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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Aehr Test Systems
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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[ ] 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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AEHR TEST SYSTEMS
400 Kato Terrace
Fremont, California 94539
_____________________________
TO BE HELD ON OCTOBER 30, 200728, 2008
_____________________________
TOTHESHAREHOLDERSOF
AEHRTESTSYSTEMS: |
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 30, 2007,28, 2008, at 4:00 p.m., at the Company’s corporate headquarters located at 400 Kato Terrace, Fremont, California 94539, for the following purposes:
1. | ||
To elect five directors. |
2. | To approve an amendment of the Company’s 2006 Equity Incentive Plan to increase the number of shares reserved for issuance thereunder by an additional 600,000 shares. |
3. | To ratify the selection of Burr, Pilger & Mayer LLP as the Company’s independent registered public accounting firm for the fiscal year ending May 31, |
4. | To transact such other business as may properly come before the Annual Meeting or any adjournments thereof. |
Only holders of record of Common Stock at the close of business on September 12, 20072008 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.
By Order of the Board of Directors,
RHEA J. POSEDEL
Chief Executive Officer and
Chairman of the Board of Directors
AEHR TEST SYSTEMS
400 Kato Terrace
Fremont, California 94539
_______________
PROXY STATEMENT
2007_______________
2008 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 30, 200728, 2008 and at any adjournments thereof.
At the Annual Meeting, the Shareholders will be asked:
1. | ||
To elect five directors. |
2. | To approve an amendment of the Company’s 2006 Equity Incentive Plan to increase the number of shares reserved for issuance thereunder by an additional 600,000 shares. |
3. | To ratify the selection of Burr, Pilger & Mayer LLP as the Company’s independent registered public accounting firm for the fiscal year ending May 31, |
4. | 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, 20072008 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, 2007.
THE ANNUAL MEETING
Date, Time and Place
The Annual Meeting will be held on October 30, 200728, 2008 at 4:00 p.m., local time, at 400 Kato Terrace, Fremont, California 94539.
General
The Company’s 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, 20072008 (the “Record Date”) are entitled to notice of and to vote at the Annual Meeting. As of the Record Date, there were 7,835,3848,402,720 shares of Common Stock 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.
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 shareholder’s 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 candidate’s 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.
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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 makebe counted for purposes of determining whether a quorum more readilyexists 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 20082009 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 Company’s 2008Company's 2009 Annual Meeting of Shareholders must be received by the Company no later than May 30, 2008,29, 2009, in order that they may be included in the proxy statement and form of proxy related to that meeting.
Shareholder Information
IN COMPLIANCE WITHRULE 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 COMPANY’S ANNUAL REPORT ONFORM 10-K, INCLUDING THE CONSOLIDATED FINANCIAL STATEMENTS. REQUESTS FOR SUCH COPIES SHOULD BE DIRECTED TO AEHR TEST SYSTEMS, 400 KATO TERRACE, FREMONT, CA 94539, ATTENTION: INVESTOR RELATIONS.
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 the Company has 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 the Company 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.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, DIRECTORS
AND MANAGEMENT
The following table sets forth certain information regarding the beneficial ownership of the Company’s Common Stock as of August 31, 2007,2008, 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 Company’s Common Stock, (ii) each director of the Company, (iii) each of the Company’s executive officers named in the Summary Compensation Table appearing herein, and (iv) all directors and executive officers of the Company as a group:
| Shares Beneficially Owned(1) | |
Beneficial Owner | Number
| Percent(2)
|
Named Executive Officers and Directors: |
|
|
Rhea J. Posedel (3) | 1,126,434 | 13.2% |
Robert R. Anderson (4) | 154,436 | 1.8% |
William W. R. Elder (5) | 40,000 | * |
Mukesh Patel (6) | 45,929 | * |
Mario M. Rosati (7) | 234,217 | 2.8% |
Gary L. Larson (8) | 152,913 | 1.8% |
Joel Bustos (9) | 29,848 | * |
David S. Hendrickson (10) | 78,370 | * |
Gregory M. Perkins (11) | 22,226 | * |
All Directors and Executive Officers as a group (11 persons) (12) | 1,992,193 | 22.2% |
Principal Shareholders: |
|
|
State of Wisconsin Investment Board (13) 121 East Wilson Street, Madison, WI 53702 | 993,740 | 11.8% |
|
|
Shares Beneficially | ||||||||
Owned(1) | ||||||||
Beneficial Owner | Number | Percent(2) | ||||||
Named Executive Officers and Directors: | ||||||||
Rhea J. Posedel (3) | 1,145,621 | 14.3 | % | |||||
Robert R. Anderson (4) | 154,436 | 2.0 | % | |||||
William W. R. Elder (5) | 80,000 | 1.0 | % | |||||
Mukesh Patel (6) | 76,929 | 1.0 | % | |||||
Mario M. Rosati (7) | 234,217 | 3.0 | % | |||||
Gary L. Larson (8) | 150,355 | 1.9 | % | |||||
Carl N. Buck (9) | 123,314 | 1.6 | % | |||||
David S. Hendrickson (10) | 65,662 | * | ||||||
Gregory M. Perkins (11) | 57,435 | * | ||||||
All Directors and Executive Officers as a group (11 persons) (12) | 2,119,717 | 27.1 | % | |||||
Principal Shareholders: | ||||||||
Private Capital Management (13) | 1,230,634 | 15.7 | % | |||||
8889 Pelican Bay Blvd., Suite 500, Naples, FL 34108 | ||||||||
State of Wisconsin Investment Board (14) | 993,740 | 12.7 | % | |||||
121 East Wilson Street, Madison, WI 53702 | ||||||||
RGM Capital, LLC (15) | 670,220 | 8.6 | % | |||||
6621 Willow Park Drive, Suite One, Naples, FL 34109 |
* | ||
Represents less than 1% of the Common Shares |
(1) | 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 isc/o Aehr Test Systems, 400 Kato Terrace, Fremont, California 94539. |
(2) | Shares of Common Stock subject to options that are currently exercisable or exercisable within 60 days of August 31, |
(3) | Includes 20,000 shares held by Vivian Owen, Mr. Posedel’s wife, 9,950 shares held by Rhea J. Posedel, trustee for Natalie Diane Posedel, Mr. Posedel’s daughter, and |
(4) | ||
Includes |
(5) | 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 |
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(6) | ||
Includes |
(7) | Includes 27,000 shares held by Mario M. Rosati and Douglas Laurice, trustees for the benefit of Mario M. Rosati, |
(8) | Includes |
(9) | Includes |
(10) | Includes |
(11) | Includes |
(12) | Includes |
(13) | Based solely on Schedule 13G/A filed February | |
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The following table gives information about the Company’s Common Stock that may be issued upon the exercise of options, warrants and rights under all of the Company’s existing equity compensation plans as of May 31, 2007.2008.
