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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-4298
COHU, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 95-1934119
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
5755 KEARNY VILLA ROAD, SAN DIEGO, CALIFORNIA 92123
(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code: (619) 277-6700
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $1.00
PAR VALUE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of voting stock held by nonaffiliates of the
registrant was approximately $205,958,000 as of March 7, 1997. Shares of common
stock held by each officer and director and by each person or group who owns 5%
or more of the outstanding common stock have been excluded in that such persons
or groups may be deemed to be affiliates. This determination of affiliate status
is not necessarily a conclusive determination for other purposes.
As of March 7, 1997, the Registrant had 9,380,861 shares of its $1.00 par
value common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part I, Part II and Part IV incorporate certain information by reference
from the Annual Report to Stockholders for the year ended December 31, 1996.
Part III incorporates certain information by reference from the Proxy Statement
for the 1997 Annual Meeting of Stockholders.
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PART I
ITEM 1. BUSINESS
This Annual Report on Form 10-K contains certain forward-looking statements
within the meaning of Section 21E of the Securities and Exchange Act of 1934, as
amended, and is subject to the Safe Harbor provisions created by that statute.
Such statements are subject to certain risks and uncertainties, including but
not limited to those discussed herein and, in particular, under the caption
"Business Risks and Uncertainties" that could cause actual results to differ
materially from those projected.
A predecessor of Cohu, Inc. (the "Company" or "Cohu") was incorporated under the
laws of California in 1947 as Kalbfell Lab., Inc. and commenced active
operations in the same year. Its name was changed to Kay Lab in 1954. In 1957
the Company was reincorporated under the laws of the State of Delaware as Cohu
Electronics, Inc. and in 1972 its name was changed to Cohu, Inc.
The Company operates in two industry segments. Semiconductor test handling
equipment used in the final test of integrated circuits is designed,
manufactured and sold by the Company's Delta Design and Daymarc subsidiaries to
semiconductor manufacturers throughout the world and accounted for approximately
79% of consolidated net sales in 1996. The television and other equipment
segment includes electronic products used in electronic imaging, surveillance,
detection and microwave communication that are manufactured and sold to
government agencies, original equipment manufacturers, contractors, distributors
and consumers throughout the world. The Company conducts operations in these two
segments through one division and four subsidiaries.
On June 22, 1994, the Company acquired Daymarc Corporation, a privately-held
manufacturer of gravity feed semiconductor test handling equipment that
complements the pick and place test handling equipment manufactured by Delta
Design. The semiconductor test handling equipment segment includes the results
of Delta Design and Daymarc.
The television and other equipment segment includes the results of the
Electronics Division, Fisher Research Laboratory, Inc. ("FRL") and Broadcast
Microwave Services, Inc. ("BMS").
FINANCIAL INFORMATION BY INDUSTRY SEGMENT AND EXPORT SALES
Financial information on industry segments and export sales for each of the last
three years is included on pages 3 (Selected Financial Data) and 13 (Note 7) in
the 1996 Annual Report to Stockholders and is incorporated herein by reference.
SEMICONDUCTOR TEST HANDLING EQUIPMENT
Through its Delta Design and Daymarc subsidiaries, Cohu is the largest U.S.
based and one of the world's largest suppliers of semiconductor test handling
equipment. Test handlers are electromechanical systems designed to automatically
handle, temperature condition, contact and sort integrated circuits (ICs) during
the IC test process. Testers are specialized, computer controlled electronic
systems that perform electronic evaluation of ICs, including proper
functionality, voltage/current characteristics and critical timing parameters.
Testing is used to determine the quality and performance of the packaged IC
prior to shipment to customers. Testers are designed to test specific IC types,
such as microprocessor, logic, DRAM or mixed signal, without regard to the
package used to house the IC. On the other hand, the package, rather than the
circuit type, is critical to the test handler, which is connected to the tester
and automates the flow of ICs through the test process.
