Anderson was co-founder,
Chief Financial Officer and Chief Operating Officer of KLA Instruments, a supplier of process control and yield management solutions for the
semiconductor and related nanoelectronics industries, from 1975 through 1994. Mr. Anderson is a graduate of Bentley University and served as a trustee
of Bentley University from 1993 through 2004.
Mr. Anderson brings to the Board
of Directors a strong background in advising high-tech companies through his public company board experience. As the co-founder, Chief Financial
Officer and Chief Operating Officer of a high-tech company, Mr. Anderson brings to the Board of Directors expertise in the semiconductor equipment
industry, business development, mergers and acquisition and financing and senior management experience.
DR. WILLIAM W. R. ELDER
has been a director of the Company since 1989. From 1981 to 1996, Dr. Elder was the Chief Executive Officer of Genus, Inc., a semiconductor equipment
company, and then again from 1998 until the company was acquired by AIXTRON AG in 2005. Dr. Elder retired from AIXTRON AG in December 2007 and
continues to serve in an advisory role for the company. Dr. Elder is currently President and Chief Executive Officer of Maskless Lithography Inc., a
capital equipment start-up company based in San Jose, California. Dr. Elder received a B.S.I.E. and an honorary Doctorate Degree from the University of
Paisley in Scotland.
As President and Chief Executive
Officer of a semiconductor equipment company, Dr. Elder brings to the Board of Directors senior leadership experience, strong industry knowledge and
operations expertise.
MUKESH PATEL has been a
director of the Company since June 1999. Mr. Patel was President and Chief Executive Officer of Metta Technology, which he co-founded in 2004, until
November 2006, when LSI Logic Corporation acquired it. He founded Sparkolor Corporation which was acquired by Intel Corporation in late 2002, and
co-founded SMART Modular Technologies, Inc., or SMART Modular, a publicly-held high value added memory products company which was acquired by Solectron
Corporation in late 1999. From February 1989 to July 1995, Mr. Patel served as Vice President and General Manager Memory Product Division of SMART
Modular and from August 1995 to August 1998 he served as Vice President, Engineering. Mr. Patel also serves as a director of SMART Modular and for
several privately-held companies. Mr. Patel received a B.S. degree in Engineering with an emphasis in digital electronics from Bombay University,
India.
As the co-founder, President and
Chief Executive Officer of a high-tech company, Mr. Patel brings to the Board of Directors a strong background in semiconductor memory markets and
technology, expertise in business development, mergers and acquisition and financing and senior management experience. Mr. Patel also brings to the
Board of Directors a strong background in advising high-tech companies through his public company board experience.
MARIO M. ROSATI was a
director of the Company from 1977 to 2008, and then rejoined the Board of Directors in 2009. Mr. Rosati is a member of the law firm Wilson Sonsini
Goodrich & Rosati, Professional Corporation which he joined in 1971. Mr. Rosati is a director of Sanmina-SCI Corporation, a publicly-held
electronics manufacturing services company, as well as several privately-held companies. Mr. Rosati received a B.A. from the University of California,
Los Angeles and a J.D. from the University of California, Berkeley School of Law.
As a senior partner in a major
Silicon Valley based law firm, Mr. Rosati brings legal expertise in the oversight of legal and regulatory compliance, mergers and acquisitions and
financing experience to the Board of Directors. Mr. Rosati also brings to the Board of Directors a strong background in advising high-tech companies
through his public company board experience.
HOWARD T. SLAYEN has been
a director of the Company since 2008. Since June 2001, Mr. Slayen has been providing independent financial consulting services to various organizations
and clients. From October 1999 to May 2001, Mr. Slayen served as Executive Vice President and Chief Financial
8
Officer of Quaartz Inc., a
web-hosted communications company. From 1971 to September 1999, Mr. Slayen held various positions with PricewaterhouseCoopers/Coopers & Lybrand,
including his last position as a Corporate Finance Partner. Mr. Slayen currently is a director of Lantronix, Inc., a publicly-held embedded networking
solutions company. Mr. Slayen received a B.A. from Claremont McKenna College and a J.D. from the University of California, Berkeley School of
Law.
As Vice President and Chief
Financial Officer of a high-tech company, and as Corporate Finance Partner for a large international accounting firm, Mr. Slayen brings to the Board of
Directors senior leadership experience, expertise in accounting and financial reporting, financing and investing activities, and internal control and
compliance. Mr. Slayen also brings to the Board of Directors a strong background in advising high-tech companies through his public company board
experience.
Board Matters and Corporate
Governance
Board Meetings and Committees
The Board of Directors held a
total of four meetings during the fiscal year ended May 31, 2011. No incumbent director during his period of service in such fiscal year attended fewer
than 75% of the aggregate of all meetings of the Board of Directors and the committees of the Board upon which such director served.
The Board of Directors has three
committees: the Audit Committee, the Compensation Committee and the Nominating and Governance Committee.
The Audit Committee of the Board
of Directors is comprised entirely of independent directors, as defined by the NASDAQ Stock Market LLC director independence standards, as well as
applicable SEC rules, as currently in effect. More information regarding the functions performed by the Committee, its membership, and the number of
meetings held during the fiscal year, is set forth in the section entitled Report of the Audit Committee. The Audit Committee is governed
by a written charter approved by the Board of Directors. The Company maintains a copy of the Audit Committee charter on its website:
www.aehr.com. The Audit Committee consists of directors Messrs. Slayen, Anderson and Patel. The Board of Directors has determined that Mr.
Slayen is an audit committee financial expert as defined by Item 401(h) of Regulation S-K of the Securities Exchange Act of 1934, as amended, or the
Exchange Act.
The Compensation Committee of the
Board of Directors currently consists of Messrs. Anderson and Elder, each of whom is an independent member of the Board of Directors, as defined by the
NASDAQ Stock Market LLC director independence standards, as well as applicable SEC rules, as currently in effect. The Compensation Committee held one
meeting during fiscal year 2011. The Compensation Committee reviews and advises the Board of Directors regarding all forms of compensation to be
provided to the officers, employees, directors and consultants of the Company. The Compensation Committee is governed by a written charter approved by
the Board of Directors. The Company maintains a copy of the Compensation Committee charter on its website: www.aehr.com. More information
regarding the Compensation Committees processes and procedures can be found herein in the section entitled Compensation Discussion and
Analysis.
The Nominating and Governance
Committee of the Board of Directors currently consists of Messrs. Elder and Patel, each of whom is an independent member of the Board of Directors, as
defined by the NASDAQ Stock Market LLC director independence standards, as well as applicable SEC rules, as currently in effect. The Nominating and
Governance Committee reviews and makes recommendations to the Board of Directors regarding matters concerning corporate governance; reviews the
composition and evaluates the performance of the Board of Directors; selects, or recommends for the selection of the Board of Directors, director
nominees; evaluates director compensation; reviews the composition of committees of the Board of Directors and recommends persons to be members of such
committee; and reviews conflicts of interest of members of the Board of Directors and corporate officers. The Nominating and Governance Committee is
governed by a written charter approved by the Board of Directors. The Nominating and Governance Committee of the Board of Directors did not hold any
meetings during the fiscal year ended May 31, 2011. The Company maintains a copy of the Nominating and Governance Committee charter on its website:
www.aehr.com.
9
Shareholder Recommendations
The policy of the Board of
Directors is to consider properly submitted shareholder recommendations for candidates for membership on the Board as described below under
Identifying and Evaluating Nominees for Directors. In evaluating such recommendations, the Board of Directors seeks to achieve a balance of
knowledge, experience and capability on the Board and to address the membership criteria set forth under Director Qualifications below. Any
shareholder recommendations proposed for consideration by the Board of Directors should include the candidates name and qualifications for Board
membership and should be addressed to:
Aehr Test Systems
400 Kato Terrace
Fremont, CA
94539
Attn: Secretary
In addition, procedures for
shareholder direct nomination of directors are discussed under Deadline for Receipt of Shareholder Proposals above.
Director Qualifications
Members of the Board should have
the highest professional and personal ethics and values, consistent with the Companys Code of Conduct and Ethics adopted by the Board. They
should have broad experience at the policy-making level in business. They should be committed to enhancing shareholder value and should have sufficient
time to carry out their duties and to provide insight and practical wisdom based on experience. Their service on other boards of public companies
should be limited to a number that permits them, given their individual circumstances, to perform responsibly all director duties. Each director must
represent the interests of all shareholders.
Identifying and Evaluating Nominees for
Directors
The Board of Directors utilizes a
variety of methods for identifying and evaluating nominees for director. The Board of Directors periodically assesses the appropriate size of the
Board, and whether any vacancies on the Board are expected due to retirement or otherwise. In the event that vacancies are anticipated, or otherwise
arise, the Board of Directors considers various potential candidates for director. Candidates may come to the attention of the Board of Directors
through current Board members, professional search firms, shareholders or other persons. These candidates are evaluated at regular or special meetings
of the Board of Directors, and may be considered at any point during the year. As described above, the Board of Directors considers properly submitted
shareholder recommendations for candidates for the Board. Following verification of the shareholder status of persons proposing candidates, any
recommendations are aggregated and considered by the Board of Directors at a regularly scheduled meeting prior to the issuance of the proxy statement
for the Companys annual meeting. If any materials are provided by a shareholder in connection with the recommendation of a director candidate,
such materials are forwarded to the Board of Directors. The Board of Directors may also review materials provided by professional search firms or other
parties in connection with a candidate who is not recommended by a shareholder. In evaluating such recommendations, the Board of Directors seeks to
achieve a balance of knowledge, experience and capability on the Board.
The Company seeks board members
whose background, skills and experience will best assist the Company in the oversight of its business and operations. This includes understanding of
and experience in manufacturing, technology, finance, and legal and regulatory compliance. Senior leadership experience and public company board
experience are two of the key qualities evaluated when considering nominees for the Companys Board of Directors. A goal of the nomination process
is to provide a Board with a
10
diverse set of skills and
experience to provide oversight and advice concerning the Companys current business and growth strategies.
The Board of Directors has
determined that each of its current directors, except for Rhea J. Posedel, the Companys Chief Executive Officer, is independent within the
meaning of the NASDAQ Stock Market LLC director independence standards, as well as applicable SEC rules, as currently in effect.
Annual Meeting Attendance
Although the Company does not
have a formal policy regarding attendance by members of the Board at the Companys annual meetings of shareholders, directors are encouraged to
attend annual meetings of the Companys shareholders. Mr. Anderson and Dr. Elder attended the 2010 Annual Meeting of
Shareholders.
Code of Conduct and Ethics
The Board of Directors has
adopted a Code of Conduct and Ethics for all directors, officers and employees of the Company, which includes the Chief Executive Officer, Chief
Financial Officer and any other principal accounting officer. The Code of Conduct and Ethics may be found on the Companys website at
www.aehr.com. The Company will disclose any amendment to the Code of Conduct and Ethics or waiver of a provision of the Code of Conduct and Ethics,
including the name of the officer to whom the waiver was granted, on the Companys website at www.aehr.com, on the Investors
page.
Board Leadership Structure and Role in Risk
Oversight
The Board of Directors maintains
a structure with the Chief Executive Officer of the Company holding the position as Chairman of the Board of Directors, and with an Audit Committee,
Nominating and Governance Committee and Compensation Committee for oversight of specific areas of responsibility. The Company believes that this
structure is appropriate and allows for efficient and effective oversight, given the Companys relatively small size (both in terms of number of
employees and in scope of operational activities directly conducted by the Company) and its corporate strategy. The Board of Directors does not have a
lead independent director nor does the Board have a specific role in risk oversight of the Company. The Chairman and Chief Executive Officer, the
Committees of the Board and, as needed, other executive officers and employees of the Company provide the Board of Directors with information regarding
the Companys risks. The Board of Directors, or the Committee with special responsibility for oversight of the area implicated by the highlighted
risks, then uses this information to perform its oversight role and inform its decision making with respect to such areas of risk.