Plan Category | (a)
Number of securities to | (b)
Weighted-average | (c) Number of securities |
Equity compensation plans approved by security holders |
1,282,681 (1) |
$5.05 |
486,768 |
Equity compensation plans not approved by security holders |
-- |
-- |
-- |
Total |
1,282,681 |
$5.05 |
486,768 |
(c) | ||||||||||||
Number of securities | ||||||||||||
(a) | (b) | remaining available for future | ||||||||||
Number of securities to | Weighted-average | issuance under equity | ||||||||||
be issued upon exercise | exercise price of | compensation plans | ||||||||||
of outstanding options, | outstanding options, | (excluding securities reflected | ||||||||||
Plan Category | warrants and rights | warrants and rights | in column (a)) | |||||||||
Equity compensation plans approved by security holders | 1,366,264 | (1) | $ | 4.39 | 915,363 | |||||||
Equity compensation plans not approved by security holders | -- | -- | -- | |||||||||
Total | 1,366,264 | $ | 4.39 | 915,363 |
(1) Issued pursuant to the Company’s 1996 Stock Option Plan and the 1997 Employee Stock Purchase Plan (“Stock Option Plans”) and the Company’s 2006 Equity Incentive Plan and 2006 Employee Stock Purchase Plan (“2006 Plans”), which require the approval of and have been approved by the Company’s shareholders. See description of the Stock Option Plans below.
Stock Option Plans
On October 23, 1996,26, 2006, the Board of DirectorsCompany’s shareholders approved the 1996 Stock Option2006 Equity Incentive Plan (the “Stock“2006 Equity Incentive Plan”). The StockOptions granted under the 2006 Equity Incentive Plan providesare generally for periods not to exceed ten years (five years if the granting of non-qualified stock options or incentive stock optionsoption is granted to employeesa 10% stockholder) and consultantsare granted at the fair market value of the Company’s Common Stock as ofstock at the date of grant. Optionsgrant as determined by the Board of Directors.
The 2006 Equity Incentive Plan replaces the Amended and Restated 1996 Stock Option Plan (the “1996 Stock Option Plan”) which would otherwise have expired in 2006. The 1996 Stock Option Plan will
continue to govern awards previously granted under that plan. However, the shares represented by options granted under the 1996 Stock Option Plan generally vest at a ratethat terminate without being exercised are added to the shares available for grant under the 2006 Equity Incentive Plan. More information regarding the 2006 Equity Incentive Plan is set forth in the section entitled “Amendment to the 2006 Equity Incentive Plan”. As of 1/48th per month, however, the vesting schedule can change on agrant-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
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The 2006 Employee Stock Purchase Plan replaces the 1997 Employee Stock Purchase Plan which would have otherwise expired in 2007. For the year ended May 31, 2007,2008, approximately 43,00033,537 shares of Common Stock were issued under the 1997 Employee Stock Purchase Plan and the 2006 Employee Stock Purchase Plan. As of May 31, 2007, 413,1112008, 446,648 shares have been issued under the 1997 Employee Stock Purchase Plan and the 2006 Employee Stock Purchase Plan. Because Rhea J. Posedel owns more than 10% of the Company’s outstanding Common Stock, he is precluded from participating in the 1997 Employee Stock Purchase Plan and the 2006 Employee Stock Purchase Plan.
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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.below. 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:
| | | Director |
Rhea J. Posedel | 66 | Chairman of the Board and Chief Executive Officer | 1977 |
Robert R. Anderson (1)(2) | 70 | Director | 2000 |
William W.R. Elder (1)(2)(3) | 69 | Director | 1989 |
Mukesh Patel (1)(3) | 50 | Director | 1999 |
Howard T. Slayen | 61 | Nominee for Director | -- |
Director | ||||||||||
Name of Nominee | Age | Position | Since | |||||||
Rhea J. Posedel | 65 | Chairman of the Board and Chief Executive Officer | 1977 | |||||||
Robert R. Anderson (1)(2) | 69 | Director | 2000 | |||||||
William W.R. Elder (1)(2)(3) | 68 | Director | 1989 | |||||||
Mukesh Patel (1)(3) | 49 | Director | 1999 | |||||||
Mario M. Rosati | 61 | Director and Secretary | 1977 |
(1) | ||
Member of the Audit Committee. |
(2) | Member of the Compensation Committee. |
(3) | 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. POSEDELis 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 Company’s 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. ANDERSONwas appointed to the Company’s 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 alsohas 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 Chairmandirector of Aviza Technology, Inc., a semiconductor equipment company, andsince December 2005. Mr. Anderson served on the Trikon board from April 2000 through the date of acquisition by Aviza. Mr. Anderson is a private investor. In addition, Mr. Anderson currently is a director of MKS Instruments, Inc., a semiconductor components and equipment supplier. He also serves as a director for twoone private companies.
WILLIAM W. R. ELDERhas 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
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MUKESH PATELwas appointed to the Company’s Board of Directors in June 1999. Mr. Patel is a leading entrepreneur in the Silicon Valley. Mr. Patel was President and Chief Executive Officer of Metta Technology, which he co-founded in 2004, until November 2006, when LSI Logic Corporation acquired it. He founded Sparkolor Corporation, acquired by Intel Corporation in late 2002, and co-founded SMART Modular Technologies, Inc. (“SMART Modular”), a high value added memory products company, acquired by Solectron Corporation in late 1999. Mr. Patel was Vice President and General Manager Memory Product Division of SMART Modular from August 1995 to August 1998 and aswas Vice President, Engineering from February 1989 to July 1995. Mr. Patel is a private investor. 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 Memberdirector for SMART Modular and for several privately-held companies.
MARIO M. ROSATIHOWARD T. SLAYEN has been providing independent financial consulting services to various organizations and clients since June 2001. From October 1999 to May 2001, Mr. Slayen was Executive Vice President and Chief Financial Officer of Quaartz Inc., a web-hosted communications business. From 1971 to September 1999, Mr. Slayen held various positions with PricewaterhouseCoopers/Coopers & Lybrand, including his last position as a Corporate Finance Partner. In addition, Mr. Slayen currently is a director of the Company since 1977.Lantronix, Inc., a provider of embedded networking solutions. He isalso serves as a member of the law firm Wilson Sonsini Goodrich & Rosati, Professional Corporation which he joined in 1971.director for
two private companies. Mr. RosatiSlayen holds a B.A. from the University of California, Los AngelesClaremont McKenna College 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, 2007.2008. No incumbent director during his period of service in such fiscal year attended fewer than 75% of the aggregate of all meetings of the Board of Directors and the committees of the Board upon which such director served.
The Board of Directors has three committees: the Audit Committee, the Compensation Committee and the Nominating and Governance Committee.
The Audit Committee of the Board of Directors is comprised entirely of independent directors, as defined by the NASDAQ Stock Market LLC director independence standards, as well as applicable SEC rules, as currently in the National Association of Securities Dealers, Inc.’s (“NASD”) listing standards, for whicheffect. More information regarding the functions performed by the Committee, its membership, and the number of meetings held during the fiscal year, is set forth in the section entitled “Report of the Audit Committee,Committee.” included in this Proxy Statement. The Audit Committee is governed by a written charter approved by the Board of Directors. The Company maintains a copy of the Audit Committee charter on its website:www.aehr.com. The Audit Committee consists of directors Messrs. 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) ofRegulation 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 by the NASDAQ Stock Market LLC director independence standards, as well as applicable SEC rules, as currently in the NASD’s listing standards.effect. The Compensation Committee held one (1) meeting during fiscal year 2007.2008. The Compensation Committee reviews and advises the Board of Directors regarding all forms of compensation to be provided to the officers, employees, directors and consultants of the Company. The Compensation Committee is governed by a written charter approved by the Board of Directors. The Company maintains a copy of the Compensation Committee charter on its website:www.aehr.com. More information regarding the Compensation Committee’s processes and procedures can be found herein in the section entitled “Compensation Discussion and Analysis.”
