def14a
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OMB APPROVAL |
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OMB Number:
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3235-0059 |
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Expires:
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February 28, 2006 |
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Estimated average burden hours per
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12.75 |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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Filed by the Registrant
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Filed by a Party other than the Registrant
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Check the appropriate box: |
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o Preliminary Proxy Statement |
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Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2)) |
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x Definitive Proxy Statement |
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o Definitive Additional Materials |
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Soliciting Material Pursuant to §240.14a-12 |
Aehr Test System
(Name
of Registrant as Specified In Its Charter)
(Name
of Person(s) Filing Proxy Statement, if other than the
Registrant)
Payment of Filing Fee (Check the appropriate box):
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x No fee required. |
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o
Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11. |
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1) Title of each class of securities to which transaction applies: |
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2) Aggregate number of securities to which transaction applies: |
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined): |
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4) Proposed maximum aggregate value of transaction: |
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o Fee paid previously with preliminary materials. |
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o Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing. |
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1) Amount Previously Paid: |
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2) Form, Schedule or Registration Statement No.: |
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SEC 1913 (02-02) |
Persons who are to respond to the collection of information
contained in this form are not required to respond unless the form displays a currently valid
OMB control number. |
AEHR TEST SYSTEMS
400 Kato Terrace
Fremont, California 94539
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON OCTOBER 26, 2006
To The Shareholders of
Aehr Test Systems:
You are cordially invited to attend the Annual Meeting of Shareholders (the Annual Meeting)
of Aehr Test Systems, a California corporation (the Company), to be held on October 26, 2006, at
4:00 p.m., at the Companys corporate headquarters located at 400 Kato Terrace, Fremont, California
94539, for the following purposes:
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To elect five directors. |
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2. |
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To approve the adoption of the Companys 2006 Equity Incentive Plan and authorize the
reservation of 600,000 shares of common stock for issuance thereunder. |
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3. |
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To approve the adoption of Companys 2006 Employee Stock Purchase Plan and authorize
the reservation of 200,000 shares of common stock for issuance thereunder. |
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4. |
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To ratify the selection of Burr, Pilger & Mayer LLP as the Companys independent
registered public accounting firm for the fiscal year ending May 31, 2007. |
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5. |
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To transact such other business as may properly come before the Annual Meeting or any
adjournments thereof. |
Only holders of record of the Common Stock at the close of business on September 12, 2006 will
be entitled to notice of and to vote at the Annual Meeting. Please sign, date and mail the
enclosed proxy so that your shares may be represented at the Annual Meeting if you are unable to
attend and vote in person. If you attend the Annual Meeting, you may vote in person even if you
return a proxy.
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By Order of the Board of Directors, |
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RHEA J. POSEDEL |
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Chief Executive Officer and |
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Chairman of the Board of Directors |
TABLE OF CONTENTS
AEHR TEST SYSTEMS
400 Kato Terrace
Fremont, California 94539
PROXY STATEMENT
2006 ANNUAL MEETING OF SHAREHOLDERS
This Proxy Statement is being furnished to the Shareholders (the Shareholders) of Aehr Test
Systems, a California corporation (the Company), in connection with the solicitation of proxies
by the Board of Directors for use at the Annual Meeting of Shareholders (the Annual Meeting) of
the Company to be held on October 26, 2006 and at any adjournments thereof.
At the Annual Meeting, the Shareholders will be asked:
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1. |
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To elect five directors. |
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2. |
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To approve the adoption of the Companys 2006 Equity Incentive Plan and authorize the
reservation of 600,000 shares of common stock for issuance thereunder. |
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3. |
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To approve the adoption of Companys 2006 Employment Stock Purchase Plan and authorize
the reservation of 200,000 shares of common stock for issuance thereunder. |
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4. |
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To ratify the selection of Burr, Pilger & Mayer LLP as the Companys independent
registered public accounting firm for the fiscal year ending May 31, 2007. |
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5. |
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To transact such other business as may properly come before the Annual Meeting or any
adjournments of the Annual Meeting. |
The Board of Directors has fixed the close of business on September 12, 2006 as the record
date for the determination of the holders of Common Stock entitled to notice of and to vote at the
Annual Meeting. Each such Shareholder will be entitled to one vote for each share of Common Stock
(Common Share) held on all matters to come before the Annual Meeting and may vote in person or by
proxy authorized in writing.
This Proxy Statement and the accompanying form of proxy are first being sent to holders of the
Common Shares on or about September 27, 2006.
THE ANNUAL MEETING
Date, Time and Place
The Annual Meeting will be held on October 26, 2006 at 4:00 p.m., local time, at 400 Kato
Terrace, Fremont, California 94539.
General
The Companys principal office is located at 400 Kato Terrace, Fremont, California 94539 and
its telephone number is (510) 623-9400.
Record Date and Shares Entitled to Vote
Shareholders of record at the close of business on September 12, 2006 (the Record Date) are
entitled to notice of and to vote at the Annual Meeting. As of the Record Date, there were
7,720,800 Common Shares outstanding and entitled to vote.
Revocability of Proxies
Any proxy given pursuant to this solicitation may be revoked by the person giving it at any
time before its use by delivering to the Secretary of the Company a written notice of revocation or
a duly executed proxy bearing a later date or by attending the meeting and voting in person.
1
Voting and Proxy Solicitation
Each shareholder voting for the election of directors may cumulate his or her votes, giving
one candidate a number of votes equal to the number of directors to be elected multiplied by the
number of shares that the shareholder is entitled to vote, or distributing the shareholders votes
on the same principle among as many candidates as the shareholder chooses. No shareholder shall be
entitled to cumulate votes for any candidate unless the candidates name has been properly placed
in nomination prior to the voting and the shareholder, or any other shareholder, has given notice
at the meeting prior to the voting of the intention to cumulate votes. On all other matters, each
share has one vote.
Proxies are being solicited by the Company. The cost of this solicitation will be borne by
the Company. The Company may reimburse brokerage firms and other persons representing beneficial
owners of shares for their expenses in forwarding solicitation material to such beneficial owners.
Proxies may also be solicited by certain of the Companys directors, officers and regular
employees, without additional compensation, personally or by telephone, telegram or facsimile.
Quorum; Abstentions; Broker Non-Votes
The required quorum for the transaction of business at the Annual Meeting is a majority of the
shares of Common Stock issued and outstanding on the Record Date. Votes cast by proxy or in person
at the Annual Meeting will be tabulated by the Inspector of Elections, appointed for the meeting,
who will determine whether or not a quorum is present. If the shares present, in person and by
proxy, do not constitute the required quorum, the meeting may be adjourned to a subsequent date for
the purposes of obtaining a quorum. Shares that are voted FOR, AGAINST or WITHHELD FROM a
matter are treated as being present at the meeting for purposes of establishing a quorum and shares
that are voted FOR, AGAINST or ABSTAIN are also treated as shares entitled to vote (the
Votes Cast) at the Annual Meeting with respect to such matter.
While there is no definitive statutory or case law authority in California as to the proper
treatment of abstentions, the Company believes that abstentions should be counted for purposes of
determining both (i) the presence or absence of a quorum for the transaction of business and (ii)
the total number of Votes Cast with respect to a proposal (other than the election of directors).
In the absence of controlling precedent to the contrary, the Company intends to treat abstentions
in this manner. Accordingly, abstentions will have the same effect as a vote against the proposal.
Broker non-votes (i.e. votes from shares of record by brokers as to which the beneficial
owners have no voting instructions) will be counted for purposes of determining the presence or
absence of a quorum for the transaction of business, but will not be counted for purposes of
determining the number of Votes Cast with respect to the proposal on which the broker has expressly
not voted. Thus, a broker non-vote will make a quorum more readily but will not otherwise affect
the outcome of the voting on a proposal. With respect to a proposal that requires a majority of the
outstanding shares (such as an amendment to the articles of incorporation), however, a broker
non-vote has the same affect as a vote against the proposal.
Deadline for Receipt of Shareholder Proposals for 2007 Annual Meeting
Shareholders are entitled to present proposals for action at a forthcoming meeting if they
comply with the requirements of the proxy rules promulgated by the Securities and Exchange
Commission (SEC). Proposals of shareholders of the Company intended to be presented for
consideration at the Companys 2007 Annual Meeting of Shareholders must be received by the Company
no later than May 31, 2007, in order that they may be included in the proxy statement and form of
proxy related to that meeting.
Shareholder Information
IN COMPLIANCE WITH RULE 14A-3 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, THE
COMPANY HEREBY UNDERTAKES TO PROVIDE WITHOUT CHARGE TO EACH PERSON UPON WRITTEN REQUEST, A COPY OF
THE COMPANYS ANNUAL REPORT ON FORM 10-K, INCLUDING THE FINANCIAL STATEMENTS AND FINANCIAL SCHEDULE
THERETO. REQUESTS FOR SUCH COPIES SHOULD BE DIRECTED TO AEHR TEST SYSTEMS, 400 KATO TERRACE,
FREMONT, CA 94539, ATTENTION: INVESTOR RELATIONS.
2
If you share an address with another shareholder, only one annual report and proxy statement
may be delivered to all shareholders sharing your address unless we have contrary instructions from
one or more shareholders. Shareholders sharing an address may request a separate copy of
the annual report or proxy statement by writing to: Aehr Test Systems, 400 Kato Terrace, Fremont,
CA 94539, Attention: Investor Relations or by calling investor relations at (510) 623-9400, and we
will promptly deliver a separate copy. If you share an address with another shareholder and you
are receiving multiple copies of annual reports or proxy statements, you may write us at the
address above to request delivery of a single copy of these materials in the future.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, DIRECTORS
AND MANAGEMENT
The following table sets forth certain information regarding the beneficial ownership of the
Companys Common Stock as of August 31, 2006, or some other practical date in cases of the
principal shareholders, by: (i) each person (or group of affiliated persons) known to the Company
to be the beneficial owner of more than 5% of the Companys Common Stock, (ii) each director of the
Company, (iii) each of the Companys executive officers named in the Summary Compensation Table
appearing herein, and (iv) all directors and executive officers of the Company as a group:
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Shares Beneficially |
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Owned(1) |
Beneficial Owner |
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Number |
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Percent(2) |
Named Executive Officers and Directors: |
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Rhea J. Posedel (3) |
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1,117,454 |
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14.2 |
% |
Robert R. Anderson (4) |
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149,436 |
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1.9 |
% |
William W. R. Elder (5) |
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75,000 |
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* |
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Mukesh Patel (6) |
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71,929 |
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* |
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Mario M. Rosati (7) |
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229,217 |
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2.9 |
% |
Gary L. Larson (8) |
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129,998 |
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1.7 |
% |
Carl N. Buck (9) |
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106,979 |
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1.4 |
% |
David S. Hendrickson (10) |
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44,582 |
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* |
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Gregory M. Perkins (11) |
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43,124 |
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* |
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All Directors and Executive Officers as a group (10 persons) (12) |
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1,987,760 |
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23.8 |
% |
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Principal Shareholders: |
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Private Capital Management (13)
8889 Pelican Bay Blvd., Suite 500, Naples, FL 34108 |
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1,298,049 |
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16.8 |
% |
State of Wisconsin Investment Board (14)
121 East Wilson Street, Madison, WI 53702 |
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1,184,400 |
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15.3 |
% |
RGM Capital, LLC (15)
4501 Ninth Street North, Suite 222, Naples, FL 34103 |
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384,917 |
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5.0 |
% |
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* |
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Represents less than 1% of the Common Shares |
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(1) |
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Beneficial ownership is determined in accordance with the rules of the SEC. Unless otherwise
indicated in the footnotes to this table, the persons and entities named in the table have
represented to the Company that they have sole voting and sole investment power with respect
to all shares beneficially owned, subject to community property laws where applicable. Unless
otherwise indicated, the address of each of the individuals listed in the table is c/o Aehr
Test Systems, 400 Kato Terrace, Fremont, California 94539. |
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(2) |
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Shares of Common Stock subject to options that are currently exercisable or exercisable
within 60 days of August 31, 2006 are deemed to be outstanding and to be beneficially owned by
the person holding such options for the purpose of computing the percentage ownership of such
person but are not treated as outstanding for the purpose of computing the percentage
ownership of any other person. |
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(3) |
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Includes 20,000 shares held by Vivian Owen, Mr. Posedels wife, 9,950 shares held by Rhea J.
Posedel, trustee for Natalie Diane Posedel, Mr. Posedels daughter, and 143,436 shares
issuable upon the exercise of stock options exercisable within 60 days of August 31, 2006. |
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Includes 66,936 shares issuable upon the exercise of stock options exercisable within 60 days
of August 31, 2006. |
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Includes 6,000 shares held by William W.R. Elder, trustee for his sons Derek S. Elder (3,000
shares) and Corwin W. Elder (3,000 shares) and 50,000 shares issuable upon the exercise of
stock options exercisable within 60 days of August 31, 2006. |
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(6) |
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Includes 66,929 shares issuable upon the exercise of stock options exercisable within 60 days
of August 31, 2006. |
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(7) |
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Includes 27,000 shares held by Mario M. Rosati and Douglas Laurice, trustees for the benefit
of Mario M. Rosati, 152,217 shares held by Mario M. Rosati, Trustee of the Mario M. Rosati
Trust, U/D/T dated 1/9/90 and 50,000 shares issuable upon the exercise of stock options
exercisable within 60 days of August 31, 2006. |
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(8) |
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Includes 75,708 shares issuable upon the exercise of stock options exercisable within 60 days
of August 31, 2006. |
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(9) |
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Includes 55,041 issuable upon the exercise of stock options exercisable within 60 days of
August 31, 2006. |
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(10) |
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Includes 44,582 shares issuable upon the exercise of stock options exercisable within 60 days
of August 31, 2006. |
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(11) |
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Includes 43,124 shares issuable upon the exercise of stock options exercisable within 60 days
of August 31, 2006. |
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(12) |
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Includes 615,484 shares issuable upon the exercise of stock options exercisable within 60
days of August 31, 2006. |
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(13) |
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Based solely on Schedule 13G/A filed February 14, 2006 with the SEC by Private Capital
Management (PCM). PCM has shared investment power and shared voting power with respect to
the shares. Does not include shares reported as beneficially owned by Bruce S. Sherman and
Gregg J. Powers, officers of PCM, but not reported as beneficially held by PCM. Messrs.
Sherman and Powers may be deemed to have beneficial ownership of 1,429,049 shares and
1,332,449 shares, respectively, but disclaimed beneficial ownership of the shares held by
PCMs clients and managed by PCM and also disclaimed the existence of a group. |
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(14) |
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Based solely on Schedule 13G/A filed February 10, 2006 with the SEC by the State of Wisconsin
Investment Board (SWIB). SWIB has sole investment and sole voting power with respect to the
shares. |
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(15) |
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Based solely on Schedule 13D filed March 16, 2006 with the SEC by RGM Capital, LLC (RGM).
RGM has shared investment and voting power with respect to the shares. |
4
Equity Compensation Plan Information
The following table gives information about the Companys common stock that may be issued upon
the exercise of options, warrants and rights under all of the Companys existing equity
compensation plans as of May 31, 2006.
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(a) |
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(b) |
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(c) |
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Number of securities |
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remaining available for future |
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Number of securities to |
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Weighted-average |
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issuance under equity |
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be issued upon exercise |
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exercise price of |
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compensation plans |
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of outstanding options, |
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outstanding options, |
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(excluding securities reflected |
Plan Category |
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warrants and rights |
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warrants and rights |
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in column (a)) |
Equity compensation
plans approved by
security holders |
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1,268,936 |
(1) |
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$ |
3.81 |
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333,655 |
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Equity compensation
plans not approved
by security holders |
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Total |
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1,268,936 |
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$ |
3.81 |
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333,655 |
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(1) |
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Issued pursuant to the Companys 1996 Stock Option Plan and the 1997 Employee Stock Purchase
Plan (Stock Option Plans), which require the approval of and have been approved by the Companys
shareholders. See description of the Stock Option Plans below. |
Stock Option Plans
On October 23, 1996, the Board of Directors approved the 1996 Stock Option Plan (the Stock
Plan). The Stock Plan provides for the granting of non-qualified stock options or incentive stock
options to employees and consultants at the fair market value of the Companys common stock as of
the date of grant. Options granted under the Stock Plan generally vest at a rate of
1/48th per month, however, the vesting schedule can change on a grant-by-grant basis.
The Stock Plan provides that vested options may be exercised for 3 months after termination of
employment and for 12 months after termination of employment as a result of death or disability.
The Company may select alternative periods of time for exercise upon termination of service. The
Stock Plan permits options to be exercised with cash, check, certain other shares of the Companys
common stock or consideration received by the Company under a cashless exercise program. In the
event that the Company merges with or into another corporation, or sells substantially all of the
Companys assets, the Stock Plan provides that each outstanding option will be assumed or
substituted for by the successor corporation. If such substitution or assumption does not occur,
each option will fully vest and become exercisable. As of May 31, 2006, there were 1,602,591
shares of Common Stock reserved under the Stock Plan and 333,655 shares remaining for future
issuance.
