TABLE OF CONTENTS
Cohu, Inc.
12367 Crosthwaite Circle
Poway, California 92064-6817
PROXY STATEMENT
GENERAL INFORMATION
This proxy statement is furnished in connection with the solicitation by the Board of Directors of Cohu, Inc., a Delaware corporation (“Cohu” or the “Company”), of your proxy for use at the Annual Meeting of Stockholders to be held on Tuesday, May 12, 2009,11, 2010, at 2:9:00 p.m.a.m. Pacific Time at the Cohu corporate offices, located at 12367 Crosthwaite Circle, Poway, California 92064-6817 (the “Meeting”). This proxy statement, the accompanying proxy card and the Cohu 20082009 Annual Report are being mailed to all stockholders on or about April 6, 2009.5, 2010.
On March 17, 2009,16, 2010, the record date fixed by our Board of Directors (hereinafter sometimes referred to as the “Board”), Cohu had outstanding 23,343,97123,553,498 shares of Common Stock. Only stockholders of record as of the close of business on March 17, 200916, 2010 will be entitled to vote at the Meeting and any adjournment thereof.
Voting Procedures
As a stockholder of Cohu, you have a right to vote on certain business matters affecting Cohu. The proposals that will be presented at the Meeting, and upon which you are being asked to vote, are discussed under “Proposal No. 1”, and “Proposal No. 2” and “Proposal No. 3”. Each share of Cohu’s Common Stock you own entitles you to one vote for each proposal. For the election of directors, stockholders may cumulate their votes as described below.
Methods of Voting
You may vote by mail, by telephone, over the Internet or in person at the Meeting. Your shares will be voted in accordance with the instructions you indicate. If you return your proxy card but do not indicatespecify how you want to vote your voting instructions,shares, your shares will be votedFORthe two named nominees for directors,FOR the approval of the amendments to the Cohu 2005 Equity Incentive Plan, FOR the ratification of the appointment of Ernst & Young LLP as Cohu’s independent registered public accounting firm for 2009,2010, and in the discretion of the proxies (as defined below) as to other matters that may properly come before the Meeting.
Voting by Mail. By signing and returning the proxy card in the enclosed prepaid and addressed envelope, you are authorizing the individuals named on the proxy card (known as “proxies”) to vote your shares at the Meeting in the manner you indicate. We encourage you to sign and return the proxy card even if you plan to attend the Meeting. In this way, your shares will be voted if you are unable to attend the Meeting. If you receive more than one proxy card, it is an indication that your shares are held in multiple accounts. Please sign and return all proxy cards to ensure that all of your shares are voted.
Voting by Telephone. To vote by telephone, please follow the instructions included on your proxy card. If you vote by telephone, you do not need to complete and mail your proxy card.
Voting over the Internet. To vote over the Internet, please follow the instructions included on your proxy card. If you vote over the Internet, you do not need to complete and mail your proxy card.
Voting in Person at the Meeting. If you plan to attend the Meeting and vote in person, we will provide you with a ballot at the Meeting. If your shares are registered directly in your name, you are considered the stockholder of record and you have the right to vote in person at the Meeting. If your shares are held in the name of your broker or other nominee, you are considered the beneficial owner of shares held in street name. If you wish to vote such shares at the Meeting, you will need to bring with you to the Meeting a legal proxy from your broker or other nominee authorizing you to vote such shares.
Revoking Your Proxy
You may revoke your proxy at any time before it is voted at the Meeting. In order to do this, you must:
| • | | enter a new vote over the Internet, by telephone or by signing and returning another proxy card bearing a later date; |
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| • | | provide written notice of the revocation to Cohu’s Secretary; or |
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| • | | attend the Meeting and vote in person. |
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Quorum Requirement
A quorum, which is a majority of the outstanding shares entitled to vote as of the record date, March 17, 2009,16, 2010, must be present in order to hold the Meeting and to conduct business. Shares are counted as being present at the Meeting if you appear in person at the Meeting or if you vote your shares over the Internet, by telephone or by submitting a properly executed proxy card. If any broker non-votes (as described below) are present at the Meeting, they will be counted as present for the purpose of determining a quorum.
Votes Required for the Proposals
For Proposal No. 1, the two nominees receiving the highest number of votes, in person or by proxy, will be elected as directors. You may vote “for” the nominees for election as directors or you may “withhold” your vote with respect to one or both nominees. In the election of directors, stockholders may, as provided for in the Cohu Amended and Restated Certificate of Incorporation, cumulate their votes, giving one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which the stockholder’s shares are normally entitled, or distribute the stockholder’s votes on the same principle among as many candidates as the stockholder thinks fit. A stockholder may not cumulate his or her votes for a candidate unless a stockholder has given notice at the Meeting (whether by proxy or in person) prior to the voting, of his or her intention to cumulate his or her votes. If any stockholder gives such notice, all stockholders may then cumulate their votes. Management of Cohu is hereby soliciting discretionary authority to cumulate votes represented by proxies if cumulative voting is invoked.
The affirmative vote of a majority of Cohu common shares, cast at the Meeting, in person or by proxy, is required for (i) approval of Proposal No. 2, the amendments to the Cohu 2005 Equity Incentive Plan and (ii) approval of Proposal No. 3, the ratification of the appointment of Ernst & Young LLP as Cohu’s independent registered public accounting firm for 2009.2010.
If you return a proxy card that withholds your vote from the election of all directors, your shares will be counted as present for the purpose of determining a quorum, but will not be counted in the vote on that proposal.
Broker Non-Votes
If your shares are held in the name of a broker and you do not return a proxy card, brokerage firms have authorityprovide your broker or other nominee with instructions on how to vote your non-voted“street name” shares, (known as “broker non-votes”)your broker or nominee will not be permitted to vote them on certain routine matters. Consequently, if you do not give a proxy tonon-routine matters (a broker “non-vote”).Please note that this year the rules regarding how brokers may vote your shares your brokerage firmhave changed. Brokers may either leave your shares unvoted orno longer vote your shares on these routine matters. To the extent your brokerage firm votes shares on your behalf on these proposals, your shares will be includedelection of directors (Proposal No. 1) in the determinationabsence of whetheryour specific instructions as to how to vote. Accordingly, shares subject to a quorum is present at the Meeting, as well as Proposalsbroker “non-vote” will not be considered entitled to vote with respect to Proposal No. 1, and No. 3, which are considered routine matters.
Proposal No. 2 is NOT considered a routine matter and if a stockholder does not instruct his or her broker on how to vote on this proposal, then such broker will not haveaffect the authorityoutcome. We encourage you to vote suchprovide instructions to your broker regarding the voting of your shares.
Abstentions
If you abstain from voting “for” or “against” a proposal, your abstentionAbstentions will nevertheless,have no effect on the election of directors (Proposal No. 1). Abstentions will be included in determining whether or not a quorum is present.treated as being present and entitled to vote on the other proposals presented at the annual meeting and, therefore, will have the effect of votes against such proposals.
Voting Confidentiality
Proxies, ballots and voting tabulations are handled on a confidential basis to protect your voting privacy. Such information will not be disclosed except as required by law.
Voting Results
Final voting results will be announced at the Meeting and will be posted shortly after the Meeting on our website atwww.cohu.com. Voting results will also be published in Cohu’s Quarterlya Current Report on Form 10-Q for the second quarter of 2009, as8-K to be filed with the Securities and Exchange Commission.Commission (“SEC”) within four business days of the annual meeting. After the report is filed, you may obtain a copy by:
| • | | visiting our website atwww.cohu.com; |
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| • | | contacting our Investor Relations department at 858-848-8100; or |
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| • | | viewing our Form 10-Q for the second quarter of 20098-K on the SEC’s website atwww.sec.gov. |
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Proxy Solicitation Costs
Cohu will bear the entire cost of proxy solicitation, including the preparation, assembly, printing, mailing and distribution of the proxy materials. Cohu’s officers, directors and regular employees will not receive additional
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compensation for such proxy solicitation services. Cohu has not engaged an outside solicitor in connection with this proxy solicitation. We will reimburse brokerage firms and other custodians for their reasonable out-of-pocket expenses for forwarding the proxy materials to you.
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IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE
STOCKHOLDER MEETING TO BE HELD ON MAY 12, 200911, 2010
This Proxy Statement and Cohu’s Fiscal Year 20082009 Annual Report are both available atwww.proxydocs.com/cohu.
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PROPOSAL NO. 1
ELECTION OF DIRECTORS
The Cohu Amended and Restated Certificate of Incorporation divides the directors into three classes whose terms expire at successive annual meetings over a period of three years. One class of directors is elected for a term of three years at each annual meeting with the remaining directors continuing in office. At the Meeting, twothe Class 23 directors are to be elected for a term expiring in 2012.2013. The shares represented by proxies in the accompanying form will be voted by the proxy holders for the election of the two nominees named below. In the event the election of directors is to be by cumulative voting, the proxy holders will vote the shares represented by proxies in such proportions as the proxy holders see fit. Should the nominees decline or become unable to accept nomination or election, which is not anticipated, the proxies will be voted for such substitute nominee as may be designated by a majority of the Board of Directors. There is no family relationship between the nominees, other directors or any of Cohu’s named executive officers.