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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 candidate’s name and qualifications for Board membership and should be addressed to:
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 Company’s Code of Conduct and Ethics adopted by the Board in an action by written consent dated September 24, 2004.Board. They should have broad experience at the policy-making level in business. They should be committed to enhancing shareholder value and should have sufficient time to carry out their duties and to provide insight and practical wisdom based on experience. Their service on other boards of public companies should be limited to a number that permits them, given their individual circumstances, to perform responsibly all director duties. Each director must represent the interests of all shareholders.
Identifying and Evaluating Nominees for Directors
The Board of Directors utilizes a variety of methods for identifying and evaluating nominees for director. The Board of Directors periodically assesses the appropriate size of the Board, and whether any vacancies on the Board are expected due to retirement or otherwise. In the event that vacancies are anticipated, or otherwise arise, the Board of Directors considers various potential candidates for director. Candidates may come to the attention of the Board of Directors through current Board members, professional search firms, shareholders or other persons. These candidates are evaluated at regular or special meetings of the Board of Directors, and may be considered at any point during the year. As described above, the Board of Directors considers properly submitted shareholder recommendations for candidates for the Board. Following verification of the shareholder status of persons proposing candidates, any recommendations are aggregated and considered by the Board of Directors at a regularly scheduled meeting prior to the issuance of the proxy statement for the Company’s 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
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The Board of Directors has determined that each of its current directors, except for Rhea J. Posedel, the Company’s Chief Executive Officer, is independent within the meaning of the NASDAQ Stock Market LLC director independence standards, as well as applicable SEC rules, as currently in effect.
Annual Meeting Attendance
Although the Company does not have a formal policy regarding attendance by members of the Board at the Company’s annual meetings of shareholders, directors are encouraged to attend annual meetings of the Company’s shareholders. All fivefour continuing members of the Board of Directors attended the 20062007 annual meeting of shareholders.
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.may be found on the Company’s website at www.aehr.com. The Company will disclose any amendment to the Code of Conduct and Ethics or waiver of a provision of the Code of Conduct and Ethics, including the name of the officer to whom the waiver was granted, on the Company’s website atwww.aehr.com, on the Investors page.
Communications with the Board
The Company does not have a formal policy regarding shareholder communication with the Board of Directors. However, shareholders may communicate with the Board by submitting a letter to the attention of the Chairman of the Board,c/o Aehr Test Systems, 400 Kato Terrace, Fremont, CA 94539.
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 Company’s 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)five (5) meetings in fiscal year 2007.2008. Each member is an independent director in accordance with the NASDAQ Global Market Audit Committee requirements.requirements as currently in effect. The Audit Committee evaluates the scope of the annual audit, reviews audit results, consults with management and the Company’sCompany's independent registered public accounting firm prior to the presentation of financial statements to shareholders and, as appropriate, initiates inquiries into aspects of the Company’sCompany's financial affairs.
The Company’s management has primary responsibility for preparing the Company’s consolidated financial statements and for the Company’s financial reporting process. The Company’s independent registered public accounting firm, Burr, Pilger & Mayer LLP (“BPM”), is responsible for expressing an opinion on the conformity of the Company’s audited consolidated financial statements to accounting principles generally accepted in the United States of America. The Audit Committee has reviewed and discussed with management the audited consolidated financial statements for the year ended May 31, 2007.2008. BPM, the Company’s independent registered public accounting firm for fiscal year 2007,2008, issued their unqualified report dated August 27, 200728, 2008 on the Company’sCompany's consolidated financial statements.
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Based on the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors of Aehr Test Systems that the Company’sCompany's audited consolidated financial statements for the fiscal year ended May 31, 20072008 be included in the Company’s Annual Report onForm 10-K.
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 to be incorporated by reference into any filings of the Company under the Securities Act or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language contained in such filing.
Director Compensation
Rhea J. Posedel, the only inside director of the Company, does not receive any cash compensation for his services as a member of the Board of Directors. An inside director is a director who is a regular employee of the Company, whereas an outside director is not an employee of the Company. EachEffective October 28, 2008, each outside director receiveswill receive (1) an annual retainer of $25,000, (2) $2,500 for each regular board meeting such member attends, and (3) $1,250 for each special telephonic board meeting such member attends. Committee members attending a committee meeting not held in conjunction with a regular board meeting will receive the following amounts: audit committee chair - $2,000; audit committee member - $1,500; compensation committee chair - $1,750; and other committee members - $1,250. Committee members attending a committee meeting held in conjunction with a regular board meeting will receive 50% of the amounts noted above for each respective committee member. Outside directors are also reimbursed for certain expenses incurred in attending board and committee meetings.
For fiscal year 2008, each outside director received (1) an annual retainer of $15,000, (2) $1,875 for each regular board meeting he attends,such member attended, and (3) $1,125 for each committee meeting he attendssuch member attended 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. Through fiscal 2006, each outside director could elect to receive an additional stock option grant in lieu of any cash payments throughout the year. In fiscal 2007, that alternative was eliminated. Directors are eligible to participate in the Company’s stock option plans. 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. In each of fiscal 2008 and 2007, outside directors Robert Anderson, William Elder, Mukesh Patel and Mario Rosati were each granted options to purchase 5,000 shares at $7.28 per share and $6.07 per share.share, respectively. All exercise prices are equal to the closing price of the Company’s Common Stock on the date of the grant as reported on the NASDAQ Global Market.
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.
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The following table sets forth the compensation paid by the Company during the fiscal year ended May 31, 20072008 to the Company’s non-executive officer directors:
Compensation of Directors
Name | Year | Fees Earned or | Option Award | Total | ||
Rhea J. Posedel (1) | 2008 | $ -- | $ -- | $ -- | ||
Robert R. Anderson | 2008 | $27,000 | $21,294 | $48,294 | ||
William W.R. Elder | 2008 | $27,000 | $21,294 | $48,294 | ||
Mukesh Patel | 2008 | $25,125 | $21,294 | $46,419 | ||
Mario M. Rosati | 2008 | $22,500 | $21,294 | $43,794 |
Fees Earned or | Option | |||||||||||||||
Name | Year | paid in Cash | Award (2) | Total | ||||||||||||
Rhea J. Posedel (1) | 2007 | $ | -- | $ | -- | $ | -- | |||||||||
Robert R. Anderson | 2007 | $ | 21,750 | $ | 24,111 | $ | 45,861 | |||||||||
William W.R. Elder | 2007 | $ | 26,625 | $ | 14,812 | $ | 41,437 | |||||||||
Mukesh Patel | 2007 | $ | 21,750 | $ | 24,111 | $ | 45,861 | |||||||||
Mario M. Rosati | 2007 | $ | 24,375 | $ | 14,812 | $ | 39,187 |
(1) | ||
Rhea J. Posedel is an executive officer and does not receive any additional compensation for services provided as a director. |
(2) | Reflects the dollar amount recognized for financial statement reporting purposes for the fiscal year ended May 31, |
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.”