On June 9, 1997, the Board of Directors adopted the 1997 Employee Stock Purchase Plan (the
ESPP). The ESPP has consecutive, overlapping, twenty-four month offering periods. Each
twenty-four month offering period includes four six month purchase periods. The offering periods
generally begin on the first trading day on or after April 1 and October 1 each year, except that
the first such offering period commenced with the effectiveness of the Companys initial public
offering and ended on the last trading day on or before March 31, 1999. Shares are purchased
through employee payroll deductions at exercise prices equal to 85% of the lesser of the fair
market value of the Companys Common Stock at either the first day of an offering period or the
last day of the purchase period. If a participants rights to purchase stock under all employee
stock purchase plans of the Company accrue at a rate which exceeds $25,000 worth of stock for a
calendar year, such participant may not be granted an option to purchase stock under the ESPP. The
maximum number of shares a participant may purchase during a single purchase period is 3,000
shares. As of May 31, 2006, there were 400,000 shares of Common Stock reserved under the ESPP and
30,104 shares remaining for future issuance.
5
PROPOSAL 1
ELECTION OF DIRECTORS
At the Annual Meeting, five directors are to be elected to serve until the next Annual Meeting
or until their successors are elected and qualified. Unless otherwise instructed, the proxy
holders will vote the proxies received by them for the election of the five nominees named below,
all of whom are presently directors of the Company. Each nominee has consented to be named a
nominee in this Proxy Statement and to continue to serve as a director if elected. Should any
nominee become unable or decline to serve as a director or should additional persons be nominated
at the meeting, the proxy holders intend to vote all proxies received by them in such a manner as
will assure the election of as many nominees listed below as possible (or, if new nominees have
been designated by the Board of Directors, in such a manner as to elect such nominees) and the
specific nominees to be voted for will be determined by the proxy holders. The Company is not
aware of any reason that any nominee will be unable or will decline to serve as a director. There
are no arrangements or understandings between any director or executive officer and any other
person pursuant to which he is or was to be selected as a director or officer of the Company.
The names of the nominees and certain information about them are set forth below:
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Director |
Name of Nominee |
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Age |
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Position |
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Since |
Rhea J. Posedel
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64 |
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Chairman of the Board and Chief Executive Officer
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1977 |
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Robert R. Anderson (1)(2)
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68 |
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Director
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2000 |
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William W.R. Elder (1)(2)(3)
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67 |
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Director
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1989 |
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Mukesh Patel (1)(3)
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48 |
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Director
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1999 |
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Mario M. Rosati
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60 |
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Director and Secretary
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1977 |
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(1) |
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Member of the Audit Committee. |
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(2) |
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Member of the Compensation Committee. |
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(3) |
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Member of the Nominating and Governance Committee |
The principal occupation of each of the Board members during the past five years is set forth
below. There is no family relationship between any director or executive officer of the Company.
RHEA J. POSEDEL is a founder of the Company and has served as Chief Executive Officer and
Chairman of the Board of Directors since its inception in 1977. From the Companys inception
through May 2000, Mr. Posedel also served as President. Prior to founding the company, Mr. Posedel
held various project engineering and engineering managerial positions at Lockheed Martin
Corporation (formerly Lockheed Missile & Space Corporation), Ampex Corporation, and Cohu, Inc.
He received a B.S. in Electrical Engineering from the University of California, Berkeley, an M.S.
in Electrical Engineering from San Jose State University and an M.B.A. from Golden Gate University.
ROBERT R. ANDERSON was appointed to the Companys Board of Directors in October 2000. Mr.
Anderson is a private investor. From January 1994 to January 2001, he was Chairman of Silicon
Valley Research, Inc., a semiconductor design automation software company, and its Chief Executive
Officer from December 1996 to August 1998, and from April 1994 to July 1995. He also served as
Chairman of Yield Dynamics, Inc., a private semiconductor process control software company, from
October 1998 to October 2000, and as Chief Executive Officer from October 1998 to April 2000. Mr.
Anderson co-founded KLA Instruments Corporation, now KLA-Tencor Corporation, a supplier of
semiconductor process control systems, in 1975 and served in various capacities including Chief
Operating Officer, Chief Financial Officer, Vice Chairman and Chairman before he retired from that
company in 1994. Mr. Anderson is Chairman of Aviza Technology, Inc., a semiconductor equipment
company, and is a director of MKS Instruments, Inc., a semiconductor components and equipment
supplier. He also serves as a director for two private companies.
WILLIAM W. R. ELDER has been a director of the Company since 1989. Dr. Elder was the Chief
Executive Officer of Genus, Inc. a semiconductor equipment company, from 1981 to 1996, and then
again
6
from 1998 until the company was recently acquired by AIXTRON AG (AIXTRON), and he currently
serves as the Chairman of the Silicon Semiconductor Technologies Group and as a member of the
Executive Board of AIXTRON. Dr. Elder also serves as a Board Member of Maskless Lithography Inc.,
a capital equipment start-up company based in San Jose, California. Dr. Elder holds a B.S.I.E. and
an honorary Doctorate Degree from the University of Paisley in Scotland.
MUKESH PATEL was appointed to the Companys Board of Directors in June 1999. Mr. Patel is a
leading entrepreneur in the Silicon Valley who founded Sparkolor Corporation, acquired by Intel
Corporation in late 2002, and co-founded SMART Modular Technologies, Inc., a high value added
memory products company, acquired by Solectron Corporation in late 1999. Mr. Patel holds a B.S.
degree in Engineering with an emphasis in digital electronics from Bombay University, India. Mr.
Patel also serves as a Board member for several privately-held companies.
MARIO M. ROSATI has been a director of the Company since 1977. He is a member of the law firm
Wilson Sonsini Goodrich & Rosati, Professional Corporation which he joined in 1971. Mr. Rosati
holds a B.A. from the University of California, Los Angeles and a J.D. from the University of
California, Berkeley, Boalt Hall School of Law. Mr. Rosati is a director of Sanmina-SCI
Corporation, an electronics manufacturing services company, Symyx Technologies, Inc., a
combinatorial materials science company, and Vivus Inc., a specialty pharmaceutical company, all
publicly held companies, as well as several privately-held companies.
Board Matters and Corporate Governance
Board Meetings and Committees
The Board of Directors held a total of four (4) meetings and acted four (4) times by unanimous
written consent during the fiscal year ended May 31, 2006. 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 in the National Association of Securities Dealers, Inc.s (NASD) listing standards,
for which 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 Report of the Audit
Committee, included in this Proxy Statement. The Audit Committee is governed by a written charter
approved by the Board of Directors. The Audit Committee consists of directors Messrs. Anderson,
Elder and Patel. The Board of Directors has determined that Mr. Anderson 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 (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 in the
NASDs listing standards. The Compensation Committee held one (1) meeting during fiscal year 2006.
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 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 in the NASDs listing standards. The Nominating and Governance Committee held one (1)
meeting during fiscal year 2006. 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; and 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.
7
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 in an action by
written consent dated September 24, 2004. 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 our 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 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 currently in effect.
8
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. All directors attended the 2005 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 Company will provide a copy of the Code of Conduct
and Ethics upon request made in writing to Aehr Test Systems, Attention: Investor Relations, 400
Kato Terrace, Fremont, CA 94539. 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.
Communications with the Board
Individuals 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.
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. Patel, Anderson and Elder, held four (4) meetings in
fiscal year 2006. Each member is an independent director in accordance with the NASDAQ Global
Market Audit Committee requirements. 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 financial
statements and for the Companys financial reporting process. The Companys independent registered
public accounting firm, Burr, Pilger & Mayer LLP (BPM), is responsible for expressing an opinion
on the conformity of the Companys audited financial statements to accounting principles generally
accepted in the United States of America. The Audit Committee has reviewed and discussed with
management the audited financial statements for the year ended May 31, 2006. BPM, the Companys
independent registered public accounting firm for fiscal year 2006, issued their unqualified report
dated July 17, 2006 on the Companys consolidated financial statements.
The Audit Committee has also discussed with BPM the matters required to be discussed by AICPA
Statement on Auditing Standards No. 61, Communication with Audit Committees. The Audit
Committee has also received the written disclosures and the letter from BPM required by
Independence Standards Board Standard No. 1, Independence Discussions with Audit Committees, 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. The
Audit Committee has an Audit Committee Charter.
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 financial statements for the
fiscal year ended May 31, 2006 be included in the Annual Report on Form 10-K.
9
AUDIT COMMITTEE
Robert R. Anderson
William W.R. Elder
Mukesh Patel
(1) The information regarding the Audit Committee is not soliciting material and is not deemed
filed with the SEC, and is not 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. Each outside director
receives (1) an annual retainer of $15,000, (2) $1,875 for each regular board meeting he attends,
and (3) $1,125 for each committee meeting he attends if not held in conjunction with a regular
board meeting, in addition to being reimbursed for certain expenses incurred in attending Board and
committee meetings. Prior to each annual meeting of shareholders, each outside director may elect
to receive an additional stock option grant in lieu of any cash payments throughout the year. 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. Directors are eligible to participate in the Companys stock
option plans. In fiscal 2004, outside directors Robert Anderson, William Elder, Mukesh Patel and
Mario Rosati were each granted options to purchase 5,000 shares at $3.79 per share. Additionally,
Robert Anderson and Mukesh Patel were each granted 9,499 shares at $3.79 per share pursuant to an
agreement to take these options in lieu of cash payments throughout the fiscal year. In fiscal
2005, outside directors Robert Anderson, William Elder, Mukesh Patel and Mario Rosati were each
granted options to purchase 5,000 shares at $2.89 per share. Additionally, Robert Anderson and
Mukesh Patel were each granted options to purchase 12,676 shares at $2.84 per share pursuant to an
agreement to take these options in lieu of cash payments throughout the fiscal year. In fiscal
2006, outside directors Robert Anderson, William Elder, Mukesh Patel and Mario Rosati were each
granted options to purchase 5,000 shares at $3.66 per share. Additionally, Robert Anderson and
Mukesh Patel were each granted options to purchase 14,754 shares at $3.66 per share pursuant to an
agreement to take these options in lieu of cash payments throughout the fiscal year.
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.
Vote Required
The five 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
10
PROPOSAL 2
APPROVAL OF THE 2006 EQUITY INCENTIVE PLAN
The stockholders are being asked to approve a new 2006 Equity Incentive Plan (the Incentive
Plan). The Companys current Amended and Restated 1996 Stock Plan is set to expire in October
2006. The Board has approved the Incentive Plan, subject to approval from the stockholders at the
Annual Meeting. If the stockholders approve the Incentive Plan, it will replace the Companys
Amended and Restated 1996 Stock Option Plan and no further awards will be made thereunder. The
Amended and Restated 1996 Stock Option Plan, however, will continue to govern awards previously
granted under that plan. If the stockholders do not approve the Incentive Plan, the Amended and
Restated 1996 Stock Option Plan will remain in effect through the remainder of its term.
The Board believes that long-term incentive compensation programs align the interests of
management, employees and the stockholders to create long-term stockholder value. The Board
believes that plans such as the Incentive Plan increase the Companys ability to achieve this
objective, especially, in the case of the Incentive Plan, by allowing for several different forms
of long-term incentive awards, which the Board believes will help the Company to recruit, reward,
motivate and retain talented personnel. The recent changes in the equity compensation accounting
rules, which became effective for the Company on June 1, 2006, also make it important to have
greater flexibility under the Companys employee equity incentive plan. As the new equity
compensation accounting rules come into effect for all companies, competitive equity compensation
practices may change materially, especially as they pertain to the use of equity compensation
vehicles other than stock options.
The Board believes strongly that the approval of the Incentive Plan is essential to the
Companys continued success. In particular, the Board believes that the Companys employees are
its most valuable assets and that the awards permitted under the Incentive Plan are vital to the
Companys ability to attract and retain outstanding and highly skilled individuals in the extremely
competitive labor markets in which the Company competes. Such awards also are crucial to the
Companys ability to motivate employees to achieve its goals.
Vote Required; Recommendation of the Board of Directors
The approval of the Incentive Plan requires the affirmative vote of a majority of the Votes
Cast on the proposal at the Annual Meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING FOR
THE ADOPTION OF THE 2006 EQUITY INCENTIVE PLAN AND THE
NUMBER OF SHARES RESERVED FOR ISSUANCE UNDER THE
INCENTIVE PLAN.
Description of the 2006 Equity Incentive Plan
The following is a summary of the principal features of the Incentive Plan and its operation.
The summary is qualified in its entirety by reference to the Incentive Plan itself set forth in
Appendix A.
General.
The Incentive Plan provides for the grant of the following types of incentive awards: (i)
stock options, (ii) stock appreciation rights, (iii) restricted stock, (iv) restricted stock units,
(v) performance shares and
11
performance units, and (vi) and other stock or cash awards. Each of these is referred to
individually as an Award. Those who will be eligible for Awards under the Incentive Plan
include employees, directors and consultants who provide services to the Company and its
affiliates. As of August, 2006, approximately 91 employees, directors and consultants would be
eligible to participate in the Incentive Plan.
Number of Shares of Common Stock Available Under the Incentive Plan.
The Board has reserved 600,000 shares of the Companys common stock for issuance under the
Incentive Plan, plus (i) any shares that, as of the date the Companys Amended and Restated 1996
Stock Option Plan terminated, were reserved but not issued pursuant to any award granted
thereunder, and were not subject to any awards granted thereunder, and (ii) any Shares subject to
stock options or similar awards granted under the Amended and Restated 1996 Stock Option Plan that
expire or otherwise terminate without having been exercised in full and Shares issued pursuant to
awards granted under the Amended and Restated 1996 Stock Option Plan that are forfeited to or
repurchased by the Company. The shares may be authorized, but unissued, or reacquired common
stock. As of September 27, 2006, no Awards have been granted under the Incentive Plan.
Shares subject to Awards granted with an exercise price less than the fair market value on the
date of grant count against the share reserve as two shares for every one share subject to such an
Award. To the extent that a share that was subject to an Award that counted as two shares against
the Incentive Plan reserve pursuant to the preceding sentence is returned to the Incentive Plan,
the Incentive Plan reserve will be credited with two shares that will thereafter be available for
issuance under the Incentive Plan.
If the Company declares a dividend or other distribution or engages in a recapitalization,
stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase, or exchange of shares or other securities of the Company, or other change
in the corporate structure of the Company affecting the Companys common stock, the Administrator
will adjust the number and class of shares that may be delivered under the Incentive Plan, the
number, class, and price of shares covered by each outstanding Award, and the numerical per-person
limits on Awards.
Administration of the Incentive Plan.
The Board, or a committee of directors or of other individuals satisfying applicable laws and
appointed by the Board (referred to herein as the Administrator), will administer the Incentive
Plan. To make grants to certain of the Companys officers and key employees, the members of the
committee must qualify as non-employee directors under Rule 16b-3 of the Securities Exchange Act
of 1934, and as outside directors under Section 162(m) of the Internal Revenue Code of 1986, as
amended (the Code) so that the Company can receive a federal tax deduction for certain
compensation paid under the Incentive Plan. Subject to the terms of the Incentive Plan, the
Administrator has the sole discretion to select the employees, consultants, and directors who will
receive Awards, determine the terms and conditions of Awards, and to interpret the provisions of
the Incentive Plan and outstanding Awards. Notwithstanding the foregoing, the Administrator may
not modify or amend an option or stock appreciation right to reduce the exercise price of that
Award after it has been granted or to cancel any outstanding option or stock appreciation right and
replace it with a new option or stock appreciation right with a lower exercise price.
Options.
The Administrator is able to grant nonstatutory stock options and incentive stock options
under the Incentive Plan. The Administrator determines the number of shares subject to each
option, although the Incentive Plan provides that a participant may not receive options for more
than 200,000 shares in any fiscal
12
year, except in connection with his or her initial service as an employee with the Company, in
which case he or she may be granted an option to purchase up to an additional 200,000 shares.
The Administrator determines the exercise price of options granted under the Incentive Plan,
provided the exercise price must be at least equal to the fair market value of the Companys common
stock on the date of grant. In addition, the exercise price of an incentive stock option granted
to any participant who owns more than 10% of the total voting power of all classes of the Companys
outstanding stock must be at least 110% of the fair market value of the common stock on the grant
date.
The term of an option may not exceed ten years, except that, with respect to any participant
who owns 10% of the voting power of all classes of the Companys outstanding capital stock, the
term of an incentive stock option may not exceed five years.
After a termination of service with the Company, a participant will be able to exercise the
vested portion of his or her option for the period of time stated in the Award agreement. If no
such period of time is stated in the participants Award agreement, the participant will generally
be able to exercise his or her option for (i) three months following his or her termination for
reasons other than death or disability, and (ii) twelve months following his or her termination due
to death or disability. In no event may an option be exercised later than the expiration of its
term.
Stock Appreciation Rights.
The Administrator will be able to grant stock appreciation rights, which are the rights to
receive the appreciation in fair market value of common stock between the exercise date and the
date of grant. The Company can pay the appreciation in either cash or shares of common stock.
Stock appreciation rights will become exercisable at the times and on the terms established by the
Administrator, subject to the terms of the Incentive Plan. The Administrator, subject to the terms
of the Incentive Plan, will have complete discretion to determine the terms and conditions of stock
appreciation rights granted under the Incentive Plan; provided, however, that the exercise price
may not be less than 100% of the fair market value of a share on the date of grant. The term of a
stock appreciation right may not exceed ten years. No participant will be granted stock
appreciation rights covering more than 200,000 shares during any fiscal year, except that a
participant may be granted stock appreciation rights covering up to an additional 200,000 shares in
connection with his or her initial service as an employee with the Company.