Communications with the Board
The Company does not have a
formal policy regarding shareholder communication with the Board of Directors. However, shareholders may communicate with the Board by submitting a
letter to the attention of the Chairman of the Board, c/o Aehr Test Systems, 400 Kato Terrace, Fremont, CA 94539. Communication received in writing
will be collected, organized and processed by the Chairman of the Board who will distribute the communications to the members of the Board of
Directors, as appropriate, depending on the facts and circumstances outlined in the communication received.
11
REPORT OF THE AUDIT COMMITTEE (1)
The Audit Committee of the Board
of Directors of the Company serves as the representative of the Board for general oversight of the Companys financial accounting and reporting
system of internal control, audit process and process for monitoring compliance with laws and regulations. The Audit Committee, consisting of Messrs.
Slayen, Anderson and Patel, held four meetings in fiscal year 2011. Each member is an independent director in accordance with the NASDAQ Stock Market
LLC Audit Committee requirements as currently in effect. The Audit Committee evaluates the scope of the annual audit, reviews audit results, consults
with management and the Companys independent registered public accounting firm prior to the presentation of financial statements to shareholders
and, as appropriate, initiates inquiries into aspects of the Companys financial affairs.
The Companys management has
primary responsibility for preparing the Companys consolidated financial statements and for the Companys financial reporting process. The
Companys independent registered public accounting firm, Burr Pilger Mayer, Inc., or BPM, is responsible for expressing an opinion on the
conformity of the Companys audited consolidated financial statements to accounting principles generally accepted in the United States of America.
The Audit Committee has reviewed and discussed with management the audited consolidated financial statements for the year ended May 31, 2011. BPM, the
Companys independent registered public accounting firm for fiscal year 2011, issued their unqualified report dated August 26, 2011 on the
Companys consolidated financial statements.
The Audit Committee has also
discussed with BPM the matters required to be discussed by the Statement on Auditing Standards No. 61, Communication with Audit Committees,
as amended, as adopted by the Public Company Accounting Oversight Board in Rule 3200T. The Audit Committee has also received the written disclosures
and the letter from BPM required by the applicable Public Company Accounting Oversight Board requirements for independent accountant communications
with audit committees concerning auditor independence, and has conducted a discussion with BPM relative to its independence. The Audit Committee has
considered whether BPMs provision of non-audit services is compatible with its independence.
Based on the reviews and
discussions referred to above, the Audit Committee recommended to the Board of Directors of Aehr Test Systems that the Companys audited
consolidated financial statements for the fiscal year ended May 31, 2011 be included in the Companys Annual Report on Form 10-K.
AUDIT
COMMITTEE
Howard T. Slayen
Robert R.
Anderson
Mukesh Patel
(1) The information regarding the Audit Committee is not
soliciting material and is not deemed filed with the SEC, and is not to be incorporated by reference into any filings of the
Company under the Securities Act or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation
language contained in such filing.
Director Compensation
Rhea J. Posedel, the only inside
director of the Company, does not receive any cash compensation for his services as a member of the Board of Directors. An inside director is a
director who is a regular employee of the Company, whereas an outside director is not an employee of the Company. Effective June 1, 2011, each outside
director will receive (1) an annual retainer of $25,000, (2) $2,500 for each regular board meeting such member attends, and (3) $1,250 for each special
telephonic board meeting such member attends. Committee members attending a committee meeting not held in conjunction with a regular board meeting will
receive the following amounts: audit committee chair $2,000; audit committee
12
member $1,500;
compensation committee chair $1,750; and other committee members $1,250. Committee members attending a committee meeting held in
conjunction with a regular board meeting will receive 50% of the amounts noted above for each respective committee member. Outside directors are also
reimbursed for certain expenses incurred in attending board and committee meetings.
During fiscal 2011, the fees paid
to the Board of Directors were at reduced rates originally implemented during fiscal 2009 in response to the slowdown in the semiconductor
manufacturing industry and the related impact on the Companys net revenue. Under the reduced fees each outside director received (1) an annual
retainer of $15,000, (2) $1,500 for each regular board meeting he attended, and (3) $750 for each special telephonic meeting he attended. In addition,
each outside Committee member received payment in the following amounts for each Committee meeting he attended if the meeting was not held on the same
day as a regular meeting of the Board of Directors: $1,200 for the Chairman of the Audit Committee; $900 for each regular Audit Committee Member;
$1,050 for the Chairman of the Compensation Committee; and $750 for each regular Compensation Committee Member. If the Committee meeting is held on the
same day as a regular meeting of the Board of Directors, the Committee members were paid 50% of the above amounts. Outside directors were reimbursed
for certain expenses incurred in attending board and committee meetings.
Directors are eligible to
participate in the Companys stock option plans. In fiscal 2009, outside directors Robert Anderson, William Elder and Mukesh Patel were each
granted options to purchase 5,000 shares at $2.30 per share, an option to purchase 3,750 shares at $1.29 per share was granted to outside director
Mario M. Rosati and an option to purchase 15,000 shares at $2.30 was granted to outside director Howard T. Slayen. In fiscal 2010, outside directors
Robert Anderson, William Elder, Mukesh Patel, Mario Rosati and Howard T. Slayen were each granted options to purchase 5,000 shares at $0.85 per share,
and 5,000 shares at $1.42 per share. In fiscal 2011, outside directors Robert Anderson, William Elder, Mukesh Patel, Mario Rosati and Howard T. Slayen
were each granted options to purchase 10,000 shares at $1.32 per share. All exercise prices are equal to the closing price of the Companys Common
Stock on the date of the grant as reported on the NASDAQ Stock Market LLC.
The Company has agreed to
indemnify each director against certain claims and expenses for which the director might be held liable in connection with past or future service on
the Board. In addition, the Company maintains an insurance policy insuring its officers and directors against such liabilities.
The following table sets forth
the compensation paid by the Company during the fiscal year ended May 31, 2011 to the Companys non-executive officer directors:
Director Compensation
Name
|
|
|
|
Year
|
|
Fees Earned or Paid in Cash
|
|
Option Award (2)
|
|
Total Compensation
|
Rhea J.
Posedel (1) |
|
|
|
|
2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert R.
Anderson |
|
|
|
|
2011 |
|
|
$ |
24,450 |
|
|
$ |
7,078 |
|
|
$ |
31,528 |
|
William W.R.
Elder |
|
|
|
|
2011 |
|
|
$ |
21,750 |
|
|
$ |
7,078 |
|
|
$ |
28,828 |
|
Mukesh
Patel |
|
|
|
|
2011 |
|
|
$ |
23,850 |
|
|
$ |
7,078 |
|
|
$ |
30,928 |
|
Mario M.
Rosati |
|
|
|
|
2011 |
|
|
$ |
21,750 |
|
|
$ |
7,078 |
|
|
$ |
28,828 |
|
Howard T.
Slayen |
|
|
|
|
2011 |
|
|
$ |
25,800 |
|
|
$ |
12,535 |
|
|
$ |
38,335 |
|
(1) |
|
Rhea J. Posedel is an executive officer and does not receive any
additional compensation for services provided as a director. |
(2) |
|
Reflects the dollar amount recognized for financial statement
reporting purposes for the fiscal year ended May 31, 2011 in accordance with the provisions of Financial Accounting Standards Board, |
13
|
|
or FASB, Accounting Standards Codification 718, or ASC 718,
Compensation Stock Compensation, (formerly FASB Statement 123R), and thus includes amounts from awards granted in and prior to
fiscal 2011. See Note 1 of the Notes to Consolidated Financial Statements in the Companys Annual Report on Form 10-K for fiscal 2011 filed with
the SEC on August 26, 2011 regarding the assumptions underlying valuation of equity awards. The full grant date fair value of the awards granted to
each outside director in fiscal 2011, computed in accordance with ASC 718, was equal to $8,416. At the end of fiscal 2011, the aggregate number of
option awards outstanding for each director was as follows: 62,437 held by Robert R. Anderson; 40,000 held by William W.R. Elder, 35,000 held by Mukesh
Patel; 43,750 held by Mario M. Rosati, and 35,000 held by Howard T. Slayen. Options granted vest as to one-twelfth (1/12th) of the shares each month
after the date of grant over a period of one year, so long as the optionee remains a director of the Company. |
Vote Required
The six nominees receiving the
highest number of affirmative votes of the shares present or represented and entitled to be voted for them shall be elected as directors. Votes
withheld from any director are counted for purposes of determining the presence or absence of a quorum for the transaction of business, but have no
other legal effect in the election of directors under California law. See Quorum; Abstentions; Broker Non-Votes.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE
FOR THE NOMINEES LISTED ABOVE
14
PROPOSAL 2
AMENDMENT TO THE 2006 EQUITY INCENTIVE
PLAN
Proposal
The Board of Directors is
proposing that the 2006 Equity Incentive Plan be amended to increase the number of shares authorized thereunder by an additional 900,000 shares of
Common Stock. The Company previously reserved 2,000,000 shares of Common Stock for issuance under the 2006 Equity Incentive Plan, plus 340,197 shares
that were either (i) reserved but not issued under the 1996 Stock Option Plan, (ii) subject to stock options or similar awards granted under the 1996
Stock Option Plan that expired or otherwise terminated without having been exercised in full or (iii) issued pursuant to awards granted under the 1996
Stock Option Plan that were forfeited to or repurchased by the Company.
The Board of Directors is
proposing this amendment in order to allow for sufficient stock options to cover the Companys needs for at least the next fiscal
year.
Participation in the 2006 Equity Incentive
Plan
The grant of options, stock
purchase rights, stock bonus awards and long-term performance awards under the 2006 Equity Incentive Plan to employees, including the executive
officers named in the Summary Compensation Table herein, is subject to the discretion of the plan administrator. As of the date of this proxy
statement, there has been no determination by the plan administrator with respect to future awards under the 2006 Equity Incentive Plan. Accordingly,
future awards are not determinable. No stock bonus awards or long-term performance awards were granted during the last fiscal year. The following table
sets forth information with respect to the grant of options to the executive officers named in the Summary Compensation Table, to all current executive
officers as a group, to all outside directors as a group and to all other employees as a group during the last fiscal year:
Amended Plan Benefits
2006 Equity Incentive Plan
Name of Individual Or Identity of Group and
Position
|
|
|
|
Securities Underlying Options Granted(#)
|
|
Weighted Average Exercise Price Per
Share ($/share)
|
Rhea J.
Posedel |
|
|
|
|
55,000 |
|
|
|
$2.15 |
|
Gary L.
Larson |
|
|
|
|
25,000 |
|
|
|
$1.95 |
|
Carl
Buck |
|
|
|
|
25,000 |
|
|
|
$1.95 |
|
David S.
Hendrickson |
|
|
|
|
40,000 |
|
|
|
$1.95 |
|
Gregory M.
Perkins |
|
|
|
|
20,000 |
|
|
|
$1.95 |
|
Kunio
Sano |
|
|
|
|
25,000 |
|
|
|
$1.95 |
|
All current
Executive Officers as a group |
|
|
|
|
190,000 |
|
|
|
$2.01 |
|
All outside
Directors as a group |
|
|
|
|
50,000 |
|
|
|
$1.32 |
|
All other
employees (including all current Officers who are not Executive Officers) as a group |
|
|
|
|
268,500 |
|
|
|
$1.90 |
|
15
Summary of Stock Plan
Purpose. The purposes of
the 2006 Equity Incentive Plan are to attract and retain the best available personnel, to provide additional incentive to employees, directors and
consultants of the Company and to promote the success of the Companys business.
