 13. Miscellaneous. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Illinois, without reference to principles of conflict of laws. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives.
     (b) Each notice, request, demand, approval or other communication which may be or is required to be given under this Agreement shall be in writing and shall be deemed to have been properly given when delivered personally at the address set forth below for the intended party during normal business hours at such address, when sent by facsimile or other electronic transmission to the respective facsimile transmission numbers of the parties set forth below with telephone confirmation of receipt, or when sent by recognized overnight courier or by the United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows:
     If to the Company:
Littelfuse, Inc.
800 E. Northwest Highway
Des Plaines, Illinois 60016
Attention: President
Facsimile: (847) 824-3864
Confirm: (847) 391-0304
If to the Executive, to the last address shown in the records of the Company.
     Notices shall be given to such other addressee or address, or both, or by way of such other facsimile transmission number, as a particular party may from time to time designate by written notice to the other party hereto. Each notice, request, demand, approval or other communication which is sent in accordance with this Section shall be deemed given and received for all purposes of this Agreement as of two business days after the date of deposit thereof for mailing in a duly constituted United States post office or branch thereof, one business day after deposit with a recognized overnight courier service or upon confirmation of receipt of any facsimile transmission. Notice given to a party hereto by any other method shall only be deemed to be given and received when actually received in writing by such party.
     (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.
     (d) The Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation.

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     (e) The Executive’s or the Company’s failure to insist upon strict compliance with any provision of this Agreement or the failure to promptly assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to separate from service for Good Reason pursuant to Section 5(c)(i)-(v) hereof, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement.
     (f) The Executive and the Company acknowledge that, except as may otherwise be provided under any other written agreement between the Executive and the Company, the employment or other service of the Executive by or with the Company is “at will” and, subject to Section 1(a) hereof and/or any other written agreement between the Executive and the Company, prior to the Effective Date, the Executive’s employment and/or service and/or this Agreement may be terminated by either the Executive or the Company at any time prior to the Effective Date upon written notice to the other party, in which case the Executive shall have no further rights under this Agreement. From and after the Effective Date, this Agreement shall supersede any other agreement between the parties with respect to the subject matter hereof.
     (g) This Agreement may be executed in two or more counterparts, all of which taken together shall constitute one and the same agreement.
     IN WITNESS WHEREOF, the parties hereto have executed this Change of Control Agreement on the dates set forth below.
             
 
    EXECUTIVE    
 
           
Date: January 22, 2009                        
           
 
         
 
           
 
           
 
    LITTELFUSE, INC.    
 
           
Date:                                                      
    By 
 
   
 
           
 
      Its    
 
     
 
   

16

Exhibit 10.7
CHANGE OF CONTROL AGREEMENT
for

Hugh Dalsen Ferbert
     THIS AGREEMENT is made effective as of the 1st day of January, 2009, by and between LITTELFUSE, INC., a Delaware corporation (hereinafter referred to as the “Company”), and the executive named above (hereinafter referred to as the “Executive”);
WITNESSETH:
     WHEREAS, the Board of Directors of the Company (hereinafter referred to as the “Board”) has determined that it is in the best interests of the Company and its stockholders to provide the Executive with certain protections against the uncertainties usually created by a Change of Control (as such term is hereinafter defined); and
     WHEREAS, the Board wishes to better enable the Executive to devote his full time, attention and energy to the business of the Company prior to and after a Change of Control, thereby benefiting the Company and its stockholders;
     NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged and confessed, the Company and the Executive hereby agree as follows:
     Section 1. Certain Definitions. (a) The “Effective Date” shall mean the first date during the Change of Control Period (as defined in Section 1(b) hereof) on which a Change of Control (as defined in Section 2 hereof) occurs. Notwithstanding anything to the contrary contained in this Agreement, if a Change of Control occurs and if the Executive separates from service with the Company prior to the date on which the Change of Control occurs, and if it is reasonably demonstrated by the Executive that such separation from service (i) was at the direct or indirect request of a third party who theretofore had taken any steps intended to effect a Change of Control or (ii) otherwise arose in connection with or in anticipation of a Change of Control, then for all purposes of this Agreement the “Effective Date” shall mean the date immediately prior to the date of such separation from service.
     (b) The “Change of Control Period” shall mean the period commencing on January 1, 2009 and ending on December 31, 2011.
     Section 2. Change of Control. For the purpose of this Agreement, a “Change of Control” shall mean:
     (a) The acquisition by any one person or more than one person acting as a group (within the meaning of Treasury Regulation Section 1.409A-3(i)(5)(v)(B)), other than the Company or any employee benefit plan (or related trust) sponsored or maintained by the Company or any affiliated company (as defined in Section 4), (a “Person”) of any of stock of the Company that, together with stock held by such Person, constitutes more than 40% of the total fair market value or total voting power of the stock of the Company. For purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control: (i) the acquisition of additional stock by a Person who is considered to own more than 50% of the total