The following paragraphs provide information as of the date of this proxy statement about each member of our Board, including the nominees. The information presented includes information each director has given us about his age, all positions he holds, his principal occupation and business experience for the past five years, and the names of other publicly-held companies on which he currently serves as a director or has served as a director during the past five years. In addition to the information presented below regarding each nominee’s specific experience, qualifications, attributes and skills that led our Board to the conclusion that he should serve as a director, we also believe that all of our director nominees have a reputation for integrity, honesty and adherence to high ethical standards. They each have demonstrated business acumen and an ability to exercise sound judgment, as well as a commitment of service to Cohu and our Board.
The Board of Directors recommends a vote “FOR” the two nominees named below.
NomineesDirector Whose Terms ExpireTerm Expires in 20122013 (if elected) — Class 23
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| | | | | | | | Director |
Name | | Age | | Principal Occupation | | Since |
Harry L. Casari | | | 72 | | | Retired Partner, Ernst & Young LLP. Mr. Casari is also a | | | 1995 | |
| | | | | | director of Orange 21 Inc. | | | | |
| | | | | | | | | | |
Harold Harrigian | | | 74 | | | Retired Partner and Director of Corporate Finance, Crowell, Weedon & Co., a provider of financial services. Mr. Harrigian is also a former partner, Arthur Young & Company (predecessor of Ernst & Young LLP). | | | 1998 | |
| | | | | | | | | | |
| | | | | | | | Director |
Name | | Age | | Principal Occupation | | Since |
James A. Donahue | | | 61 | | | Chairman, President and Chief Executive Officer of Cohu since March 12, 2010; President and Chief Executive Officer of Cohu from June, 2000 to March 2010; President and Chief Operating Officer of Cohu from October, 1999 to June, 2000; President of Delta Design, Inc., a wholly owned subsidiary of Cohu, since May, 1983. Mr. Donahue is also a director of Standard Microsystems Corporation (SMSC) (since 2003). We believe Mr. Donahue’s qualifications to sit on our Board of Directors include his more than thirty years of executive experience in the semiconductor equipment industry and broad knowledge of business development and strategy, corporate governance and operations. | | | 1999 | |
| | | | | | | | | | |
Steven J. Bilodeau | | | 51 | | | Chairman and retired President and Chief Executive Officer of SMSC, a semiconductor manufacturer, from 1999 until October, 2008. Mr. Bilodeau currently serves as the Non-Executive Chairman of SMSC and is a director of Conexant Systems, Inc. (since 2004), NuHorizons Electronics Corp. (since 2009) and Gennum Corporation (since 2008). We believe Mr. Bilodeau’s qualifications to sit on our Board of Directors include his 25 years of executive experience in the high technology and semiconductor industries and his knowledge of international operations, business strategy and corporate governance. | | | 2009 | |
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INFORMATION CONCERNING OTHER DIRECTORS
Director Whose Term Expires in 2010 — Class 3
| | | | | | | | | | |
| | | | | | | | Director |
Name | | Age | | Principal Occupation | | Since |
James A. Donahue | | | 60 | | | President and Chief Executive Officer of Cohu since June, 2000; President and Chief Operating Officer of Cohu from October, 1999 to June, 2000; President of Delta Design, Inc., a wholly owned subsidiary of Cohu, since May, 1983. Mr. Donahue is also a director of Standard Microsystems Corporation. | | | 1999 | |
Directors Whose Terms Expire in 2011 — Class 1
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| | Director | | Director |
Name | | Age | | Principal Occupation | | Since | | Age | | Principal Occupation | | Since |
Robert L. Ciardella | | | 56 | | | Founder and retired President of Asymtek (a subsidiary of Nordson Corporation) from 1983 until July, 2006. Asymtek designs, develops, manufactures and sells semiconductor and circuit board assembly equipment. | | | 2003 | | | | 57 | | | Cofounder and retired President of Asymtek (a subsidiary of Nordson Corporation) from 1983 until 2006. Asymtek designs, develops, manufactures and sells semiconductor and circuit board assembly equipment. We believe Mr. Ciardella’s qualifications to sit on our Board of Directors include his more than 20 years of executive experience in the semiconductor equipment industry, including his knowledge of operations, product development and business strategy. Mr. Ciardella was appointed Lead Independent Director of the Board on March 12, 2010. | | | 2003 | |
| | | | | | | | | | | |
Charles A. Schwan | | | 69 | | | Chairman of the Board; Retired Chief Executive Officer of Cohu since June, 2000; Chairman and Chief Executive Officer of Cohu from July, 1999 to June, 2000; President and Chief Executive Officer of Cohu from March, 1996 to July, 1999; Executive Vice President and Chief Operating Officer of Cohu from September, 1995 to March, 1996; Vice President, Finance of Cohu from 1983 until September, 1995. | | | 1990 | | |
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Directors Whose Terms Expire in 2012 — Class 2
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| | | | | | | | Director |
Name | | Age | | Principal Occupation | | Since |
Harry L. Casari | | | 73 | | | Retired Partner, Ernst & Young LLP. Mr. Casari is also a director of Orange 21 Inc. (since 2004). We believe Mr. Casari’s qualifications to sit on our Board of Directors include his background in public accounting, auditing and his experience with financial accounting matters for complex global organizations as well as his knowledge of business strategy. Mr. Casari qualifies as an “audit committee financial expert” under SEC guidelines. | | | 1995 | |
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Harold Harrigian | | | 75 | | | Retired Partner and Director of Corporate Finance, Crowell, Weedon & Co., a provider of financial services. Mr. Harrigian is also a former partner, Arthur Young & Company (predecessor of Ernst & Young LLP). We believe Mr. Harrigian’s qualifications to sit on our Board of Directors include his knowledge and experience with financial accounting matters, finance, capital structure and his years of experience providing strategic advisory services to complex organizations. Mr. Harrigian qualifies as an “audit committee financial expert” under SEC guidelines. | | | 1998 | |
PROPOSAL NO. 2
APPROVAL OF AMENDMENTS TO THE COHU, INC. 2005 EQUITY INCENTIVE PLAN
At the Meeting, the stockholders will be asked to approve amendments to the Cohu, Inc. 2005 Equity Incentive Plan (the “2005 Plan”). The amendments would (i) increase the shares of stock available for issuance under the 2005 Plan by 1,800,000 and (ii) increase the number of shares that may be issued upon the settlement of any restricted stock, restricted stock units, performance shares or performance units by 1,000,000 to 2,500,000. Our Compensation Committee and Board of Directors have already approved on March 20, 2009, subject to approval by stockholders, the proposed amendments to the 2005 Plan. The 2005 Plan is otherwise unchanged since Cohu stockholders last approved amendments to the 2005 Plan at the Cohu 2006 Annual Meeting of Stockholders to increase the number of shares subject to the 2005 Plan and the number of shares that may be issued pursuant to restricted stock and performance awards.
During the three-year period ended December 27, 2008, Cohu has granted options to purchase 630,066 shares of common stock and 493,535 restricted stock unit (“RSU”) awards to employees and directors which represented an average of approximately 2.00% of total shares outstanding during that period. Based on a comparative analysis, we believe this percentage, which is referred to as the “burn rate”, is substantially less than Cohu’s peer group comprised of semiconductor and semiconductor equipment companies. On March 20, 2009 Cohu granted 1,145,750 stock options to purchase shares of Cohu common stock to employees at an exercise price of $7.32 per share, the fair market value of Cohu Common Stock on the grant date, leaving only 51,155 shares available for future grants.
The Board of Directors believes that the Company must offer a competitive equity incentive program if it is to continue to successfully attract and retain the best possible candidates for positions of responsibility within the Company. The Board of Directors believes that the 2005 Plan is an important factor in attracting, retaining and rewarding the high caliber employees, consultants and directors essential to our success and in motivating these individuals to strive to enhance our growth and profitability. In addition the majority of the Company’s outstanding stock options as of March 20, 2009 have exercise prices in excess of the Cohu stock price on that date. The amendments to the 2005 Plan are intended to ensure that the Company will continue to have available a reasonable number of shares available to meet these goals.
Summary of the 2005 Plan
The following summary of the 2005 Plan is qualified in its entirety by the specific language of the 2005 Plan, a copy of which is available to any stockholder upon request.