Status of Shares. As of
August 31, 2011, options to purchase a total of 2,018,816 (net of cancelled or expired options) shares were outstanding under the 2006 Equity Incentive
Plan. In addition, options to purchase 259,348 (plus any shares that might in the future be returned to the plan as a result of cancellations or
expiration of options) shares remained available for future grant thereunder. As discussed above, shares represented by options granted under the 1996
Stock Option Plan that terminate without being exercised are added to the shares available for future grant under the 2006 Equity Incentive
Plan.
Eligibility;
Administration. Under the 2006 Equity Incentive Plan, employees may be granted incentive stock options intended to qualify within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the Code) and employees, directors and consultants may be granted
non-statutory stock options not intended to qualify under such statute. The 2006 Equity Incentive Plan is administered by the Board of
Directors of the Company, or by a committee appointed by the Board of Directors and consisting of at least two members of the Board, which determine
the terms of options granted, including the exercise price, the number of shares subject of the option and the options exercisability. The Board
or its committee has sole discretion to interpret any provision of the 2006 Equity Incentive Plan. As of August 31, 2011 approximately 82 individuals
were in the eligible class.
Exercise Price. The
exercise price of options granted under the 2006 Equity Incentive Plan is determined by the Board of Directors or its committee. The exercise price of
incentive stock options may not be less than 100% of the fair market value of the Common Stock on the date the option is granted. However, the exercise
price of incentive stock options granted to an optionee who owns more than 10% of the voting power or value of all classes of stock of the Company must
not be less than 110% of the fair market value on the date of grant. The Common Stock is currently traded on the NASDAQ Stock Market LLC. While the
Companys stock is traded on the NASDAQ Stock Market LLC, the fair market value is the reported closing price on the date of
grant.
Exercisability. Options
granted to new optionees under the 2006 Equity Incentive Plan generally become exercisable starting one month after the date of grant with 1/48th of the shares covered thereby becoming exercisable at that time and with an additional
1/48th of the total number of option shares becoming exercisable each month thereafter,
with full vesting occurring on the fourth anniversary of the date of grant. The term of an option may not exceed ten years. No option may be
transferred by the optionee other than by will or the laws of descent or distribution. Each option may be exercised, during the lifetime of the
optionee, only by such optionee.
Stock Purchase Rights. The
2006 Equity Incentive Plan permits the Company to grant rights to purchase Common Stock. After the Board or Committee determines that it will offer
stock purchase rights under the 2006 Equity Incentive Plan, it shall advise the offeree in writing or electronically of the terms, conditions and
restrictions related to the offer, including the number of shares that the offeree shall be entitled to purchase, and the time within which the offeree
must accept such offer. The offer shall be accepted by execution of a stock purchase agreement or a stock bonus agreement in the form determined by the
Board or Committee.
Unless the Board or Committee
determines otherwise, the stock purchase agreement or a stock bonus agreement shall grant the Company a repurchase option exercisable upon the
voluntary or involuntary termination of the purchasers employment with the Company for any reason. The purchase price for shares repurchased
pursuant to the stock purchase agreement or a stock bonus agreement shall be the original price paid by the purchaser and may be paid by cancellation
of any indebtedness of the purchaser to the Company. The repurchase option shall lapse at such rate as the Board or Committee may
determine.
Amendment and Termination.
The Board may at any time amend or terminate the 2006 Equity Incentive Plan without approval of the shareholders; provided, however, that the Company
will obtain shareholder approval of any amendment to the 2006 Equity Incentive Plan to the extent necessary to comply with Rule 16b-3 under the
Securities Exchange Act of 1934 (the Exchange Act), with Section 422 of the Code, or with any other applicable law or regulation, including
requirements of the NASDAQ
16
Stock Market LLC or any
established stock exchange. Any amendment or termination of the 2006 Equity Incentive Plan is subject to the rights of optionees under agreements
entered into prior to such amendment or termination.
Certain Federal Tax Information
An optionee who is granted an
incentive stock option will not recognize taxable income either at the time the option is granted or at the time it is exercised, although exercise of
the option may subject the optionee to the alternative minimum tax. The Company will not be allowed a deduction for federal income tax purposes as a
result of the exercise of an incentive stock option regardless of the applicability of the alternative minimum tax. Upon the sale or exchange of the
shares at least two years after grant of the option and one year after exercise of the option, any gain will be treated as long-term capital gain. If
these holding periods are not satisfied at the time of sale, the optionee will recognize ordinary income equal to the difference between the exercise
price and the lower of (i) the fair market value of the stock at the date of the option exercise or (ii) the sale price of the stock, and the Company
will be entitled to a deduction in the same amount. (Different rules may apply upon a premature disposition by an optionee who is an officer, director
or 10% shareholder of the Company.) Any additional gain or loss recognized on such a premature disposition of the shares will be characterized as
capital gain or loss. If the Company grants an incentive stock option and as a result of the grant the optionee has the right in any calendar year to
exercise for the first time one or more incentive stock options for shares having an aggregate fair market value (under all plans of the Company and
determined for each share as of the date the option to purchase the share was granted) in excess of $100,000, then the excess shares must be treated as
non-statutory options.
An optionee who is granted a
non-statutory stock option will also not recognize any taxable income upon the grant of the option. However, upon exercise of a non-statutory stock
option, the optionee will recognize ordinary income for tax purposes measured by the excess of the then fair market value of the shares over the
exercise price. Any taxable income recognized by an optionee who is an employee of the Company will be subject to tax withholding by the Company. Upon
resale of the shares by the optionee, any difference between the sales price and the fair market value at the time of exercise, to the extent not
recognized as ordinary income as described above, will be treated as capital gain or loss. The Company will be allowed a deduction for federal income
tax purposes equal to the amount of ordinary income recognized by the optionee.
Vote Required
Approval of the amendment to the
2006 Equity Incentive Plan requires the affirmative vote of the votes Cast at the Annual Meeting, or Votes Cast (which affirmative vote must constitute
at least a majority of the required quorum). The effect of an abstention is the same as that of a vote against the proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE
FOR THE AMENDMENT
TO THE 2006 EQUITY INCENTIVE PLAN
17
PROPOSAL 3
AMENDMENT TO THE 2006 EMPLOYEE STOCK PURCHASE
PLAN
Proposal
The Board of Directors is
proposing that the 2006 Employee Stock Purchase Plan, or the ESPP, be amended to increase the number of shares authorized thereunder by an additional
350,000 shares of Common Stock. The Company previously reserved 850,000 shares of Common Stock for issuance under the ESPP.
The Board of Directors is
proposing this amendment in order to enable the Company to continue its policy of encouraging employee equity participation in the Company by enabling
employees to purchase the Companys Common Stock at a discount from the market price through voluntary payroll deductions. The Management also
believes the continued opportunity for employees equity participation will promote the attraction, retention and motivation of
employees.
Participation in the 2006 Employee Stock Purchase
Plan
Participation in the ESPP is
voluntary and is dependent on each eligible employees election to participate and his or her determination as to the level of payroll deductions.
Accordingly, future purchases under the ESPP are not determinable. Outside directors are not eligible to participate in the ESPP. No purchases have
been made under the ESPP since its amendment by the Board. However, purchases were made under the ESPP prior to such amendment. The following table
sets forth certain information regarding shares purchased under the ESPP during the last fiscal year and the payroll deductions accumulated at the end
of the last fiscal year in accounts under the ESPP for each of the executive officers named in the Summary Compensation Table, for all current
executive officers as a group and for all other employees who participated in the ESPP as a group:
Amended Plan Benefits
2006 Employee Stock Purchase Plan
Name of Individual or Identity of Group and
Position
|
|
|
|
Number of Shares Purchased (#)
|
|
Dollar Value ($)(1)
|
|
Payroll Deductions as of Fiscal Year
End
|
Rhea J.
Posedel |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gary L.
Larson |
|
|
|
|
6,000 |
|
|
$ |
4,167 |
|
|
$ |
1,447 |
|
Carl
Buck |
|
|
|
|
6,000 |
|
|
$ |
4,167 |
|
|
$ |
1,480 |
|
David S.
Hendrickson |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gregory M.
Perkins |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kunio
Sano |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All current
executive officers as a group |
|
|
|
|
12,000 |
|
|
$ |
8,334 |
|
|
$ |
2,926 |
|
All other
employees (including all current officers who are not executive officers) as a group |
|
|
|
|
144,578 |
|
|
$ |
99,509 |
|
|
$ |
35,093 |
|
(1) |
|
Market value of shares on date of purchase, minus the purchase
price under the ESPP. |
18
Summary of the 2006 Employee Stock Purchase
Plan
Purpose. The purpose of
the ESPP is to provide employees of the Company who participate in the ESPP with an opportunity to purchase shares of the Companys Common Stock
through payroll deductions.
Administration. The Board
or a committee appointed by the Board (referred to herein as the Administrator) administers the ESPP. All questions of interpretation or
application of the ESPP are determined by the Administrator and its decisions are final, conclusive and binding upon all participants.
Eligibility. Each of the
Companys employees or the employees of the Companys designated subsidiaries who is a common law employee and whose customary employment
with the Company or one of the Companys designated subsidiaries is at least twenty hours per week and more than five months in a calendar year is
eligible to participate in the ESPP; except that no employee will be granted an option under the ESPP (i) to the extent that, immediately after the
grant, such employee would own 5% or more of the total combined voting power of all classes of the Companys capital stock or the capital stock of
one of the Companys designated subsidiaries, or (ii) to the extent that his or her rights to purchase stock under all of the Companys
employee stock purchase plans accrues at a rate which exceeds $25,000 worth of stock (determined at the fair market value of the shares at the time
such option is granted) for each calendar year. As of August 31, 2011 there were approximately 58 individuals in the eligible class.
Offering Date. Each
offering period under the ESPP will expire on the earliest to occur of (i) the completion of the purchase of shares on the last exercise date occurring
within twenty-four months of the offering date of such option, (ii) such shorter offering period as may be determined by the Administrator, or (iii)
the date on which an eligible employee ceases to be a participant under the ESPP. Each offering period will generally consist of a number of purchase
periods after which shares will be purchased. Until the Administrator determines otherwise, a purchase period will be approximately six months and run
from April 1 to October 1 and October 1 to April 1. To participate in the ESPP, an eligible employee must authorize payroll deductions pursuant to the
ESPP. Such payroll deductions may not exceed 10% of a participants compensation during the offering period. Once an employee becomes a
participant in the ESPP, the employee automatically will participate in each successive offering period until the employee withdraws from the ESPP or
the employees employment with the Company or one of the Companys designated subsidiaries terminates. At the beginning of each offering
period, each participant automatically is granted an option to purchase shares of the Companys Common Stock. The option expires at the end of the
offering period or upon termination of employment, whichever is earlier, but is exercised at the end of each purchase period to the extent of the
payroll deductions accumulated during such purchase period.
Purchase Price. Shares of
the Companys Common Stock may be purchased under the ESPP at a purchase price not less than 85% of the lesser of the fair market value of the
Companys Common Stock on (i) the first day of an offering period, or (ii) the last day of the purchase period. The fair market value of the
Companys Common Stock on any relevant date will be the closing price per share as reported on the NASDAQ Stock Market LLC, or the mean of the
closing bid and asked prices, if no sales were reported, as quoted on such exchange or reported in The Wall Street Journal.
Payment of Purchase Price;
Payroll Deductions. The purchase price of the shares is accumulated by payroll deductions throughout each purchase period. The number of shares of
the Companys Common Stock that a participant may purchase in each purchase period during an offering period will be determined by dividing the
total amount of payroll deductions withheld from the participants compensation during that purchase period by the purchase price; provided,
however, that a participant may not purchase more than 3,000 shares each purchase period. During an offering period, a participant may discontinue his
or her participation in the ESPP, and may decrease or increase the rate of payroll deductions in an offering period within limits set by the
Administrator.