After termination of service with the Company, a participant will be able to exercise the
vested portion of his or her stock appreciation right for the period of time stated in the Award
agreement. If no such period of time is stated in a participants Award agreement, a participant
will generally be able to exercise his or her stock appreciation right for (i) three months
following his or her termination for reasons other than death or disability, and (ii) twelve months
following his or her termination due to death or disability. In no event will a stock appreciation
right be exercised later than the expiration of its term.
Restricted Stock.
Awards of restricted stock are rights to acquire or purchase shares of the Companys common
stock, which vest in accordance with the terms and conditions established by the Administrator in
its sole discretion. For example, the Administrator may set restrictions based on the achievement
of specific performance goals. The Award agreement will generally grant the Company a right to
repurchase or reacquire the shares upon the termination of the participants service with the
Company for any reason (including death or disability). The Administrator will determine the
number of shares granted pursuant to an Award of restricted stock, but no participant will be
granted a right to purchase or acquire more than 75,000 shares of restricted stock during any
fiscal year, except that a participant may be granted up to an
13
additional 75,000 shares of restricted stock in connection with his or her initial employment
with the Company.
Restricted Stock Units.
Awards of restricted stock units result in a payment to a participant only if the vesting
criteria the Administrator establishes is satisfied. For example, the Administrator may set
restrictions based on the achievement of specific performance goals. Upon satisfying the
applicable vesting criteria, the participant will be entitled to the payout specified in the Award
agreement. Notwithstanding the foregoing, at any time after the grant of restricted stock units,
the Administrator may reduce or waive any vesting criteria that must be met to receive a payout.
The Administrator, in its sole discretion, may pay earned restricted stock units in cash, shares,
or a combination thereof. Restricted stock units that are fully paid in cash will not reduce the
number of shares available for grant under the Incentive Plan. On the date set forth in the Award
agreement, all unearned restricted stock units will be forfeited to the Company. The Administrator
determines the number of restricted stock units granted to any participant, but no participant may
be granted more than 75,000 restricted stock units during any fiscal year, except that the
participant may be granted up to an additional 75,000 restricted stock units in connection with his
or her initial employment with the Company.
Performance Units and Performance Shares.
The Administrator will be able to grant performance units and performance shares, which are
Awards that will result in a payment to a participant only if the performance goals or other
vesting criteria the Administrator may establish are achieved or the Awards otherwise vest. The
Administrator will establish performance or other vesting criteria in its discretion, which,
depending on the extent to which they are met, will determine the number and/or the value of
performance units and performance shares to be paid out to participants. Notwithstanding the
foregoing, after the grant of performance units or shares, the Administrator, in its sole
discretion, may reduce or waive any performance objectives or other vesting provisions for such
performance units or shares. During any fiscal year, no participant will receive more than 75,000
performance shares and no participant will receive performance units having an initial value
greater than $250,000, except that a participant may be granted performance shares covering up to
an additional 75,000 shares in connection with his or her initial employment with the Company.
Performance units will have an initial dollar value established by the Administrator on or before
the date of grant. Performance shares will have an initial value equal to the fair market value of
a share of the Companys common stock on the grant date.
Performance Goals.
Awards of restricted stock, restricted stock units, performance shares, performance units and
other incentives under the Incentive Plan may be made subject to the attainment of performance
goals relating to one or more business criteria within the meaning of Section 162(m) of the Code
and may provide for a targeted level or levels of achievement including: business divestitures and
acquisitions; cash flow; cash position; earnings; earnings before interest and taxes; earnings
before interest, taxes, depreciation and amortization; earnings per share; economic profit;
economic value added; equity or stockholders equity; expenses; gross margin; market share; net
income; net profit; net sales; new product development milestones; number of customers; orders
received; backlog; operating earnings; operating income; operating margin; profit after taxes;
profit before taxes; ratio of debt to debt plus equity; ratio of operating earnings to capital
spending; return on capital; return on equity; return on investments; return on net assets; return
on sales; return on stockholder equity; return to stockholders; revenue; sales; sales growth; time
to market; and working capital. The performance goals may differ from participant to participant
and from Award to Award and may be used to measure the performance of the Companys business as a
whole or one of the Companys business units and may be measured relative to a peer group or index.
14
Transferability of Awards.
Awards granted under the Incentive Plan are generally not transferable, and all rights with
respect to an Award granted to a participant generally will be available during a participants
lifetime only to the participant.
Change of Control.
In the event of a change of control of the Company, each outstanding Award will be assumed or
an equivalent option or right substituted by the successor corporation or a parent or subsidiary of
the successor corporation. In the event that the successor corporation, or the parent or
subsidiary of the successor corporation, refuses to assume or substitute for the Award, the
participant will fully vest in and have the right to exercise all of his or her outstanding options
or stock appreciation rights, including shares as to which such Awards would not otherwise be
vested or exercisable, all restrictions on restricted stock will lapse, and, with respect to
restricted stock units, performance shares and performance units, all performance goals or other
vesting criteria will be deemed achieved at target levels and all other terms and conditions met.
In addition, if an option or stock appreciation right becomes fully vested and exercisable in lieu
of assumption or substitution in the event of a change of control, the Administrator will notify
the participant in writing or electronically that the option or stock appreciation right will be
fully vested and exercisable for a period of time determined by the Administrator in its sole
discretion, and the option or stock appreciation right will terminate upon the expiration of such
period.
Amendment and Termination of the Incentive Plan.
The Administrator will have the authority to amend, alter, suspend or terminate the Incentive
Plan, except that stockholder approval will be required for any amendment to the Incentive Plan to
the extent required by any applicable laws. No amendment, alteration, suspension or termination of
the Incentive Plan will impair the rights of any participant, unless mutually agreed otherwise
between the participant and the Administrator and which agreement must be in writing and signed by
the participant and the Company. The Incentive Plan will terminate in October 2016, unless the
Board terminates it earlier.
Number of Awards Granted to Employees, Consultants, and Directors
The number of Awards that an employee, director or consultant may receive under the Incentive
Plan is in the discretion of the Administrator and therefore cannot be determined in advance. The
following table sets forth (i) the aggregate number of shares of common stock subject to options
granted under the Amended and Restated 1996 Stock Option Plan during the last fiscal year, and (ii)
the average per share exercise price of such options.
|
|
|
|
|
|
|
|
|
Name of Individual or Group |
|
Number of Options Granted |
|
Average Per Share Exercise Price |
Rhea J. Posedel |
|
|
35,000 |
|
|
$ |
3.091 |
|
Gary L Larson |
|
|
25,000 |
|
|
$ |
2.810 |
|
Carl N. Buck |
|
|
20,000 |
|
|
$ |
2.810 |
|
David S. Hendrickson |
|
|
25,000 |
|
|
$ |
2.810 |
|
Gregory M. Perkins |
|
|
5,000 |
|
|
$ |
2.810 |
|
All executive officers, as a group |
|
|
115,000 |
|
|
$ |
2.896 |
|
All directors who are not
executive officers, as a group |
|
|
49,508 |
|
|
$ |
3.660 |
|
All employees who are not
executive officers, as a group |
|
|
155,950 |
|
|
$ |
2.932 |
|
15
Federal Tax Aspects
The following paragraphs are a summary of the general federal income tax consequences to U.S.
taxpayers and the Company of Awards granted under the Incentive Plan. Tax consequences for any
particular individual may be different.
Nonstatutory Stock Options. No taxable income is reportable when a nonstatutory stock option
with an exercise price equal to the fair market value of the underlying stock on the date of grant
is granted to a participant. Upon exercise, the participant will recognize ordinary income in an
amount equal to the excess of the fair market value (on the exercise date) of the shares purchased
over the exercise price of the option. Any taxable income recognized in connection with an option
exercise by an employee of the Company is subject to tax withholding by the Company. Any
additional gain or loss recognized upon any later disposition of the shares would be capital gain
or loss.
Incentive Stock Options. No taxable income is reportable when an incentive stock option is
granted or exercised (except for purposes of the alternative minimum tax, in which case taxation is
the same as for nonstatutory stock options). If the participant exercises the option and then
later sells or otherwise disposes of the shares more than two years after the grant date and more
than one year after the exercise date, the difference between the sale price and the exercise price
will be taxed as capital gain or loss. If the participant exercises the option and then later
sells or otherwise disposes of the shares before the end of the two- or one-year holding periods
described above, he or she generally will have ordinary income at the time of the sale equal to the
fair market value of the shares on the exercise date (or the sale price, if less) minus the
exercise price of the option.
Stock Appreciation Rights. No taxable income is reportable when a stock appreciation right
with an exercise price equal to the fair market value of the underlying stock on the date of grant
is granted to a participant. Upon exercise, the participant will recognize ordinary income in an
amount equal to the amount of cash received and the fair market value of any shares received. Any
additional gain or loss recognized upon any later disposition of the shares would be capital gain
or loss.
Restricted Stock, Restricted Stock Units, Performance Units and Performance Shares. A
participant generally will not have taxable income at the time an Award of restricted stock,
restricted stock units, performance shares or performance units are granted. Instead, he or she
will recognize ordinary income in the first taxable year in which his or her interest in the shares
underlying the Award becomes either (i) freely transferable, or (ii) no longer subject to
substantial risk of forfeiture. However, the recipient of a restricted stock Award may elect to
recognize income at the time he or she receives the Award in an amount equal to the fair market
value of the shares underlying the Award (less any cash paid for the shares) on the date the Award
is granted.
Tax Effect for the Company. The Company generally will be entitled to a tax deduction in
connection with an Award under the Incentive Plan in an amount equal to the ordinary income
realized by a participant and at the time the participant recognizes such income (for example, the
exercise of a nonstatutory stock option). Special rules limit the deductibility of compensation
paid to the Companys Chief Executive Officer
16
and to each of its four most highly compensated executive officers. Under Section 162(m) of
the Code, the annual compensation paid to any of these specified executives will be deductible only
to the extent that it does not exceed $1,000,000. However, the Company can preserve the
deductibility of certain compensation in excess of $1,000,000 if the conditions of Section 162(m)
are met. These conditions include stockholder approval of the Incentive Plan, setting limits on
the number of Awards that any individual may receive and for Awards other than certain stock
options, establishing performance criteria that must be met before the Award actually will vest or
be paid. The Incentive Plan has been designed to permit the Administrator to grant Awards that
qualify as performance-based for purposes of satisfying the conditions of Section 162(m), thereby
permitting the Company to continue to receive a federal income tax deduction in connection with
such Awards.
Section 409A. Section 409A of the Code, which was added by the American Jobs Creation Act of
2004, provides certain new requirements on non-qualified deferred compensation arrangements. These
include new requirements with respect to an individuals election to defer compensation and the
individuals selection of the timing and form of distribution of the deferred compensation.
Section 409A also generally provides that distributions must be made on or following the occurrence
of certain events (e.g., the individuals separation from service, a predetermined date, or the
individuals death). Section 409A imposes restrictions on an individuals ability to change his or
her distribution timing or form after the compensation has been deferred. For certain individuals
who are officers, Section 409A requires that such individuals distribution commence no earlier
than six months after such officers separation from service.
Awards granted under the Plan with a deferral feature will be subject to the requirements of
Section 409A. If an Award is subject to and fails to satisfy the requirements of Section 409A, the
recipient of that award may recognize ordinary income on the amounts deferred under the Award, to
the extent vested, which may be prior to when the compensation is actually or constructively
received. Also, if an Award that is subject to Section 409A fails to comply with Section 409As
provisions, Section 409A imposes an additional 20% federal income tax on compensation recognized as
ordinary income, as well as interest on such deferred compensation. The Internal Revenue Service
has not issued final regulations under Section 409A and, accordingly, the requirements of Section
409A (and the application of those requirements to Awards issued under the Plan) are not entirely
clear.
THE FOREGOING IS ONLY A SUMMARY OF THE EFFECT OF FEDERAL INCOME TAXATION UPON PARTICIPANTS AND
THE COMPANY WITH RESPECT TO THE GRANT AND EXERCISE OF AWARDS UNDER THE INCENTIVE PLAN. IT DOES NOT
PURPORT TO BE COMPLETE, AND DOES NOT DISCUSS THE TAX CONSEQUENCES OF A 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 2006 Incentive Plan 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 ADOPTION OF THE 2006 EQUITY INCENTIVE PLAN AND THE NUMBER
OF SHARES RESERVED FOR ISSUANCE UNDER THE INCENTIVE PLAN.
17
PROPOSAL 3
APPROVAL OF THE 2006 EMPLOYEE STOCK PURCHASE PLAN
Stockholders are being asked to approve a new employee stock purchase plan, the 2006 Employee
Stock Purchase Plan (the Purchase Plan). The Companys current 1997 Employee Stock Purchase Plan
expires in 2007, after which no further offerings to purchase shares may commence thereunder. The
Board has determined that it is still in the best interests of the Company and its stockholders to
have an employee stock purchase plan. The Board has reserved a total of 200,000 shares of the
Companys common stock for purchase under the Purchase Plan, subject to stockholder approval at the
Annual Meeting. The Board expects that the number of shares reserved for issuance under the
Purchase Plan will be sufficient to operate the plan between three to four years without having to
request additional shares. The Board will periodically review actual share consumption under the
Purchase Plan and may make an additional request for shares under the Purchase Plan earlier or
later than this period as needed. As of the date of stockholder approval of the Purchase Plan, no
rights to purchase shares of common stock had been granted pursuant to the Purchase Plan.
Vote Required; Recommendation of Board of Directors
The approval of the Purchase Plan requires the affirmative vote of a majority of the Votes
Cast on the proposal at the Annual Meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING FOR THE ADOPTION OF THE 2006
EMPLOYEE STOCK PURCHASE PLAN AND THE NUMBER OF SHARES RESERVED FOR ISSUANCE UNDER THE
PURCHASE PLAN.
Description of the 2006 Employee Stock Purchase Plan
The following is a summary of the principal features of the Purchase Plan and its operation.
The summary is qualified in its entirety by reference to the Purchase Plan as set forth in Appendix
B.
General.
The Purchase Plan was adopted by the Board in September 2006, subject to stockholder approval
at the Annual Meeting. The purpose of the Purchase Plan is to provide employees 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 Purchase Plan. All questions of interpretation or application of the Purchase Plan
are determined by the Administrator and its decisions are final, conclusive and binding upon all
participants.
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 Purchase Plan; except that no employee will be granted an
option under the Purchase Plan (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
18
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.
Offering Period.
Each offering period under the Purchase Plan 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
Purchase Plan. 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 Purchase Plan, an eligible employee must authorize payroll deductions pursuant
to the Purchase Plan. Such payroll deductions may not exceed 10% of a participants compensation
during the offering period. Once an employee becomes a participant in the Purchase Plan, the
employee automatically will participate in each successive offering period until the employee
withdraws from the Purchase Plan or the 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 Purchase Plan at a purchase
price not less than 85% of the lesser of the fair market value of the common stock on (i) the first
day of the offering period, or (ii) the last day of 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 National Market, 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 Purchase Plan, 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 Purchase Plan, are withheld in whole percentages only and are included with the Companys
general funds. Funds received by the Company pursuant to exercises under the Purchase Plan 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
19
offering period. To participate in a subsequent offering period, the participant must deliver
a new subscription agreement to the Company.
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 Purchase Plan, and such participants option will automatically
be terminated.
Adjustments upon Changes in Capitalization, Dissolution, Liquidation, Merger or Change of Control.
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 Purchase Plan, then the Administrator will adjust the
number and class of common stock which may be delivered under the Purchase Plan, the purchase price
per share and the number of shares of common stock covered by each option under the Purchase Plan
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
Purchase Plan, each option under the Purchase Plan 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 Purchase Plan including the term of
any offering period then outstanding. Generally, no such termination can adversely affect options
previously granted.
20
New Plan Benefits
Participation in the Purchase Plan 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 Purchase Plan are not determinable. Non-employee directors
are not eligible to participate in the Purchase Plan. No purchases have been made under the
Purchase Plan since its adoption by the Board.
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 Purchase Plan 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.
The Purchase Plan, and the right of participants to make purchases thereunder, is intended to
qualify under the provisions of Sections 421 and 423 of the Code. Under these provisions, no
income will be taxable to a participant until the shares purchased under the Purchase Plan 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 PURCHASE PLAN. 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 2006 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
ADOPTION OF THE 2006 EMPLOYEE STOCK PURCHASE PLAN AND THE NUMBER OF
SHARES RESERVED FOR ISSUANCE UNDER THE 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 LLP, as the Companys
independent registered public accounting firm, to audit the financial statements of the Company for
the current fiscal year ending May 31, 2007, 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
different independent registered public accounting firm at any time during the year.
Representatives of Burr, Pilger & Mayer LLP 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.
On December 6, 2005, the Audit Committee of the Board of Directors dismissed
PricewaterhouseCoopers LLP (PwC) as its independent registered public accounting firm, effective
immediately. PwCs reports on the Companys consolidated financial statements for the fiscal years
ended May 31, 2005 and 2004 did not contain an adverse opinion or disclaimer of opinion and were
not qualified or modified as to uncertainty, audit scope, or accounting principle. During the
fiscal years ended May 31, 2005 and 2004, and through December 6, 2005, there were no disagreements
with PwC on any matter of accounting principles or practices, financial statement disclosures, or
auditing scope or procedure, which disagreements, if not resolved to PwCs satisfaction, would have
caused PwC to make reference thereto in its reports on the consolidated financial statements for
such years.