General.The purpose of the 2005 Plan is to advance the interests of the Company by providing an incentive program that will enable the Company to attract and retain employees, consultants and directors upon whose judgment, interest and efforts the Company’s success is dependent and to provide them with an equity interest in the success of the Company in order to motivate superior performance. These incentives are provided through the grant of stock options (including indexed options), stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units, deferred stock and certain other stock-based awards.
Authorized Shares.As of March 20, 2009, 51,155 shares are available for grant under the 2005 Plan. In addition, the 2005 Plan share reserve includes all of the outstanding stock options and RSUs the Company had previously granted which, as of March 20, 2009, equaled 3,457,380 shares (collectively the “Prior Awards”) to the extent any such Prior Award expires, lapses or otherwise terminates for any reason without having been exercised or settled in full, or if any shares subject to forfeiture or repurchase are forfeited or repurchased by the Company. However, no more than one million five-hundred thousand (1,500,000) shares of this 2005 Plan reserve may be issued upon the exercise or settlement of any restricted stock, restricted stock units, performance shares or performance units. As of March 20, 2009, 493,535 RSU awards have been granted, resulting in 1,006,465 shares available for future awards under the 2005 Plan. If the amendments are approved by the stockholders, the number of shares authorized for issuance under the 2005 Plan as of March 20, 2009 will increase by 1,800,000 and the number of shares of this 2005 Plan reserve that may be issued upon the exercise or settlement of any restricted stock, restricted stock units, performance shares or performance units will increase by 1,000,000. If any award granted under the 2005 Plan expires, lapses or otherwise terminates for any reason without having been exercised or settled in full, or if shares subject to forfeiture or repurchase are forfeited or repurchased by the Company, any such shares that are reacquired or subject to such a terminated award will again become available for issuance under the
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2005 Plan. Upon any stock dividend, stock split, reverse stock split, recapitalization or similar change in our capital structure, appropriate adjustments will be made to the shares subject to the 2005 Plan, to the award grant limitations and to all outstanding awards. However, shares shall not become re-available for issuance under the 2005 Plan if they were (i) withheld or surrendered to satisfy tax withholding obligations, (ii) surrendered in payment of stock option exercise prices (either by means of a cashless exercise, attestation or actual surrender of shares) or (iii) subject to the grant of a stock appreciation right which were not issued upon settlement of the stock appreciation right.
Administration.The 2005 Plan is administered by the Compensation Committee of the Board of Directors duly appointed to administer the 2005 Plan, or, in the absence of such committee, by the Board of Directors. In the case of awards intended to qualify for the performance-based compensation exemption under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), administration must be by a compensation committee comprised solely of two or more “outside directors” within the meaning of Section 162(m). (For purposes of this summary, the term “Committee” will refer to either such duly appointed committee or the Board of Directors). Subject to the provisions of the 2005 Plan, the Committee determines in its discretion the persons to whom and the times at which awards are granted, the types and sizes of such awards, and all of their terms and conditions. The Committee may, subject to certain limitations on the exercise of its discretion required by Section 162(m), amend, cancel, renew, or grant a new award in substitution for, any award, waive any restrictions or conditions applicable to any award, and accelerate, continue, extend or defer the vesting of any award. However, the 2005 Plan forbids, without stockholder approval, the repricing of any outstanding stock option and/or stock appreciation right. In addition, the 2005 Plan forbids any restricted stock award to be granted, or subsequently amended to provide, for (1) any acceleration of vesting for any reason other than upon a “Change in Control”, as defined, or after a participant’s death or disability and (2) vesting of one hundred percent (100%) of any such award prior to the passage of three years of service (unless the award will vest after satisfying specified performance measurements). The 2005 Plan provides, subject to certain limitations, for indemnification by the Company of any director, officer or employee against all reasonable expenses, including attorneys’ fees, incurred in connection with any legal action arising from such person’s action or failure to act in administering the 2005 Plan. The Committee will interpret the 2005 Plan and awards granted thereunder, and all determinations of the Committee will be final and binding on all persons having an interest in the 2005 Plan or any award.
Eligibility.Awards may be granted to employees, directors and consultants of the Company or any present or future parent or subsidiary corporations of the Company. Incentive stock options may be granted only to employees who, as of the time of grant, are employees of the Company or any parent or subsidiary corporation of the Company. As of March 17, 2009, the Company had approximately 1,000 employees, including five named executive officers and four directors who are eligible under the 2005 Plan.
Stock Options.Each option granted under the 2005 Plan must be evidenced by a written agreement between the Company and the optionee specifying the number of shares subject to the option and the other terms and conditions of the option, consistent with the requirements of the 2005 Plan. The exercise price of each option may not be less than the fair market value of a share of Cohu Common Stock on the date of grant. However, any incentive stock option granted to a person who at the time of grant owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or any parent or subsidiary corporation of the Company (a “Ten Percent Stockholder”) must have an exercise price equal to at least 110% of the fair market value of a share of Common Stock on the date of grant. The exercise price of each indexed stock option, and the terms and adjustments which may be made to such an option, will be determined by the Committee in its sole discretion at the time of grant. On March 17, 2009, the closing price of the Company’s Common Stock on the NASDAQ Global Select Market was $7.43 per share. Subject to appropriate adjustment in the event of any change in the capital structure of the Company, no employee may be granted in any fiscal year of the Company options which in the aggregate are for more than five hundred thousand (500,000) shares, provided however, that the Company may make an additional one-time grant to any newly-hired employee of a stock option for the purchase of up to an additional two hundred and fifty thousand (250,000) shares.
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The 2005 Plan provides that the option exercise price may be paid in cash, by check, or in cash equivalent, by the assignment of the proceeds of a sale with respect to some or all of the shares being acquired upon the exercise of the option, to the extent legally permitted, by tender of shares of Common Stock owned by the optionee having a fair market value not less than the exercise price, by such other lawful consideration as approved by the Committee, or by any combination of these. Nevertheless, the Committee may restrict the forms of payment permitted in connection with any option grant. No option may be exercised unless the optionee has made adequate provision for federal, state, local and foreign taxes, if any, relating to the exercise of the option, including, if permitted or required by the Company, through the optionee’s surrender of a portion of the option shares to the Company.
Options will become vested and exercisable at such times or upon such events and subject to such terms, conditions, performance criteria or restrictions as specified by the Committee. The maximum term of any option granted under the 2005 Plan is ten years, provided that an incentive stock option granted to a Ten Percent Stockholder must have a term not exceeding five years. The Committee will specify in each written option agreement, and solely in its discretion, the period of post-termination exercise applicable to each option.
Generally, stock options are nontransferable by the optionee other than by will or by the laws of descent and distribution, and are exercisable during the optionee’s lifetime only by the optionee. However, a nonstatutory stock option may be assigned or transferred to the extent permitted by the Committee in its sole discretion.
Stock Appreciation Rights.Each stock appreciation right granted under the 2005 Plan must be evidenced by a written agreement between the Company and the participant specifying the number of shares subject to the award and the other terms and conditions of the award, consistent with the requirements of the 2005 Plan.
A stock appreciation right gives a participant the right to receive the appreciation in the fair market value of Company Common Stock between the date of grant of the award and the date of its exercise. The Company may pay the appreciation either in cash or in shares of Common Stock. The Committee may grant stock appreciation rights under the 2005 Plan in tandem with a related stock option or as a freestanding award. A tandem stock appreciation right is exercisable only at the time and to the same extent that the related option is exercisable, and its exercise causes the related option to be canceled. Freestanding stock appreciation rights vest and become exercisable at the times and on the terms established by the Committee. The maximum term of any stock appreciation right granted under the 2005 Plan is ten years. Subject to appropriate adjustment in the event of any change in the capital structure of the Company, no employee may be granted in any fiscal year of the Company stock appreciation rights which in the aggregate are for more than five hundred thousand (500,000) shares, provided however, that the Company may make an additional one-time grant to any newly-hired employee of a stock appreciation right for the purchase of up to an additional two hundred and fifty thousand (250,000) shares.
Stock appreciation rights are generally nontransferable by the participant other than by will or by the laws of descent and distribution, and are generally exercisable during the participant’s lifetime only by the participant.
Restricted Stock Awards.The Committee may grant restricted stock awards under the 2005 Plan in the form of a restricted stock bonus, for which the participant furnishes consideration in the form of services to the Company. Restricted stock awards may be subject to vesting conditions based on such service or performance criteria as the Committee specifies, and the shares acquired may not be transferred by the participant until vested. Unless otherwise provided by the Committee, a participant will forfeit any shares of restricted stock as to which the restrictions have not lapsed prior to the participant’s termination of service. Participants holding restricted stock will have the right to vote the shares and to receive any dividends paid, except that dividends or other distributions paid in shares will be subject to the same restrictions as the original award. Subject to appropriate adjustment in the event of any change in the capital structure of the Company, no employee may be granted in any fiscal year of the Company more than two hundred thousand (200,000) shares of restricted stock on which the restrictions are based on performance criteria, provided however, that the Company may make an additional one-time grant to any newly-hired employee of a restricted stock award of up to an additional one hundred thousand (100,000) shares.