All payroll deductions made for a
participant are credited to the participants account under the ESPP, are withheld in whole percentages only and are included with the
Companys general funds. Funds received by the Company pursuant to exercises under the ESPP are also used for general corporate purposes. A
participant may not make any additional payments into his or her account.
Withdrawal. Generally, a
participant may withdraw from an offering period at any time by written or electronic notice without affecting his or her eligibility to participate in
future offering periods. Once a participant withdraws from a particular offering period, however, that participant may not participate again in the
same offering period. To participate in a subsequent offering period, the participant must deliver a new subscription agreement to the
Company.
19
Termination of Employment.
Upon termination of a participants employment for any reason, including disability or death, he or she will be deemed to have elected to withdraw
from the plan and the payroll deductions credited to the participants account (to the extent not used to make a purchase of the Companys
Common Stock) will be returned to him or her or, in the case of death, to the person or persons entitled thereto as provided in the ESPP, and such
participants option will automatically be terminated.
Changes in Capitalization.
In the event that any dividend or other distribution (whether in the form of cash, Common Stock, other securities, or other property),
recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of
Common Stock or other securities of the Company, or other change in the corporate structure of the Company affecting the Common Stock such that an
adjustment is appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the
ESPP, then the Administrator will adjust the number and class of Common Stock which may be delivered under the ESPP, the purchase price per share and
the number of shares of Common Stock covered by each option under the ESPP which has not yet been exercised, and the maximum number of shares a
participant can purchase during a purchase period.
Dissolution or
Liquidation. In the event of the Companys proposed dissolution or liquidation, the Administrator will shorten any purchase periods and
offering periods then in progress by setting a new exercise date and any offering periods will end on the new exercise date. The new exercise date will
be prior to the dissolution or liquidation. If the Administrator shortens any purchase periods and offering periods then in progress, the Administrator
will notify each participant in writing, at least ten business days prior to the new exercise date, that the exercise date has been changed to the new
exercise date and that the option will be exercised automatically on the new exercise date, unless the participant has already withdrawn from the
offering period.
Change of Control. In the
event of a merger or change of control, as defined in the ESPP, each option under the ESPP will be assumed or an equivalent option will be
substituted by such successor corporation or a parent or subsidiary of such successor corporation. In the event the successor corporation refuses to
assume or substitute for the options, the Administrator will shorten any purchase periods and offering periods then in progress by setting a new
exercise date and any offering periods will end on the new exercise date. The new exercise date will be prior to the merger or change of control. If
the Administrator shortens any purchase periods and offering periods then in progress, the Administrator will notify each participant in writing, at
least ten business days prior to the new exercise date, that the exercise date has been changed to the new exercise date and that the option will be
exercised automatically on the new exercise date, unless the participant has already withdrawn from the offering period.
Amendment and Termination of the
Plan.
The Administrator may at any time
terminate or amend the ESPP including the term of any offering period then outstanding. Generally, no such termination can adversely affect options
previously granted.
New Plan Benefits
Participation in the ESPP is
voluntary and is dependent on each eligible employees election to participate and his or her determination as to the level of payroll deductions.
Accordingly, future purchases under the ESPP are not determinable. Non-employee directors are not eligible to participate in the ESPP.
Certain Federal Income Tax
Information
The following brief summary of
the effect of federal income taxation upon the participant and the Company with respect to the shares purchased under the ESPP does not purport to be
complete, and does not discuss the tax consequences of a participants death or the income tax laws of any state or foreign country in which the
participant may reside.
20
The ESPP, and the right of
participants to make purchases thereunder, is intended to qualify under the provisions of Sections 421 and 423 of the Code. Under these provisions, no
income will be taxable to a participant until the shares purchased under the ESPP are sold or otherwise disposed of. Upon sale or other disposition of
the shares, the participant will generally be subject to tax in an amount that depends upon the holding period. If the shares are sold or otherwise
disposed of more than two years from the first day of the applicable offering period and one year from the applicable date of purchase, the participant
will recognize ordinary income measured as the lesser of (a) the excess of the fair market value of the shares at the time of such sale or disposition
over the purchase price, or (b) an amount equal to 15% of the fair market value of the shares as of the first day of the applicable offering period.
Any additional gain will be treated as long-term capital gain. If the shares are sold or otherwise disposed of before the expiration of these holding
periods, the participant will recognize ordinary income generally measured as the excess of the fair market value of the shares on the date the shares
are purchased over the purchase price. Any additional gain or loss on such sale or disposition will be long-term or short-term capital gain or loss,
depending on how long the shares have been held from the date of purchase. The Company generally is not entitled to a deduction for amounts taxed as
ordinary income or capital gain to a participant except to the extent of ordinary income recognized by participants upon a sale or disposition of
shares prior to the expiration of the holding periods described above.
THE FOREGOING IS ONLY A SUMMARY
OF THE EFFECT OF FEDERAL INCOME TAXATION UPON PARTICIPANTS AND THE COMPANY UNDER THE ESPP. IT DOES NOT PURPORT TO BE COMPLETE, AND DOES NOT DISCUSS THE
TAX CONSEQUENCES OF A PARTICIPANTS DEATH OR THE PROVISIONS OF THE INCOME TAX LAWS OF ANY MUNICIPALITY, STATE OR FOREIGN COUNTRY IN WHICH THE
PARTICIPANT MAY RESIDE.
Vote Required
Approval of the amendment to the
ESPP requires the affirmative vote of the Votes Cast (which affirmative vote must constitute at least a majority of the required quorum). The effect of
an abstention is the same as that of a vote against the proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE
FOR THE AMENDMENT
TO THE 2006 EMPLOYEE STOCK PURCHASE PLAN
21
PROPOSAL 4
RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
The Board of Directors of the
Company has selected Burr Pilger Mayer, Inc., as the Companys independent registered public accounting firm, to audit the consolidated financial
statements of the Company for the fiscal year ending May 31, 2012, and recommends that shareholders vote for ratification of such appointment. In the
event of a negative vote on such ratification, the Audit Committee and the Board of Directors will reconsider their selection. Even if the selection is
ratified, the Audit Committee and the Board of Directors in their discretion may direct the appointment of a different independent registered public
accounting firm at any time during the year.
Representatives of Burr Pilger
Mayer, Inc. are expected to be present at the meeting with the opportunity to make a statement if they desire to do so, and are expected to be
available to respond to appropriate questions.
Independent Registered Public Accounting Firms
Fees
The following table sets forth
the aggregate fees billed or to be billed by Burr Pilger Mayer, Inc. for the following services for the fiscal years ended May 31, 2011 and
2010:
DESCRIPTION OF
SERVICES
|
|
|
|
|
2011
|
|
|
|
2010
|
|
Audit
Fees |
|
|
|
|
$142,440 |
|
|
|
$174,450 |
|
TOTAL |
|
|
|
|
$142,440 |
|
|
|
$174,450 |
|
Audit Fees. Aggregate fees
billed or to be billed for professional services rendered for the audit of the Companys fiscal 2011 and fiscal 2010 annual consolidated financial
statements, for the review of the condensed consolidated financial statements included in the Companys quarterly reports during such periods and
for the review of the Companys Registration Statement on Form S-8.
The Audit Committee pre-approves
all audit and other permitted non-audit services provided by the Company independent registered public accounting firm. These services may
include audit services, audit-related services, tax services and other services. Pre-approval is generally provided for up to one year, and any
pre-approval is detailed as to the particular service or category of services and is subject to a budget. The Audit Committee may also pre-approve
particular services on a case-by-case basis. The Audit Committee has delegated the authority to grant pre-approvals to the committee chair, when the
full Audit Committee is unable to do so. These pre-approvals are reviewed by the full Audit Committee at its next regular meeting. In fiscal 2011, all
audit and non-audit services were pre-approved in accordance with the Companys policy.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE
FOR THE RATIFICATION OF
THE APPOINTMENT OF BURR PILGER MAYER, INC.
22
COMPENSATION OF EXECUTIVE OFFICERS
EXECUTIVE OFFICERS
The names of the executive
officers of the Company and certain information about them as of the Record Date are set forth below:
Name
|
|
|
|
Age
|
|
Position
|
Rhea J.
Posedel |
|
|
|
69 |
|
Chief Executive Officer and Chairman of the Board |
Gary L.
Larson |
|
|
|
61 |
|
Vice President of Finance and Chief Financial Officer |
Carl N.
Buck |
|
|
|
59 |
|
Vice President of Marketing and Contactor Business Group |
David S.
Hendrickson |
|
|
|
54 |
|
Vice President of Engineering |
Gregory M.
Perkins (1) |
|
|
|
57 |
|
Vice President of Worldwide Sales and Service |
Kunio
Sano |
|
|
|
55 |
|
President, Aehr Test Systems Japan K.K. |
(1) |
|
Mr. Perkins terminated employment in February 2011. |
RHEA J. POSEDEL See
Proposal 1 Election of Directors above.
GARY L. LARSON joined the
Company in April 1991 as Chief Financial Officer and was elected Vice President of Finance in February 1992. From 1986 to 1990, he served as Chief
Financial Officer, and from 1988 to 1990 also as President and Chief Operating Officer of Nanometrics Incorporated, a manufacturer of measurement and
inspection equipment for the semiconductor industry. Mr. Larson received a B.S. in Mathematics/Finance from Harvey Mudd College.
CARL N. BUCK joined the
Company as a Product Marketing Manager in 1983 and held various positions until he was elected Vice President of Engineering in November 1992, Vice
President of Research and Development Engineering in November 1996, Vice President of Marketing in September 1997, Vice President of Contactor Business
Group in May 2002 and Vice President of Marketing and Contactor Business Group in October 2005. From 1978 to 1983, Mr. Buck served as Product Marketing
Manager at Intel Corporation, an integrated circuit and microprocessor company. Mr. Buck received a B.S.E.E. from Princeton University, an M.S. in
Electrical Engineering from the University of Maryland and an M.B.A. from Stanford University.
DAVID S. HENDRICKSON
joined the Company as Vice President of Engineering in October 2000. From 1999 to 2000, Mr. Hendrickson served as Platform General Manager, and from
1995 to 1999 as Engineering Director and Software Director of Siemens Medical (formerly Acuson Corporation), a medical ultrasound products company.
From 1990 to 1995, Mr. Hendrickson served as Director of Engineering and Director of Software of Teradyne Inc. (formerly Megatest Corporation), a
manufacturer of semiconductor capital equipment. Mr. Hendrickson received a B.S. in Computer Science from Illinois Institute of
Technology.
GREGORY M. PERKINS joined
the Company as Vice President of Worldwide Sales and Service in June 2004. From 2001 to 2003, Mr. Perkins served as Vice President of North America
Customer Operations and then Vice President of North American and European Sales, for Electroglas Corporation, a producer of semiconductor wafer
probers. From 1999 to 2001, he served as Vice President of Sales at Advantest America, Inc., a semiconductor tester company, and from 1997 to 1999 as
Vice President of Worldwide Sales and Field Operations at LTX Corporation, a semiconductor tester company. From 1978 to 1997, Mr. Perkins held multiple
management positions over 19 years with General Electric Company
23
including Senior Vice
President of Marketing and Business Development for GE Capital Computer Leasing. Mr. Perkins received a B.S. in Environmental Health Technologies from
Quinnipiac University.
KUNIO SANO joined the
Company as Vice President, Aehr Test Systems Japan K.K., the Companys subsidiary in Japan, in June 1998 and was elected President, Aehr Test
Systems Japan K.K. in January 2001. From 1991 to 1998, he served as Manager of Development Engineering Department at Tokyo Electron Yamanashi Limited,
a leading worldwide semiconductor equipment manufacturer. Mr. Sano received a B.S.E.E. from Sagami Institute of Technology in Kanagawa,
Japan.