 


 

fair market value or total voting power of the stock of the Company, (ii) any acquisition in which the Company does not remain outstanding thereafter and (iii) any acquisition pursuant to a transaction which complies with subsection (c) of this Section 2. An increase in the percentage of stock owned by any one Person as a result of a transaction in which the Company acquires its stock in exchange for property will be treated as an acquisition of stock for purposes of this subsection;
     (b) The replacement of individuals who, as of the date hereof, constitute a majority of the Board, during any twelve (12) month period by directors whose appointment or election is not endorsed by a majority of the Board before the date of the appointment or election, provided that, if the Company is not the relevant corporation for which no other corporation is a majority shareholder for purposes of Treasury Regulation Section 1.409A-3(i)(5)(iv)(A)(2), this subsection (b) shall be applied instead with respect to the members of the board of the directors of such relevant corporation for which no other corporation is a majority shareholder;
     (c) The acquisition by any one person or more than one person acting as a group (within the meaning of Treasury Regulation Section 1.409A-3(i)(5)(vi)(D)), other than the Company or any employee benefit plan (or related trust) sponsored or maintained by the Company or any affiliated company (as defined in Section 4), during the 12-month period ending on the date of the most recent acquisition by such person or persons, of ownership of stock of the Company possessing 30% or more of the total voting power of the stock of the Company. For purposes of this subsection (c), the following acquisitions shall not constitute a Change of Control: (i) the acquisition of additional control by a person or more than one person acting as a group who are considered to effectively control the Company within the meaning of Treasury Regulation Section 1.409A-3(i)(5)(vi) and (ii) any acquisition pursuant to a transaction which complies with subsection (a) of this Section 2; or
     (d) The acquisition by any individual person or more than one person acting as a group (within the meaning of Treasury Regulation Section 1.409A-3(i)(5)(vii)(C)), other than a transfer to a related person within the meaning of Treasury Regulation Section 1.409A-3(i)(5)(vii)(B), during the 12-month period ending on the date of the most recent acquisition by such person or persons, of assets from the Company that have a total gross fair market value equal to or more than 40% of the total gross fair market value of all of the assets of the Company immediately prior to such acquisition(s). For purposes of this subsection (d), “gross fair market value” means the value of the assets of the Company, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets.
     The above definition of “Change of Control” shall be interpreted by the Board, in good faith, to apply in a similar manner to transactions involving partnerships and partnership interests, and to comply with Section 409A of the Internal Revenue Code and Treasury Regulations and official guidance issued thereunder from time to time (“Section 409A”).
     Section 3. Service Period. The Company hereby agrees to continue to retain the services of the Executive, and the Executive hereby agrees to provide services to the Company and its successors, subject to the terms and conditions of this Agreement, for the period commencing on the Effective Date and ending on the second anniversary of such date (the “Service Period”).