Audit Fees
The following table sets forth the aggregate fees billed or to be billed by Burr, Pilger &
Mayer LLP and PricewaterhouseCoopers LLP for the following services for the year ended May 31,
2006 and PricewaterhouseCoopers LLP for the following services for the year ended May 31, 2005:
DESCRIPTION OF SERVICES
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
Audit Fees |
|
$ |
161,935 |
|
|
$ |
208,496 |
|
Tax Fees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL |
|
$ |
161,935 |
|
|
$ |
208,496 |
|
|
|
|
|
|
|
|
Audit Fees. Aggregate fees billed or to be billed for professional services rendered for the
audit of the Companys fiscal 2006 and fiscal 2005 annual financial statements and for the review
of the financial statements included in the Companys quarterly reports during such periods.
Tax Fees. Aggregate fees were for services related to finalization of income tax returns, sale
and use tax filings, and other tax consulting services.
The Audit Committee pre-approves all audit and non-audit services provided to the Company by
the independent auditors.
the board of directors recommends that Shareholders vote FOR the ratification of the
appointment of Burr, pilger & mayer LLP
22
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, 2006, 2005
and 2004 by the Chief Executive Officer and each of the four other most highly compensated
executive officers with annual compensation in excess of $100,000 for the fiscal year ended May 31,
2006.
Summary Compensation Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities |
|
|
|
|
Fiscal |
|
Annual Compensation |
|
Underlying |
|
All Other |
Name and Principal Position |
|
Year |
|
Salary ($) |
|
Bonus ($) |
|
Options ($) |
|
Compensation ($) |
Rhea J. Posedel |
|
|
2006 |
|
|
$ |
221,417 |
|
|
$ |
69,663 |
|
|
$ |
4,678 |
|
|
$ |
24,990 |
(1) |
Chief Executive Officer and |
|
|
2005 |
|
|
$ |
220,590 |
|
|
|
|
|
|
$ |
2,634 |
|
|
$ |
18,896 |
(2) |
Chairman of the Board of
Directors |
|
|
2004 |
|
|
$ |
216,662 |
|
|
|
|
|
|
$ |
2,360 |
|
|
$ |
22,936 |
(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gary L. Larson |
|
|
2006 |
|
|
$ |
189,053 |
|
|
$ |
53,678 |
|
|
$ |
4,430 |
|
|
$ |
7,555 |
(1) |
Vice President of Finance and |
|
|
2005 |
|
|
$ |
177,053 |
|
|
|
|
|
|
$ |
2,429 |
|
|
$ |
5,503 |
(2) |
Chief Financial Officer |
|
|
2004 |
|
|
$ |
174,181 |
|
|
|
|
|
|
$ |
2,071 |
|
|
$ |
5,320 |
(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carl N. Buck |
|
|
2006 |
|
|
$ |
159,324 |
|
|
$ |
44,356 |
|
|
$ |
3,302 |
|
|
$ |
6,636 |
(1) |
Vice President of Marketing and |
|
|
2005 |
|
|
$ |
159,093 |
|
|
|
|
|
|
$ |
1,892 |
|
|
$ |
5,473 |
(2) |
Contactor Business Group |
|
|
2004 |
|
|
$ |
153,144 |
|
|
$ |
7,375 |
|
|
$ |
1,739 |
|
|
$ |
5,261 |
(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David S. Hendrickson |
|
|
2006 |
|
|
$ |
189,326 |
|
|
$ |
32,486 |
|
|
$ |
4,115 |
|
|
$ |
19,165 |
(1) |
Vice President of Engineering |
|
|
2005 |
|
|
$ |
184,995 |
|
|
$ |
335 |
|
|
$ |
2,360 |
|
|
$ |
19,203 |
(2) |
|
|
|
2004 |
|
|
$ |
182,015 |
|
|
|
|
|
|
$ |
2,015 |
|
|
$ |
16,458 |
(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gregory M. Perkins |
|
|
2006 |
|
|
$ |
229,662 |
|
|
$ |
13,221 |
|
|
$ |
4,934 |
|
|
$ |
9,881 |
(1) |
Vice President of Worldwide |
|
|
2005 |
|
|
$ |
160,952 |
|
|
|
|
|
|
$ |
2,114 |
|
|
$ |
19,270 |
(2) |
Sales and Service |
|
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Consists of health and life insurance premiums and medical costs paid by the Company
during the year ended May 31, 2006. |
|
(2) |
|
Consists of health and life insurance premiums and medical costs paid by the Company during
the year ended May 31, 2005. |
|
(3) |
|
Consists of health and life insurance premiums and medical costs paid by the Company during
the year ended May 31, 2004. |
23
Stock Option Grants and Exercises
The following table sets forth the number and terms of options granted to the persons named in
the Summary Compensation Table during the fiscal year ended May 31, 2006.
Option Grants in Last Fiscal Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individual Grants |
|
Potential Realizable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value at Assumed |
|
|
Number of |
|
% of Total |
|
|
|
|
|
|
|
|
|
Annual Rates of |
|
|
Securities |
|
Options |
|
|
|
|
|
|
|
|
|
Stock Price |
|
|
Underlying |
|
Granted to |
|
Exercise |
|
|
|
|
|
Appreciation for |
|
|
Options |
|
Employees in |
|
Price |
|
Expiration |
|
Option Term(4) |
Name |
|
Granted(1) |
|
Fiscal Year(2) |
|
($/Share)(3) |
|
Date |
|
5% ($) |
|
10% ($) |
Rhea J. Posedel |
|
|
35,000 |
|
|
|
12.9 |
% |
|
$ |
3.09 |
|
|
|
6/23/2012 |
|
|
$ |
30,203 |
|
|
$ |
83,471 |
|
Gary L. Larson |
|
|
25,000 |
|
|
|
9.2 |
% |
|
$ |
2.81 |
|
|
|
6/23/2012 |
|
|
$ |
28,599 |
|
|
$ |
66,647 |
|
Carl N. Buck |
|
|
20,000 |
|
|
|
7.4 |
% |
|
$ |
2.81 |
|
|
|
6/23/2012 |
|
|
$ |
22,879 |
|
|
$ |
53,318 |
|
David S. Hendrickson |
|
|
25,000 |
|
|
|
9.2 |
% |
|
$ |
2.81 |
|
|
|
6/23/2012 |
|
|
$ |
28,599 |
|
|
$ |
66,647 |
|
Gregory M. Perkins |
|
|
5,000 |
|
|
|
1.8 |
% |
|
$ |
2.81 |
|
|
|
6/23/2012 |
|
|
$ |
5,720 |
|
|
$ |
13,329 |
|
|
|
|
(1) |
|
The options were granted under the 1996 Stock Option Plan and vest over four years. |
|
(2) |
|
Based on an aggregate of 270,950 options granted by the Company in the year ended May 31,
2006 to employees and consultants to the Company, including the named executive officers. |
|
(3) |
|
The exercise price per share of each option was equal to the fair market value of the Common
Stock on the date of grant as determined by the Board of Directors, except the exercise price
of the options granted to Mr. Posedel was equal to 110% of the fair market value of the Common
Stock on the date of the grant. |
|
(4) |
|
This column sets forth hypothetical gains or option spreads for the options at the end of
their respective seven-year terms, as calculated in accordance with the rules of the SEC.
Each gain is based on an arbitrarily assumed annualized rate of compound appreciation of the
market price at the date of grant of 5% and 10% annually from the date the option was granted
to the end of the option term. The 5% and 10% rates of appreciation are specified by the
rules of the SEC and do not represent the Companys estimate or projection of future Common
Stock prices. The Company does not necessarily agree that this method properly values an
option. Actual gains, if any, on option exercises are dependent on the future performance of
the Companys Common Stock and overall market conditions and the timing of option exercises,
if any. |
The following table provides information concerning option exercises by the persons named in
the Summary Compensation Table during the fiscal year ended May 31, 2006 and the value of
unexercised options at such date.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities |
|
|
|
|
|
|
|
|
|
|
|
|
Underlying Unexercised |
|
Value of Unexercised |
|
|
Shares |
|
|
|
|
|
Options at |
|
In-the-Money Options at |
|
|
Acquired on |
|
Value |
|
Fiscal Year-End(#)(1) |
|
Fiscal Year-End($)(2) |
Name |
|
Exercise (#) |
|
Realized ($) |
|
Exercisable |
|
Unexercisable |
|
Exercisable |
|
Unexercisable |
Rhea J. Posedel |
|
|
|
|
|
|
|
|
|
|
131,352 |
|
|
|
53,648 |
|
|
$ |
287,360 |
|
|
$ |
159,860 |
|
Gary L. Larson |
|
|
|
|
|
|
|
|
|
|
68,207 |
|
|
|
34,793 |
|
|
$ |
181,919 |
|
|
$ |
115,822 |
|
Carl N. Buck |
|
|
|
|
|
|
|
|
|
|
48,686 |
|
|
|
30,314 |
|
|
$ |
133,981 |
|
|
$ |
100,389 |
|
David S. Hendrickson |
|
|
|
|
|
|
|
|
|
|
37,914 |
|
|
|
37,086 |
|
|
$ |
74,416 |
|
|
$ |
105,284 |
|
Gregory M. Perkins |
|
|
|
|
|
|
|
|
|
|
34,686 |
|
|
|
40,314 |
|
|
$ |
73,910 |
|
|
$ |
89,790 |
|
|
|
|
(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 year end ($6.43 share as of May 31, 2006) and the exercise price of
the options. |
24
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
General
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.
Legal Counsel
During fiscal 2006, 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
(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 2007.
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 13, 2006 with Mr. Gregory M. Perkins, 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 in fiscal 2007
following a change of control, the amounts payable to Messrs. Buck, Hendrickson, Larson, Perkins
and Posedel would be approximately $82,000, $107,000, $148,000, $89,000 and $246,000, 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.
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 and the Performance Graph 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.
General
The objectives of the overall executive compensation program are to attract, retain, motivate
and reward Company executives while aligning their compensation with the achievements of key
business objectives, maximization of shareholder value and optimal satisfaction of customers.
The Compensation Committee is responsible for:
|
1. |
|
Determining the specific executive compensation methods to be used by the Company and
the participants in each of those specific programs; |
|
|
2. |
|
Determining the evaluation criteria and timeliness to be used in those programs; |
25
|
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. |
All of the actions take the form of recommendations to the full Board of Directors where final
approval, rejection or redirection will occur. The Compensation Committee is responsible for
administering the compensation programs for all Company officers. The Compensation Committee has
delegated the responsibility of administering the compensation programs for all other Company
employees to the Companys officers.
Compensation Vehicles
Currently, the Company uses the following executive compensation vehicles:
|
|
|
Cash-based programs: Base salary, Annual Incentive Bonus Plan, Annual Profit Sharing
Plan, and a Sales Incentive Commission Plan; and |
|
|
|
|
Equity-based programs: 1996 Incentive Stock Option Plan, the 1997 Employee Stock
Purchase Plan and the Employee Stock Bonus Plan. |
These programs apply to all executive level positions, except for the Sales Incentive
Commission Plan, which only includes executives directly responsible for sales activities.
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.
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 objectives. 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, timely new product introduction, and
shareholder value (usually measured by the Company stock price). Individual performance is measured
to specific objectives relevant to the individuals 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 receives information comparing the Companys
pay levels to other companies in similar industries, other leading companies (regardless
of industry) and competitors. Primarily 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 executives. 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 their respective performance objectives. |
|
|
3. |
|
Throughout the performance cycle review, feedback is provided by the Chief Executive
Officer, the Compensation Committee and full Board, as appropriate. |
|
|
4. |
|
At the end of the performance cycle, the Chief Executive Officer evaluates each other
executives 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 by
the Chief Executive Officer or Compensation Committee, as appropriate. |
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
26
year 2006. 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 our long-term goals. During fiscal year 2006, he received a stock option grant under our
1996 Stock Option Plan for 35,000 shares. These options vest over seven years. The Compensation
Committee believes Mr. Posedels fiscal year 2006 compensation was fair, relative to the Companys
performance and Mr. Posedels individual performance and leadership, and it rewards him for this
performance and will serve to retain him as a key employee.
Policy on Deductibility of Compensation
We are required to disclose our 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 the compensation to be paid to our executive officers for fiscal 2006 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.
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.
|
|
|
|
|
COMPENSATION COMMITTEE |
|
|
|
|
|
Robert R. Anderson |
|
|
William W.R. Elder |
27
Company Performance
The following graph shows a comparison of total shareholder return for holders of the
Companys Common Stock for the last five fiscal years and ending May 31, 2006, compared with The
NASDAQ Stock Market (U.S.) Index and the Philadelphia Semiconductor Index. The graph assumes that
$100 was invested in the Companys Common Stock, in the NASDAQ Stock Market (U.S.) Index and the
Philadelphia Semiconductor Index on May 31, 2001, and that all dividends were reinvested. The
Company believes that while total shareholder return can be an important indicator of corporate
performance, the stock prices of semiconductor equipment companies like Aehr Test Systems are
subject to a number of market-related factors other than company performance, such as competitive
announcements, mergers and acquisitions in the industry, the general state of the economy, and the
performance of other semiconductor equipment company stocks.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG AEHR TEST SYSTEMS, THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE PHILADELPHIA SEMICONDUCTOR INDEX
|
|
|
* |
|
$100 invested on 5/31/01 in stock or index-including reinvestment of dividends. Fiscal year ending May 31. |
28
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
ten percent 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, 2006, except for one Form 4 filed late for
each of the following executive officers of the Company: Carl N. Buck, David S. Hendrickson, Gary
L. Larson, Gregory M. Perkins, Rhea J. Posedel and Kunio Sano.
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.
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, 2006
29
APPENDIX A
AEHR TEST SYSTEMS
2006 EQUITY INCENTIVE PLAN
1. |
|
Purposes of the Plan. The purposes of this Plan are: |
|
|
|
to attract and retain the best available personnel for positions of
substantial responsibility, |
|
|
|
|
to provide incentives to individuals who perform services to the Company, and |
|
|
|
|
to promote the success of the Companys business. |
|
|
|
|
|
The Plan permits the grant of Incentive Stock Options, Nonstatutory Stock Options, Restricted
Stock, Restricted Stock Units, Stock Appreciation Rights, Performance Units, Performance Shares and
other stock or cash awards as the Administrator may determine.
2. |
|
Definitions. As used herein, the following definitions will apply: |
|
a) |
|
Administrator means the Board or any of its Committees as will be
administering the Plan, in accordance with Section 4 of the Plan. |
|
|
b) |
|
Affiliate means any corporation or any other entity (including, but not
limited to, partnerships and joint ventures) controlling, controlled by, or under common
control with the Company. |
|
|
c) |
|
Applicable Laws means the requirements relating to the administration of
equity-based awards under U.S. state corporate laws, U.S. federal and state securities
laws, the Code, any stock exchange or quotation system on which the Common Stock is listed
or quoted and the applicable laws of any foreign country or jurisdiction where Awards are,
or will be, granted under the Plan. |
|
|
d) |
|
Award means, individually or collectively, a grant under the Plan of Options,
Restricted Stock, Restricted Stock Units, Stock Appreciation Rights, Performance Units,
Performance Shares and other stock or cash awards as the Administrator may determine. |
|
|
e) |
|
Award Agreement means the written or electronic agreement setting forth the
terms and provisions applicable to each Award granted under the Plan. The Award Agreement
is subject to the terms and conditions of the Plan. |
|
|
f) |
|
Board means the Board of Directors of the Company. |
|
|
g) |
|
Change in Control means the occurrence of any of the following events: |
|
i. |
|
Any person (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act) becomes the beneficial owner (as defined in Rule 13d-3 of the
Exchange Act), directly or indirectly, of securities of the Company representing
fifty percent (50%) or more of the total voting power represented by the Companys
then outstanding voting securities; |
|
|
ii. |
|
The consummation of the sale or disposition by the Company of all or
substantially all of the Companys assets; |
|
|
iii. |
|
A change in the composition of the Board occurring within a two-year
period, as a result of which fewer than a majority of the directors are Incumbent
Directors. Incumbent |
30
|
|
|
Directors means directors who either (A) are Directors as
of the effective date of the Plan, or (B) are elected, or nominated for election,
to the Board with the affirmative votes of at least a majority of the Incumbent
Directors at the time of such election or nomination (but
will not include an individual whose election or nomination is in connection with an
actual or threatened proxy contest relating to the election of directors to the
Company); or |
|
|
iv. |
|
The consummation of a merger or consolidation of the Company with any
other corporation, other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto continuing
to represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity or its parent) at least fifty percent (50%) of
the total voting power represented by the voting securities of the Company or such
surviving entity or its parent outstanding immediately after such merger or
consolidation. |
|
h) |
|
Code means the Internal Revenue Code of 1986, as amended. Any reference to a
section of the Code herein will be a reference to any successor or amended section of the
Code. |
|
|
i) |
|
Committee means a committee of Directors or of other individuals satisfying
Applicable Laws appointed by the Board in accordance with Section 4 hereof. |
|
|
j) |
|
Common Stock means the common stock of the Company. |
|
|
k) |
|
Company means Aehr Test Systems, Inc., a California corporation, or any
successor thereto. |
|
|
l) |
|
Consultant means any person, including an advisor, engaged by the Company or
its Affiliates to render services to such entity. |
|
|
m) |
|
Determination Date means the latest possible date that will not jeopardize
the qualification of an Award granted under the Plan as performance-based compensation
under Section 162(m) of the Code. |
|
|
n) |
|
Director means a member of the Board. |
|
|
o) |
|
Disability means total and permanent disability as defined in Section
22(e)(3) of the Code, provided that in the case of Awards other than Incentive Stock
Options, the Administrator in its discretion may determine whether a permanent and total
disability exists in accordance with uniform and non-discriminatory standards adopted by
the Administrator from time to time. |
|
|
p) |
|
Employee means any person, including Officers and Directors, employed by the
Company or its Affiliates. Neither service as a Director nor payment of a directors fee
by the Company will be sufficient to constitute employment by the Company. |
|
|
q) |
|
Exchange Act means the Securities Exchange Act of 1934, as amended. |
|
|
r) |
|
Fair Market Value means, as of any date, the value of Common Stock as the
Administrator may determine in good faith by reference to the price of such stock on any
established stock exchange or a national market system on the day of determination if the
Common Stock is so listed on any established stock exchange or a national market system.