COMPENSATION DISCUSSION AND
ANALYSIS
General Philosophy
The Company compensates the
Companys executive officers through a combination of base salary, cash bonus and equity compensation designed to be competitive with comparable
companies. The Companys primary objectives of the overall executive compensation program are to attract, retain, motivate and reward Company
executive officers while aligning their compensation with the achievements of key business objectives and maximization of shareholder
value.
The Companys compensation
programs are designed to:
1. |
|
reward executive officers for performance and link executive
compensation to the creation of shareholder value through the use of performance and equity-based compensation; |
|
2. |
|
attract, retain and
motivate highly qualified executive officers by compensating them at a level that is competitive with other companies in similar
industries; |
|
3. |
|
share the risks and rewards of the Companys business with
the Companys executive officers; and |
|
4. |
|
maximize long-term shareholder returns by utilizing compensation
funds in a cost-effective manner. |
To achieve these objectives, the
Company has implemented and maintains compensation plans that tie a significant portion of executive officers overall compensation to the
Companys financial performance and Common Stock price. In determining the compensation for the Companys executive officers, the Company
considers a number of factors, including information regarding comparably sized companies in the semiconductor equipment and materials industries in
the United States. The Company also considers the level of the executive officer, the geographical region in which the executive officer resides and
the executive officers overall performance and contribution to the Company. The compensation packages provided by the Company to its executive
officers, including the named executive officers, include both cash-based and equity-based compensation. A component of these compensation packages is
linked to the performance of individual executive officers as well as Company-wide performance objectives. The Compensation Committee ensures that the
total compensation paid to the Companys executive officers is competitive and consistent with the Companys compensation philosophy and
corporate governance guidelines. The Compensation Committee relies upon Company employees, personal knowledge of semiconductor equipment industry
compensation practices, compensation data in SEC filings, and national and regional compensation surveys to provide information and recommendations to
establish specific compensation packages for executive officers.
Role of Compensation Committee
The Companys executive
officer compensation program is overseen and administered by the Compensation Committee. The Compensation Committee reviews and advises the Board of
Directors regarding all forms of compensation to be provided to the executive officers of the Company. The Compensation Committee is appointed by the
Companys Board of Directors, and consists of Messrs. Anderson and Elder, each of whom is an outside director for purposes of Section
162(m) of the Internal Revenue Code and a non-employee director for purposes of Rule 16b-3 under the Exchange Act.
24
The Companys Compensation
Committee has primary responsibility for ensuring that the Companys executive officer compensation and benefit program is consistent with the
Companys compensation philosophy and corporate governance guidelines and is responsible for determining the executive compensation packages
offered to the Companys executive officers.
The Compensation Committee is
responsible for:
1. |
|
Determining the specific executive officer compensation methods
to be used by the Company and the participants in each of those specific programs; |
2. |
|
Determining the evaluation criteria and timelines to be used in
those programs; |
3. |
|
Determining the processes that will be followed in the ongoing
administration of the programs; and |
4. |
|
Determining their role in the administration of the
programs. |
Many of the actions take the form
of recommendations to the full Board of Directors where final approval, rejection or redirection may occur. The Compensation Committee is responsible
for administering the compensation programs for all Company executive officers. The Compensation Committee has delegated the responsibility of
administering the compensation programs for all other Company employees to the Companys officers.
Elements of Compensation
In structuring the Companys
compensation program, the Compensation Committee seeks to select the types and levels of compensation that will further its goals of rewarding
performance, linking executive officer compensation to the creation of shareholder value, attracting and retaining highly qualified executive officers
and maximizing long-term shareholder returns.
The Company designs base salary
to provide the essential reward for an executive officers work. Once base salary levels are initially determined, increases in base salary are
provided to recognize an executive officers specific performance achievements.
The Company utilizes equity-based
compensation, including stock options, to ensure that the Company has the ability to retain executive officers over a longer period of time, and to
provide executive officers with a form of reward that aligns their interests with those of the Companys shareholders. Executive officers whose
skills and results the Company deems to be critical to the Companys long-term success are eligible to receive higher levels of equity-based
compensation.
The Company also utilizes various
forms of performance-based compensation, including cash bonuses and commissions that allow the Company to remain competitive with other companies while
providing additional compensation for an executive officers outstanding results and for the achievement of corporate objectives.
Core benefits, such as the
Companys basic health benefits, 401(k) program, Employee Stock Ownership Plan, or ESOP, and life insurance, are designed to provide support to
executive officers and their families.
Currently, the Company uses the
following executive officer compensation vehicles:
|
|
Cash-based programs: base salary, annual bonus plan and a sales
commission plan; and |
|
|
Equity-based programs: The 2006 Equity Incentive Plan, the 2006
Employee Stock Purchase Plan and the ESOP. |
These programs apply to all
executive level positions, except for the sales commission plan, which only applies to the Vice President of Worldwide Sales and Service. Periodically,
but at least once near the close of each fiscal year, the Compensation Committee reviews the existing plans and recommends those that should be used
for the subsequent year.
Consistent with the
Companys compensation philosophy, the Company has structured each element of the Companys executive officer compensation program as
described below.
25
Base Salary
The Company creates a set of base
salary structures that are both affordable and competitive in relation to the market. The Company determines the Companys executive officer
salaries based on job responsibilities and individual experiences. The Company monitors base salary levels within the market and makes adjustments to
the Companys structures as needed after considering the recommendations of management. The Companys Compensation Committee reviews the
salaries of the Companys executive officers annually, and the Companys Compensation Committee grants increases in salaries based on
individual performance during the prior calendar year, provided that any increases are within the guidelines determined by the Compensation Committee
for each position. As of June 1, 2010, the salaries of the Companys Chief Executive Officer, Chief Financial Officer and Vice Presidents
continued to be temporarily reduced from their base salaries by 15%, 10% and 10%, respectively. The salary reductions of the Companys Chief
Executive Officer, Chief Financial Officer and Vice Presidents were reversed, effective as of June 1, 2011.
Annual Bonus
The Companys executive
annual bonus plan provides for cash bonus awards, dependent upon attaining stated corporate objectives and personal performance goals. The
Companys executive officers are eligible to receive cash bonuses based upon the Companys achievement of certain financial and performance
goals set by the Compensation Committee. The Compensation Committee approves the performance criteria on an annual basis and these financial and
performance goals typically have a one-year time horizon. The Compensation Committee believes that the practice of awarding incentive bonuses based on
the achievement of performance goals furthers the Companys goal of strengthening the connection between the interests of management and the
Companys shareholders. In fiscal 2012, the Companys Chief Executive Officer, Chief Financial Officer and Vice Presidents are eligible to
receive a maximum cash bonus of up to 50% of their base salaries depending on Company performance.
In fiscal 2011, the
Companys Compensation Committee determined the maximum cash bonus levels for the Companys Chief Executive Officer, Chief Financial Officer
and Vice Presidents to be 90% of base compensation. Based on the corporate financial performance for the year, the Compensation Committee awarded no
cash bonuses to the Companys Chief Executive Officer, Chief Financial Officer and Vice Presidents. The annual incentive bonus plan is
discretionary, and the Compensation Committee may modify, suspend, eliminate or adjust the plan, the goals and the total or individual payouts at any
time.
Sales Commission
The sales commission plan is a
sales commission program which provides a payout to the Vice President of Worldwide Sales and Service, or VP-WSS, and the Vice President of Marketing
and Contactor Business Group, or VP-MCBG based on achievement of sales objectives or quotas. The VP-WSS and VP-MCBG receive a standard commission for
sales up to 100% of quota and accelerated commissions based on sales above quota. Commissions are considered earned at the time of booking and are paid
after the close of the quarter of booking.
Under this plan, the VP-WSS
earned $41,653 in fiscal 2011 and was paid $38,469 during fiscal 2011. This $38,469 included $4,468 that was earned in fiscal 2010. The remaining
$7,652 earned in fiscal 2011 was paid to the VP-WSS in fiscal 2012. The VP-MCBG earned $50,373 in fiscal 2011 which was paid in fiscal 2012. No
commissions were paid to the VP-MCBG in fiscal 2011. Commissions earned by the VP-WSS and the VP-MCBG in fiscal 2011 are included in the annual
compensation salary column in the Summary Compensation Table on page 29. The VP-WSS terminated employment in February 2011.
Equity Compensation
The Company awards equity
compensation to the Companys executive officers based on the performance of the executive officer and guidelines related to each executive
officers position in the Company. The Company determines the Companys option guidelines based on information derived from the
Companys experience with other companies and, with respect to the Companys executive officers, informal surveys of companies in the
Companys industry. The Company typically bases awards to newly hired executive officers and for continuing executive officers on these guidelines
as well as an executive officers performance for the prior fiscal year. The Company evaluates each executive officers awards based on the
factors described above and competitive practices in the Companys industry. The Company believes that stock option ownership is an important
factor in aligning corporate and individual goals. The
26
Company utilizes equity-based
compensation, including stock options, to encourage long-term performance with corporate performance and extended executive officer tenure producing
potentially significant value.
The Companys Compensation
Committee generally grants stock options to executive officers. Such grants are typically made at the first meeting of the Board of Directors held each
fiscal year. The Company believes annual awards at this time allow the Compensation Committee to consider a number of factors related to the option
award decisions, including corporate performance for the prior fiscal year, executive officer performance for the prior fiscal year and expectations
for the upcoming fiscal year. With respect to newly hired executive officers, the Companys standard practice is to make stock option grants
effective on or shortly after the executive officers hire date. The Company does not plan or time the Companys stock option grants in
coordination with the release of material non-public information for the purpose of affecting the value of executive officer
compensation.
The criteria for determining the
appropriate salary level, bonus and stock option grants for each of the executive officers include: (a) Company performance as a whole; (b) business
unit performance (where appropriate); and (c) individual performance. Company performance and business unit performance are measured against both
strategic and financial goals. Examples of these goals are to obtain operating profit, revenue growth, and timely new product introduction. Individual
performance is measured to specific objectives relevant to the executive officers position and a specific time frame.
These criteria are usually
related to a fiscal year time period, but may, in some cases, be measured over a shorter or longer time frame.
The processes used by the
Compensation Committee include the following steps:
1. |
|
The Compensation Committee periodically reviews information
comparing the Companys compensation levels to other companies in similar industries, other leading companies (regardless of industry) and
competitors. Primarily, personal knowledge of semiconductor equipment industry compensation practices, compensation data in SEC filings, and national
and regional compensation surveys are used. |
2. |
|
At or near the start of each evaluation cycle, the Compensation
Committee meets with the Chief Executive Officer to review, revise as needed, and agree on the performance objectives set for the other executive
officers. The Chief Executive Officer and Compensation Committee jointly set the Company objectives to be used. The business unit and individual
objectives are formulated jointly by the Chief Executive Officer and the specific individual. The Compensation Committee also, with the Chief Executive
Officer, jointly establishes and agrees on respective performance objectives of each executive officer. |
3. |
|
Throughout the performance cycle review, feedback is provided by
the Chief Executive Officer, the Compensation Committee and the Board of Directors, as appropriate. |
4. |
|
At the end of the performance cycle, the Chief Executive Officer
evaluates each other executive officers relative success in meeting the performance goals. The Chief Executive Officer makes recommendations on salary,
bonus and stock options, utilizing the comparative results as a factor. Also included in the decision criteria are subjective factors such as teamwork,
leadership contributions and ongoing changes in the business climate. The Chief Executive Officer reviews the recommendations and obtains Compensation
Committee approval. |
5. |
|
The final evaluations and compensation decisions are discussed
with each executive officer by the Chief Executive Officer or Compensation Committee, as appropriate. |
In fiscal 2011, the Company
granted a total of 508,500 option shares of which a total of 190,000 option shares were granted to the Companys executive officers, representing
37.4% of all option shares granted in fiscal 2011. The Companys Compensation Committee does not apply a formula for allocating stock options to
executive officers. Instead, the Companys Compensation Committee considers the role and responsibilities of the executive officers, competitive
factors, the non-equity compensation received by the executive officers and the total number of options to be granted in the fiscal year. The
description for the type of equity-based compensation program should be read in conjunction with Equity Compensation Plan Information and
Stock Option Plans in this Proxy Statement and the related notes in the Notes to Consolidated Financial Statements of the
Companys Annual Report on Form 10-K for the fiscal year ended May 31, 2011.