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PROPOSAL 2
AMENDMENT TO THE 2006 EQUITY INCENTIVE PLAN
Proposal
The Board of Directors is proposing that the 2006 Equity Incentive Plan (the “2006 Equity Incentive Plan”) be amended to increase the number of shares authorized thereunder by an additional 600,000 shares of Common Stock. The Company previously reserved 600,000 shares of Common Stock for issuance under the 2006 Equity Incentive Plan, plus (i) 281,405 shares that were reserved but not issued under the 1996 Stock Option Plan, (ii) any shares subject to stock options or similar awards granted under the 1996 Stock Option Plan that expire or otherwise terminate without having been exercised in full and (iii) any shares issued pursuant to awards granted under the 1996 Stock Option Plan that are forfeited to or repurchased by the Company.
The Board of Directors is proposing this amendment in order to allow for sufficient stock options to cover the Company's needs for at least the next fiscal year.
Participation in the 2006 Equity Incentive Plan
The grant of options, stock purchase rights, stock bonus awards and long-term performance awards under the 2006 Equity Incentive Plan to employees, including the executive officers named in the Summary Compensation Table herein, is subject to the discretion of the plan administrator. As of the date of this proxy statement, there has been no determination by the plan administrator with respect to future awards under the 2006 Equity Incentive Plan. Accordingly, future awards are not determinable. No stock bonus awards or long-term performance awards were granted during the last fiscal year. The following table sets forth information with respect to the grant of options to the executive officers named in the Summary Compensation Table, to all current executive officers as a group, to all outside directors as a group and to all other employees as a group during the last fiscal year:
Amended Plan Benefits
2006 Equity Incentive Plan
Name of Individual | Securities Underlying Options | Weighted Average Exercise Price |
Rhea J. Posedel | 33,000 | $6.56 |
Gary L. Larson | 20,000 | $5.96 |
Joel Bustos | 90,000 | $6.11 |
David S. Hendrickson | 25,000 | $5.96 |
Gregory M. Perkins | 15,000 | $5.96 |
All current Executive Officers as a group | 205,000 | $6.12 |
All outside Directors as a group | 20,000 | $7.28 |
All other employees (including all current Officers who are not Executive Officers) as a group |
197,250 |
$6.27 |
Summary of Stock Plan
Purpose. The purposes of the 2006 Equity Incentive Plan are to attract and retain the best available personnel, to provide additional incentive to employees, directors and consultants of the Company and to promote the success of the Company's business.
Status of Shares. As of August 31, 2008, options to purchase a total of 710,991 (net of cancelled or expired options) shares were outstanding under the 2006 Equity Incentive Plan. In addition, options to
purchase 84,337 (plus any shares that might in the future be returned to the plan as a result of cancellations or expiration of options) shares remained available for future grant thereunder. As discussed above, shares represented by options granted under the 1996 Stock Option Plan that terminate without being exercised are added to the shares available for future grant under the 2006 Equity Incentive Plan.
Eligibility; Administration. Under the 2006 Equity Incentive Plan, employees may be granted “incentive stock options” intended to qualify within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”) and employees, directors and consultants may be granted “non-statutory stock options” not intended to qualify under such statute. The 2006 Equity Incentive Plan is administered by the Board of Directors of the Company, or by a committee appointed by the Board of Directors and consisting of at least two members of the Board, which determine the terms of options granted, including the exercise price, the number of shares subject of the option and the options' exercisability. The Board or its committee has sole discretion to interpret any provision of the 2006 Equity Incentive Plan.
Exercise Price. The exercise price of options granted under the 2006 Equity Incentive Plan is determined by the Board of Directors or its committee. The exercise price of incentive stock options may not be less than 100% of the fair market value of the Common Stock on the date the option is granted. However, the exercise price of options granted to an optionee who owns more than 10% of the voting power or value of all classes of stock of the Company must not be less than 110% of the fair market value on the date of grant. The Common Stock is currently traded on the NASDAQ Global Market. While the Company's stock is traded on the NASDAQ Global Market, the fair market value is the reported closing price on the date of grant.
Exercisability. Options granted to new optionees under the 2006 Equity Incentive Plan generally become exercisable starting one month after the date of grant with 1/48th of the shares covered thereby becoming exercisable at that time and with an additional 1/48th of the total number of option shares becoming exercisable each month thereafter, with full vesting occurring on the fourth anniversary of the date of grant. The term of an option may not exceed ten years. No option may be transferred by the optionee other than by will or the laws of descent or distribution. Each option may be exercised, during the lifetime of the optionee, only by such optionee.
Stock Purchase Rights. The 2006 Equity Incentive Plan permits the Company to grant rights to purchase Common Stock. After the Board or Committee determines that it will offer stock purchase rights under the 2006 Equity Incentive Plan, it shall advise the offeree in writing or electronically of the terms, conditions and restrictions related to the offer, including the number of shares that the offeree shall be entitled to purchase, and the time within which the offeree must accept such offer. The offer shall be accepted by execution of a stock purchase agreement or a stock bonus agreement in the form determined by the Board or Committee.
Unless the Board or Committee determines otherwise, the stock purchase agreement or a stock bonus agreement shall grant the Company a repurchase option exercisable upon the voluntary or involuntary termination of the purchaser's employment with the Company for any reason. The purchase price for shares repurchased pursuant to the stock purchase agreement or a stock bonus agreement shall be the original price paid by the purchaser and may be paid by cancellation of any indebtedness of the purchaser to the Company. The repurchase option shall lapse at such rate as the Board or Committee may determine.
Amendment and Termination. The Board may at any time amend or terminate the 2006 Equity Incentive Plan without approval of the shareholders; provided, however, that the Company will obtain shareholder approval of any amendment to the 2006 Equity Incentive Plan to the extent necessary to comply with Rule 16b-3 under the Securities Exchange Act of 1934 (the “Exchange Act”), with Section 422 of the Code, or with any other applicable law or regulation, including requirements of the NASDAQ Stock Market LLC or any established stock exchange. Any amendment or termination of the 2006 Equity Incentive Plan is subject to the rights of optionees under agreements entered into prior to such amendment or termination.
Certain Federal Tax Information
An optionee who is granted an incentive stock option will not recognize taxable income either at the time the option is granted or at the time it is exercised, although exercise of the option may subject the optionee to the alternative minimum tax. The Company will not be allowed a deduction for federal income
tax purposes as a result of the exercise of an incentive stock option regardless of the applicability of the alternative minimum tax. Upon the sale or exchange of the shares at least two years after grant of the option and one year after exercise of the option, any gain will be treated as long-term capital gain. If these holding periods are not satisfied at the time of sale, the optionee will recognize ordinary income equal to the difference between the exercise price and the lower of (i) the fair market value of the stock at the date of the option exercise or (ii) the sale price of the stock, and the Company will be entitled to a deduction in the same amount. (Different rules may apply upon a premature disposition by an optionee who is an officer, director or 10% shareholder of the Company.) Any additional gain or loss recognized on such a premature disposition of the shares will be characterized as capital gain or loss. If the Company grants an incentive stock option and as a result of the grant the optionee has the right in any calendar year to exercise for the first time one or more incentive stock options for shares having an aggregate fair market value (under all plans of the Company and determined for each share as of the date the option to purchase the share was granted) in excess of $100,000, then the excess shares must be treated as non-statutory options.
An optionee who is granted a non-statutory stock option will also not recognize any taxable income upon the grant of the option. However, upon exercise of a non-statutory stock option, the optionee will recognize ordinary income for tax purposes measured by the excess of the then fair market value of the shares over the exercise price. Any taxable income recognized by an optionee who is an employee of the Company will be subject to tax withholding by the Company. Upon resale of the shares by the optionee, any difference between the sales price and the fair market value at the time of exercise, to the extent not recognized as ordinary income as described above, will be treated as capital gain or loss. The Company will be allowed a deduction for federal income tax purposes equal to the amount of ordinary income recognized by the optionee.