Restricted Stock Units.The Committee may grant restricted stock units under the 2005 Plan which represent a right to receive shares of Common Stock at a future date determined in accordance with the participant’s award agreement. No monetary payment is required for receipt of restricted stock units or the shares issued in settlement of the award, the consideration for which is furnished in the form of the participant’s services to the Company. The Committee may grant restricted stock unit awards subject to the attainment of performance goals similar to those described below in connection with performance shares and performance units, or may make the awards subject to vesting conditions similar to those applicable to restricted stock awards. Participants have no voting rights or rights
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to receive cash dividends with respect to restricted stock unit awards until shares of Common Stock are issued in settlement of such awards. However, the Committee may grant restricted stock units that entitle their holders to receive dividend equivalents, which are rights to receive additional restricted stock units for a number of shares whose value is equal to any cash dividends we pay. Subject to appropriate adjustment in the event of any change in the capital structure of the Company, no employee may be granted in any fiscal year of the Company more than two hundred thousand (200,000) restricted stock units on which the restrictions are based on performance criteria, provided however, that the Company may make an additional one-time grant to any newly-hired employee of a restricted stock award of up to an additional one hundred thousand (100,000) shares.
Performance Awards.The Committee may grant performance awards subject to such conditions and the attainment of such performance goals over such periods as the Committee determines in writing and sets forth in a written agreement between the Company and the participant. These awards may be designated as performance shares or performance units. Performance shares and performance units are unfunded bookkeeping entries generally having initial values, respectively, equal to the fair market value determined on the grant date of a share of Common Stock and a dollar amount per unit which may be determined by the Committee. Performance awards will specify a predetermined amount of performance shares or performance units that may be earned by the participant to the extent that one or more predetermined performance goals are attained within a predetermined performance period. To the extent earned, performance awards may be settled in cash, shares of Common Stock (including shares of restricted stock) or any combination thereof. Subject to appropriate adjustment in the event of any change in the capital structure of the Company, for each fiscal year of the Company contained in the applicable performance period, no employee may be granted performance shares that could result in the employee receiving more than one hundred thousand (100,000) shares of Common Stock or performance units that could result in the employee receiving more than one million dollars ($1,000,000). A participant may receive only one performance award with respect to any performance period.
Prior to the beginning of the applicable performance period or such later date as permitted under Section 162(m) of the Code, the Committee will establish one or more performance goals applicable to the award. Performance goals will be based on the attainment of specified target levels with respect to one or more measures of business or financial performance of the Company and each parent and subsidiary corporation consolidated therewith for financial reporting purposes, or such division or business unit of the Company as may be selected by the Committee.
The Committee, in its discretion, may base performance goals on one or more of the following such measures: revenue, gross margin, operating margin, operating income, pre-tax profit, earnings before interest, taxes and depreciation, net income, cash flow, expenses, the market price of the stock, earnings per share, return on stockholder equity, return on capital, return on net assets, economic value added, number of customers, market share, return on investment, profit after tax, customer satisfaction, business divestitures and acquisitions, supplier awards from significant customers, new product development and working capital. The target levels with respect to these performance measures may be expressed on an absolute basis or relative to a standard specified by the Committee. The degree of attainment of performance measures will, according to criteria established by the Committee, be computed before the effect of changes in accounting standards, restructuring charges and similar extraordinary items occurring after the establishment of the performance goals applicable to a performance award.
Following completion of the applicable performance period, the Committee will certify in writing the extent to which the applicable performance goals have been attained and the resulting value to be paid to the participant. The Committee retains the discretion to eliminate or reduce, but not increase, the amount that would otherwise be payable to the participant on the basis of the performance goals attained. However, no such reduction may increase the amount paid to any other participant. In its discretion, the Committee may provide for the payment to a participant awarded performance shares of dividend equivalents with respect to cash dividends paid on the Company’s Common Stock. Performance award payments may be made in lump sum or in installments. If any payment is to be made on a deferred basis, the Committee may provide for the payment of dividend equivalents or interest during the deferral period.
Unless otherwise provided by the Committee, if a participant’s service terminates due to the participant’s death, disability or retirement prior to completion of the applicable performance period, the final award value will be determined at the end of the performance period on the basis of the performance goals attained during the entire performance period but will be prorated for the number of months of the participant’s service during the performance period. If a participant’s service terminates prior to completion of the applicable performance period
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for any other reason, the 2005 Plan provides that, unless otherwise determined by the Committee, the performance award will be forfeited. No performance award may be sold or transferred other than by will or the laws of descent and distribution prior to the end of the applicable performance period.
Deferred Stock Awards.The 2005 Plan provides that certain participant’s who are executives or members of a select group of highly compensated employees may elect to receive, in lieu of payment in cash or stock of all or any portion of such participant’s cash and/or stock compensation, an award of deferred stock units. A participant electing to receive deferred stock units will be granted automatically, on the effective date of such deferral election, an award (a “Deferred Stock Unit Award”) for a number of stock units equal to the amount of the deferred compensation divided by an amount equal to the fair market value of a share of our Common Stock as quoted by the national or regional securities exchange or market system on which the Common Stock is listed on the date of grant. A stock unit is an unfunded bookkeeping entry representing a right to receive one share of our Common Stock in accordance with the terms and conditions of the Deferred Stock Unit Award. Participants are not required to pay any additional cash consideration in connection with the settlement of a Deferred Stock Unit Award. A participant’s compensation not paid in the form of a Deferred Stock Unit Award will be paid in cash in accordance with the Company’s normal payment procedures.
Each Deferred Stock Unit Award will be evidenced by a written agreement between the Company and the participant specifying the number of stock units subject to the award and the other terms and conditions of the Deferred Stock Unit Award, consistent with the requirements of the 2005 Plan. Deferred Stock Unit Awards are fully vested upon grant and will be settled by distribution to the participant of a number of whole shares of Common Stock equal to the number of stock units subject to the award on a date set forth in the participant’s written agreement in accordance with the terms of the 2005 Plan at the time of his or her election to receive the Deferred Stock Unit Award. A holder of a stock unit has no voting rights or other rights as a stockholder until shares of Common Stock are issued to the participant in settlement of the stock unit. However, participants holding stock units will be entitled to receive dividend equivalents with respect to any payment of cash dividends on an equivalent number of shares of Common Stock. Such dividend equivalents will be credited in the form of additional whole and fractional stock units determined by the fair market value of a share of Common Stock on the dividend payment date. Prior to settlement, no Deferred Stock Unit Award may be assigned or transferred other than by will or the laws of descent and distribution.
Other Stock-Based Awards.The Committee may also grant one or more awards not specifically identified by the terms of the 2005 Plan that would provide a participant with either: (i) a share of stock; (ii) the right to purchase a share of stock; (iii) has a value derived from a share of stock; or (iv) an exercise or conversion privilege related to a share of stock. Other stock-based awards may be subject to vesting conditions based on such service or performance criteria as the Committee specifies, and any such award may not be transferred by the participant until vested.
Change in Control.The 2005 Plan defines a “Change in Control” of the Company as any of the following events upon which the stockholders of the Company immediately before the event do not retain immediately after the event, in substantially the same proportions as their ownership of shares of the Company’s voting stock immediately before the event, direct or indirect beneficial ownership of a majority of the total combined voting power of the voting securities of the Company, its successor or the corporation to which the assets of the Company were transferred: (i) a sale or exchange by the stockholders in a single or series of related transactions of more than 50% of the Company’s voting stock; (ii) a merger or consolidation in which the Company is a party; (iii) the sale, exchange or transfer of all or substantially all of the assets of the Company; or (iv) a liquidation or dissolution of the Company. If a Change in Control occurs, the surviving, continuing, successor or purchasing corporation or parent corporation thereof may either assume all outstanding awards or substitute new awards having an equivalent value.
In the event of a Change in Control and the outstanding stock options and stock appreciation rights are not assumed or replaced, then all unexercisable, unvested or unpaid portions of such outstanding awards will become immediately exercisable, vested and payable in full immediately prior to the date of the Change in Control.
Any award not assumed, replaced or exercised prior to the Change in Control will terminate. The 2005 Plan authorizes the Committee, in its discretion, to provide for different treatment of any award, as may be specified in such award’s written agreement, which may provide for acceleration of the vesting or settlement of any award, or provide for longer periods of exercisability, upon a Change in Control.