27
Other Benefits
Executive officers are eligible
to participate in all of the Companys employee benefit plans, such as medical, dental, group life, disability, and accidental death and
dismemberment insurance, the Companys 401(k) plan, the Companys 2006 Equity Incentive Plan, ESOP, and ESPP. Because Rhea J. Posedel owns
more than 10% of the Companys outstanding Common Stock he is precluded from participating in the ESPP. During fiscal 2011, the Company made
payments for health and life insurance premiums and medical costs as reflected in the Summary Compensation Table below under the All Other
Compensation column. Other than these payments, the executive officers participate on the same basis as other employees and there were no other
special benefits or perquisites provided to any executive officer in fiscal 2011. The Company does not maintain any pension plan, retirement benefit or
deferred compensation arrangement other than the Companys 401(k) plan and ESOP. The Company is not required to make contributions to the 401(k)
plan and did not make any during fiscal 2011. During fiscal 2011, the Company contributed $60,000 to the Companys ESOP.
The Company entered into Change
of Control Severance Agreements on January 24, 2001 with Mr. Carl N. Buck, Mr. David S. Hendrickson, Mr. Gary L. Larson and Mr. Rhea J. Posedel; and on
September 7, 2010 with Mr. Kunio Sano; pursuant to which those executives would be entitled to a payment in the event of a termination of employment
for specified reasons following a change of control of the Company. For this purpose, a change of control of the Company means a merger or
consolidation of the Company, a sale by the Company of all or substantially all of its assets, the acquisition of beneficial ownership of a majority of
the outstanding voting securities of the Company by any person or a change in the composition of the Board as a result of which fewer than a majority
of the directors are incumbent directors. Termination of employment for purposes of these agreements means a discharge of the executive by the Company,
other than for specified causes including dishonesty, conviction of a felony, misconduct or wrongful acts. Termination also includes resignation
following the occurrence of an adverse change in the executives position, duties, compensation or work conditions. The amounts payable under the
agreements will change from year to year based on the executives compensation.
In the event of a termination
following a change of control, the amounts payable to Messrs. Buck, Hendrickson, Larson, Posedel and Sano, based on their base salaries at May 31,
2011, would be approximately $83,000, $120,000, $148,000, $223,000 and $101,000, respectively. In addition to the amounts payable to the executive
officers mentioned in the previous sentence, the aggregate values of the acceleration of vesting of the executive officers unvested stock options
based on the spread between the closing price of the Companys Common Stock on May 31, 2011 (the last business day of the last fiscal year) of
$1.48 and the exercise price of the stock options for Messrs. Buck, Hendrickson, Larson, Posedel and Sano would be $788, $788, $788, $1,575 and $656,
respectively.
Compensation of the Chief Executive
Officer
The Compensation Committee used
the same compensation policy described above for all executive officers to determine the compensation for Rhea J. Posedel, the Companys Chief
Executive Officer, in fiscal year 2011. In setting both the cash-based and the equity-based elements of Mr. Posedels compensation, the
Compensation Committee considered the companys performance, competitive forces taking into account Mr. Posedels experience and knowledge,
and Mr. Posedels leadership in achieving the Companys long-term goals. During fiscal year 2011, he received a stock option grant under the
Companys 2006 Stock Option Plan for 55,000 shares. This option vests over four years. The Compensation Committee believes Mr. Posedels
fiscal year 2011 compensation was fair relative to the Companys performance and Mr. Posedels individual performance and leadership, and
that it rewards him for this performance and will serve to retain him as a key employee.
Policy on Deductibility of
Compensation
The Company is required to
disclose the Companys policy regarding qualifying executive compensation for deductibility under Section 162(m) of the Internal Revenue Code of
1986, as amended, which provides that, for purposes of the regular income tax, the otherwise allowable deduction for compensation paid or accrued with
respect to the executive officers of a publicly-held company, which is not performance-based compensation, is limited to no more than $1 million per
year. It is not expected that
28
the compensation to be paid
to the Companys executive officers for fiscal 2012 will exceed the $1 million limit per officer; however, to the extent such compensation to be
paid to such executive officers exceeds the $1 million limit per officer, such excess will be treated as performance-based
compensation.
Compensation of Executive Officers
The following table shows
information concerning compensation awarded to, earned by or paid for services to the Company in all capacities during the fiscal years ended May 31,
2011, 2010 and 2009 by the Chief Executive Officer and each of the four other most highly compensated executive officers with annual compensation in
excess of $100,000 for the fiscal years ended May 31, 2011, 2010 and 2009.
Summary Compensation Table
|
|
|
|
Fiscal |
|
Annual Compensation |
|
Option |
|
Long-term Compensation Securities
Underlying |
|
All Other |
Name and Principal Position
|
|
|
|
Year
|
|
Salary (1)
|
|
Bonus (2)
|
|
Awards (3)
|
|
Options (4)
|
|
Compensation (5)
|
|
Total
|
Rhea
J. Posedel |
|
|
|
2011 |
|
$206,258 |
|
|
|
|
|
$ |
71,538 |
|
|
$ |
2,499 |
|
|
$ |
22,298 |
|
|
$ |
302,593 |
|
Chief
Executive Officer and |
|
|
|
2010 |
|
$210,118 |
|
$ |
35,781 |
|
|
$ |
90,063 |
|
|
$ |
5,763 |
|
|
$ |
28,682 |
|
|
$ |
370,407 |
|
Chairman of the Board of Directors |
|
|
|
2009 |
|
$236,287 |
|
|
|
|
|
$ |
101,443 |
|
|
$ |
2,706 |
|
|
$ |
24,465 |
|
|
$ |
364,901 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gary
L. Larson |
|
|
|
2011 |
|
$188,053 |
|
|
|
|
|
$ |
45,193 |
|
|
$ |
2,555 |
|
|
$ |
9,773 |
|
|
$ |
245,574 |
|
Vice
President of Finance and |
|
|
|
2010 |
|
$190,946 |
|
$ |
33,530 |
|
|
$ |
61,867 |
|
|
$ |
5,910 |
|
|
$ |
7,765 |
|
|
$ |
300,018 |
|
Chief
Financial Officer |
|
|
|
2009 |
|
$205,759 |
|
|
|
|
|
$ |
70,283 |
|
|
$ |
2,706 |
|
|
$ |
8,103 |
|
|
$ |
286,851 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carl
Buck (6) |
|
|
|
2011 |
|
$204,272 |
|
|
|
|
|
$ |
36,134 |
|
|
$ |
1,818 |
|
|
$ |
12,159 |
|
|
$ |
254,383 |
|
Vice
President of Marketing |
|
|
|
2010 |
|
$156,859 |
|
$ |
27,440 |
|
|
$ |
54,855 |
|
|
$ |
4,150 |
|
|
$ |
9,021 |
|
|
$ |
252,325 |
|
and
Contactor Business Group |
|
|
|
2009 |
|
$169,490 |
|
|
|
|
|
$ |
50,284 |
|
|
$ |
2,148 |
|
|
$ |
9,141 |
|
|
$ |
231,063 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David
S. Hendrickson |
|
|
|
2011 |
|
$207,725 |
|
|
|
|
|
$ |
51,087 |
|
|
$ |
2,503 |
|
|
$ |
30,130 |
|
|
$ |
291,445 |
|
Vice
President of Engineering |
|
|
|
2010 |
|
$182,001 |
|
$ |
33,867 |
|
|
$ |
63,189 |
|
|
$ |
5,047 |
|
|
$ |
28,452 |
|
|
$ |
312,556 |
|
|
|
|
|
2009 |
|
$208,234 |
|
|
|
|
|
$ |
73,425 |
|
|
$ |
2,706 |
|
|
$ |
26,493 |
|
|
$ |
310,858 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gregory M. Perkins (7) |
|
|
|
2011 |
|
$222,992 |
|
|
|
|
|
$ |
24,477 |
|
|
|
|
|
|
$ |
23,767 |
|
|
$ |
271,236 |
|
Vice
President of Worldwide |
|
|
|
2010 |
|
$185,922 |
|
$ |
29,235 |
|
|
$ |
49,008 |
|
|
$ |
5,586 |
|
|
$ |
21,614 |
|
|
$ |
291,365 |
|
Sales
and Service |
|
|
|
2009 |
|
$205,643 |
|
|
|
|
|
$ |
52,526 |
|
|
$ |
2,409 |
|
|
$ |
15,651 |
|
|
$ |
276,229 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kunio
Sano |
|
|
|
2011 |
|
$177,913 |
|
|
|
|
|
$ |
27,149 |
|
|
|
|
|
|
$ |
17,643 |
|
|
$ |
222,705 |
|
President |
|
|
|
2010 |
|
$162,828 |
|
$ |
33,762 |
|
|
$ |
30,270 |
|
|
|
|
|
|
$ |
17,354 |
|
|
$ |
244,214 |
|
Aehr
Test Systems Japan |
|
|
|
2009 |
|
$159,120 |
|
|
|
|
|
$ |
31,663 |
|
|
|
|
|
|
$ |
13,428 |
|
|
$ |
204,211 |
|
(1) |
|
The amounts in this column include any salary contributed by the
named executive officer to the Companys 401(k) plan. |
(2) |
|
Bonus amounts earned in fiscal 2011, 2010 and 2009 were made
under the Companys executive bonus plan. |
(3) |
|
The amounts in this column represent the dollar amount
recognized for financial statement reporting purposes computed in accordance with the provisions of FASB ASC 718 and thus include awards granted in and
prior to fiscal 2011, 2010 and 2009. See Note 1 of the Notes to the Consolidated Financial Statements of the Companys Annual Report on Form 10-K
for the fiscal years ended May 31, 2011, 2010 and 2009 for assumptions used to estimate the fair value of options granted during fiscal years 2011,
2010 and 2009. The Companys stock-based compensation expense recognized under ASC 718 reflects an estimated forfeiture rate of 0.25%, 0.25% and
2% in fiscal 2011, 2010 and |
29
|
|
2009, respectively. The values recognized in the Option
Awards column above do not reflect such expected forfeitures. |
(4) |
|
Represents contributions made by the Company under its
ESOP. |
(5) |
|
Consists of health and life insurance premiums and medical costs
paid by the Company during the fiscal years ended May 31, 2011, 2010 and 2009. |
(6) |
|
The amount shown in the Annual Compensation Salary column for
fiscal 2011 includes $50,373 in commissions earned in fiscal 2011. There were no commissions earned in prior fiscal years. |
(7) |
|
The amount shown in the Annual Compensation Salary column for
fiscal 2011 includes $41,653 in commissions earned in fiscal 2011. The amount shown in the Annual Compensation Salary column for fiscal 2010 includes
$32,171 in commissions earned in fiscal 2010. The amount shown in the Annual Compensation Salary column for fiscal 2009 included $24,853 in commissions
earned in fiscal 2009. Mr. Perkins terminated employment in February 2011. |
Stock Option Grants and Exercises
The following table provides
information with regard to each grant of an award made to the persons named in the Summary Compensation Table during the fiscal year ended May 31,
2011.