The Company designs, manufactures, markets and services IC test handling
equipment from facilities in San Diego, California (Delta Design) and Littleton,
Massachusetts (Daymarc). Sales, service and technical personnel are located
throughout the U.S., Asia and Europe. Most test handlers use one of two handling
technologies to transport ICs: gravity-feed or pick-and-place. Generally, the
preferred handling approach is dictated by the IC package type. ICs with leads
on only two sides, such as dual-in-line and Small Outline (SOIC), are usually
handled in gravity feed equipment. ICs with leads on all four sides, such as the
Quad Flat Pack and certain ICs with leads on two sides, such as the TSOP, are
typically run in pick-and-place systems. Delta Design's systems utilize
pick-and-place handling approaches while Daymarc's equipment employs gravity
feed techniques. The two product lines are complementary, with effectively no
overlap.
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As a significant portion of IC test is performed at hot and/or cold
temperatures, many of the Company's test handlers are designed to provide a
controlled test environment over the range -60 degrees C to +160 degrees C. Both
Delta Design and Daymarc are recognized throughout the industry for their
expertise in hot/cold test handling. In addition to temperature capability,
other key factors in the design of test handlers are equipment speed,
flexibility, parallel test capability and size. Handlers are complex,
electromechanical systems which are used continuously in high production
environments, and many are in service twenty-four hours per day, seven days a
week. Handler "uptime" is a critically important issue to customers and the
availability of trained technical support personnel is a key competitive factor
in the marketplace. For these reasons, the Company employs direct sales and
service engineers wherever possible, including in Southeast Asia where over 50%
of IC testing takes place.
DELTA DESIGN
Through the use of IC package dedication kits, Delta Design's pick-and-place
test handlers are capable of accommodating virtually any semiconductor package
type. This flexibility is a key requirement of semiconductor manufacturers, who
must continuously produce new IC package types to meet the needs of their
customers and the requirements of IC design engineers.
Historically, most pick-and-place handlers have been used in logic test
applications, where the transition in packaging technology first occurred.
Because of the relatively short test times of logic devices, handler index time,
or the idle time between test cycles, is critical. Two of Delta's pick-and-place
handlers are believed to have among the fastest index times in the industry.
Increasingly, the shift in packaging is taking place in memory packages, as
well. Due to the longer test times associated with memory testing, simultaneous
testing of multiple devices (parallel testing) is required. Delta has
successfully adapted several of its handlers to test up to eight devices in
parallel and is developing systems capable of testing 16 or more devices in
parallel.
The Delta Turbo Flex(TM), available in three models with various levels of
automation, provides hot/cold test capability and versatility in IC package and
media (tray or tube) handling. The "Flex" is considered an industry workhorse,
and more Flexes have been sold than any other pick-and-place test handler.
Through Delta's continuous product improvement process, the Flex has been
successfully adapted to meet the evolving needs of IC manufacturers.
The Model 2040, or RFS(TM), is a fast-index time pick-and-place handler,
designed for high production applications. The handler's large environmental
storage capacity enables uninterrupted operation in short test applications and
parallel testing of up to four devices. The RFS(TM) utilizes a patented
contactor indexing mechanism to achieve an index time of approximately 500
milliseconds.
The Model 1688 is an ambient pick-and-place handler, which uses the same fast
contactor indexing mechanism as the RFS(TM). The small size footprint of only
eleven square feet, combined with the high speed and dependable operation of
this handler, make it a highly-cost effective solution for test applications
where environmental capability is not required.
DAYMARC
Daymarc, which was acquired by Cohu in June 1994, was established in 1959 and
was the first equipment company to introduce a gravity feed, fully automatic
test handler. Daymarc relocated during March 1996 to a larger facility in
Littleton, Massachusetts approximately 30 miles from Boston. The Littleton
facility has 102,000 square feet and is twice the size of the former facility.
The new facility, with expansion options for future growth, will support
Daymarc's needs for the foreseeable future.
Daymarc test handlers are designed to deliver high throughput, maximize operator
productivity and increase yields through proprietary, high performance
contacting technology.