If the Common Stock is not listed on any established stock exchange or a national market
system, the value of the Common Stock will be determined by the Administrator in good
faith. |
31
|
s) |
|
Fiscal Year means the fiscal year of the Company. |
|
|
t) |
|
Incentive Stock Option means an Option that by its terms qualifies and is
otherwise intended to qualify as an incentive stock option within the meaning of Section
422 of the Code and the regulations promulgated thereunder. |
|
|
u) |
|
Nonstatutory Stock Option means an Option that by its terms does not qualify
or is not intended to qualify as an Incentive Stock Option. |
|
|
v) |
|
Officer means a person who is an officer of the Company within the meaning of
Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. |
|
|
w) |
|
Option means a stock option granted pursuant to the Plan. |
|
|
x) |
|
Parent means a parent corporation, whether now or hereafter existing, as
defined in Section 424(e) of the Code. |
|
|
y) |
|
Participant means the holder of an outstanding Award. |
|
|
z) |
|
Performance Goals will have the meaning set forth in Section 11 of the Plan. |
|
|
aa) |
|
Performance Period means any Fiscal Year of the Company or such other period
as determined by the Administrator in its sole discretion. |
|
|
bb) |
|
Performance Share means an Award denominated in Shares which may be earned in
whole or in part upon attainment of Performance Goals or other vesting criteria as the
Administrator may determine pursuant to Section 10. |
|
|
cc) |
|
Performance Unit means an Award which may be earned in whole or in part upon
attainment of Performance Goals or other vesting criteria as the Administrator may
determine and which may be settled for cash, Shares or other securities or a combination of
the foregoing pursuant to Section 10. |
|
|
dd) |
|
Period of Restriction means the period during which the transfer of Shares of
Restricted Stock are subject to restrictions and therefore, the Shares are subject to a
substantial risk of forfeiture. Such restrictions may be based on the passage of time, the
achievement of target levels of performance, or the occurrence of other events as
determined by the Administrator. |
|
|
ee) |
|
Plan means this 2006 Equity Incentive Plan. |
|
|
ff) |
|
Restricted Stock means Shares issued pursuant to an Award of Restricted Stock
under Section 8 of the Plan, or issued pursuant to the early exercise of an Option. |
|
|
gg) |
|
Restricted Stock Unit means a bookkeeping entry representing an amount equal
to the Fair Market Value of one Share, granted pursuant to Section 9. Each Restricted
Stock Unit represents an unfunded and unsecured obligation of the Company. |
|
|
hh) |
|
Rule 16b-3 means Rule 16b-3 of the Exchange Act or any successor to Rule
16b-3, as in effect when discretion is being exercised with respect to the Plan. |
|
|
ii) |
|
Section 16(b) means Section 16(b) of the Exchange Act. |
|
|
jj) |
|
Service Provider means an Employee, Director or Consultant. |
32
|
kk) |
|
Share means a share of the Common Stock, as adjusted in accordance with
Section 14 of the Plan. |
|
|
ll) |
|
Stock Appreciation Right means an Award, granted alone or in connection with
an Option, that pursuant to Section 7 is designated as a Stock Appreciation Right. |
|
|
mm) |
|
Subsidiary means a subsidiary corporation, whether now or hereafter
existing, as defined in Section 424(f) of the Code. |
|
|
nn) |
|
Successor Corporation has the meaning given to such term in Section 14(c) of
the Plan. |
3. |
|
Stock Subject to the Plan. |
|
a) |
|
Stock Subject to the Plan. Subject to the provisions of Section 14 of the
Plan, the maximum aggregate number of Shares that may be awarded and sold under the Plan is
600,000 Shares plus (i) any Shares that, as of the date the Companys Amended and Restated
1996 Stock Option Plan (the 1996 Plan) terminated, were reserved but not issued
pursuant to any award granted thereunder, and were not subject to any awards granted
thereunder, and (ii) any Shares subject to stock options or similar awards granted under
the 1996 Plan that expire or otherwise terminate without having been exercised in full and
Shares issued pursuant to awards granted under the 1996 Plan that are forfeited to or
repurchased by the Company. The Shares may be authorized, but unissued, or reacquired
Common Stock. |
|
|
b) |
|
Full Value Awards. Any Shares subject to Awards granted with an exercise price
less than the Fair Market Value on the date of grant of such Awards will be counted against
the numerical limits of this Section 3 as two Shares for every one Share subject thereto.
Further, if Shares acquired pursuant to any such Award are forfeited or repurchased by the
Company and would otherwise return to the Plan pursuant to Section 3(c), two times the
number of Shares so forfeited or repurchased will return to the Plan and will again become
available for issuance. |
|
|
c) |
|
Lapsed Awards. If an Award expires or becomes unexercisable without having
been exercised in full, or, with respect to Restricted Stock, Restricted Stock Units,
Performance Shares or Performance Units, is forfeited to or repurchased by the Company, the
unpurchased Shares (or for Awards other than Options and Stock Appreciation Rights, the
forfeited or repurchased Shares) which were subject thereto will become available for
future grant or sale under the Plan (unless the Plan has terminated). With respect to
Stock Appreciation Rights, all of the Shares covered by the Award (that is, Shares actually
issued pursuant to a Stock Appreciation Right, as well as the Shares that represent payment
of the exercise price) will cease to be available under the Plan. However, Shares that
have actually been issued under the Plan under any Award will not be returned to the Plan
and will not become available for future distribution under the Plan; provided, however,
that if unvested Shares of Restricted Stock, Restricted Stock Units, Performance Shares or
Performance Units are repurchased by the Company or are forfeited to the Company, such
Shares will become available for future grant under the Plan. Shares used to pay the tax
and exercise price of an Award will not become available for future grant or sale under the
Plan. To the extent an Award under the Plan is paid out in cash rather than Shares, such
cash payment will not result in reducing the number of Shares available for issuance under
the Plan. Notwithstanding the foregoing and, subject to adjustment provided in Section 14,
the maximum number of Shares that may be issued upon the exercise of Incentive Stock
Options will equal the aggregate Share number stated in Section 3(a), plus, to the extent
allowable under Section 422 of the Code, any Shares that become available for issuance
under the Plan under this Section 3(c). |
33
4. |
|
Administration of the Plan. |
(a) Procedure.
|
i. |
|
Multiple Administrative Bodies. Different Committees with respect to different
groups of Service Providers may administer the Plan. |
|
|
ii. |
|
Section 162(m). To the extent that the Administrator determines it to be
desirable to qualify Awards granted hereunder as performance-based compensation within
the meaning of Section 162(m) of the Code, the Plan will be administered by a Committee of
two or more outside directors within the meaning of Section 162(m) of the Code. |
|
|
iii. |
|
Rule 16b-3. To the extent desirable to qualify transactions hereunder as
exempt under Rule 16b-3, the transactions contemplated hereunder will be structured to
satisfy the requirements for exemption under Rule 16b-3. |
|
|
iv. |
|
Other Administration. Other than as provided above, the Plan will be
administered by (A) the Board or (B) a Committee, which committee will be constituted to
satisfy Applicable Laws. |
(b) Powers of the Administrator. Subject to the provisions of the Plan, and in the
case of a Committee, subject to the specific duties delegated by the Board to such Committee, the
Administrator will have the authority, in its discretion:
|
i. |
|
to determine the Fair Market Value; |
|
|
ii. |
|
to select the Service Providers to whom Awards may be granted hereunder; |
|
|
iii. |
|
to determine the terms and conditions, not inconsistent with the terms of the Plan, of
any Award granted hereunder; |
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iv. |
|
to construe and interpret the terms of the Plan and Awards granted pursuant to the
Plan; |
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v. |
|
to prescribe, amend and rescind rules and regulations relating to the Plan, including
rules and regulations relating to sub-plans established for the purpose of satisfying
applicable foreign laws; |
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vi. |
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to modify or amend each Award (subject to Section 19(c) of the Plan). Notwithstanding
the previous sentence, the Administrator may not modify or amend an Option or Stock
Appreciation Right to reduce the exercise price of such Option or Stock Appreciation Right
after it has been granted (except for adjustments made pursuant to Section 14), and neither
may the Administrator cancel any outstanding Option or Stock Appreciation Right and
immediately replace it with a new Option or Stock Appreciation Right with a lower exercise
price; |
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vii. |
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to authorize any person to execute on behalf of the Company any instrument required to
effect the grant of an Award previously granted by the Administrator; |
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viii. |
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to allow a Participant to defer the receipt of the payment of cash or the delivery of
Shares that would otherwise be due to such Participant under an Award pursuant to such
procedures as the Administrator may determine; and |
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|
ix. |
|
to make all other determinations deemed necessary or advisable for administering the
Plan. |
34
(c) Effect of Administrators Decision. The Administrators decisions,
determinations and interpretations will be final and binding on all Participants and any other
holders of Awards.
5. Eligibility. Nonstatutory Stock Options, Restricted Stock, Restricted Stock Units,
Stock Appreciation Rights, Performance Units, Performance Shares and such other cash or stock
awards as the Administrator determines may be granted to Service Providers. Incentive Stock
Options may be granted only to employees of the Company or any Parent or Subsidiary of the Company.
6. Stock Options.
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a) |
|
Limitations. Each Option will be designated in the Award Agreement as either
an Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding such
designation, to the extent that the aggregate Fair Market Value of the Shares with respect
to which Incentive Stock Options are exercisable for the first time by the Participant
during any calendar year (under all plans of the Company and any Parent or Subsidiary)
exceeds $100,000, such Options will be treated as Nonstatutory Stock Options. For purposes
of this Section 6(a), Incentive Stock Options will be taken into account in the order in
which they were granted. The Fair Market Value of the Shares will be determined as of the
time the Option with respect to such Shares is granted. |
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b) |
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Number of Shares. The Administrator will have complete discretion to determine
the number of Options granted to any Participant, provided that during any Fiscal Year, no
Participant will be granted Options covering more than 200,000 Shares. Notwithstanding the
foregoing limitation, in connection with a Participants initial service as an Employee, an
Employee may be granted Options covering up to an additional 200,000 Shares. |
|
|
c) |
|
Term of Option. The Administrator will determine the term of each Option in
its sole discretion. Any Option granted under the Plan will not be exercisable after the
expiration of ten (10) years from the date of grant or such shorter term as may be provided
in the Award Agreement. Moreover, in the case of an Incentive Stock Option granted to a
Participant who, at the time the Incentive Stock Option is granted, owns stock representing
more than ten percent (10%) of the total combined voting power of all classes of stock of
the Company or any Parent or Subsidiary, the term of the Incentive Stock Option will be
five (5) years from the date of grant or such shorter term as may be provided in the Award
Agreement. |
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|
d) |
|
Option Exercise Price and Consideration. |
|
i. |
|
Exercise Price. The per share exercise price
for the Shares to be issued pursuant to exercise of an Option will be
determined by the Administrator, but will be no less than one hundred
percent (100%) of the Fair Market Value per Share on the date of grant.
In addition, in the case of an Incentive Stock Option granted to an
Employee who, at the time the Incentive Stock Option is granted, owns
stock representing more than ten percent (10%) of the voting power of all
classes of stock of the Company or any Parent or Subsidiary, the per Share
exercise price will be no less than one hundred ten percent (110%) of the
Fair Market Value per Share on the date of grant. Notwithstanding the
foregoing provisions of this Section 6(c), Options may be granted with a
per Share exercise price of less than one hundred percent (100%) of the
Fair Market Value per Share on the date of grant pursuant to a transaction
described in, and in a manner consistent with, Section 424(a) of the Code.
The Administrator may not modify or amend an Option to reduce the
exercise price of such Option after it has been granted (except for
adjustments made pursuant to Section 14 of the Plan) nor may the
Administrator cancel any outstanding Option and replace it with a new
Option, |
35
|
|
|
Stock Appreciation Right, or other Award with a lower exercise price,
unless, in either case, such action is approved by the Companys
stockholders. |
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|
ii. |
|
Waiting Period and Exercise Dates. At the
time an Option is granted, the Administrator will fix the period within
which the Option may be exercised and will determine any conditions that
must be satisfied before the Option may be exercised. |
|
|
iii. |
|
Form of Consideration. The Administrator
will determine the acceptable form(s) of consideration for exercising an
Option, including the method of payment, to the extent permitted by
Applicable Laws. |
|
i. |
|
Procedure for Exercise; Rights as a Stockholder. Any Option
granted hereunder will be exercisable according to the terms of the Plan
and at such times and under such conditions as determined by the
Administrator and set forth in the Award Agreement. An Option may not be
exercised for a fraction of a Share. |
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|
|
An Option will be deemed exercised when the Company receives: (i) notice of
exercise (in such form as the Administrator specify from time to time) from
the person entitled to exercise the Option, and (ii) full payment for the
Shares with respect to which the Option is exercised (together with all
applicable withholding taxes). No adjustment will be made for a dividend
or other right for which the record date is prior to the date the Shares
are issued, except as provided in Section 14 of the Plan. |
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|
ii. |
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Termination of Relationship as a Service
Provider. If a Participant ceases to be a Service Provider, other
than upon the Participants termination as the result of the Participants
death or Disability, the Participant may exercise his or her Option within
such period of time as is specified in the Award Agreement to the extent
that the Option is vested on the date of termination (but in no event
later than the expiration of the term of such Option as set forth in the
Award Agreement). In the absence of a specified time in the Award
Agreement, the Option will remain exercisable for three (3) months
following the Participants termination. Unless otherwise provided by the
Administrator, if on the date of termination the Participant is not vested
as to his or her entire Option, the Shares covered by the unvested portion
of the Option will revert to the Plan. If after termination the
Participant does not exercise his or her Option within the time specified
by the Administrator, the Option will terminate, and the Shares covered by
such Option will revert to the Plan. |
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iii. |
|
Disability of Participant. If a Participant
ceases to be a Service Provider as a result of the Participants
Disability, the Participant may exercise his or her Option within such
period of time as is specified in the Award Agreement to the extent the
Option is vested on the date of termination (but in no event later than
the expiration of the term of such Option as set forth in the Award
Agreement). In the absence of a specified time in the Award Agreement,
the Option will remain exercisable for twelve (12) months following the
Participants termination. Unless otherwise provided by the
Administrator, if on the date of termination the Participant is not vested
as to his or her entire Option, the Shares |
36
|
|
|
covered by the unvested portion of the Option will revert to the Plan. If
after termination the Participant does not exercise his or her Option
within the time specified herein, the Option will terminate, and the Shares
covered by such Option will revert to the Plan. |
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|
iv. |
|
Death of Participant. If a Participant dies
while a Service Provider, the Option may be exercised following the
Participants death within such period of time as is specified in the
Award Agreement to the extent that the Option is vested on the date of
death (but in no event may the option be exercised later than the
expiration of the term of such Option as set forth in the Award
Agreement), by the Participants designated beneficiary, provided such
beneficiary has been designated prior to Participants death in a form
acceptable to the Administrator. If no such beneficiary has been
designated by the Participant, then such Option may be exercised by the
personal representative of the Participants estate or by the person(s) to
whom the Option is transferred pursuant to the Participants will or in
accordance with the laws of descent and distribution. In the absence of a
specified time in the Award Agreement, the Option will remain exercisable
for twelve (12) months following Participants death. Unless otherwise
provided by the Administrator, if at the time of death Participant is not
vested as to his or her entire Option, the Shares covered by the unvested
portion of the Option will immediately revert to the Plan. If the Option
is not so exercised within the time specified herein, the Option will
terminate, and the Shares covered by such Option will revert to the Plan. |
|
|
v. |
|
Other Termination. A Participants Award
Agreement may also provide that if the exercise of the Option following
the termination of Participants status as a Service Provider (other than
upon the Participants death or Disability) would result in liability
under Section 16(b), then the Option will terminate on the earlier of (A)
the expiration of the term of the Option set forth in the Award Agreement,
or (B) the 10th day after the last date on which such exercise would
result in such liability under Section 16(b). Finally, a Participants
Award Agreement may also provide that if the exercise of the Option
following the termination of the Participants status as a Service
Provider (other than upon the Participants death or Disability) would be
prohibited at any time solely because the issuance of Shares would violate
the registration requirements under the Securities Act, then the Option
will terminate on the earlier of (A) the expiration of the term of the
Option, or (B) the expiration of a period of three (3) months after the
termination of the Participants status as a Service Provider during which
the exercise of the Option would not be in violation of such registration
requirements. |
7. Stock Appreciation Rights.
|
a) |
|
Grant of Stock Appreciation Rights. Subject to the terms and conditions of the
Plan, a Stock Appreciation Right may be granted to Service Providers at any time and from
time to time as will be determined by the Administrator, in its sole discretion. |
|
|
b) |
|
Number of Shares. The Administrator will have complete discretion to determine
the number of Stock Appreciation Rights granted to any Participant, provided that during
any Fiscal Year, no Participant will be granted Stock Appreciation Rights covering more
than 200,000 Shares. Notwithstanding the foregoing limitation, in connection with a
Participants initial service as an |
37
|
|
|
Employee, an Employee may be granted Stock Appreciation Rights covering up to an additional
200,000 Shares. |
|
|
c) |
|
Exercise Price and Other Terms. The Administrator, subject to the provisions
of the Plan, will have complete discretion to determine the terms and conditions of Stock
Appreciation Rights granted under the Plan, provided, however, that the exercise price will
be not less than one hundred percent (100%) of the Fair Market Value of a Share on the date
of grant. The Administrator may not modify or amend a Stock Appreciation Right to reduce
the exercise price of such Stock Appreciation Right after it has been granted (except for
adjustments made pursuant to Section 14 of the Plan) nor may the Administrator cancel any
outstanding Stock Appreciation Right and replace it with a new Stock Appreciation Right,
Option, or other Award with a lower exercise price, unless, in either case, such action is
approved by the Companys stockholders. |
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|
d) |
|
Stock Appreciation Right Agreement. Each Stock Appreciation Right grant will
be evidenced by an Award Agreement that will specify the exercise price, the term of the
Stock Appreciation Right, the conditions of exercise, and such other terms and conditions
as the Administrator, in its sole discretion, will determine. |
|
|
e) |
|
Expiration of Stock Appreciation Rights. A Stock Appreciation Right granted
under the Plan will expire upon the date determined by the Administrator, in its sole
discretion, and set forth in the Award Agreement; provided, however, that no Stock
Appreciation Right will have a term greater than ten (10) years from its date of grant.