Vote Required
Approval of the amendment to the 2006 Equity Incentive Plan requires the affirmative vote of the Votes Cast (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.
THEBOARDOFDIRECTORSRECOMMENDSTHATSHAREHOLDERSVOTEFORTHEAMENDMENT
TOTHE 2006 EQUITYINCENTIVEPLAN
PROPOSAL 3
RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC
The Board of Directors of the Company has selected Burr, Pilger & Mayer LLP, as the Company’s independent registered public accounting firm, to audit the consolidated financial statements of the Company for the fiscal year ending May 31, 2008,2009, and recommends that Shareholders vote for ratification of such appointment. In the event of a negative vote on such ratification, the Audit Committee and the Board of Directors will reconsider their selection. Even if the selection is ratified, the Audit Committee and the Board of Directors in their discretion may direct the appointment of a different independent registered public accounting firm at any time during the year. Representatives of Burr, Pilger & Mayer 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.
Principal Accounting Fees 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 PwC’s satisfaction, would have caused PwC to make reference thereto in its reports on the consolidated financial statements for such years.
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 fiscal years ended May 31, 20072008 and 2006:
DESCRIPTION OF SERVICES
| 2008 | 2007 | |
Audit Fees | $186,895 | $177,363 | |
TOTAL | $186,895 | $177,363 |
2007 | 2006 | |||||||
Audit Fees | $ | 177,363 | $ | 161,935 | ||||
TOTAL | $ | 177,363 | $ | 161,935 | ||||
Audit Fees.Fees. Aggregate fees billed or to be billed for professional services rendered for the audit of the Company’s fiscal 20072008 and fiscal 20062007 annual consolidated financial statements, for the review of the condensed consolidated financial statements included in the Company’s quarterly reports during such periods and for the review of the Company’s Registration Statement onForm S-8.
The Audit Committee pre-approves all audit and other permitted non-audit services provided by the Company’ independent registered public accounting firm. These services may include audit services, audit-related services, tax services and other services. Pre-approval is generally provided for up to one year, and any pre-approval is detailed as to the particular service or category of services and is subject to a budget. The Audit Committee may also pre-approve particular services on acase-by-case basis. The Audit Committee has delegated the authority to grant pre-approvals to Mr. Anderson, the committee chair, when the full Audit Committee is unable to do so. These pre-approvals are reviewed by the full Audit Committee at its next regular meeting. In fiscal 2007,2008, all audit and non-audit services were pre-approved in accordance with the Company’s policy.
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COMPENSATION DISCUSSION AND ANALYSIS
General Philosophy
The Company compensates the Company’s executive officers through a combination of base salary, cash bonus and equity compensation designed to be competitive with comparable companies. The Company’s primary objectives of the overall executive compensation program are to attract, retain, motivate and reward Company executive officers while aligning their compensation with the achievements of key business objectives and maximization of shareholder value.
The Company’s compensation programs are designed to:
1. | ||
reward executive officers for performance and link executive compensation to the creation of shareholder value through the use of performance and equity-based compensation; |
2. | attract, retain and motivate highly qualified executive officers by compensating them at a level that is competitive with other companies in similar industries; |
3. | share the risks and rewards of the Company’s business with the Company’s executive officers; and |
4. | maximize long-term shareholder returns by utilizing compensation funds in a cost-effective manner. |
To achieve these objectives, the Company has implemented and maintains compensation plans that tie a significant portion of executive officers’ overall compensation to the Company’s financial performance and Common Stock price. In determining the compensation for the Company’s executive officers, the Company considers a number of factors, including information regarding comparably sized companies in the semiconductor equipment and materials industries in the United States. The Company also considers the level of the executive officer, the geographical region in which the executive officer resides and the executive officer’s overall performance and contribution to the Company. The compensation packages provided by the Company to its executive officers, including the named executive officers, include both cash-based and equity-based compensation. A component of these compensation packages is linked to the performance of individual executive officers as well as Company-wide performance objectives. The Compensation Committee ensures that the total compensation paid to the Company’s executive officers is competitive and consistent with the Company’s compensation philosophy and corporate governance guidelines. The Compensation Committee relies upon Company employees, personal knowledge of semiconductor equipment industry compensation practices, compensation data in SEC filings, and national and regional compensation surveys to provide information and recommendations to establish specific compensation packages for executive officers.
Role of Compensation Committee
The Company’s executive officer compensation program is overseen and administered by the Compensation Committee. The Compensation Committee reviews and advises the Board of Directors regarding all forms of compensation to be provided to the executive officers of the Company. The Compensation Committee is appointed by the Company’s Board of Directors, and consists of Messrs. Anderson and Elder, each of whom is an “outside director” for purposes of Section 162(m) of the Internal Revenue Code and a “non-employee director” for purposes ofRule 16b-3 under the Exchange Act.
The Company’s Compensation Committee has primary responsibility for ensuring that the Company’s executive officer compensation and benefit program is consistent with the Company’s compensation philosophy and corporate governance guidelines and is responsible for determining the executive compensation packages offered to the Company’s executive officers.
The Compensation Committee is responsible for:
1. | ||
Determining the specific executive officer compensation methods to be used by the Company and the participants in each of those specific programs; |
2. | Determining the evaluation criteria and timelines to be used in those programs; |
3. | Determining the processes that will be followed in the ongoing administration of the programs; and |
4. | Determining their role in the administration of the programs. |
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Elements of Compensation
In structuring the Company’s compensation program, the Compensation Committee seeks to select the types and levels of compensation that will further its goals of rewarding performance, linking executive officer compensation to the creation of shareholder value, attracting and retaining highly qualified executive officers and maximizing long-term shareholder returns.
The Company designs base salary to provide the essential reward for an executive officer’s work. Once base salary levels are initially determined, increases in base salary are provided to recognize an executive officer’s specific performance achievements.
The Company utilizes equity-based compensation, including stock options, to ensure that the Company has the ability to retain executive officers over a longer period of time, and to provide executive officers with a form of reward that aligns their interests with those of the Company’s shareholders. Executive officers whose skills and results the Company deems to be critical to the Company’s long-term success are eligible to receive higher levels of equity-based compensation.
The Company also utilizes various forms of performance-based compensation, including cash bonuses and commissions that allow the Company to remain competitive with other companies while providing additional compensation for an executive officer’s outstanding results and for the achievement of corporate objectives.
Core benefits, such as the Company’s basic health benefits, 401(k) program, Employee Stock Ownership Plan (“ESOP”) and life insurance, are designed to provide support to executive officers and their families.
Currently, the Company uses the following executive officer compensation vehicles:
Cash-based programs: base salary, annual bonus plan and a sales commission plan; and
Equity-based programs: The 2006 Equity Incentive Plan, the 2006 Employee Stock Purchase Plan and the ESOP.
These programs apply to all executive level positions, except for the sales commission plan, which only applies to the Vice President of Worldwide Sales and Service. Periodically, but at least once near the close of each fiscal year, the Compensation Committee reviews the existing plans and recommends those that should be used for the subsequent year.
Consistent with the Company’s compensation philosophy, the Company has structured each element of the Company’s executive officer compensation program as described below.