Termination or Amendment.The 2005 Plan will continue in effect until the first to occur of (i) its termination by the Board or (ii) the date on which all shares available for issuance under the 2005 Plan have been issued and all
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restrictions on such shares under the terms of the 2005 Plan and the agreements evidencing awards granted under the 2005 Plan have lapsed. However, all incentive stock options granted, if at all, must be granted within ten (10) years from the date the 2005 Plan was adopted by the Board. The Board may terminate or amend the 2005 Plan at any time, provided that no amendment may be made without stockholder approval if the Board deems such approval necessary for compliance with any applicable tax or securities law or other regulatory requirements, including the requirements of any stock exchange or market system on which the Common Stock of the Company is then listed. No termination or amendment may affect any outstanding award unless expressly provided by the Board, and, in any event, may not adversely affect an outstanding award without the consent of the participant unless necessary to comply with any applicable law, regulation or rule.
Summary of U.S. Federal Income Tax Consequences
The following is only a summary of the United States federal income tax consequences to participants in the 2005 Plan and does not purport to be complete. Interested parties and participants should refer to the applicable provisions of the Code. The summary does not address other taxes such as state and local income taxes, federal and state estate, inheritance and gift taxes and foreign taxes. Each participant should consult his or her own tax advisor concerning the tax consequences of the 2005 Plan.
Incentive Stock Options.An optionee recognizes no taxable income for regular income tax purposes as a result of the grant or exercise of an incentive stock option qualifying under Section 422 of the Code. Optionees who neither dispose of their shares within two years following the date the option was granted nor within one year following the exercise of the option will normally recognize a capital gain or loss equal to the difference, if any, between the sale price and the purchase price of the shares. If an optionee satisfies such holding periods upon a sale of the shares, the Company will not be entitled to any deduction for federal income tax purposes. If an optionee disposes of shares within two years after the date of grant or within one year after the date of exercise (a “disqualifying disposition”), the difference between the fair market value of the shares on the determination date (see discussion under “Nonstatutory Stock Options” below) and the option exercise price (not to exceed the gain realized on the sale if the disposition is a transaction with respect to which a loss, if sustained, would be recognized) will be taxed as ordinary income at the time of disposition. Any gain in excess of that amount will be a capital gain. If a loss is recognized, there will be no ordinary income, and such loss will be a capital loss. Any ordinary income recognized by the optionee upon the disqualifying disposition of the shares generally should be deductible by the Company for federal income tax purposes, except to the extent such deduction is limited by applicable provisions of the Code.
The difference between the option exercise price and the fair market value of the shares on the determination date of an incentive stock option (see discussion under “Nonstatutory Stock Options” below) is treated as an adjustment in computing the optionee’s alternative minimum taxable income and may be subject to an alternative minimum tax which is paid if such tax exceeds the regular tax for the year. Special rules may apply with respect to certain subsequent sales of the shares in a disqualifying disposition, certain basis adjustments for purposes of computing the alternative minimum taxable income on a subsequent sale of the shares and certain tax credits which may arise with respect to optionees subject to the alternative minimum tax.
Nonstatutory Stock Options and Indexed Stock Options.Options not designated or qualifying as incentive stock options, or as an indexed stock option, will be nonstatutory stock options having no special tax status. An optionee generally recognizes no taxable income as the result of the grant of such an option. Upon exercise of a nonstatutory stock option, the optionee normally recognizes ordinary income in the amount of the difference between the option exercise price and the fair market value of the shares on the determination date (as defined below). If the optionee is an employee, such ordinary income generally is subject to withholding of income and employment taxes.
The “determination date” is the date on which the option is exercised unless the shares are subject to a substantial risk of forfeiture (as in the case where an optionee is permitted to exercise an unvested option and receive unvested shares which, until they vest, are subject to the Company’s right to repurchase them at the original exercise price upon the optionee’s termination of service) and are not transferable, in which case the determination date is the earlier of (i) the date on which the shares become transferable or (ii) the date on which the shares are no longer subject to a substantial risk of forfeiture. If the determination date is after the exercise date, the optionee may elect, pursuant to Section 83(b) of the Code, to have the exercise date be the determination date by filing an election with the Internal Revenue Service no later than 30 days after the date the option is exercised. Upon the sale of stock
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acquired by the exercise of a nonstatutory stock option, any gain or loss, based on the difference between the sale price and the fair market value on the determination date, will be taxed as capital gain or loss. No tax deduction is available to the Company with respect to the grant of a nonstatutory stock option or the sale of the stock acquired pursuant to such grant. The Company generally should be entitled to a deduction equal to the amount of ordinary income recognized by the optionee as a result of the exercise of a nonstatutory stock option, except to the extent such deduction is limited by applicable provisions of the Code.
Stock Appreciation Rights.No taxable income is reportable when a stock appreciation right 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 of our Common Stock received. Any additional gain or loss recognized upon any later disposition of the shares would be capital gain or loss.
Restricted Stock Awards.A participant acquiring restricted stock generally will recognize ordinary income equal to the fair market value of the shares on the “determination date” (as defined above under “Nonstatutory Stock Options”). If the participant is an employee, such ordinary income generally is subject to withholding of income and employment taxes. If the determination date is after the date on which the participant acquires the shares, the participant may elect, pursuant to Section 83(b) of the Code, to have the date of acquisition be the determination date by filing an election with the Internal Revenue Service no later than 30 days after the date the shares are acquired. Upon the sale of shares acquired pursuant to a restricted stock award, any gain or loss, based on the difference between the sale price and the fair market value on the determination date, will be taxed as capital gain or loss. The Company generally should be entitled to a deduction equal to the amount of ordinary income recognized by the participant on the determination date, except to the extent such deduction is limited by applicable provisions of the Code.
Performance and Restricted Stock Units Awards.A participant generally will recognize no income upon the grant of a performance share, performance units or restricted stock units award. Upon the settlement of such awards, participants normally will recognize ordinary income in the year of receipt in an amount equal to the cash received and the fair market value of any nonrestricted shares received. If the participant is an employee, such ordinary income generally is subject to withholding of income and employment taxes. If the participant receives shares of restricted stock, the participant generally will be taxed in the same manner as described above (see discussion under “Restricted Stock”). Upon the sale of any shares received, any gain or loss, based on the difference between the sale price and the fair market value on the “determination date” (as defined above under “Nonstatutory Stock Options”), will be taxed as capital gain or loss. The Company generally should be entitled to a deduction equal to the amount of ordinary income recognized by the participant on the determination date, except to the extent such deduction is limited by applicable provisions of the Code.
Deferred Stock Unit Awards.A participant generally will recognize no income upon the grant of a Deferred Stock Unit Award. Upon the settlement of such an award, the participant normally will recognize ordinary income in the year of settlement in an amount equal to the fair market value of any unrestricted shares of our Common Stock received. Upon the sale of any shares received, any gain or loss, based on the difference between the sale price and the fair market value on the determination date, will be taxed as capital gain or loss. The Company generally should be entitled to a deduction equal to the amount of ordinary income recognized by the participant on the determination date, except to the extent such deduction is limited by applicable provisions of the Code.
Other Stock-Based Awards.A participant generally will recognize income with respect to any other stock-based award at the time and in the manner required by the applicable provisions of the Code and such taxation will depend upon the specifics of any such award. Upon the sale of any shares received, any gain or loss, based on the difference between the sale price and the fair market value on the determination date, will be taxed as capital gain or loss. The Company generally should be entitled to a deduction equal to the amount of ordinary income recognized by the participant on the determination date, except to the extent such deduction is limited by applicable provisions of the Code.
Accounting Treatment
In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123 (Revised 2004),Share-Based Payment,(SFAS No. 123R), which addresses all forms of share-based payment (“SBP”) awards, including all shares issued under employee stock purchase plans, stock options, restricted stock and stock appreciation rights. SFAS No. 123R requires companies, including Cohu, to recognize as compensation expense, in its financial statements, the grant date fair value of all SBP awards over the service (vesting) period effective January 1, 2006.
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New Plan Benefits
Awards granted under the 2005 Plan are granted at the discretion of the Committee, and, accordingly, any future such awards are not yet determinable. Benefits under the 2005 Plan will depend on a number of factors, including the fair market value of the Company’s Common Stock on future dates, actual Company performance against performance goals established with respect to performance awards and decisions made by the participants. Consequently, it is not possible to determine the future benefits that might be received by participants, including those noted below, under the 2005 Plan.
| | | | |
Name and Position | | Shares |
|
James A. Donahue, Chief Executive Officer | | | 0 | |
Jeffrey D. Jones, Chief Financial Officer | | | 0 | |
James G. McFarlane, Senior Vice President | | | 0 | |
Roger J. Hopkins, Vice President, Sales and Service | | | 0 | |
James P. Walsh, Vice President, Manufacturing | | | 0 | |
| | | | |
All Current Executive Officers, as a Group | | | 0 | |
All Current Non-Employee Directors who are not Executive Officers, as a Group (4 Persons) | | | 0 | |
| | | | |
| | | | |
All Employees and Directors, Including all Current Officers who are not Executive Officers, as a Group | | | 0 | |
| | | | |
Required Vote and Board of Directors Recommendation
The affirmative vote of a majority of the votes cast at the Meeting, at which a quorum is present, either in person or by proxy, is required to approve the amendments to the 2005 Plan.