Notwithstanding the foregoing, the rules of Section 6(e) also will apply to Stock
Appreciation Rights. |
|
|
f) |
|
Payment of Stock Appreciation Right Amount. Upon exercise of a Stock
Appreciation Right, a Participant will be entitled to receive payment from the Company in
an amount determined by multiplying: |
|
i. |
|
The difference between the Fair Market Value of a Share on the date of
exercise over the exercise price; times |
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|
ii. |
|
The number of Shares with respect to which the Stock Appreciation Right
is exercised. |
At the discretion of the Administrator, the payment upon Stock Appreciation Right exercise may be
in cash, in Shares of equivalent value, or in some combination thereof.
8. Restricted Stock.
|
a) |
|
Grant of Restricted Stock. Subject to the terms and provisions of the Plan,
the Administrator, at any time and from time to time, may grant Shares of Restricted Stock
to Service Providers in such amounts as the Administrator, in its sole discretion, will
determine. |
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|
b) |
|
Restricted Stock Agreement. Each Award of Restricted Stock will be evidenced
by an Award Agreement that will specify the Period of Restriction, the number of Shares
granted, and such other terms and conditions as the Administrator, in its sole discretion,
will determine. Notwithstanding the foregoing sentence, during any Fiscal Year no
Participant will receive more than an aggregate of 75,000 Shares of Restricted Stock;
provided, however, that in connection with a Participants initial service as an Employee,
an Employee may be granted an aggregate of up to an additional 75,000 Shares of Restricted
Stock. Unless the Administrator determines otherwise, Shares of Restricted Stock will be
held by the Company as escrow agent until the restrictions on such Shares have lapsed. |
38
|
c) |
|
Transferability. Except as provided in this Section 8, Shares of Restricted
Stock may not be sold, transferred, pledged, assigned, or otherwise alienated or
hypothecated until the end of the applicable Period of Restriction. |
|
|
d) |
|
Other Restrictions. The Administrator, in its sole discretion, may impose such
other restrictions on Shares of Restricted Stock as it may deem advisable or appropriate. |
|
|
e) |
|
Removal of Restrictions. Except as otherwise provided in this Section 8,
Shares of Restricted Stock covered by each Restricted Stock grant made under the Plan will
be released from escrow as soon as practicable after the last day of the Period of
Restriction. The Administrator, in its discretion, may accelerate the time at which any
restrictions will lapse or be removed. |
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|
f) |
|
Voting Rights. During the Period of Restriction, Service Providers holding
Shares of Restricted Stock granted hereunder may exercise full voting rights with respect
to those Shares, unless the Administrator determines otherwise. |
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|
g) |
|
Dividends and Other Distributions. During the Period of Restriction, Service
Providers holding Shares of Restricted Stock will be entitled to receive all dividends and
other distributions paid with respect to such Shares unless otherwise provided in the Award
Agreement. If any such dividends or distributions are paid in Shares, the Shares will be
subject to the same restrictions on transferability and forfeitability as the Shares of
Restricted Stock with respect to which they were paid. |
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|
h) |
|
Return of Restricted Stock to Company. On the date set forth in the Award
Agreement, the Restricted Stock for which restrictions have not lapsed will revert to the
Company and again will become available for grant under the Plan. |
9. Restricted Stock Units.
|
a) |
|
Grant. Restricted Stock Units may be granted at any time and from time to time
as determined by the Administrator. Each Restricted Stock Unit grant will be evidenced by
an Award Agreement that will specify such other terms and conditions as the Administrator,
in its sole discretion, will determine, including all terms, conditions, and restrictions
related to the grant, the number of Restricted Stock Units and the form of payout, which,
subject to Section 9(d), may be left to the discretion of the Administrator.
Notwithstanding anything to the contrary in this subsection (a), during any Fiscal Year of
the Company, no Participant will receive more than an aggregate of 75,000 Restricted Stock
Units; provided, however, that in connection with a Participants initial service as an
Employee, an Employee may be granted an aggregate of up to an additional 75,000 Restricted
Stock Units. |
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|
b) |
|
Vesting Criteria and Other Terms. The Administrator will set vesting criteria
in its discretion, which, depending on the extent to which the criteria are met, will
determine the number of Restricted Stock Units that will be paid out to the Participant.
After the grant of Restricted Stock Units, the Administrator, in its sole discretion, may
reduce or waive any restrictions for such Restricted Stock Units. Each Award of Restricted
Stock Units will be evidenced by an Award Agreement that will specify the vesting criteria,
and such other terms and conditions as the Administrator, in its sole discretion, will
determine. |
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|
c) |
|
Earning Restricted Stock Units. Upon meeting the applicable vesting criteria,
the Participant will be entitled to receive a payout as specified in the Award Agreement.
Notwithstanding the foregoing, at any time after the grant of Restricted Stock Units, the
Administrator, in its sole discretion, may reduce or waive any vesting criteria that must
be met to receive a payout. |
39
|
d) |
|
Form and Timing of Payment. Payment of earned Restricted Stock Units will be
made as soon as practicable after the date(s) set forth in the Award Agreement. The
Administrator, in its sole discretion, may pay earned Restricted Stock Units in cash,
Shares, or a combination thereof. Shares represented by Restricted Stock Units that are
fully paid in cash again will be available for grant under the Plan. |
|
|
e) |
|
Cancellation. On the date set forth in the Award Agreement, all unearned
Restricted Stock Units will be forfeited to the Company. |
10. Performance Units and Performance Shares.
|
a) |
|
Grant of Performance Units/Shares. Performance Units and Performance Shares
may be granted to Service Providers at any time and from time to time, as will be
determined by the Administrator, in its sole discretion. The Administrator will have
complete discretion in determining the number of Performance Units/Shares granted to each
Participant provided that during any Fiscal Year, (a) no Participant will receive
Performance Units having an initial value greater than $250,000, and (b) no Participant
will receive more than 75,000 Performance Shares. Notwithstanding the foregoing
limitation, in connection with a Participants initial service as an Employee, an Employee
may be granted up to an additional 75,000 Performance Shares and additional Performance
Units having an initial value up to $250,000. |
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|
b) |
|
Value of Performance Units/Shares. Each Performance Unit will have an initial
value that is established by the Administrator on or before the date of grant. Each
Performance Share will have an initial value equal to the Fair Market Value of a Share on
the date of grant. |
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|
c) |
|
Performance Objectives and Other Terms. The Administrator will set performance
objectives or other vesting provisions (including, without limitation, continued status as
a Service Provider) in its discretion which, depending on the extent to which they are met,
will determine the number or value of Performance Units/Shares that will be paid out to the
Participant. The Administrator may set performance objectives based upon the achievement
of Company-wide, divisional, or individual goals, or any other basis determined by the
Administrator in its discretion. Each Award of Performance Units/Shares will be evidenced
by an Award Agreement that will specify the Performance Period, and such other terms and
conditions as the Administrator, in its sole discretion, will determine. |
|
|
d) |
|
Earning of Performance Units/Shares. After the applicable Performance Period
has ended, the holder of Performance Units/Shares will be entitled to receive a payout of
the number of Performance Units/Shares earned by the Participant over the Performance
Period, to be determined as a function of the extent to which the corresponding performance
objectives or other vesting provisions have been achieved. After the grant of a
Performance Unit/Share, the Administrator, in its sole discretion, may reduce or waive any
performance objectives or other vesting provisions for such Performance Unit/Share. |
|
|
e) |
|
Form and Timing of Payment of Performance Units/Shares . Payment of
earned Performance Units/Shares will be made as soon as practicable after the expiration of
the applicable Performance Period. The Administrator, in its sole discretion, may pay
earned Performance Units/Shares in the form of cash, in Shares (which have an aggregate
Fair Market Value equal to the value of the earned Performance Units/Shares at the close of
the applicable Performance Period) or in a combination thereof. |
40
|
f) |
|
Cancellation of Performance Units/Shares. On the date set forth in the Award
Agreement, all unearned or unvested Performance Units/Shares will be forfeited to the
Company, and again will be available for grant under the Plan. |
11. Performance Goals. The granting and/or vesting of Awards of Restricted Stock,
Restricted Stock Units, Performance Shares and Performance Units and other incentives under the
Plan may be made subject to the attainment of performance goals relating to one or more business
criteria within the meaning of Section 162(m) of the Code and may provide for a targeted level or
levels of achievement (Performance Goals) including one or more of the following measures: (a)
business divestitures and acquisitions, (b) cash flow, (c) cash position, (d) earnings, (e)
earnings before interest and taxes, (f) earnings before interest, taxes, depreciation and
amortization, (g) earnings per Share, (h) economic profit, (i) economic value added, (j) equity or
stockholders equity, (k) expenses, (l)gross margin, (m) market share, (n) net income, (o) net
profit, (p) net sales, (q) new product development milestones, (r) number of customers, (s) orders
received, (t) backlog, (u) operating earnings, (v) operating income, (w) operating margin,
(x)profit after taxes, (y) profit before taxes, (z) ratio of debt to debt plus equity, (aa) ratio
of operating earnings to capital spending, (bb) return on capital, (cc) return on equity, (dd)
return on investments, (ee) return on net assets, (ff) return on sales, (gg) return on stockholder
equity, (hh) return to stockholders, (ii) revenue, (jj) sales, (kk) sales growth, (ll) time to
market, and (mm) working capital. Any Performance Goals may be used to measure the performance of
the Company as a whole or a business unit of the Company and may be measured relative to a peer
group or index. The Performance Goals may differ from Participant to Participant and from Award to
Award. Any criteria used may be (i) measured in absolute terms, (ii) compared to another company
or companies, (iii) measured against the performance of the Company as a whole or a segment of the
Company and/or (iv) measured on a pre-tax or post-tax basis (if applicable). Prior to the
Determination Date, the Administrator will determine whether any significant element(s) will be
included in or excluded from the calculation of any Performance Goal with respect to any
Participant.
12. Leaves of Absence/Transfer Between Locations. Unless the Administrator provides
otherwise, vesting of Awards granted hereunder will be suspended during any unpaid leave of
absence. A Service Provider will not cease to be an Employee in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the Company or between the
Company and its Affiliates. For purposes of Incentive Stock Options, no such leave may exceed
ninety (90) days, unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by the Company is not so
guaranteed, then three (3) months following the ninety-first (91st) day of such leave
any Incentive Stock Option held by the Participant will cease to be treated as an Incentive Stock
Option and will be treated for tax purposes as a Nonstatutory Stock Option.
13. Transferability of Awards. Unless determined otherwise by the Administrator, an Award
may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other
than by will or by the laws of descent or distribution and may be exercised, during the lifetime of
the Participant, only by the Participant. With the approval of the Administrator, a Participant
may, in a manner specified by the Administrator, (a) transfer an Award to a Participants spouse or
former spouse pursuant to a court-approved domestic relations order which relates to the provision
of child support, alimony payments or marital property rights, and (b) transfer an Option by bona
fide gift and not for any consideration, to (i) a member or members of the Participants immediate
family, (ii) a trust established for the exclusive benefit of the Participant and/or member(s) of
the Participants immediate family, (iii) a partnership, limited liability company of other entity
whose only partners or members are the Participant and/or member(s) of the Participants immediate
family, or (iv) a foundation in which the Participant and/or member(s) of the Participants
immediate family control the management of the foundations assets. For purposes of this Section
13, immediate family shall mean the Participants spouse, former spouse, children, grandchildren,
parents, grandparents, siblings, nieces, nephews, parents-in-law, sons-in-law, daughters-in-law,
brothers-in-law, sisters-in-law, including adoptive or step relationships and any person sharing
the Participants household (other than as a tenant or employee).
41
14. Adjustments; Dissolution or Liquidation; Merger or Change in Control.
|
a) |
|
Adjustments. In the event that any dividend or other distribution (whether in
the form of cash, Shares, other securities, or other property), recapitalization, stock
split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase, or exchange of Shares or other securities of the Company, or other
change in the corporate structure of the Company affecting the Shares occurs, the
Administrator, in order to prevent diminution or enlargement of the benefits or potential
benefits intended to be made available under the Plan, shall adjust the number and class of
Shares that may be delivered under the Plan and/or the number, class, and price of Shares
covered by each outstanding Award, and the numerical Share limits set forth in Sections 3,
6, 7, 8, 9 and 10. |
|
b) |
|
Dissolution or Liquidation. In the event of the proposed dissolution or
liquidation of the Company, the Administrator will notify each Participant as soon as
practicable prior to the effective date of such proposed transaction. To the extent it has
not been previously exercised, an Award will terminate immediately prior to the
consummation of such proposed action. |
|
c) |
|
Change in Control. In the event of a Change in Control, each outstanding Award
will be assumed or an equivalent option or right substituted by the successor corporation
or a Parent or Subsidiary of the successor corporation (the Successor
Corporation). In the event that the Successor Corporation refuses to assume or
substitute for the Award, the Participant will fully vest in and have the right to exercise
all of his or her outstanding Options and Stock Appreciation Rights, including Shares as to
which such Awards would not otherwise be vested or exercisable, all restrictions on
Restricted Stock will lapse, and, with respect to Restricted Stock Units, Performance
Shares and Performance Units, all Performance Goals or other vesting criteria will be
deemed achieved at target levels and all other terms and conditions met. In addition, if
the Successor Corporation refuses to assume or substitute an Option or Stock Appreciation
Right in the event of a Change in Control, the Administrator will notify the Participant in
writing or electronically that the Option or Stock Appreciation Right will be fully vested
and exercisable for a period of time determined by the Administrator in its sole
discretion, and the Option or Stock Appreciation Right will terminate upon the expiration
of such period. |
For the purposes of this subsection (c), an Award will be considered assumed if, following the
Change in Control, the Award confers the right to purchase or receive, for each Share subject to
the Award immediately prior to the Change in Control, the consideration (whether stock, cash, or
other securities or property) or, in the case of a Stock Appreciation Right upon the exercise of
which the Administrator determines to pay cash or a Performance Share or Performance Unit which the
Administrator can determine to pay in cash, the fair market value of the consideration received in
the merger or Change in Control by holders of Common Stock for each Share held on the effective
date of the transaction (and if holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the outstanding Shares); provided, however,
that if such consideration received in the Change in Control is not solely common stock of the
Successor Corporation, the Administrator may, with the consent of the Successor Corporation,
provide for the consideration to be received upon the exercise of an Option or Stock Appreciation
Right or upon the payout of a Restricted Stock Unit, Performance Share or Performance Unit, for
each Share subject to such Award (or in the case of an Award settled in cash, the number of implied
shares determined by dividing the value of the Award by the per share consideration received by
holders of Common Stock in the Change in Control), to be solely common stock of the Successor
Corporation equal in fair market value to the per share consideration received by holders of Common
Stock in the Change in Control.
Notwithstanding anything in this Section 14(c) to the contrary, an Award that vests, is earned
or paid-out upon the satisfaction of one or more Performance Goals will not be considered assumed
if the Company or its successor modifies any of such Performance Goals without the Participants
consent;
42
provided, however, a modification to such Performance Goals only to reflect the Successor
Corporations post-Change in Control corporate structure will not be deemed to invalidate an
otherwise valid Award assumption.