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     Section 4. Terms of Service.
     (a) Position and Duties. (i) During the Service Period, (A) the Executive’s position (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned at any time during the 120-day period immediately preceding the Effective Date and (B) the Executive’s services shall be performed at the location where the Executive was providing services to the Company or its affiliated companies immediately preceding the Effective Date or any office or location less than 20 miles from such location.
     (ii) During the Service Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive’s reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Service Period it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions, and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive’s responsibilities as an employee or service provider of the Company in accordance with this Agreement.
     (b) Compensation. (i) Base Salary. During the Service Period, the Executive shall receive an annual base salary (hereinafter referred to as the “Annual Base Salary”), which shall be paid at a monthly rate, equal to at least twelve times the highest monthly base salary paid or payable, including any base salary which has been earned but deferred, to the Executive by the Company and its affiliated companies in respect of the twelve-month period immediately preceding the month in which the Effective Date occurs. During the Service Period, the Annual Base Salary shall be reviewed no more than 12 months after the last salary increase awarded to the Executive prior to the Effective Date and thereafter at least annually. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. Annual Base Salary shall not be reduced after any such increase and the term Annual Base Salary as used in this Agreement shall refer to Annual Base Salary as so increased. As used in this Agreement, the term “affiliated companies” shall include any company controlled by, controlling or under common control with the Company.
     (ii) Annual Bonus. In addition to the Annual Base Salary, the Executive shall be awarded, for each fiscal year ending during the Service Period, an annual bonus (hereinafter referred to as the “Annual Bonus”) in cash at least equal to the Executive’s highest bonus under the Company’s incentive bonus program or any comparable bonus under any predecessor or successor plan, for the last three full fiscal years prior to the Effective Date (annualized in the event that the Executive was not employed by the Company for the whole of such fiscal year) (hereinafter referred to as the “Recent Annual Bonus”). Each such Annual Bonus shall be paid no later than the fifteenth day of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect to defer the receipt of such Annual Bonus. Any such deferral election shall be made not later than the first day of the fiscal year for

3


 

which the Annual Bonus is paid, and shall be made in accordance with policies adopted by the Company in compliance with Section 409A.
     (iii) Incentive, Savings and Retirement Plans. During the Service Period, the Executive shall be entitled to participate in all incentive, savings and retirement plans, practices, policies and programs applicable generally to other peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with incentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable), savings opportunities and retirement benefit opportunities, in each case, less favorable, in the aggregate, than the most favorable of those provided by the Company and its affiliated companies for the Executive under such plans, practices, policies and programs as in effect at any time during the 120-day period immediately preceding the Effective Date or if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies.
     (iv) Welfare Benefit Plans. During the Service Period, the Executive and/or the Executive’s family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other peer executives of the Company and its affiliated companies. In the event such plans, practices, policies and programs provide the Executive with benefits which are less favorable, in the aggregate, than the most favorable of such plans, practices, policies and programs in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies, then the Company shall provide individual insurance policies or reimburse the Executive, on at least a monthly basis, to cover any difference in the benefits received by the Executive.
     (v) Expenses. During the Service Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the most favorable policies, practices and procedures of the Company and its affiliated companies in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive and to the extent that any resulting change in reimbursement or payment dates would comply with Section 409A, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies.
     (vi) Fringe Benefits. During the Service Period, the Executive shall be entitled to fringe benefits, including, without limitation, tax and financial planning services, payment of club dues, and, if applicable, use of an automobile and payment of related expenses, in accordance with the most favorable plans, practices, programs and policies of the Company and its affiliated companies in effect for the Executive at any time during

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the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive and to the extent that any resulting change in reimbursement or payment dates would comply with Section 409A, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies.
     (vii) Office and Support Staff. During the Service Period, the Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and to exclusive personal secretarial and other assistance, at least equal to the most favorable of the foregoing provided to the Executive by the Company and its affiliated companies at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive and to the extent that any resulting change in reimbursement or payment dates would comply with Section 409A, as provided generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies.
     (viii) Vacation. During the Service Period, the Executive shall be entitled to paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company and its affiliated companies as in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies.
The requirements of paragraphs 4(b)(iii) through (viii) shall not apply to the extent prohibited by applicable law or to the extent such participation would cause the applicable plan, practice, policy, or program to fail nondiscrimination or coverage tests imposed thereon by applicable law.