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Daymarc manufactures three lines of test handlers; the 717 Series, 3000 Series
and 4000 Series. The 717 Series test handlers are designed specifically for SOIC
packages. The small dimensions and high speed applications of the SOIC package
require a handler with minimal transition distances, high performance contacting
and automation features to reduce the need for operator intervention. The 717
ambient and tri-temperature handlers feature index times of 350 and 500
milliseconds, respectively. Changeover for a different device package requires
less than 30 minutes.
The 3000 Series is available in single, dual/quad and thirty-two site
configurations. These handlers can be reconfigured with device dedication kits
to accommodate a wide range of package types at throughput rates up to 4,200
units per hour (UPH). The 3000 Series handlers provide tri-temperature operation
and input/output automation for increased productivity.
The 4000 Series handlers combine high speed with multi-site capability. The
first in the Series, the 4100, may operate at speeds up to 18,000 UPH in dual or
quad site configurations. The 4100 is currently available as an ambient only
handler and the Company intends to eventually introduce a tri-temperature
version with other configurations. The 4100, which occupies only seven square
feet of floor space, is believed to be one of the fastest handlers available on
the market.
In 1996 the semiconductor test handling equipment segment accounted for 79% of
consolidated net sales and 92% of consolidated operating profit. In 1995 this
segment accounted for 82% of consolidated net sales and 95% of consolidated
operating profit. In 1994 the segment accounted for 71% of consolidated net
sales and 89% of consolidated operating profit.
TELEVISION AND OTHER EQUIPMENT
The Electronics Division of the Company has been a designer, manufacturer and
seller of closed circuit television ("CCTV") cameras and systems for over 40
years. The customer base is broadly distributed between machine vision,
scientific imaging and security/surveillance markets. The current product line
represents an extensive array of indoor and outdoor CCTV cameras as well as
camera control equipment. To support its camera lines, the Electronics Division
offers a wide selection of accessories including monitors, lenses and camera
test equipment.
FRL designs, manufactures and sells metal detectors and related underground
detection devices for consumer and industrial markets. All products are sold
under the Fisher M-Scope label. Industrial instruments include pipe and cable
locators, water leak detectors, property marker locators and instruments for
finding reinforcing bars in concrete. Fisher's new XLT-20 water leak detector
can detect the sound of escaping water and pinpoint small leaks in buried pipes
to a depth of six feet.
BMS manufactures microwave radio equipment, antenna systems and associated
equipment. These products are used in the transmission of telemetry, data, video
and audio signals. Customers include government test ranges, law enforcement
agencies, unmanned air vehicle programs and television broadcasters.
In 1996 the television and other equipment segment accounted for 21% of
consolidated net sales and 8% of consolidated operating profit. In 1995
television and other equipment accounted for 18% of consolidated net sales and
5% of consolidated operating profit. In 1994 television and other equipment
accounted for 29% of consolidated net sales and 11% of consolidated operating
profit.
CUSTOMERS
SEMICONDUCTOR TEST HANDLING EQUIPMENT
The Company's customer base includes companies that manufacture semiconductor
devices primarily for internal use and companies that manufacture devices for
sale to others. Repeat sales to existing customers represent a significant
portion of the Company's sales in this business segment. The Company believes
that its installed customer base represents a significant competitive advantage.
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The Company relies on a limited number of customers for a substantial percentage
of its net sales. In 1996 Micron Technology and Motorola represented 14% and
12%, respectively, of the Company's net sales. In 1995 Motorola and Micron
Technology each accounted for 17% of the Company's net sales. In 1994 Motorola
and Micron Technology represented 22% and 10%, respectively, of the Company's
net sales. The loss of or a significant reduction in orders by either of these
or other significant customers not compensated for by other customer orders,
including reductions due to market, economic or competitive conditions in the
semiconductor industry, would adversely affect the Company's business and
results of operations.