15. Tax Withholding
|
a) |
|
Withholding Requirements. Prior to the delivery of any Shares or cash pursuant
to an Award (or exercise thereof), the Company will have the power and the right to deduct
or withhold, or require a Participant to remit to the Company, an amount sufficient to
satisfy federal, state, local, foreign or other taxes required to be withheld with respect
to such Award (or exercise thereof). |
|
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b) |
|
Withholding Arrangements. The Administrator, in its sole discretion and
pursuant to such procedures as it may specify from time to time, may permit a Participant
to satisfy such tax withholding obligation, in whole or in part by (without limitation) (i)
paying cash, (ii) electing to have the Company withhold otherwise deliverable cash or
Shares having a Fair Market Value equal to the amount required to be withheld, (iii)
delivering to the Company already-owned Shares having a Fair Market Value equal to the
amount required to be withheld, or (iv) selling a sufficient number of Shares otherwise
deliverable to the Participant through such means as the Administrator may determine in its
sole discretion (whether through a broker or otherwise) equal to the amount required to be
withheld. The amount of the withholding requirement will be deemed to include any amount
which the Administrator agrees may be withheld at the time the election is made, not to
exceed the amount determined by using the maximum federal, state or local marginal income
tax rates applicable to the Participant with respect to the Award on the date that the
amount of tax to be withheld is to be determined. The Fair Market Value of the Shares to
be withheld or delivered will be determined as of the date that the taxes are required to
be withheld. |
16. No Effect on Employment or Service. Neither the Plan nor any Award will confer upon a
Participant any right with respect to continuing the Participants relationship as a Service
Provider with the Company, nor will they interfere in any way with the Participants right or the
Companys right to terminate such relationship at any time, with or without cause, to the extent
permitted by Applicable Laws.
17. Date of Grant. The date of grant of an Award will be, for all purposes, the date on
which the Administrator makes the determination granting such Award, or such other later date as is
determined by the Administrator. Notice of the determination will be provided to each Participant
within a reasonable time after the date of such grant.
18. Term of Plan. Subject to Section 22 of the Plan, the Plan will become effective upon
its adoption by the Board. It will continue in effect for a term of ten (10) years unless
terminated earlier under Section 19 of the Plan.
19. Amendment and Termination of the Plan.
|
a) |
|
Amendment and Termination. The Administrator may at any time amend, alter,
suspend or terminate the Plan. |
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b) |
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Stockholder Approval. The Company will obtain stockholder approval of any Plan
amendment to the extent necessary and desirable to comply with Applicable Laws. |
|
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c) |
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Effect of Amendment or Termination. No amendment, alteration, suspension or
termination of the Plan will impair the rights of any Participant, unless mutually agreed
otherwise between the Participant and the Administrator, which agreement must be in writing
and signed by the Participant and the Company. Termination of the Plan will not affect the
Administrators ability to |
43
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exercise the powers granted to it hereunder with respect to Awards granted under the Plan
prior to the date of such termination. |
20. Conditions Upon Issuance of Shares.
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a) |
|
Legal Compliance. Shares will not be issued pursuant to the exercise of an
Award unless the exercise of such Award and the issuance and delivery of such Shares will
comply with Applicable Laws and will be further subject to the approval of counsel for the
Company with respect to such compliance. |
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|
b) |
|
Investment Representations. As a condition to the exercise of an Award, the
Company may require the person exercising such Award to represent and warrant at the time
of any such exercise that the Shares are being purchased only for investment and without
any present intention to sell or distribute such Shares if, in the opinion of counsel for
the Company, such a representation is required. |
21. Inability to Obtain Authority. The inability of the Company to obtain authority from
any regulatory body having jurisdiction, which authority is deemed by the Companys counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, will relieve the Company of any
liability in respect of the failure to issue or sell such Shares as to which such requisite
authority will not have been obtained.
22. Stockholder Approval. The Plan will be subject to approval by the stockholders of the
Company within twelve (12) months after the date the Plan is adopted. Such stockholder approval
will be obtained in the manner and to the degree required under Applicable Laws.
44
APPENDIX B
AEHR TEST SYSTEMS
2006 EMPLOYEE STOCK PURCHASE PLAN
1. Purpose. The purpose of the Plan is to provide employees of the Company and its
Designated Subsidiaries with an opportunity to purchase Common Stock through accumulated payroll
deductions. It is the intention of the Company to have the Plan qualify as an employee stock
purchase plan under Section 423 of the Code. The provisions of the Plan, accordingly, will be
construed so as to extend and limit Plan participation in a uniform and nondiscriminatory basis
consistent with the requirements of Section 423 of the Code.
2. Definitions.
|
a) |
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Administrator means the Board or any Committee designated by the Board to
administer the Plan pursuant to Section 14. |
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b) |
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Applicable Laws means the requirements relating to the administration of
equity-based awards under U.S. state corporate laws, U.S. federal and state securities
laws, the Code, any stock exchange or quotation system on which the Common Stock is listed
or quoted and the applicable laws of any foreign country or jurisdiction where Awards are,
or will be, granted under the Plan. |
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c) |
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Board means the Board of Directors of the Company. |
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d) |
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Change in Control means the occurrence of any of the following events: |
|
i. |
|
Any person (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act) becomes the beneficial owner (as defined in Rule 13d-3 of the
Exchange Act), directly or indirectly, of securities of the Company representing
fifty percent (50%) or more of the total voting power represented by the Companys
then outstanding voting securities; or |
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ii. |
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The consummation of the sale or disposition by the Company of all or
substantially all of the Companys assets; or |
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iii. |
|
The consummation of a merger or consolidation of the Company with any
other corporation, other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto continuing
to represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity or its parent) at least fifty percent (50%) of
the total voting power represented by the voting securities of the Company or such
surviving entity or its parent outstanding immediately after such merger or
consolidation; or |
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iv. |
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A change in the composition of the Board occurring within a two
(2)-year period, as a result of which less than a majority of the Directors are
Incumbent Directors. Incumbent Directors means Directors who either (A) are
Directors as of the effective date of the Plan, or (B) are elected, or nominated
for election, to the Board with the affirmative votes of at least a majority of the
Directors at the time of such election or nomination (but will not include an
individual whose election or nomination is in connection with an actual or
threatened proxy contest relating to the election of Directors to the Company). |
|
e) |
|
Code means the Internal Revenue Code of 1986, as amended. Any reference to a
section of the Code herein will be a reference to any successor or amended section of the
Code. |
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|
f) |
|
Committee means a committee of the Board appointed in accordance with Section
14 hereof. |
45
|
g) |
|
Common Stock means the common stock of the Company. |
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h) |
|
Company means Aehr Test Systems, a California corporation. |
|
|
i) |
|
Compensation means an Employees base straight time gross earnings,
commissions (to the extent such commissions are an integral, recurring part of
compensation), but exclusive of payments for overtime, shift premium, incentive
compensation, incentive payments, bonuses and other compensation. |
|
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j) |
|
Designated Subsidiary means any Subsidiary that has been designated by the
Administrator from time to time in its sole discretion as eligible to participate in the
Plan. |
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k) |
|
Director means a member of the Board. |
|
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l) |
|
Eligible Employee means any individual who is a common law employee of an
Employer and is customarily employed for at least twenty (20) hours per week and more than
five (5) months in any calendar year by the Employer. For purposes of the Plan, the
employment relationship will be treated as continuing intact while the individual is on
sick leave or other leave of absence that the Employer approves. Where the period of leave
exceeds ninety (90) days and the individuals right to reemployment is not guaranteed
either by statute or by contract, the employment relationship will be deemed to have
terminated on the ninety-first (91st) day of such leave. The Administrator, in
its discretion, from time to time may, prior to an Offering Date for all options to be
granted on such Offering Date, determine (on a uniform and nondiscriminatory basis) that
the definition of Eligible Employee will or will not include an individual if he or she:
(i) has not completed at least two (2) years of service since his or her last hire date (or
such lesser period of time as may be determined by the Administrator in its discretion),
(ii) customarily works not more than twenty (20) hours per week (or such lesser period of
time as may be determined by the Administrator in its discretion), (iii) customarily works
not more than five (5) months per calendar year (or such lesser period of time as may be
determined by the Administrator in its discretion), (iv) is an officer or other manager, or
(v) is a highly compensated employee under Section 414(q) of the Code. |
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m) |
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Employer means any one or all of the Company and its Designated Subsidiaries. |
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n) |
|
Exchange Act means the Securities Exchange Act of 1934, as amended, including
the rules and regulations promulgated thereunder. |
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o) |
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Exercise Date means the first Trading Day on or after April 1 and October 1
of each year. The first Exercise Date under the Plan will be April 1, 2007. The
Administrator, in its discretion, from time to time may, prior to an Offering Date for all
options to be granted on such Offering Date, determine (on a uniform and nondiscriminatory
basis) when the Exercise Dates will occur during an Offering Period. |
|
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p) |
|
Fair Market Value means, as of any date and unless the Administrator
determines otherwise, the value of Common Stock determined as follows: |
|
i. |
|
If the Common Stock is listed on any established stock exchange or a national
market system, including without limitation the Nasdaq National Market, its Fair Market
Value will be the closing sales price for such stock (or the closing bid, if no sales
were reported) as quoted on such exchange or system on the date of determination, as
reported in The Wall Street Journal or such other source as the Administrator deems
reliable; |
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ii. |
|
If the Common Stock is regularly quoted by a recognized securities dealer but
selling prices are not reported, its Fair Market Value will be the mean of the closing
bid and asked prices for the |
46
|
|
|
Common Stock on the date of determination, as reported in The Wall Street Journal or
such other source as the Administrator deems reliable; or |
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iii. |
|
In the absence of an established market for the Common Stock, the Fair Market
Value thereof will be determined in good faith by the Administrator. |
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q) |
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Offering Date means the first Trading Day of each Offering Period. |
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r) |
|
Offering Periods means the period of time the Administrator may determine
prior to Offering Date, for options to be granted on such Offering Date, during which an
option granted under the Plan may be exercised, not to exceed twenty-seven (27) months.
Unless the Administrator provides otherwise, Offering Periods will have a duration of
approximately twenty-four (24) months (i) commencing on the first Trading Day on or after
April 1 of each year and terminating on the first Trading Day on or following April 1,
approximately twenty-four (24) months later, and (ii) commencing on the first Trading Day
on or after October 1 of each year and terminating on the first Trading Day on or following
October 1, approximately twenty-four (24) months later. The duration and timing of
Offering Periods may be changed pursuant to Sections 4 and 20. |
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s) |
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Parent means a parent corporation, whether now or hereafter existing, as
defined in Section 424(e) of the Code. |
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t) |
|
Plan means this Aehr Test Systems 2006 Employee Stock Purchase Plan. |
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u) |
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Purchase Period means the period during an Offering Period which shares of
Common Stock may be purchased on a participants behalf in accordance with the terms of the
Plan. Unless and until the Administrator provides otherwise, the Purchase Period will mean
the approximately six (6) month period commencing on one Exercise Date and ending with the
next Exercise Date, except that the first Purchase Period of any Offering Period will
commence on the Enrollment Date and end with the next Exercise Date. |
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v) |
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Purchase Price shall be determined by the Administrator (on a uniform and
nondiscriminatory basis) prior to an Offering Date for all options to be granted on such
Offering Date, subject to compliance with Section 423 of the Code (or any successor rule or
provision or any other applicable law, regulation or stock exchange rule) or pursuant to
Section 20. Unless and until the Administrator provides otherwise, the Purchase Price will
equal to eighty-five percent (85%) of the Fair Market Value of a share of Common Stock on
the Offering Date or the Exercise Date, whichever is lower. |
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w) |
|
Subsidiary means a subsidiary corporation, whether now or hereafter
existing, as defined in Section 424(f) of the Code. |
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x) |
|
Trading Day means a day on which the national stock exchange upon which the
Common Stock is listed is open for trading. |
3. Eligibility.
|
a) |
|
Offering Periods. Any Eligible Employee on a given Offering Date will be
eligible to participate in the Plan, subject to the requirements of Section 5. |
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|
b) |
|
Limitations. Any provisions of the Plan to the contrary notwithstanding, no
Eligible Employee will be granted an option under the Plan (i) to the extent that,
immediately after the grant, such Eligible Employee (or any other person whose stock would
be attributed to such Eligible Employee pursuant to Section 424(d) of the Code) would own
capital stock of the Company or any Parent or |
47
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|
|
Subsidiary of the Company and/or hold outstanding options to purchase such stock possessing
five percent (5%) or more of the total combined voting power or value of all classes of the
capital stock of the Company or of any Parent or Subsidiary of the Company, or (ii) to the
extent that his or her rights to purchase stock under all employee stock purchase plans (as
defined in Section 423 of the Code) of the Company or any Parent or Subsidiary of the
Company accrues at a rate which exceeds twenty-five thousand dollars ($25,000) worth of
stock (determined at the Fair Market Value of the stock at the time such option is granted)
for each calendar year in which such option is outstanding at any time. |
4. Offering Periods. The Plan will be implemented by consecutive, overlapping Offering
Periods with a new Offering Period commencing on the first Trading Day on or after April 1 and
October 1 each year, or on such other date as the Administrator will determine. The Administrator
will have the power to change the duration of Offering Periods (including the commencement dates
thereof) with respect to future offerings without stockholder approval if such change is announced
prior to the scheduled beginning of the first Offering Period to be affected thereafter.
5. Participation. An Eligible Employee may participate in the Plan pursuant to Section
3(a) by (i) submitting to the Companys payroll office (or its designee), on or before a date
prescribed by the Administrator prior to an applicable Offering Date, a properly completed
subscription agreement authorizing payroll deductions in the form provided by the Administrator for
such purpose, or (ii) following an electronic or other enrollment procedure prescribed by the
Administrator.
6. Payroll Deductions.
|
a) |
|
At the time a participant enrolls in the Plan pursuant to Section 5, he or she will
elect to have payroll deductions made on each pay day during the Offering Period in an
amount not exceeding ten percent (10%) of the Compensation which he or she receives on each
pay day during the Offering Period; provided, however, that should a pay day occur on an
Exercise Date, a participant will have the payroll deductions made on such day applied to
his or her account under the subsequent Purchase or Offering Period. A participants
subscription agreement will remain in effect for successive Offering Periods unless
terminated as provided in Section 10 hereof. |
|
|
b) |
|
Payroll deductions authorized by a participant will commence on the first pay day
following the Offering Date and will end on the last pay day prior to the Exercise Date of
such Offering Period to which such authorization is applicable, unless sooner terminated by
the participant as provided in Section 10 hereof. |
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c) |
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All payroll deductions made for a participant will be credited to his or her account
under the Plan and will be withheld in whole percentages only. A participant may not make
any additional payments into such account. |
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d) |
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A participant may discontinue his or her participation in the Plan as provided in
Section 10, or may increase or decrease the rate of his or her payroll deductions during
the Offering Period by (i) properly completing and submitting to the Companys payroll
office (or its designee), on or before a date prescribed by the Administrator prior to an
applicable Exercise Date, a new subscription agreement authorizing the change in payroll
deduction rate in the form provided by the Administrator for such purpose, or (ii)
following an electronic or other procedure prescribed by the Administrator. If a
participant has not followed such procedures to change the rate of payroll deductions, the
rate of his or her payroll deductions will continue at the originally elected rate
throughout the Offering Period and future Offering Periods (unless terminated as provided
in Section 10). The Administrator may, in its sole discretion, limit the nature and/or
number of payroll deduction rate changes that may be made by participants during any
Offering Period. Any change in payroll deduction rate made pursuant to this Section 6(d)
will be effective as of the first |
48
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|
full payroll period following five (5) business days after the date on which the change is
made by the participant (unless the Administrator, in its sole discretion, elects to process
a given change in payroll deduction rate more quickly). |
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e) |
|
Notwithstanding the foregoing, to the extent necessary to comply with Section 423(b)(8)
of the Code and Section 3(b), or if the Administrator reasonably anticipates a participant
has contributed a sufficient amount to purchase a number of shares of Common Stock equal to
or in excess of the applicable limit for such Purchase or Offering Period (as set forth in
Section 7 or as established by the Administrator), a participants payroll deductions may
be decreased to zero percent (0%) at any time during a Purchase Period. Subject to Section
423(b)(8) of the Code and Section 3(c) hereof, or for participants who have had there
contributions reduced due to the applicable limits on the maximum number of shares that may
be purchased in any Purchase or Offering Period, payroll deductions will recommence at the
rate originally elected by the participant effective as of the beginning of the first
Purchase Period which is scheduled to end in the following calendar year, unless terminated
by the participant as provided in Section 10. |
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f) |
|
At the time the option is exercised, in whole or in part, or at the time some or all of
the Common Stock issued under the Plan is disposed of, the participant must make adequate
provision for the Companys or Employers federal, state, or any other tax liability
payable to any authority, national insurance, social security or other tax withholding
obligations, if any, which arise upon the exercise of the option or the disposition of the
Common Stock. At any time, the Company or the Employer may, but will not be obligated to,
withhold from the participants compensation the amount necessary for the Company or the
Employer to meet applicable withholding obligations, including any withholding required to
make available to the Company or the Employer any tax deductions or benefits attributable
to sale or early disposition of Common Stock by the Eligible Employee. |
7. Grant of Option. On the Offering Date of each Offering Period, each Eligible Employee
participating in such Offering Period will be granted an option to purchase on each Exercise Date
during such Offering Period (at the applicable Purchase Price) up to a number of shares of Common
Stock determined by dividing such Eligible Employees payroll deductions accumulated prior to such
Exercise Date and retained in the Eligible Employees account as of the Exercise Date by the
applicable Purchase Price; provided that in no event will an Eligible Employee be permitted to
purchase during each Purchase Period more than three thousand (3,000) shares of the Common Stock
(subject to any adjustment pursuant to Section 19), and provided further that such purchase will be
subject to the limitations set forth in Sections 3(c) and 13. The Eligible Employee may accept the
grant of such option with respect to any Offering Period under the Plan, by electing to participate
in the Plan in accordance with the requirements of Section 5. The Administrator may, for future
Offering Periods, increase or decrease, in its absolute discretion, the maximum number of shares of
Common Stock that a participant may purchase during each Purchase Period of an Offering Period.