The Board of Directors believes that the proposed amendments to the 2005 Plan are in the best interests of the Company and its stockholders for the reasons stated above. Therefore, the Board recommends a vote “FOR” approval of the amendments to the 2005 Plan.
PROPOSAL NO. 3
RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee of the Board has appointed Ernst & Young LLP as Cohu’s independent registered public accounting firm for the fiscal year ending December 26, 2009.25, 2010. Ernst & Young LLP served as Cohu’s independent registered public accounting firm for the fiscal year ended December 27, 200826, 2009 and also provided certain tax and other audit-related services. See “Principal Accounting Fees and Services” on page 20.14. Representatives of Ernst & Young LLP are expected to attend the Meeting, where they will be available to respond to appropriate questions and, if they desire, to make a statement.
Our Board recommends that the stockholders approve the ratification of the appointment of Ernst & Young LLP as Cohu’s independent registered public accounting firm for the fiscal year ending December 26, 2009.25, 2010. If the appointment is not ratified, the Board will consider whether it should select another independent registered public accounting firm.
Required Vote and Board of Directors Recommendation
The affirmative vote of a majority of shares present, in person or by proxy at the Meeting (provided a quorum is present) is required to approve the ratification of the appointment of Ernst & Young LLP.
The Board of Directors recommends a vote “FOR” the ratification of the appointment of Ernst & Young LLP as Cohu’s independent registered public accounting firm for the fiscal year ending December 26, 2009.25, 2010.
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BOARD OF DIRECTORS AND COMMITTEES
Director Independence
Cohu has adopted standards for director independence pursuant to NASDAQ listing standards and Securities and Exchange Commission (“SEC”)SEC rules. An “independent director” means a person other than an officer or employee of Cohu or its subsidiaries, or any other individual having a relationship that, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. To be
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considered independent, the Board must affirmatively determine that neither the director nor an immediate family member of the director has had any direct or indirect material relationship with Cohu within the last three years.
The Board has considered relationships, transactions and/or arrangements with each of the directors, and has concluded that none of the non-employee directors has any relationships with Cohu that would impair his independence. The Board has determined that each member of the Board, other than Mr. Donahue, is an independent director under applicable NASDAQ listing standards and SEC rules. Mr. Donahue is an employee of Cohu and, as such, he did not meet the independence standards. In addition, the Board has also determined that:
| • | | all directors who serve on the Audit, Compensation and Nominating and Governance Committeescommittees are independent under applicable NASDAQ listing standards, Internal Revenue Code requirements and SEC rules, and |
|
| • | | all members of the Audit Committee meet the additional independence requirement that they do not directly or indirectly receive compensation from Cohu other than their compensation as directors. |
Board Structure and Committee Composition
As of the date of this proxy statement, our Board has five directors and the following three committees: (1) Audit, (2) Compensation and (3) Nominating and Governance. The membership during 20082009 and the function of each of the committees are described below. Each of the committees operates under a written charter adopted by the Board. All of the committee charters are available on Cohu’s website atwww.cohu.com/investors/corporategovernance. During 2008,2009, the Board held fifteenten meetings. Each director attended at least 75% of all Board and applicable Committee meetings.committee meetings, with the exception of Mr. Bilodeau who was elected to our Board in November, 2009. Directors are encouraged to attend annual meetings of Cohu stockholders. Four of our five directors attended the last annual meeting of stockholders held on May 13, 2008.12, 2009.
| | | | | | | | | | | | |
| | | | | | | | | | Nominating and |
Name of Director | | Audit | | Compensation | | Governance |
Independent Directors: | | | | | | | | | | | | |
Harry L. Casari (1) | | | X | | | | X | * | | | X | |
Robert L. Ciardella | | | X | | | | X | | | | X | * |
Harold Harrigian (1) | | | X | * | | | X | | | | X | |
Charles A. Schwan | | | | | | | | | | | | |
| | | | | | | | | | | | |
Other Director: | | | | | | | | | | | | |
James A. Donahue | | | | | | | | | | | | |
| | | | | | | | | | | | |
Number of Meetings in 2008 | | | 10 | | | | 8 | | | | 4 | |
The Cohu, Inc. Corporate Governance Guidelines provide that if the Chairman of the Board and Chief Executive Officer are the same person, the Cohu Nominating and Governance Committee shall nominate an independent director to serve as the Lead Independent Director, the selection of whom shall be subject to approval by a vote of the majority of the independent directors. The table below breaks down 2009 committee membership for each committee and each director.
| | | | | | | | | | | | |
| | | | | | | | | | Nominating and |
Name of Director | | Audit | | Compensation | | Governance |
Independent Directors: | | | | | | | | | | | | |
Steven J. Bilodeau | | | X | | | | X | | | | X | |
Harry L. Casari | | | X | | | Chair | | | X | |
Robert L. Ciardella(1) | | | X | | | | X | | | Chair |
Harold Harrigian | | Chair | | | X | | | | X | |
Charles A. Schwan(2) | | | | | | | | | | | | |
| | | | | | | | | | | | |
Other Director: | | | | | | | | | | | | |
James A. Donahue(3) | | | | | | | | | | | | |
Number of Meetings in 2009 | | | 6 | | | | 11 | | | | 5 | |
| | |
X(1) | = | Committee member; * = Chair— Appointed Lead Independent Director of the Board on March 12, 2010. |
|
(1)(2) | | Audit Committee financial expert as defined by SEC Rules.— Resigned from the Board on March 12, 2010. |
|
(3) | | — Appointed Chairman of the Board on March 12, 2010. |
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Audit Committee
Cohu has a separately designated standing Audit Committee established in accordance with Section 3(a)(58) of the Securities Exchange Act of 1934, as amended. The Audit Committee assists the Board in fulfilling its responsibilities for general oversight of the integrity of Cohu’s financial statements, Cohu’s compliance with legal and regulatory requirements, the independent registered public accounting firm’s qualifications and independence, risk assessment and risk management. Among other things, the Audit Committee prepares the Audit Committee report for inclusion in the annual proxy statement; annually reviews the Audit Committee charter and the Committee’scommittee’s performance; appoints, evaluates and approves the fees of Cohu’s independent registered public accounting firm; reviews and approves the scope of the annual audit, the audit fee and the financial statements; reviews Cohu’s disclosure controls and procedures, internal controls, including such controls over financial reporting, information security policies and corporate policies with respect to financial information and earnings guidance; oversees investigations into complaints concerning financial matters; and reviews other risks that may have a significant impact on Cohu’s financial statements. The Audit Committee works closely with management as well as Cohu’s independent registered public accounting firm. The Audit Committee has the authority to obtain advice and assistance from, and receive appropriate funding from Cohu for, outside legal, accounting or other advisors as the Audit Committee deems necessary in order to carry out its duties.
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The report of the Audit Committee is included herein on page 1913 and the charter of the Audit Committee is available atwww.cohu.com/investors/corporategovernance.
Compensation Committee
The Compensation Committee discharges the Board’s responsibilities relating to compensation of Cohu’s executives and directors and, among other things, reviews and discusses the “Compensation Discussion and Analysis” with management, and produces an annual compensation committee report for inclusion in Cohu’s proxy statement; provides general oversight of Cohu’s compensation structure, including Cohu’s equity compensation plans and benefits programs,programs; and retains and approves the terms of the retention of any compensation consultants and other compensation experts. Other specific duties and responsibilities of the Compensation Committee include reviewing and approving objectives relevant to executive officer compensation, evaluating performance and determining the compensation of executive officers in accordance with those objectives; approving employment agreements for executive officers; approving and amending Cohu’s equity and non-equity incentive compensation and related performance goals and measures and stock-related programs (subject to stockholder approval, if required); approving any changes to non-equity based benefit plans involving a material financial commitment by Cohu; recommending director compensation to the Board; monitoring director and executive stock ownership; and annually evaluating its performance and its charter.
The report of the Compensation Committee is included herein on page 28.23. The charter of the Compensation Committee is available atwww.cohu.com/investors/corporategovernance.