TELEVISION AND OTHER EQUIPMENT
The Company's customer base in this industry segment is diverse and includes
government agencies, original equipment manufacturers, contractors, distributors
and consumers throughout the world. No single customer of this segment accounted
for 10% or more of the Company's consolidated net sales in 1996, 1995 or 1994.
Contracts, including subcontract work, with U.S. Government agencies accounted
for net sales of $4.8 million, $4.5 million and $5.6 million in 1996, 1995 and
1994, respectively. Such contracts are frequently subject to termination
provisions at the convenience of the Government.
MARKETING
The Company markets its products worldwide through a combination of direct sales
force and independent sales representatives. In a geographic area where the
Company believes there is sufficient sales potential, the Company maintains
sales offices staffed with its own sales personnel. The Company maintains U.S.
sales offices for the semiconductor equipment business in Santa Clara,
California and Austin, Texas. In 1993, a foreign subsidiary was formed in
Singapore to handle the sales and service requirements of semiconductor
manufacturers located in Southeast Asia. In 1995 a branch of the Singapore sales
and service subsidiary was opened in Taipei, Taiwan. The sales in Europe are
derived primarily through sales representatives.
COMPETITION
The semiconductor equipment industry is intensely competitive and is
characterized by rapid technological change and demanding worldwide service
requirements. Significant competitive factors include product performance, price
and reliability, customer support and installed base of products. While the
Company believes it is the largest U.S. based supplier of semiconductor test
handling equipment it faces substantial competition in the U.S. and throughout
the world. The Japanese market for this equipment is large and represents a
significant percentage of the worldwide market. During the last five years the
Company has had limited sales to Japanese customers who have historically
purchased test handling equipment from Japanese suppliers or their affiliates.
Some of the Company's competitors have substantially greater financial,
engineering, manufacturing and customer support capabilities than the Company.
To remain competitive the Company believes it will require significant financial
resources to offer a broad range of products, maintain customer support and
service centers worldwide and to invest in research and development of new
products. Failure to introduce new products in a timely manner or the
introduction by competitors of products with perceived or actual advantages
could result in a loss of competitive position and reduced sales of existing
products. No assurance can be given that the Company will continue to compete
successfully in the U.S. or throughout the world.
The Company's products in the Television and Other Equipment Segment are sold in
highly competitive markets throughout the world, where competition is on the
basis of price, product integration with customer requirements, service and
product quality and reliability. Many of the Company's competitors are divisions
or segments of large, diversified companies with substantially greater
financial, engineering, marketing, manufacturing and customer support
capabilities than the Company. No assurance can be given that the Company will
continue to compete successfully in this business segment.
BACKLOG
The dollar amount of backlog of the Company as of December 31, 1996 was $33.9
million as compared to $45.4 million at December 31, 1995. Of these amounts,
$23.1 million ($37.8 million in 1995) was in semiconductor test handling
equipment and $10.8 million ($7.6 million in 1995) was in television and other
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equipment. Virtually all backlog is expected to be shipped within the next
twelve months. Due to the possibility of customer changes in delivery schedules,
cancellation of orders and potential delays in product shipments, the Company's
backlog as of any point in time may not be representative of actual sales in any
future period. All orders are subject to cancellation or rescheduling by the
customer with limited penalty. There is no significant seasonal aspect to the
business of the Company.
MANUFACTURING AND RAW MATERIALS
The Company's manufacturing activities take place in San Diego, California (BMS,
Delta Design and the Electronics Division), Littleton, Massachusetts (Daymarc)
and Los Banos, California (FRL). Many of the components and subassemblies are
standard products, although certain items are made to Company specifications.
Certain components are obtained or are available from a limited number of
suppliers. The Company seeks to reduce its dependence on sole and limited source
suppliers, however in some cases the complete or partial loss of certain of
these sources could have at least a temporary negative effect on the Company's
operations while it attempted to locate and qualify replacement suppliers.