Exercise of the option will occur as provided in Section 8, unless the participant has withdrawn
pursuant to Section 10. The option will expire on the last day of the Offering Period.
8. Exercise of Option.
|
a) |
|
Unless a participant withdraws from the Plan as provided in Section 10, his or her
option for the purchase of shares of Common Stock will be exercised automatically on the
Exercise Date, and the maximum number of full shares subject to the option will be
purchased for such participant at the applicable Purchase Price with the accumulated
payroll deductions in his or her account. No fractional shares of Common Stock will be
purchased; any payroll deductions accumulated in a participants account which are not
sufficient to purchase a full share will be retained in the participants account for the
subsequent Purchase Period or Offering Period, subject to earlier withdrawal by the
participant as provided in Section 10. Any other funds left over in a participants
account after the Exercise Date will be returned to the participant. During a |
49
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participants lifetime, a participants option to purchase shares hereunder is exercisable
only by him or her. |
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|
b) |
|
Notwithstanding any contrary Plan provision, if the Administrator determines that, on a
given Exercise Date, the number of shares of Common Stock with respect to which options are
to be exercised may exceed (i) the number of shares of Common Stock that were available for
sale under the Plan on the Offering Date of the applicable Offering Period, or (ii) the
number of shares of Common Stock available for sale under the Plan on such Exercise Date,
the Administrator may in its sole discretion provide that the Company will make a pro rata
allocation of the shares of Common Stock available for purchase on such Offering Date or
Exercise Date, as applicable, in as uniform a manner as will be practicable and as it will
determine in its sole discretion to be equitable among all participants exercising options
to purchase Common Stock on such Exercise Date, and either (x) continue all Offering
Periods then in effect or (y) terminate any or all Offering Periods then in effect pursuant
to Section 20. The Company may make a pro rata allocation of the shares available on the
Offering Date of any applicable Offering Period pursuant to the preceding sentence,
notwithstanding any authorization of additional shares for issuance under the Plan by the
Companys stockholders subsequent to such Offering Date. |
9. Delivery. As soon as administratively practicable after each Exercise Date on which a
purchase of shares of Common Stock occurs, the Company will arrange the delivery to each
participant, as appropriate, the shares purchased upon exercise of his or her option in a form
determined by the Administrator (in its sole discretion) and pursuant to rules established by the
Administrator. The Company may permit or require that shares be deposited directly with a broker
designated by the Company or to a designated agent of the Company, and the Company may utilize
electronic or automated methods of share transfer. The Company may require that shares be retained
with such broker or agent for a designated period of time and/or may establish other procedures to
permit tracking of disqualifying dispositions of such shares. No participant will have any voting,
dividend, or other stockholder rights with respect to shares of Common Stock subject to any option
granted under the Plan until such shares have been purchased and delivered to the participant as
provided in this Section 9.
10. Withdrawal.
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a) |
|
Pursuant to procedures established by the Administrator, a participant may withdraw all
but not less than all the payroll deductions credited to his or her account and not yet
used to exercise his or her option under the Plan at any time by (i) submitting to the
Companys payroll office (or its designee) a written notice of withdrawal in the form
prescribed by the Administrator for such purpose, or (ii) following an electronic or other
withdrawal procedure prescribed by the Administrator. All of the participants payroll
deductions credited to his or her account will be paid to such participant as promptly as
practicable after the effective date of his or her withdrawal and such participants option
for the Offering Period will be automatically terminated, and no further payroll deductions
for the purchase of shares will be made for such Offering Period. If a participant
withdraws from an Offering Period, payroll deductions will not resume at the beginning of
the succeeding Offering Period unless the participant re-enrolls in the Plan in accordance
with the provisions of Section 5. |
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|
b) |
|
A participants withdrawal from an Offering Period will not have any effect upon his or
her eligibility to participate in any similar plan which may hereafter be adopted by the
Company or in succeeding Offering Periods which commence after the termination of the
Offering Period from which the participant withdraws. |
50
11. Termination of Employment. Upon a participants ceasing to be an Eligible Employee,
for any reason, he or she will be deemed to have elected to withdraw from the Plan and the payroll
deductions credited to such participants account during the Offering Period but not yet used to
purchase shares of Common Stock under the Plan will be returned to such participant or, in the case
of his or her death, to the person or persons entitled thereto under Section 15, and such
participants option will be automatically terminated.
12. Interest. No interest will accrue on the payroll deductions of a participant in the
Plan.
13. Stock.
|
a) |
|
Subject to adjustment upon changes in capitalization of the Company as provided in
Section 19 hereof, the maximum number of shares of Common Stock which will be made
available for sale under the Plan will be 200,000 shares. |
|
|
b) |
|
Until the shares are issued (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company), a participant will only
have the rights of an unsecured creditor with respect to such shares, and no right to vote
or receive dividends or any other rights as a stockholder will exist with respect to such
shares. |
|
|
c) |
|
Shares of Common Stock to be delivered to a participant under the Plan will be
registered in the name of the participant or in the name of the participant and his or her
spouse. |
14. Administration. The Plan will be administered by the Board or a Committee appointed
by the Board, which Committee will be constituted to comply with Applicable Laws. The
Administrator will have full and exclusive discretionary authority to construe, interpret and apply
the terms of the Plan, to determine eligibility and to adjudicate all disputed claims filed under
the Plan. Every finding, decision and determination made by the Administrator will, to the full
extent permitted by law, be final and binding upon all parties. Notwithstanding any provision to
the contrary in this Plan, the Administrator may adopt rules or procedures relating to the
operation and administration of the Plan to accommodate the specific requirements of local laws and
procedures for jurisdictions outside of the United States. Without limiting the generality of the
foregoing, the Administrator is specifically authorized to adopt rules and procedures regarding
eligibility to participate, the definition of Compensation, handling of payroll deductions, making
of contributions to the Plan (including, without limitation, in forms other than payroll
deductions), establishment of bank or trust accounts to hold payroll deductions, payment of
interest, conversion of local currency, obligations to pay payroll tax, determination of
beneficiary designation requirements, withholding procedures and handling of stock certificates
which vary with local requirements.
15. Designation of Beneficiary.
|
a) |
|
A participant may designate a beneficiary who is to receive any shares of Common Stock
and cash, if any, from the participants account under the Plan in the event of such
participants death subsequent to an Exercise Date on which the option is exercised but
prior to delivery to such participant of such shares and cash. In addition, a participant
may designate a beneficiary who is to receive any cash from the participants account under
the Plan in the event of such participants death prior to exercise of the option. If a
participant is married and the designated beneficiary is not the spouse, spousal consent
will be required for such designation to be effective. |
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|
b) |
|
Such designation of beneficiary may be changed by the participant at any time by notice
in a form determined by the Administrator. In the event of the death of a participant and
in the absence of a beneficiary validly designated under the Plan who is living at the time
of such participants death, the Company will deliver such shares and/or cash to the
executor or administrator of the estate of the participant, or if no such executor or
administrator has been appointed (to the knowledge of the |
51
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Company), the Company, in its discretion, may deliver such shares and/or cash to the spouse
or to any one or more dependents or relatives of the participant, or if no spouse, dependent
or relative is known to the Company, then to such other person as the Company may designate. |
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|
c) |
|
All beneficiary designations under this Section 15 will be made in such form and manner
as the Administrator may prescribe from time to time. |
16. Transferability. Neither payroll deductions credited to a participants account nor
any rights with regard to the exercise of an option or to receive shares of Common Stock under the
Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will,
the laws of descent and distribution or as provided in Section 15) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition will be without effect, except that
the Company may treat such act as an election to withdraw from an Offering Period in accordance
with Section 10.
17. Use of Funds. The Company may use all payroll deductions received or held by it under
the Plan for any corporate purpose, and the Company will not be obligated to segregate such payroll
deductions. Until shares of Common Stock are issued, participants will only have the rights of an
unsecured creditor with respect to such shares.
18. Reports. Individual accounts will be maintained for each participant in the Plan.
Statements of account will be given to participating Eligible Employees at least annually, which
statements will set forth the amounts of payroll deductions, the Purchase Price, the number of
shares of Common Stock purchased and the remaining cash balance, if any.
19. Adjustments, Dissolution, Liquidation, Merger or Change in Control.
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a) |
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Adjustments. In the event that any dividend or other distribution (whether in
the form of cash, Common Stock, other securities, or other property), recapitalization,
stock split, reverse stock split, reorganization, merger, consolidation, split-up,
spin-off, combination, repurchase, or exchange of Common Stock or other securities of the
Company, or other change in the corporate structure of the Company affecting the Common
Stock occurs, the Administrator, in order to prevent dilution or enlargement of the
benefits or potential benefits intended to be made available under the Plan, shall, in such
manner as it may deem equitable, adjust the number and class of Common Stock which may be
delivered under the Plan, the Purchase Price per share and the number of shares of Common
Stock covered by each option under the Plan which has not yet been exercised, and the
numerical limits of Section 7. |
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b) |
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Dissolution or Liquidation. In the event of the proposed dissolution or
liquidation of the Company, any Offering Period then in progress will be shortened by
setting a new Exercise Date (the New Exercise Date), and will terminate
immediately prior to the consummation of such proposed dissolution or liquidation, unless
provided otherwise by the Administrator. The New Exercise Date will be before the date of
the Companys proposed dissolution or liquidation. The Administrator will notify each
participant in writing, at least ten (10) business days prior to the New Exercise Date,
that the Exercise Date for the participants option has been changed to the New Exercise
Date and that the participants option will be exercised automatically on the New Exercise
Date, unless prior to such date the participant has withdrawn from the Offering Period as
provided in Section 10. |
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c) |
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Merger or Change in Control. In the event of a merger or Change in Control,
each outstanding option will be assumed or an equivalent option substituted by the
successor corporation or a Parent or Subsidiary of the successor corporation. In the event
that the successor corporation refuses to assume or substitute for the option, the Offering
Period with respect to which such option relates will be shortened by setting a new
Exercise Date (the New Exercise Date) and will end on the |
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New Exercise Date. The New Exercise Date will occur before the date of the Companys
proposed merger or Change in Control. The Administrator will notify each participant in
writing prior to the New Exercise Date, that the Exercise Date for the participants option
has been changed to the New Exercise Date and that the participants option will be
exercised automatically on the New Exercise Date, unless prior to such date the participant
has withdrawn from the Offering Period as provided in Section 10. |
20. Amendment or Termination.
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a) |
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The Administrator, in its sole discretion, may amend, suspend, or terminate the Plan,
or any part thereof, at any time and for any reason. If the Plan is terminated, the
Administrator, in its discretion, may elect to terminate all outstanding Offering Periods
either immediately or upon completion of the purchase of shares of Common Stock on the next
Exercise Date (which may be sooner than originally scheduled, if determined by the
Administrator in its discretion), or may elect to permit Offering Periods to expire in
accordance with their terms (and subject to any adjustment pursuant to Section 19). If the
Offering Periods are terminated prior to expiration, all amounts then credited to
participants accounts which have not been used to purchase shares of Common Stock will be
returned to the participants (without interest thereon, except as otherwise required under
local laws) as soon as administratively practicable. |
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b) |
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Without stockholder consent and without limiting Section 20(a), the Administrator will
be entitled to change the Offering Periods, limit the frequency and/or number of changes in
the amount withheld during an Offering Period, establish the exchange ratio applicable to
amounts withheld in a currency other than U.S. dollars, permit payroll withholding in
excess of the amount designated by a participant in order to adjust for delays or mistakes
in the Companys processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting procedures to
ensure that amounts applied toward the purchase of Common Stock for each participant
properly correspond with amounts withheld from the participants Compensation, and
establish such other limitations or procedures as the Administrator determines in its sole
discretion advisable which are consistent with the Plan. |
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c) |
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In the event the Administrator determines that the ongoing operation of the Plan may
result in unfavorable financial accounting consequences, the Administrator may, in its
discretion and, to the extent necessary or desirable, modify, amend or terminate the Plan
to reduce or eliminate such accounting consequence including, but not limited to: |
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i. |
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amending the Plan to conform with the safe harbor definition under
Statement of Financial Accounting Standards 123(R), including with respect to an
Offering Period underway at the time; |
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ii. |
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altering the Purchase Price for any Offering Period including an
Offering Period underway at the time of the change in Purchase Price; |
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iii. |
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shortening any Offering Period so that Offering Period ends on a new
Exercise Date, including an Offering Period underway at the time of the Board
action; |
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iv. |
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reducing the maximum percentage of Compensation a participant may elect
to set aside as payroll deductions; and |
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v. |
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reducing the maximum number of Shares a participant may purchase during
any Offering Period or Purchase Period. |
Such modifications or amendments will not require stockholder approval or the consent of any Plan
participants.
21. Notices. All notices or other communications by a participant to the Company under or
in connection with the Plan will be deemed to have been duly given when received in the form and
manner specified by the Company at the location, or by the person, designated by the Company for
the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares of Common Stock will not be issued with
respect to an option unless the exercise of such option and the issuance and delivery of such
shares pursuant thereto will comply with all applicable provisions of law, domestic or foreign,
including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules
and regulations promulgated thereunder, and the requirements of any stock exchange upon which the
shares may then be listed, and will be further subject to the approval of counsel for the Company
with respect to such compliance.
As a condition to the exercise of an option, the Company may require the person exercising
such option to represent and warrant at the time of any such exercise that the shares are being
purchased only for investment and without any present intention to sell or distribute such shares
if, in the opinion of counsel for the Company, such a representation is required by any of the
aforementioned applicable provisions of law.
23. Term of Plan. The Plan will become effective upon the earlier to occur of its
adoption by the Board or its approval by the stockholders of the Company. It will continue in
effect for a term of ten (10) years, unless sooner terminated under Section 20.
24. Stockholder Approval. The Plan will be subject to approval by the stockholders of the
Company within twelve (12) months after the date the Plan is adopted by the Board. Such
stockholder approval will be obtained in the manner and to the degree required under Applicable
Laws.
25. Automatic Transfer to Low Price Offering Period. To the extent permitted by
Applicable Laws, if the Fair Market Value of the Common Stock on any Exercise Date in an Offering
Period is lower than the Fair Market Value of the Common Stock on the Offering Date of such
Offering Period, then all participants in such Offering Period will be automatically withdrawn from
such Offering Period immediately after the exercise of their option on such Exercise Date and
automatically re-enrolled in the immediately following Offering Period.
54
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
AEHR TEST SYSTEMS
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON OCTOBER 26, 2006
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 26,
2006, 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 FOR
(1) THE ELECTION OF THE NOMINATED DIRECTORS; (2) FOR APPROVAL OF THE ADOPTION OF THE 2006 EQUITY
INCENTIVE PLAN; (3) FOR APPROVAL OF THE ADOPTION OF THE 2006 EMPLOYEE STOCK PURCHASE PLAN AND (4)
FOR RATIFICATION OF THE APPOINTMENT OF THE COMPANYS INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM,
AND 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
1. |
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ELECTION OF DIRECTORS: |
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[ ] FOR all nominees listed below
(except as indicated)
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[ ] WITHHOLD authority to vote for
all nominees listed below |
IF YOU WISH TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE(S), STRIKE A LINE THROUGH THAT
NOMINEES NAME IN THE LIST BELOW:
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Rhea J. Posedel
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Robert R. Anderson
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William W. R. Elder
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Mukesh Patel
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Mario M. Rosati |
2. |
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PROPOSAL TO APPROVE THE ADOPTION OF THE 2006 EQUITY INCENTIVE PLAN AND THE NUMBER OF SHARES
RESERVED FOR ISSUANCE: |
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[ ] FOR
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[ ] AGAINST
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[ ] ABSTAIN |
3. |
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PROPOSAL TO APPROVE THE ADOPTION OF THE 2006 EMPLOYEE STOCK PURCHASE PLAN AND THE NUMBER OF
SHARES RESERVED FOR ISSUANCE: |
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[ ] FOR
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[ ] AGAINST
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[ ] ABSTAIN |
4. |
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PROPOSAL TO RATIFY THE APPOINTMENT OF BURR, PILGER & MAYER LLP AS THE COMPANYS INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM: |
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[ ] FOR
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[ ] AGAINST
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[ ] ABSTAIN |
5. |
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IN THEIR DISCRETION, UPON SUCH OTHER MATTER OR MATTERS WHICH MAY PROPERLY COME BEFORE THE
MEETING AND ANY ADJOURNMENT(S) THEREOF. |
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[ ] FOR
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[ ] AGAINST
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[ ] ABSTAIN |
Dated: , 2006
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Signature |
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[Signature] |
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(This Proxy should be marked, dated,
signed by the Shareholder(s) exactly as his or
her name appears hereon, and returned promptly
in the enclosed envelope. Persons signing in
a fiduciary capacity should so indicate. If
shares are held by joint tenants or as
community property, both should sign.) |