Grants of Plan-Based Awards in Fiscal
2011
|
|
|
|
Option Grant |
|
Estimated Possible Payouts Under Non-Equity
Incentive Plan Awards (1)
|
|
Number of Securities Underlying |
|
Exercise Price of Option |
|
Grant Date Fair Value of Stock Option
|
Name
|
|
|
|
Date
|
|
Target
|
|
Maximum
|
|
Option
(2)
|
|
Awards (3)
|
|
Awards
|
Rhea J.
Posedel |
|
|
|
|
6/29/10 |
|
|
$ |
|
|
|
$ |
70,830 |
|
|
|
55,000 |
|
|
$ |
2.15 |
|
|
$ |
67,183 |
|
Gary L.
Larson |
|
|
|
|
6/29/10 |
|
|
$ |
|
|
|
$ |
62,681 |
|
|
|
25,000 |
|
|
$ |
1.95 |
|
|
$ |
31,395 |
|
Carl
Buck |
|
|
|
|
6/29/10 |
|
|
$ |
|
|
|
$ |
51,299 |
|
|
|
25,000 |
|
|
$ |
1.95 |
|
|
$ |
31,395 |
|
David S.
Hendrickson |
|
|
|
|
6/29/10 |
|
|
$ |
|
|
|
$ |
69,649 |
|
|
|
40,000 |
|
|
$ |
1.95 |
|
|
$ |
50,232 |
|
Gregory M.
Perkins (4) |
|
|
|
|
6/29/10 |
|
|
$ |
|
|
|
$ |
54,656 |
|
|
|
20,000 |
|
|
$ |
1.95 |
|
|
$ |
25,116 |
|
Kunio
Sano |
|
|
|
|
6/29/10 |
|
|
$ |
|
|
|
$ |
54,483 |
|
|
|
25,000 |
|
|
$ |
1.95 |
|
|
$ |
31,395 |
|
(1) |
|
Reflects the target and maximum values of cash bonus award to
the named executive officers in fiscal 2011. The cash bonus award amounts actually earned by the named executive officers in fiscal 2011 are shown in
the Summary Compensation Table for fiscal 2011 under the heading Annual Compensation, Bonus refer to Compensation Discussion and
Analysis above for a description of the cash bonus compensation. |
(2) |
|
The stock options granted in fiscal 2011 are generally
exercisable starting one month after the date of grant, with 1/48th of the shares covered
thereby becoming exercisable at that time and with an additional 1/48th of the total number
of option shares becoming exercisable each month thereafter, with full vesting occurring on the fourth anniversary of the date of grant. Each of these
options expires 5 years from the date of grant. |
(3) |
|
Options are granted at an exercise price equal to the fair
market value of the Companys Common Stock, as determined by reference to the closing price reported by the NASDAQ Stock Market LLC on the date of
grant. Because Rhea J. Posedel owns more than 10% of the Companys outstanding Common Stock, the exercise prices of any incentive stock option
granted to him is set at a 10% premium above the market price on the date of the grant. Non-qualified stock options may be granted to Mr. Posedel at
the market price on the date of grant. |
(4) |
|
Mr. Perkins terminated employment in February 2011. |
30
The following table presents
certain information concerning the outstanding equity awards held as of May 31, 2011 by each named executive officer.
Outstanding Equity Awards at Fiscal 2011
Year-End
|
|
|
|
Option Awards Number of Securities Underlying
Unexercised Options (1)
|
|
Option Exercise |
|
Option Expiration |
Name
|
|
|
|
Exercisable
|
|
Unexercisable
|
|
Price (2)
|
|
Date (3)
|
Rhea J.
Posedel |
|
|
|
|
35,000 |
|
|
|
|
|
|
$ |
3.993 |
|
|
|
6/30/2011 |
|
|
|
|
|
|
35,000 |
|
|
|
|
|
|
$ |
3.091 |
|
|
|
6/23/2012 |
|
|
|
|
|
|
15,000 |
|
|
|
|
|
|
$ |
9.295 |
|
|
|
7/18/2013 |
|
|
|
|
|
|
32,312 |
|
|
|
688 |
|
|
$ |
6.556 |
|
|
|
6/26/2012 |
|
|
|
|
|
|
664 |
|
|
|
5,724 |
|
|
$ |
2.475 |
|
|
|
11/13/2013 |
|
|
|
|
|
|
11,007 |
|
|
|
6,605 |
|
|
$ |
2.250 |
|
|
|
11/13/2013 |
|
|
|
|
|
|
55,000 |
|
|
|
2,500 |
|
|
$ |
0.850 |
|
|
|
6/30/2014 |
|
|
|
|
|
|
12,604 |
|
|
|
42,396 |
|
|
$ |
2.145 |
|
|
|
6/29/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gary L.
Larson |
|
|
|
|
20,000 |
|
|
|
|
|
|
$ |
3.630 |
|
|
|
6/30/2011 |
|
|
|
|
|
|
25,000 |
|
|
|
|
|
|
$ |
2.810 |
|
|
|
6/23/2012 |
|
|
|
|
|
|
10,000 |
|
|
|
|
|
|
$ |
8.450 |
|
|
|
7/18/2013 |
|
|
|
|
|
|
19,583 |
|
|
|
417 |
|
|
$ |
5.960 |
|
|
|
6/26/2012 |
|
|
|
|
|
|
5,841 |
|
|
|
4,500 |
|
|
$ |
2.250 |
|
|
|
11/13/2013 |
|
|
|
|
|
|
1,659 |
|
|
|
|
|
|
$ |
2.250 |
|
|
|
11/13/2013 |
|
|
|
|
|
|
28,750 |
|
|
|
1,250 |
|
|
$ |
0.850 |
|
|
|
6/30/2014 |
|
|
|
|
|
|
5,729 |
|
|
|
19,271 |
|
|
$ |
1.950 |
|
|
|
6/29/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carl
Buck |
|
|
|
|
20,000 |
|
|
|
|
|
|
$ |
3.630 |
|
|
|
6/30/2011 |
|
|
|
|
|
|
20,000 |
|
|
|
|
|
|
$ |
2.810 |
|
|
|
6/23/2012 |
|
|
|
|
|
|
10,000 |
|
|
|
|
|
|
$ |
8.450 |
|
|
|
7/18/2013 |
|
|
|
|
|
|
11,750 |
|
|
|
250 |
|
|
$ |
5.960 |
|
|
|
6/26/2012 |
|
|
|
|
|
|
5,000 |
|
|
|
3,000 |
|
|
$ |
2.250 |
|
|
|
11/13/2013 |
|
|
|
|
|
|
28,750 |
|
|
|
1,250 |
|
|
$ |
0.850 |
|
|
|
6/30/2014 |
|
|
|
|
|
|
5,729 |
|
|
|
19,271 |
|
|
$ |
1.950 |
|
|
|
6/29/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David S.
Hendrickson |
|
|
|
|
20,000 |
|
|
|
|
|
|
$ |
3.630 |
|
|
|
6/30/2011 |
|
|
|
|
|
|
25,000 |
|
|
|
|
|
|
$ |
2.810 |
|
|
|
6/23/2012 |
|
|
|
|
|
|
10,000 |
|
|
|
|
|
|
$ |
8.450 |
|
|
|
7/18/2013 |
|
|
|
|
|
|
24,479 |
|
|
|
521 |
|
|
$ |
5.960 |
|
|
|
6/26/2012 |
|
|
|
|
|
|
1,989 |
|
|
|
6,001 |
|
|
$ |
2.250 |
|
|
|
11/13/2013 |
|
|
|
|
|
|
8,010 |
|
|
|
|
|
|
$ |
2.250 |
|
|
|
11/13/2013 |
|
|
|
|
|
|
7,189 |
|
|
|
313 |
|
|
$ |
0.850 |
|
|
|
6/30/2014 |
|
|
|
|
|
|
21,560 |
|
|
|
938 |
|
|
$ |
0.850 |
|
|
|
6/30/2014 |
|
|
|
|
|
|
9,166 |
|
|
|
30,834 |
|
|
$ |
1.950 |
|
|
|
6/29/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gregory M.
Perkins (4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kunio
Sano |
|
|
|
|
625 |
|
|
|
|
|
|
$ |
3.630 |
|
|
|
6/30/2011 |
|
|
|
|
|
|
1,563 |
|
|
|
|
|
|
$ |
2.810 |
|
|
|
6/23/2012 |
|
|
|
|
|
|
4,000 |
|
|
|
|
|
|
$ |
8.450 |
|
|
|
7/18/2013 |
|
|
|
|
|
|
9,791 |
|
|
|
209 |
|
|
$ |
5.960 |
|
|
|
6/26/2012 |
|
|
|
|
|
|
5,000 |
|
|
|
3,000 |
|
|
$ |
2.250 |
|
|
|
11/13/2013 |
|
|
|
|
|
|
23,958 |
|
|
|
1,042 |
|
|
$ |
0.850 |
|
|
|
6/30/2014 |
|
|
|
|
|
|
5,729 |
|
|
|
19,271 |
|
|
$ |
1.950 |
|
|
|
6/29/2015 |
|
31
(1) |
|
Stock options outstanding are generally exercisable starting one
month after the date of grant, and with an additional 1/48th of the total number of option
shares becoming exercisable each month thereafter, with full vesting occurring on the fourth anniversary of the date of grant. |
(2) |
|
Options are granted at an exercise price equal to the fair
market value of the Companys Common Stock, as determined by reference to the closing price reported by the NASDAQ Stock Market LLC on the date of
grant. Because Rhea J. Posedel owns more than 10% of the Companys outstanding Common Stock, the exercise prices of any incentive stock option
granted to him is set at a 10% premium above the market price on the date of the grant. Non-qualified stock options may be granted to Mr. Posedel at
the market price on the date of grant. |
(3) |
|
These options generally expire five or seven years from the date
of grant. |
(4) |
|
Mr. Perkins terminated employment in February 2011. |
The following table provides information concerning
option exercises by the persons named in the Summary Compensation Table during the fiscal year ended May 31, 2011 and the value of unexercised options
at such date.
Aggregated Option Exercises in 2011 and Fiscal 2011
Year-End Option Values
|
|
|
|
Shares Acquired on |
|
Value Realized on |
|
Number of Securities Underlying Unexercised
Options at Fiscal Year-End(#)(1) |
|
Value of Unexercised In-the-Money Options at Fiscal Year-End($)(2) |
Name
|
|
|
|
Exercise (#)
|
|
Exercise ($)
|
|
Exercisable
|
|
Unexercisable
|
|
Exercisable
|
|
Unexercisable
|
Rhea J.
Posedel |
|
|
|
|
|
|
|
|
|
|
|
|
196,587 |
|
|
|
57,913 |
|
|
$ |
34,650 |
|
|
$ |
1,575 |
|
Gary L.
Larson |
|
|
|
|
|
|
|
|
|
|
|
|
116,562 |
|
|
|
25,438 |
|
|
$ |
18,113 |
|
|
$ |
788 |
|
Carl
Buck |
|
|
|
|
|
|
|
|
|
|
|
|
101,229 |
|
|
|
23,771 |
|
|
$ |
18,113 |
|
|
$ |
788 |
|
David S.
Hendrickson |
|
|
|
|
|
|
|
|
|
|
|
|
127,393 |
|
|
|
38,607 |
|
|
$ |
18,112 |
|
|
$ |
788 |
|
Gregory M.
Perkins (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kunio
Sano |
|
|
|
|
|
|
|
|
|
|
|
|
50,666 |
|
|
|
23,522 |
|
|
$ |
15,094 |
|
|
$ |
656 |
|
(1) |
|
The Company has not granted any stock appreciation rights and
its stock plans do not provide for the granting of such rights. |
(2) |
|
Calculated by determining the difference between the fair market
value of the securities underlying the options at the last business day of the fiscal year-end ($1.48 per share as of May 31, 2011) and the exercise
price of the options. |
(3) |
|
Mr. Perkins terminated employment in February 2011. |
32
The following table shows the
potential payments upon termination or change of control for the persons named in the Summary Compensation Table as of May 31, 2011.