Base Salary
The Company creates a set of base salary structures that are both affordable and competitive in relation to the market. The Company determines the Company’s executive officer salaries based on job responsibilities and individual experiences. The Company monitors base salary levels within the market and makes adjustments to the Company’s structures as needed after considering the recommendations of management. The Company’s Compensation Committee reviews the salaries of the Company’s executive officers annually, and the Company’s Compensation Committee grants increases in salaries based on individual performance during the prior calendar year, provided that any increases are within the guidelines determined by the Compensation Committee for each position.
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Annual Bonus
The Company’s executive annual bonus plan provides for cash bonus awards, dependent upon attaining stated corporate objectives and personal performance goals. The Company’s executive officers are eligible to receive cash bonuses based upon the Company’s achievement of certain financial and performance goals set by the Compensation Committee. The Compensation Committee approves the performance criteria on an annual basis and these financial and performance goals typically have a one-year time horizon. The Compensation Committee believes that the practice of awarding incentive bonuses based on the achievement of performance goals furthers the Company’s goal of strengthening the connection between the interests of management and the Company’s shareholders. In fiscal 2008,2009, the Chief Executive Officer is eligible to receive a maximum cash bonus of up to 75%80% of his base salary and the Company’s Chief Financial Officer is eligible to receive a maximum cash bonus of up to 65%70% of his base salary. Vice Presidents are eligible are eligible to receive maximum cash bonuses of up to 70% of their base salaries depending on individual and company performance.
In fiscal 2007,2008, the Company’s Compensation Committee determined the maximum cash bonus levels for the Company’s Chief Executive Officer, Chief Financial Officer and Vice Presidents to be 80%75%, 70%65% and up to 70% of base compensation, respectively. Based on the achievement of certain objectives and corporate financial performance for the year, the Compensation Committee awarded cash bonuses to the Company’s Chief Executive Officer, Chief Financial Officer and the Company’s Vice Presidents equal to 25%26%, 22%23% and up to 28%47% of their base salary compensation, respectively. The annual incentive bonus plan is discretionary, and the Compensation Committee may modify, suspend, eliminate or adjust the plan, the goals and the total or individual payouts at any time.
Sales Commission
The sales commission plan is a sales commission program and provides a payout to the Vice President of Worldwide Sales and Service (“VP-WSS”) based on achievement of sales objectives, or quotas. The VP-WSS receives a standard commission for sales up to 100% of quota and accelerated commissions based on sales above quota. Commissions are “earned” at the time of booking, and commissions are paid after the close of the quarter of booking. Under this plan, the VP-WSS earned $65,679$53,414 in fiscal 2007.2008. The VP-WSS was paid $57,031$62,294 during fiscal 2007.2008. This $57,031$62,294 included $11,597$20,245 that was earned in fiscal 2006.2007. The remaining $20,246$11,365 earned in fiscal 20072008 was paid to the VP-WSS in fiscal 2008.2009. The $57,031$62,294 in commissions paid to the VP-WSS is included in the annual compensation salary column in the Summary Compensation Table on page 19.
Equity Compensation
The Company awards equity compensation to the Company’s executive officers based on the performance of the executive officer and guidelines related to each executive officer’s position in the Company. The Company determines the Company’s option guidelines based on information derived from the Company’s experience with other companies and, with respect to the Company’s executive officers, informal surveys of companies in the Company’s industry. The Company typically bases awards to newly hired executive officers on these guidelines and the Company bases the Company’s award decisions for continuing executive officers on these guidelines as well as an executive officer’s performance for the prior fiscal year. The Company evaluates each executive officer’s awards based on the factors described above and competitive practices in the Company’s industry. The Company believes that stock option ownership is an important factor in aligning corporate and individual goals. The Company utilizes equity-based compensation, including stock options, to encourage long-term performance, with corporate performance and extended executive officer tenure producing potentially significant value.
The Company’s Compensation Committee generally grants stock options to executive officers. Such grants are typically made coincident with the first meeting of the Board of Directors held each fiscal year. The Company believes annual awards at this time allow the Compensation Committee to consider a number of factors related to the option award decisions, including corporate performance for the prior fiscal year, executive officer performance for the prior fiscal year and expectations for the upcoming fiscal year. With respect to newly hired executive officers, the Company’s practice is typically to make stock option grants effective on or shortly after the executive officer’s hire date. The Company does not plan or time the Company’s stock option grants in coordination with the release of material non-public information for the purpose of affecting the value of executive officer compensation.
The criteria for determining the appropriate salary level, bonus and stock option grants for each of the executive officers include (a) Company performance as a whole, (b) business unit performance (where
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These criteria are usually related to a fiscal year time period, but may, in some cases, be measured over a shorter or longer time frame.
The processes used by the Compensation Committee include the following steps:
1. | ||
The Compensation Committee periodically reviews information comparing the Company’s pay levels to other companies in similar industries, other leading companies (regardless of industry) and competitors. Primarily, personal knowledge of semiconductor equipment industry compensation practices, compensation data in SEC filings, and national and regional compensation surveys are used. |
2. | At or near the start of each evaluation cycle, the Compensation Committee meets with the Chief Executive Officer to review, revise as needed, and agree on the performance objectives set for the other executive officers. The Chief Executive Officer and Compensation Committee jointly set the Company objectives to be used. The business unit and individual objectives are formulated jointly by the Chief Executive Officer and the specific individual. The Compensation Committee also, with the Chief Executive Officer, jointly establishes and agrees on respective performance objectives of each executive officer. |
3. | Throughout the performance cycle review, feedback is provided by the Chief Executive Officer, the Compensation Committee and full Board, as appropriate. |
4. | At the end of the performance cycle, the Chief Executive Officer evaluates each other executive officers relative success in meeting the performance goals. The Chief Executive Officer makes recommendations on salary, bonus and stock options, utilizing the comparative results as a factor. Also included in the decision criteria are subjective factors such as teamwork, leadership contributions and ongoing changes in the business climate. The Chief Executive Officer reviews the recommendations and obtains Compensation Committee approval. |
5. | The final evaluations and compensation decisions are discussed with each executive officer by the Chief Executive Officer or Compensation Committee, as appropriate. |
In fiscal 2007,2008, the Company granted a total of 174,250422,250 option shares, of which a total of 59,000225,000 option shares were granted to the Company’s executive officers, representing 33.9%53.3% of all option shares granted in fiscal 2007.2008. The Company’s Compensation Committee does not apply a formula for allocating stock options to executive officers. Instead, the Company’s Compensation Committee considers the role and responsibilities of the executive officers, competitive factors, the non-equity compensation received by the executive officers and the total number of options to be granted in the fiscal year. The description for the type of equity-based compensation program should be read in conjunction with “Equity Compensation Plan Information” and “Stock Option Plans” in this Proxy Statement and the related notes in the “Notes to Consolidated Financial Statements” of the Company’s Annual Report onForm 10-K for the fiscal year ended May 31, 2007.