Nominating and Governance Committee
The Nominating and Governance Committee identifies individuals qualified to become Board members and recommends to the Board candidates to be nominated for election as directors at Cohu’s annual meeting consistent with criteria the Committee deems appropriate, as approved by the Board; develops Cohu’s Corporate Governance Guidelines for approval by the Board, and reviews and recommends updates to such Guidelines, as appropriate; oversees the organization of the Board to discharge the Board’s duties and responsibilities properly and efficiently; identifies best practices; and recommends corporate governance principles, including giving proper attention and making effective responses to stockholder concerns regarding corporate governance. Other specific duties and responsibilities of the Nominating and Governance Committee include annual assessment of the size and composition of the Board; developing membership qualifications for Board committees; defining specific criteria for director independence; monitoring compliance with Board and Board committee membership criteria; annually reviewing and recommending directors for continued service; coordinating and assisting management and the Board in recruiting new members to the Board; annually, and together with the Chairman of the Compensation Committee and Lead Independent Director, evaluating the performance of the Chairman of the Board and CEO and presenting the results of the review to the Board and to the Chairman and CEO; reviewing and recommending proposed changes to Cohu’s charter or Bylaws and Board committee charters; periodically assessing and recommending action with respect to stockholder rights plans or other stockholder protections; recommending Board committee assignments; reviewing and approving any employee director or executive officer standing for election for outside for-profit boards of directors; reviewing governance-related stockholder proposals and recommending Board responses; overseeing the evaluation of the Board and management and conducting a preliminary review of director independence and the financial literacy and expertise of Audit Committee
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members. The ChairChairman of the Nominating and Governance Committee receives communications directed to non-employee directors.
The charter of the Nominating and Governance Committee is available atwww.cohu.com/investors/corporategovernance.
Board Leadership Structure, Risk Oversight
Board Leadership Structure
Our Board is currently comprised of four independent directors and one employee director. Mr. Donahue was appointed Chairman of the Board on March 12, 2010, upon the resignation of Charles A. Schwan. Mr. Donahue has been a member of our Board since 1999 and Chief Executive Officer since 2000. In connection with Mr. Donahue’s appointment as Chairman, the Board has designated Mr. Ciardella as Lead Independent Director. We believe that the number of independent, experienced directors that make up our Board, along with the independent oversight by our Lead Independent Director, benefits Cohu and our stockholders.
We believe having a single leader for both the Company and the Board provides clear leadership for Cohu and is optimal for us because it demonstrates to our employees, suppliers, customers, and other stakeholders that Cohu is under strong leadership, with a single person setting the tone and having primary responsibility for managing our operations. We believe Cohu, is well-served by this leadership structure.
The Cohu, Inc. Corporate Governance Guidelines provide that if the Chairman of the Board and Chief Executive Officer are the same person, the Cohu Nominating and Governance Committee shall nominate an independent director to serve as the Lead Independent Director, the selection of whom shall be subject to approval by a vote of the majority of the independent directors. Although annually elected, the Lead Independent Director is generally expected to serve for more than one year.
The specific responsibilities of the Lead Independent Director include presiding at executive sessions of directors and at board meetings where the Chairman is not present, calling meetings of Independent Directors, serving as a liaison between the independent directors and the Chairman/CEO and performing such other duties and responsibilities as the Board may determine.
Risk Oversight
Our Board oversees our risk management process. The Board focuses on general risk management strategy, the most significant risks facing Cohu, and ensures that appropriate risk mitigation strategies are implemented by management. The Board is also apprised of particular risk management matters in connection with its general oversight and approval of corporate matters. Cohu’s management is responsible for day-to-day risk management. This responsibility includes identifying, evaluating, and addressing potential risks that may exist at the enterprise, strategic, financial, operational, and compliance and reporting levels.
Stockholder Nominees
The policy of the Nominating and Governance Committee is to consider properly submitted stockholder nominations for candidates for membership on the Board as described below under “Identifying and Evaluating Nominees for Directors.” In evaluating such nominations, the Nominating and Governance Committee seeks to achieve a balance of knowledge, experience and capability on the Board and to address the membership criteria set forth under “Director Qualifications.” Any stockholder nominations proposed for consideration by the Nominating and Governance Committee should include the nominee’s name and qualifications for Board membership and should be addressed to:
Corporate Secretary
Cohu, Inc.
12367 Crosthwaite Circle
Poway, CA 92064-6817
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In addition, the Bylaws of Cohu permit stockholders to nominate directors for consideration at an annual stockholder meeting. For a description of the process for nominating directors in accordance with Cohu’s Bylaws, see “Stockholder Proposals — 20102011 Annual Meeting” on page 36.31.
Director Qualifications
Cohu’s Corporate Governance Guidelines are available atwww.cohu.com/investors/corporategovernance and contain Board membership criteria that apply to nominees recommended by the Nominating and Governance Committee for a position on Cohu’s Board. Under these criteria, members of the Board should have the highest professional and personal
8
ethics and values, consistent with longstanding Cohu values and standards. They should have broad experience at the policy-making level in business, government, education, technology and/or public interest. They should also be committed to enhancing stockholder value and should have sufficient time to carry out their duties and to provide insight and practical wisdom, based on their experience. Their service on other boards of public companies should be limited to a number that permits them, given their individual circumstances, to responsibly perform all director duties. Each director must represent the interests of all stockholders.
Identifying and Evaluating Nominees for Directors
Our Nominating and Governance Committee uses a variety of methods for identifying and evaluating nominees for director. The Nominating and Governance Committee 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 Nominating and Governance Committee considers various potential candidates for director. Candidates may come to the attention of the Nominating and Governance Committee through current Board members, professional search firms, stockholders or other persons. These candidates are evaluated at regular or special meetings of the Nominating and Governance Committee, and may be considered at any point during the year. As described above, the Nominating and Governance Committee also considers properly submitted stockholder nominations for candidates for the Board. Following verification of the stockholder status of persons proposing candidates, recommendations are aggregated and considered by the Nominating and Governance Committee at a regularly scheduled meeting. If any materials are provided by a stockholder in connection with the nomination of a director candidate, such materials are forwarded to the Nominating and Governance Committee. The Nominating and Governance Committee also reviews materials provided by professional search firms or other parties in connection with a nominee who is not proposed by a stockholder. In evaluating such nominations, the Nominating and Governance Committee seeks to achieve a balance of knowledge, experience and capability on the Board. While we do not have a formal diversity policy, the Board believes it is important for the Board to have diversity of knowledge base, professional experience and skills, and the Board and Nominating and Governance Committee takes these qualities into account when considering director nominees.
Executive Sessions
Executive sessions of independent directors, without management present, are held at least three times a year. The sessions may be scheduled or held on an impromptu basis, and are chaired by the ChairLead Independent Director or in the absence of the Lead Independent Director the Chairman of the Nominating and Governance Committee.Committee or another independent director. Any independent director can request that an additional executive session be initiated or scheduled.
Communications with the Board
Individuals may communicate with the Board, including the non-employee directors, by submitting an e-mail to Cohu’s Board atcorp@cohu.com or by sending a letter to the Cohu Board of Directors, c/o Corporate Secretary, Cohu, Inc., 12367 Crosthwaite Circle, Poway, California 92064-6817.
Compensation of Directors
Cash Compensation
Directors who are employees of Cohu do not receive any additional compensation for their services as directors. During fiscal 2008,2009, non-employee directors received an annual retainer, and Board committee Chairs and members received annual fees, all paid quarterly, as set forth below.
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Annual Retainer: | | | | |
Chairman of the Board | | $ | 60,000 | |
Other Directors | | $ | 40,000 | |
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Annual Fees for Committee Chairs: | | | | |
Audit Committee | | $ | 16,000 | |
Compensation Committee | | $ | 10,000 | |
Nominating and Governance Committee | | $ | 8,000 | |
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Annual Fees for Committee Members: | | | | |
Audit Committee | | $ | 8,000 | |
Compensation Committee | | $ | 5,000 | |
Nominating and Governance Committee | | $ | 4,000 | |
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| | | | |
Annual Retainer: | | | | |
Chairman of the Board | | $ | 60,000 | |
Other Directors | | $ | 40,000 | |
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Annual Fees for Committee Chairs: | | | | |
Audit Committee | | $ | 16,000 | |
Compensation Committee | | $ | 10,000 | |
Nominating and Governance Committee | | $ | 8,000 | |
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Annual Fees for Committee Members: | | | | |
Audit Committee | | $ | 8,000 | |
Compensation Committee | | $ | 5,000 | |
Nominating and Governance Committee | | $ | 4,000 | |
In addition to the retainers and fees noted above, non-employee directors are reimbursed for out-of-town travel and other reasonable out-of-pocket expenses related to attendance at Board and committee meetings. On March 12, 2010, the Board established the position of Lead Independent Director who will receive an additional annual retainer of $10,000.
Under the terms and conditions of the Cohu, Inc. 2005 Equity Incentive Plan (the “2005 Plan”) members of the Board may make an annual irrevocable election to defer receipt of all or a portion of their cash-based non-employee director fees (including, as applicable, any annual retainer fee, committee fee and any other compensation payable with respect to their service as a member of the Board). In the event that a director makes such an election, the Company will grant deferred stock awards in lieu of cash, with an initial value equal to the deferred cash, which will be settled at a future date through the issuance of Cohu Common Stock.