PATENTS AND TRADEMARKS
The Company protects its proprietary technology through various intellectual
property laws. However, the Company believes that, due to the rapid pace of
technological change in the semiconductor equipment industry, the successful
manufacture and sales of its products generally depend upon its experience,
technological know-how, manufacturing and marketing skills and speed of response
to sales opportunities, rather than on the legal protection afforded to any one
or more items of intellectual property, such as patents, trademarks, copyrights
and trade secrets. In the absence of patent protection the Company may be
vulnerable to competitors who attempt to copy or imitate the Company's products
or processes. Although the Company believes its intellectual property has value
(and includes trademark rights and trade names other than Cohu), and the Company
has in the past and will in the future take actions it deems appropriate to
protect such property from misappropriation, there can be no assurance such
actions will provide meaningful protection from competition. Protecting the
Company's intellectual property rights or defending against claims brought by
other holders of such rights, either directly against the Company or against
customers the Company has agreed to indemnify, would likely be expensive and
time consuming and could have a material adverse effect on the Company and its
operations.
RESEARCH AND DEVELOPMENT
Certain of the markets served by the Company, particularly the semiconductor
equipment industry, are characterized by rapid technological change. Research
and development activities are carried on in the various subsidiaries and
division and are directed toward development of new products and equipment, as
well as enhancements to existing products and equipment. Total research and
development expenses were $14 million in 1996, $10.2 million in 1995 and $7.5
million in 1994. Total dollar expenditures in 1996 and 1995 increased primarily
due to increased spending for R & D on semiconductor test handling equipment.
There was no significant customer-sponsored product development during these
years.
The Company works closely with its key customers to make improvements on its
existing products and in the development of new products. The Company expects to
continue to invest heavily in research and development and must manage product
transitions successfully as introductions of new products could adversely impact
sales of existing products.
ENVIRONMENTAL LAWS
Compliance with Federal, State and local laws which have been enacted or adopted
regulating the discharge of materials into the environment or otherwise relating
to the protection of the environment has not had a material effect and is not
expected to have a material effect upon the capital expenditures, results of
operations or competitive position of the Company.
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EMPLOYEES
At December 31, 1996 the Company had approximately 800 employees. None of these
employees is covered by a labor union. The Company believes that a great part of
its future success will depend on its continued ability to attract and retain
qualified employees. Competition for the services of certain personnel is
increasing. The Company considers its relations with its employees to be good.
BUSINESS RISKS AND UNCERTAINTIES
The Company's operating results are substantially dependent on the semiconductor
test handling equipment business conducted through its Delta Design and Daymarc
subsidiaries. This capital equipment business is in turn highly dependent on the
overall strength of the semiconductor industry. Historically, the semiconductor
industry has been highly cyclical with recurring periods of oversupply, which
often have had a significant effect on the semiconductor industry's demand for
capital equipment, including equipment of the type manufactured and marketed by
the Company. The Company believes that the markets for newer generations of
semiconductors may also be subject to similar cycles and downturns such as that
experienced in 1996. Reductions in capital equipment investment by semiconductor
manufacturers will adversely affect the Company's results of operations.
As is common in the semiconductor equipment industry, the Company relies on a
limited number of customers for a substantial percentage of its net sales. The
loss of or a significant reduction in orders by these customers would adversely
impact the Company's results of operations. Furthermore, the concentration of
the Company's revenues in a limited number of large customers may cause
significant fluctuations in the Company's future annual and quarterly operating
results.
The semiconductor equipment industry is intensely competitive and the Company
faces substantial competition from numerous companies throughout the world. Some
of these competitors have substantially greater financial, engineering,
manufacturing and customer support capabilities than the Company. In addition,
there are smaller, emerging semiconductor equipment companies that provide or
may provide innovative technology incorporated in products that may compete
favorably against those of the Company. The Company expects its competitors to
continue to improve the design and performance of their current products and to
introduce new products with improved performance capabilities. Failure to
introduce new products in a timely manner, the introduction by competitors of
products with perceived or actual advantages or disputes over rights of the
Company or its competitors to use certain intellectual property or technology
could result in a loss of the Company's competitive position and reduced sales
of existing products.