Potential Payments Upon Termination or Change of
Control
Named Executive Benefits and
Payments
|
|
|
|
Involuntary Termination not for Cause Following
a |
Upon Termination:
|
|
|
|
Change of Control
|
Rhea J.
Posedel |
|
|
|
|
|
|
Base
salary |
|
|
|
|
$200,686 |
|
Medical
continuation |
|
|
|
|
22,298 |
|
Value of
accelerated stock options (1) |
|
|
|
|
1,575 |
|
|
|
|
|
|
|
|
Gary L.
Larson |
|
|
|
|
|
|
Base
salary |
|
|
|
|
$141,032 |
|
Medical
continuation |
|
|
|
|
7,330 |
|
Value of
accelerated stock options (1) |
|
|
|
|
788 |
|
|
|
|
|
|
|
|
David S.
Hendrickson |
|
|
|
|
|
|
Base
salary |
|
|
|
|
$104,474 |
|
Medical
continuation |
|
|
|
|
15,065 |
|
Value of
accelerated stock options (1) |
|
|
|
|
788 |
|
|
|
|
|
|
|
|
Carl Buck
|
|
|
|
|
|
|
Base
salary |
|
|
|
|
$ 76,949 |
|
Medical
continuation |
|
|
|
|
6,080 |
|
Value of
accelerated stock options (1) |
|
|
|
|
788 |
|
|
|
|
|
|
|
|
Gregory M.
Perkins (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Kunio Sano
|
|
|
|
|
|
|
Base
salary |
|
|
|
|
$ 91,690 |
|
Medical
continuation |
|
|
|
|
8,821 |
|
Value of
accelerated stock options (1) |
|
|
|
|
656 |
|
(1) |
|
Represents the aggregate value of the acceleration of vesting of
the executive officers unvested stock options based on the spread between the closing price of the Companys Common Stock on May 31, 2011
(the last business day of the last fiscal year) of $1.48 and the exercise price of the stock options. Aggregate intrinsic value represents only the
value for those options in which the exercise price of the option is less than the market value of the Companys stock on May 31,
2011. |
(2) |
|
Mr. Perkins terminated employment in February 2011. |
33
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
Review, Approval or Ratification of Transactions with
Related Persons
In its ordinary course of
business, the Company enters into transactions with certain of its directors and officers. The Company believes that each such transaction has been on
terms no less favorable for the Company than could have been obtained in a transaction with an independent third party. The Companys policy is to
require that any transaction with a related party that is required to be reported under applicable SEC rules, be reviewed and approved according to an
established procedure. Such a transaction is reviewed and approved by the Companys Audit Committee as required by the Audit Committees
charter. We have not adopted specific standards for approval of these transactions, but instead we review each such transaction on a case by case
basis.
Legal Counsel
During fiscal 2011, Mario M.
Rosati, a member of the Board of Directors of the Company, was also a member of the law firm of Wilson Sonsini Goodrich & Rosati, Professional
Corporation, or WSGR. The Company retained WSGR as its legal counsel during the fiscal year. The Company plans to retain WSGR as its legal counsel
again during fiscal 2012.
Change of Control Severance
Agreement
The Company entered into Change
of Control Severance Agreements on January 24, 2001 with Mr. Carl N. Buck, Mr. David S. Hendrickson, Mr. Gary L. Larson and Mr. Rhea J. Posedel, and on
September 7, 2011 with Mr. Kunio Sano; pursuant to which those executives would be entitled to a payment in the event of a termination of employment
for specified reasons following a change of control of the Company. For this purpose, a change of control of the Company means a merger or
consolidation of the Company, a sale by the Company of all or substantially all of its assets, the acquisition of beneficial ownership of a majority of
the outstanding voting securities of the Company by any person or a change in the composition of the Board as a result of which fewer than a majority
of the directors are incumbent directors. Termination of employment for purposes of these agreements means a discharge of the executive by the Company,
other than for specified causes including dishonesty, conviction of a felony, misconduct or wrongful acts. Termination also includes resignation
following the occurrence of an adverse change in the executives position, duties, compensation or work conditions. The amounts payable under the
agreements will change from year to year based on the executives compensation.
In the event of a termination
following a change of control, the amounts payable to Messrs. Buck, Hendrickson, Larson, Posedel and Sano, based on their base salaries at May 31,
2011, would be approximately $83,000, $120,000, $148,000, $223,000 and $101,000, respectively. In addition to the amounts payable to the executive
officers mentioned in the previous sentence, the aggregate values of the acceleration of vesting of the executive officers unvested stock options
based on the spread between the closing price of the Companys Common Stock on May 31, 2011 (the last business day of the last fiscal year) of
$1.48 and the exercise price of the stock options for Messrs. Buck, Hendrickson, Larson, Posedel and Sano would be $788, $788, $788, $1,575 and $656,
respectively.
Compensation Committee Interlocks and Insider
Participation
The Compensation Committee
consists of Messrs. Anderson and Elder. No interlocking relationship exists between the Companys Board of Directors and Compensation Committee
and the board of directors or compensation committee of any other company.
34
REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF
DIRECTORS
Notwithstanding anything to the
contrary set forth in any of the Companys previous filings under the Securities Exchange Act of 1933, as amended, or the Securities Act of 1934,
as amended, that might incorporate future filings, including this Proxy Statement, in whole or in part, the following report shall not be incorporated
by reference into any such filings and such information shall be entitled to the benefits provided in Item 306(c) and (d) of Regulation S-K and Item
7(d)(3)(v) of Schedule 14A.
The Compensation Committee feels
that the compensation vehicles used by the Company, generally administered through the process as outlined above, provide a fair and balanced executive
compensation program related to the proper business issues. In addition, it should be noted that compensation vehicles will be reviewed and, as
appropriate, revised in order to attract and retain new executives in addition to rewarding performance on the job.
The Compensation Committee has
reviewed and discussed with management the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K and, based on such review and
discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this proxy
statement.
COMPENSATION
COMMITTEE
Robert R. Anderson
William
W.R. Elder
COMPLIANCE WITH SECTION 16(a) OF THE
SECURITIES
EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act
requires that directors, certain officers of the Company and 10% shareholders file reports of ownership and changes in ownership with the SEC as to the
Companys securities beneficially owned by them. Such persons are also required by SEC rules to furnish the Company with copies of all Section
16(a) forms they file.
Based solely on its review of
copies of such forms received by the Company, or on written representations from certain reporting persons, the Company believes that all Section 16(a)
filing requirements applicable to its officers, directors and greater than ten percent beneficial owners were complied with during the fiscal year
ended May 31, 2011.
FINANCIAL STATEMENTS
The Companys Annual Report
to Shareholders for the last fiscal year is being mailed with this Proxy Statement to shareholders entitled to notice of the meeting. The Annual Report
includes the consolidated financial statements, unaudited selected consolidated financial data and managements discussion and analysis of
financial condition and results of operations.
35
OTHER MATTERS
The Company knows of no other
matters to be submitted to the meeting. If any other matters properly come before the meeting, it is the intention of the persons named in the enclosed
Proxy to vote the shares they represent as the Board of Directors may recommend.
By Order of the Board of
Directors,
RHEA J. POSEDEL
Chief
Executive Officer and
Chairman of the Board of Directors
Dated: September 27, 2011
36
|
|
Using a black ink pen, mark your votes with an X as shown in
this example. Please do not write outside the designated areas.
|
x
|
|
|
Annual
Meeting Proxy Card
|
|
|
PLEASE
FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE
ENCLOSED ENVELOPE.
|
|
|
|
|
Proposals The Board of Directors recommends a vote FOR all the nominees
listed, FOR Proposal 2, FOR Proposal 3 and FOR Proposal 4.
|
|
|
|
|
|
|
|
|
|
|
|
1.
|
Election of Directors:
|
For
|
Withhold
|
|
For
|
Withhold
|
|
For
|
Withhold
|
|
|
|
01 - Rhea J. Posedel
|
o
|
o
|
02 - Robert R. Anderson
|
o
|
o
|
03 - William W. R. Elder
|
o
|
o
|
|
|
04 - Mukesh Patel
|
o
|
o
|
05 - Mario M. Rosati
|
o
|
o
|
06 - Howard T. Slayen
|
o
|
o
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
|
Against
|
Abstain
|
|
|
|
For
|
Against
|
Abstain
|
2.
|
Proposal to approve an amendment to the Companys 2006
Equity Incentive Plan to increase the number of shares reserved for issuance
thereunder by an additional 900,000 shares.
|
|
o
|
o
|
o
|
3.
|
Proposal to approve an amendment to the Companys
2006 Employee Stock Purchase Plan to increase the number of shares reserved
for issuance thereunder by an additional 350,000 shares.
|
|
o
|
o
|
o
|
|
|
|
|
|
|
|
|
|
|
|
|
4.
|
Proposal to ratify the appointment of Burr Pilger
Mayer, Inc. as the Companys independent registered public accounting firm.
|
|
o
|
o
|
o
|
5.
|
In their discretion, the proxyholders are authorized
to vote upon such other matter or matters which may properly come before the
meeting and any adjournment(s) thereof.
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Voting
Items
|
Change of Address Please print new address below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Authorized
Signatures This section must be completed for your vote to be counted.
Date and Sign Below
|
Please sign exactly as name(s) appears hereon. Joint
owners should each sign. When signing as attorney, executor, administrator,
corporate officer, trustee, guardian or custodian, please give full title.
|
|
|
|
|
|
Date (mm/dd/yyyy) Please print date below.
|
|
Signature 1 Please keep signature within the box.
|
|
Signature 2 Please keep signature within the box.
|
|
|
|
|
|
|
/ /
|
|
|
|
|
|
PLEASE FOLD ALONG THE
PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.
|
|
|
|
Proxy
AEHR TEST SYSTEMS
|
|
THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS OF AEHR TEST SYSTEMS
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON
OCTOBER 25, 2011
The
undersigned shareholder of Aehr Test Systems, a California corporation, hereby
acknowledges receipt of the Notice of Annual Meeting of Shareholders and Proxy
Statement and hereby appoints Rhea J. Posedel and Gary L. Larson, or either of
them, proxies and attorneys-in-fact, with full power to each of substitution,
on behalf and in the name of the undersigned, to represent the undersigned at
the Annual Meeting of Shareholders of Aehr Test Systems to be held on October
25, 2011, at 4:00 p.m., local time, at 400 Kato Terrace, Fremont, California
94539, and at any adjournments thereof and to vote all shares of Common Stock
which the undersigned would be entitled to vote if then and there personally
present, on the matters set forth on the reverse side of this card.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY
DIRECTION IS INDICATED, WILL BE VOTED (1) FOR THE ELECTION OF THE NOMINATED
DIRECTORS, (2) FOR THE AMENDMENT TO THE 2006 EQUITY INCENTIVE PLAN, (3) FOR THE
AMENDMENT TO THE 2006 EMPLOYEE STOCK PURCHASE PLAN, (4) FOR RATIFICATION OF THE
APPOINTMENT OF THE COMPANYS INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM, AND
(5) AS SAID PROXIES DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY COME BEFORE THE
MEETING AND ANY ADJOURNMENT(S) THEREOF.
PLEASE SIGN AND DATE ON REVERSE SIDE
Important notice regarding the internet availability
of proxy materials for the Annual Meeting of Shareholders
The Proxy Statement, Form of Proxy Card and
2011 Annual Report are available at:
www.aehr.com under the heading Investors and the subheading Proxy
Materials.