Equity Compensation
Non-employee directors participate in the 2005 Plan that provides for grants of non-qualified stock options or other forms of equity compensation to non-employee directors, as authorized by the Board. Cohu’s stock ownership guidelines provide that independent directors should accumulate over time a minimum of 10,000 shares of Cohu stock.
On August 17, 2006, the Compensation Committee, after examination of market data, and onincluding an analysis prepared by the recommendation of Compensia, a compensation consulting firm Compensia, recommended and the Board approved the following equity compensation for non-employee directors:
Initial appointment to the Board:
10,000 Stock Options 3,300 | | | | |
| 10,000 | | | Stock Options |
| 3,300 | | | Restricted Stock Units (RSUs) |
Annual grants:
5,000 Stock Options 2,000 | | | | |
| 5,000 | | | Stock Options |
| 2,000 | | | Restricted Stock Units (RSUs) |
On March 12, 2010, after examination of market data, including an analysis prepared by Compensia, the Compensation Committee recommended and the Board approved an increase in the annual equity compensation for non-employee directors. In fiscal 2010, the annual equity compensation for non-employee directors will be as follows:
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| 5,000 | | | Stock Options |
| 5,000 | | | Restricted Stock Units (RSUs) |
Each RSU represents a contingent right to receive one share of Cohu Common Stock upon vesting. The exercise price for all options granted to non-employee directors is 100% of the fair market value of the shares on the grant date. Assuming continued service on the Board, the stock options and RSUs granted to non-employee directors upon their initial appointment to the Board will vest and become exercisable or shares are issued, as the case may be, in three equal annual installments beginning one year after the date of grant. The annual option and RSU awards vest and become exercisable or shares are issued, as applicable, upon the one-year anniversary of the award. Exercisability of some or all options or RSUs may be accelerated upon a change in control, as defined.defined in the 2005 Plan. The options expire no later than ten years after the date of grant.
On May 13, 2008,12, 2009, stock options to purchase 5,000 shares of Cohu Common Stock and 2,000 RSUs were awarded to each of Messrs. Casari, Ciardella, Harrigian and Schwan. The stock options vest and become exercisable one-year after the grant date, have an exercise price of $17.67$8.87 per share, the fair market value of Cohu Common Stock on the date of grant, and expire ten years from the grant date. On November 30, 2009, stock options to purchase 10,000 shares of Cohu Common Stock and 3,300 RSUs were awarded to Mr. Bilodeau upon his election to the Board. The stock options vest and become exercisable over three years after the grant date, have an exercise price of $11.78 per share, the fair market value of Cohu Common Stock on the date of grant, and expire ten years from the grant date. Cohu will issue to each recipient, assuming continued service as a director, 2,000 shares of Cohu Common Stock afterover the one-year RSU vesting period.
Medical Benefits
Cohu directors who are retired officers of Cohu and certain other retired Cohu officers and their spouses receive medical benefits consisting of reimbursement of health insurance premiums and other medical costs not covered by insurance. These benefits are not offered to other retired Cohu employees.
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20082009 DIRECTOR COMPENSATION
The following table provides information on compensation for Cohu’s non-employee directors for fiscal 2008.2009.
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| | Change in | | | | | | Change in | | | | |
| | Pension | | | | | | Pension | | | | |
| | Fees | | Non-Equity | | Value and | | | | | | Fees | | Non-Equity | | Value and | | | | |
| | Earned | | Incentive | | Non-qualified | | | | | | Earned | | Incentive | | Non-qualified | | | | |
| | or Paid | | Stock | | Option | | Plan | | Deferred | | All Other | | | | or Paid | | Stock | | Option | | Plan | | Deferred | | All Other | | |
| | in Cash | | Awards | | Awards | | Compensation | | Compensation | | Compensation | | | | in Cash | | Awards | | Awards | | Compensation | | Compensation | | Compensation | | |
Name | | ($) | | ($) (1) | | ($) (2) | | ($) | | Earnings ($) | | ($) (3) | | Total ($) | | ($) | | ($) (1) | | ($) (2) | | ($) | | Earnings ($) | | ($) (3) | | Total ($) |
Steven J. Bilodeau | | | 14,250 | | 36,564 | | 47,200 | | — | | — | | — | | 98,014 | |
Harry L. Casari | | 62,000 | | 47,743 | | 42,358 | | — | | — | | — | | 152,101 | | | 62,000 | | 17,260 | | 15,500 | | — | | — | | — | | 94,760 | |
Robert L. Ciardella | | 61,000 | | 47,743 | | 42,358 | | — | | — | | — | | 151,101 | | | 61,000 | | 17,260 | | 15,500 | | — | | — | | — | | 93,760 | |
Harold Harrigian | | 65,000 | | 47,743 | | 42,358 | | — | | — | | — | | 155,101 | | | 65,000 | | 17,260 | | 15,500 | | — | | — | | — | | 97,760 | |
Charles A. Schwan | | 60,000 | | 47,743 | | 42,358 | | — | | — | | 59,400 | | 209,501 | | | 60,000 | | 17,260 | | 15,500 | | — | | — | | 43,000 | | 135,760 | |
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(1) | | Amounts shown do not reflect compensation actually received by the directors. Instead, the amounts shown above are the compensation costs recognized by Cohu in fiscal 2008grant date fair value for stock awards issued in the form of restricted stock units as determined under Statement of Financial Accounting Standards No. 123(R) (“FAS 123R”) and include amounts from awardsRSUs granted in fiscal 2007 and fiscal 2008.2009. The assumptions used to calculate the grant date fair value of the stock awards and the related compensation expense are set forth in Note 5 of the Notes to Consolidated Financial Statements4, “Employee Benefit Plans,” included in Part IV, Item 15(a) of Cohu’s Annual Report on Form 10-K for the year ended December 27, 200826, 2009 filed with the Securities and Exchange Commission.SEC. The derived grant fair value for the stock award is recognized, for financial statement purposes, over the number of days of service required for the award to vest in full. As of December 27, 200826, 2009, Messrs. Casari, Ciardella, Harrigian and Schwan each had 2,000 RSU’sRSUs outstanding, and Mr. Bilodeau had 3,300 RSUs outstanding. |
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(2) | | Amounts shown do not reflect compensation actually received by the directors. Instead, the amounts shown above are the compensation costs recognized by Cohugrant date fair value for stock awards issued in fiscal 2008 forthe form of option awards, as determined under FAS 123R, and include amounts from awards granted in fiscal 2008 and prior years.2009. The assumptions used to calculate the grant date fair value of the stockoption awards and the related compensation expense are set forth in Note 5 of the Notes to Consolidated Financial Statements4, “Employee Benefit Plans,” included in Part IV, Item 15(a) of Cohu’s Annual Report on Form 10-K for the year ended December 27, 200826, 2009 filed with the Securities and Exchange Commission.SEC. The derived grant fair value for the stock options is recognized, for financial statement purposes, over the number of days of service required for the option to vest in full. As of December 27, 200826, 2009, Messrs. Bilodeau, Casari, Ciardella, Harrigian and Schwan had options to purchase 40,000,10,000, 45,000, 40,00050,000, 45,000 and 15,00020,000 shares of common stockCohu Common Stock outstanding, respectively. |
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(3) | | Amounts reflect payment of health insurance premiums and reimbursement of other medical costs not covered by health insurance. |
CORPORATE GOVERNANCE
Cohu has adopted Corporate Governance Guidelines (the “Guidelines”) that outline, among other matters, the role and functions of the Board, the responsibilities of various Board committees, selection of new directors and director independence. The Guidelines are available, along with other important corporate governance materials, on our website atwww.cohu.com/investors/corporategovernance. As the operation of the Board is a dynamic process, the Board regularly reviews new or changing legal and regulatory requirements, evolving best practices and other developments, and the Board may modify the Guidelines, as appropriate, from time to time.
CODE OF BUSINESS CONDUCT AND ETHICS
Cohu has adopted a Code of Business Conduct and Ethics (the “Code”). The Code applies to all of Cohu’s directors and employees including its principal executive officer, principal financial officer and principal accounting officer. The Code, among other things, is designed to promote:
| 1. | | Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; |
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| 2. | | Full, fair, accurate, timely and understandable disclosure in reports and documents that Cohu files with, or submits to, the SEC and in other public communications made by Cohu; |
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| 3. | | Compliance with applicable governmental laws, rules and regulations; |
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| 4. | | The prompt internal reporting of violations of the Code to an appropriate person or persons identified in the Code; and |
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| 5. | | Accountability for adherence to the Code. |
The Code is available atwww.cohu.com/investors/corporategovernance and is included as Exhibit 14 to Cohu’s Annual Report on Form 10-K for the year ended December 27, 2008.26, 2009.
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