Other Benefits
Executive officers are eligible to participate in all of the Company’s employee benefit plans, such as medical, dental, group life, disability, and accidental death and dismemberment insurance, the Company’s 401(k) plan, the Company’s ESOP and Employee Stock Purchase Plan (“ESPP”). Because Rhea J. Posedel owns more than 10% of the Company’s outstanding Common Stock he is precluded from participating in the ESPP. During fiscal 2007,2008, the Company made payments for health and life insurance premiums and medical costs as reflected in the Summary Compensation Table below under the All Other Compensation column. Other than these payments, the executive officers participate on the same basis as other employees and there were no other special benefits or perquisites provided to any executive officer in fiscal 2007.2008. The Company does not maintain any pension plan, retirement benefit or deferred compensation arrangement other than the Company’s 401(k) plan and ESOP. The Company is not required to make, and did not make
any contributions to the 401(k) plan during fiscal 2007.2008. During fiscal 2007,2008, the Company contributed $155,250$177,000 to the Company’s ESOP.
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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 Company’s Chief Executive Officer, in fiscal year 2007.2008. In setting both the cash-based and the equity-based elements of Mr. Posedel’s compensation, the Compensation Committee considered the company’s performance, competitive forces taking into account Mr. Posedel’s experience and knowledge, and Mr. Posedel’s leadership in achieving the Company’s long-term goals. During fiscal year 2007,2008, he received a stock option grant under the Company’s 19962006 Stock Option Plan for 15,00033,000 shares. This option vests over sevenfour years. The Compensation Committee believes Mr. Posedel’s fiscal year 20072008 compensation was fair relative to the Company’s performance and Mr. Posedel’s 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
The Company is required to disclose the Company’s 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 the Company’s executive officers for fiscal 20072008 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 following table shows information concerning compensation awarded to, earned by or paid for services to the Company in all capacities during the fiscal year ended May 31, 2008 and 2007 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, 2008 and 2007.
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Name and Principal Position | Year | Salary (1) | Bonus (2) | Awards (3) | Options (4) | Compensation (5) | Total |
Rhea J. Posedel | 2008 | $237,479 | $58,794 | $66,054 | $5,777 | $27,467 | $395,571 |
Chief Executive Officer and | 2007 | $217,911 | $55,011 | $56,642 | $5,739 | $33,790 | $369,093 |
Chairman of the Board of Directors |
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Gary L. Larson |
2008 |
$207,763 |
$45,823 |
$59,001 |
$5,777 |
$6,981 |
$325,345 |
Vice President of Finance and | 2007 | $189,343 | $42,388 | $52,390 | $5,739 | $10,982 | $300,842 |
Chief Financial Officer |
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Joel Bustos |
2008 |
$183,500 |
$40,268 |
$81,415 |
$4,307 |
$25,828 |
$335,318 |
Vice President of Operations | 2007 | -- | -- | -- | -- | -- | -- |
David S. Hendrickson |
2008 |
$202,186 |
$54,491 |
$49,991 |
$5,619 |
$26,679 |
$338,966 |
Vice President of Engineering | 2007 | $195,283 | $55,245 | $40,179 | $5,739 | $28,023 | $324,469 |
Gregory M. Perkins (6) |
2008 |
$246,037 |
$10,386 |
$43,242 |
$5,777 |
$16,456 |
$321,898 |
Vice President of Worldwide | 2007 | $230,406 | $10,440 | $48,656 | $5,739 | $17,815 | $313,056 |
Sales and Service |
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Fiscal | Annual Compensation | Option | Underlying | All Other | ||||||||||||||||||||||||
Name and Principal Position | Year | Salary (1) | Bonus (2) | Awards | Options | Compensation | Total ($) | |||||||||||||||||||||
(3) | (4) | (5) | ||||||||||||||||||||||||||
Rhea J. Posedel | 2007 | $ | 217,911 | $ | 55,011 | $ | 56,642 | $ | 5,739 | $33,790 | $ | 369,093 | ||||||||||||||||
Chief Executive Officer and Chairman of the Board of Directors | ||||||||||||||||||||||||||||
Gary L. Larson | 2007 | $ | 189,343 | $ | 42,388 | $ | 52,390 | $ | 5,739 | $10,982 | $ | 300,842 | ||||||||||||||||
Vice President of Finance and Chief Financial Officer | ||||||||||||||||||||||||||||
Carl N. Buck | 2007 | $ | 164,355 | $ | 35,026 | $ | 48,186 | $ | 4,851 | $8,583 | $ | 261,001 | ||||||||||||||||
Vice President of Marketing | ||||||||||||||||||||||||||||
and | ||||||||||||||||||||||||||||
Contactor Business Group | ||||||||||||||||||||||||||||
David S. Hendrickson | 2007 | $ | 195,283 | $ | 55,245 | $ | 40,179 | $ | 5,739 | $28,023 | $ | 324,469 | ||||||||||||||||
Vice President of Engineering | ||||||||||||||||||||||||||||
Gregory M. Perkins (6) | 2007 | $ | 230,406 | $ | 10,440 | $ | 48,656 | $ | 5,739 | $17,815 | $ | 313,056 | ||||||||||||||||
Vice President of Worldwide Sales and Service |
(1) | ||
The amounts in this column include any salary contributed by the named executive officer to the Company’s 401 (k) plan. |
(2) | Bonus amounts paid or accrued in fiscal 2008 and 2007 were made under the Company’s executive bonus plan. |
(3) | The amounts in this column represent the dollar amount recognized for financial statement reporting purposes computed in accordance with SFAS 123 (R) and thus includes awards granted in and prior to fiscal 2008 and 2007. See Note 1 to the consolidated financial statements of the Company’s Annual Report onForm 10-K for the fiscal year ended May 31, 2008 and 2007 for assumptions used to estimate the fair value of options granted during fiscal year 2008 and 2007. The Company’s stock-based compensation expense recognized under SFAS 123 (R) reflects an estimated forfeiture rate of 2% and 4% in fiscal |
(4) | Represents contributions made by the Company under its ESOP. |
(5) | Consists of health and life insurance premiums and medical costs paid by the Company during the fiscal year ended May 31, 2008 and 2007. |
(6) | The amount shown in the Annual Compensation Salary column for fiscal 2008 includes |
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for fiscal 2007 includes $57,031 in commissions paid in fiscal 2007. Of this $57,031, $11,597 had been earned in fiscal 2006. An additional $20,246 has been earned in fiscal 2007 but not paid and is not included in these figures. The $20,246 was paid in fiscal 2008.
Stock Option Grants and Exercises
The following table provides information with regard to each grant of an award made to the persons named in the Summary Compensation Table during the fiscal year ended May 31, 2007.
Estimated Possible Payouts | ||||||||||||||||||||||
Under | Number of | Exercise | Grant Date | |||||||||||||||||||
Option | Non-Equity | Securities | Price of | Fair Value of | ||||||||||||||||||
Grant | Incentive Plan Awards (1) | Underlying | Option | Stock Option | ||||||||||||||||||
Name | Date | Target | Maximum | Option (2) | Awards (3) | Awards | ||||||||||||||||
Rhea J. Posedel | 7/21/2006 | $86,000 | $172,000 | 15,000 | $9.30 | $79,937 | ||||||||||||||||
Gary L. Larson | 7/21/2006 | $66,300 | $132,500 | 10,000 | $8.45 | $54,826 | ||||||||||||||||
Carl N. Buck | 7/21/2006 | $54,700 | $109,500 | 10,000 | $8.45 | $54,826 | ||||||||||||||||
David S. Hendrickson | 7/21/2006 | $66,300 | $94,700 | 10,000 | $8.45 | $54,826 | ||||||||||||||||
Gregory M. Perkins | 7/21/2006 | $16,300 | $32,600 | 10,000 | $8.45 | $54,826 |
Grants of Plan-Based Awards in Fiscal 2008 |
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Name | Date | Target | Maximum | Option (2) | Awards( 3) | Awards |
Rhea J. Posedel | 6/26/2007 | $91,680 | $171,900 | 33,000 | $6.56 | $122,460 |
Gary L. Larson | 6/26/2007 | $70,639 | $131,186 | 20,000 | $5.96 | $76,438 |
Joel Bustos | 7/09/2007 | $68,250 | $136,500 | 90,000 | $6.11 | $352,359 |
David S. Hendrickson | 6/26/2007 | $71,020 | $101,457 | 25,000 | $5.96 | $95,548 |
Gregory M. Perkins | 6/26/2007 | $17,600 | $35,200 | 15,000 | $5.96 | $57,329 |
(1) | ||
Reflects the target and maximum values of cash bonus award to the named executive officers in fiscal |
(2) | The stock options granted in fiscal |
(3) | Options are granted at an exercise price equal to the fair market value of the Company’s Common Stock, as determined by reference to the closing price reported by the NASDAQ Global Market on the date of grant. The option granted to |
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Outstanding Equity Awards at Fiscal Year-End |
| Option Awards |
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Name | Exercisable | Unexercisable | Price (2) | Date (3) |
Rhea J. Posedel | 1,000 | -- | $4.950 | 6/21/2008 |
| 40,000 | -- | $4.466 | 7/22/2009 |
| 25,000 | -- | $3.170 | 6/26/2010 |
| 34,270 | 730 | $3.993 | 6/30/2011 |
| 25,520 | 9,480 | $3.091 | 6/23/2012 |
| 6,875 | 8,125 | $9.295 | 7/18/2013 |
| 7,562 | 25,438 | $6.556 | 6/26/2012
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Gary L. Larson |
23,000 |
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$4.060 |
7/22/2009 |
| 15,000 | -- | $2.880 | 6/26/2010 |
| 19,583 | 417 | $3.630 | 6/30/2011 |
| 18,229 | 6,771 | $2.810 | 6/23/2012 |
| 4,583 | 5,417 | $8.450 | 7/18/2013 |
| 4,583 | 15,417 | $5.960 | 6/26/2012 |
Joel Bustos |
18,749 |
71,251 |
$6.110 |
7/09/2012 |
David S. Hendrickson |
19,166 |
834 |
$6.250 |
9/22/2010 |
| 19,583 | 417 | $3.630 | 6/30/2011 |
| 18,229 | 6,771 | $2.810 | 6/23/2012 |
| 4,583 | 5,417 | $8.450 | 7/18/2013 |
| 5,729 | 19,271 | $5.960 | 6/26/2012 |
Gregory M. Perkins |
8,164 |
1,459 |
$4.350 |
6/03/2011 |
| 208 | 1,355 | $2.810 | 6/23/2012 |
| 4,583 | 5,417 | $8.450 | 7/18/2013 |
| 3,437 | 11,563 | $5.960 | 6/26/2012 |
(1) | Stock options outstanding are generally exercisable starting one month after the date of grant, and with an additional 1/48th of the total number of option shares becoming exercisable each month thereafter, with full vesting occurring on the fourth anniversary of the date of grant. |
Option Awards | ||||||||||||||||
Number of Securities | Option | Option | ||||||||||||||
Underlying Unexercised Options (1) | Exercise | Expiration | ||||||||||||||
Name | Exercisable | Unexercisable | Price (2) | Date (3) | ||||||||||||
Rhea J. Posedel | 20,000 | -- | $4.400 | 5/22/2008 | ||||||||||||
30,000 | -- | $4.950 | 6/21/2008 | |||||||||||||
40,000 | -- | $4.466 | 7/22/2009 | |||||||||||||
25,000 | 521 | $3.170 | 6/26/2010 | |||||||||||||
35,000 | 9,480 | $3.993 | 6/30/2011 | |||||||||||||
35,000 | 18,230 | $3.091 | 6/23/2012 | |||||||||||||
15,000 | 11,875 | $9.295 | 7/18/2013 | |||||||||||||
Gary L. Larson | 8,000 | -- | $4.000 | 5/22/2008 | ||||||||||||
10,000 | -- | $4.500 | 6/21/2008 | |||||||||||||
25,000 | -- | $4.060 | 7/22/2009 | |||||||||||||
15,000 | 313 | $2.880 | 6/26/2010 | |||||||||||||
20,000 | 5,417 | $3.630 | 6/30/2011 | |||||||||||||
25,000 | 13,021 | $2.810 | 6/23/2012 | |||||||||||||
10,000 | 7,917 | $8.450 | 7/18/2013 | |||||||||||||
Carl N. Buck | 4,000 | -- | $4.000 | 5/22/2008 | ||||||||||||
10,000 | -- | $4.500 | 6/21/2008 | |||||||||||||
10,000 | -- | $4.060 | 7/22/2009 | |||||||||||||
15,000 | 313 | $2.880 | 6/26/2010 | |||||||||||||
20,000 | 5,417 | $3.630 | 6/30/2011 | |||||||||||||
20,000 | 10,417 | $2.810 | 6/23/2012 | |||||||||||||
10,000 | 7,917 | $8.450 | 7/18/2013 | |||||||||||||
David S. Hendrickson | 20,000 | 3,334 | $6.250 | 9/22/2010 | ||||||||||||
5,000 | -- | $4.060 | 7/22/2009 | |||||||||||||
5,000 | 105 | $2.880 | 6/26/2010 | |||||||||||||
20,000 | 5,417 | $3.630 | 6/30/2011 | |||||||||||||
25,000 | 13,021 | $2.810 | 6/23/2012 | |||||||||||||
10,000 | 7,917 | $8.450 | 7/18/2013 | |||||||||||||
Gregory M. Perkins | 66,415 | 18,959 | $4.350 | 6/03/2011 | ||||||||||||
5,000 | 4,121 | $2.810 | 6/23/2012 | |||||||||||||
10,000 | 7,917 | $8.450 | 7/18/2013 |
(2) | Options are granted at an exercise price equal to the fair market value of the Company’s Common Stock, as determined by reference to the closing price reported |
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(3) | These options generally expire five or seven years from the date of grant. |
The following table provides information concerning option exercises by the persons named in the Summary Compensation Table during the fiscal year ended May 31, 2008 and the value of unexercised options at such date.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
| Shares | Value Realized on | Number of Securities | Value of Unexercised | ||
Name | Exercise (#) | Exercise ($) | Exercisable | Unexercisable | Exercisable | Unexercisable |
Rhea J. Posedel | 49,000 | 195,597 | 140,227 | 43,773 | $632,024 | $111,149 |
Gary L. Larson | 20,000 | 72,284 | 84,978 | 28,022 | $414,378 | $85,592 |
Joel Bustos | -- | -- | 18,749 | 71,251 | $48,560 | $184,540 |
David S. Hendrickson | 10,000 | 53,300 | 67,290 | 32,710 | $270,455 | $98,195 |
Gregory M. Perkins | 58,713 | 255,528 | 16,392 | 19,794 | $47,302 | $47,364 |
(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 ($8.70 per share as of May 31,
The following table shows the potential payments upon termination or change of control for the persons named in the Summary Compensation Table during the fiscal year ended May 31, 2008. Potential Payments Upon Termination or Change of Control for each Named Executive Officer
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