Semiconductor equipment and processes are subject to rapid technological change.
The Company believes that its future success will depend in part on its ability
to enhance existing products and develop new products with improved performance
capabilities. The Company expects to continue to invest heavily in research and
development and must manage product transitions successfully as introductions of
new products could adversely impact sales of existing products. There can be no
assurance that future technologies, processes and product developments will not
render the Company's current product offerings obsolete or that the Company will
be able to develop and introduce new products or enhancements to its existing
products in a timely manner to satisfy customer needs or achieve market
acceptance.
Due to these and other factors, historical results may not be indicative of
results of operations for any future period. In addition, certain matters
discussed above are forward-looking statements that are subject to the risks and
uncertainties noted herein and the other risks and uncertainties listed from
time to time in the Company's filings with the Securities and Exchange
Commission that could cause actual results to differ materially from those
projected or forecasted. The Company undertakes no obligation to update the
information, including the forward-looking statements, in this Annual Report on
Form 10-K.
ITEM 2. PROPERTIES
Certain information concerning the Company's principal properties at December
31, 1996 identified by business segment is set forth below:
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APPROXIMATE
LOCATION SQ. FOOTAGE OWNERSHIP
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Littleton, MA. (1) 102,000 Owned
San Diego, CA. (1) 52,000 Owned
San Diego, CA. (1) 52,000 Owned
San Diego, CA. (2) 52,000 Owned
San Diego, CA. (2) 15,000 Leased
Los Banos, CA. (2) 23,000 Owned
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(1) Semiconductor test handling equipment
(2) Television and other equipment
In addition to the locations listed above the Company leases other properties
for sales offices in various locations including Austin, Texas, Santa Clara,
California, Singapore and Taipei, Taiwan. The Company believes its facilities
are suitable for their respective uses and are adequate for the Company's
present needs.
In May 1996 the Company acquired approximately 12 acres of land in Poway,
California. The land is being held for future expansion needs although no such
expansion is currently contemplated.
ITEM 3. LEGAL PROCEEDINGS
The Company is not presently a party to any material legal proceedings, other
than ordinary routine litigation incidental to the business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES OF THE REGISTRANT
The following sets forth the names and ages of and the positions and offices
held by all executive officers and significant employees of the Company as of
March 7, 1997:
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Name Age Position
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EXECUTIVE OFFICERS:
Charles A. Schwan 57 President & Chief Executive Officer, Director
John H. Allen 45 Vice President, Finance & Chief Financial
Officer, Secretary
SIGNIFICANT EMPLOYEES:
Melvyn W. Bosch 58 President, Daymarc
James M. Brown 59 President, Cohu Electronics Division
Graham Bunney 41 President, BMS
James A. Donahue 48 President, Delta Design
James C. Lewellen 57 President, FRL
</TABLE>
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Mr. Schwan has been employed by the Company since 1971 and became President &
Chief Executive Officer on March 1, 1996. Mr. Schwan had been Treasurer since
1972, Vice President, Finance since 1983 and Executive Vice President & Chief
Operating Officer since September 1995. Mr. Schwan has been a member of the
Board of Directors since 1990 and served as Secretary from 1988 until September
1995.
Mr. Allen has been employed by the Company since June 1995. He was Director of
Finance until September 1995, became Vice President, Finance and Secretary in
September 1995 and was appointed Chief Financial Officer in October 1995. Prior
to joining the Company, Mr. Allen held various positions with Ernst & Young LLP
from 1976 until June 1995 and had been a partner with that firm since 1987.
Mr. Bosch has been employed by Daymarc since 1986 and has been President of
Daymarc since 1989.
Mr. Brown has been employed by the Cohu Electronics Division since 1980 and has
been President of that division since 1983.
Mr. Bunney has been employed by BMS since 1985. Mr. Bunney was a project manager
until June 1994, manufacturing manager from June 1994 until January 1996 and was
promoted to President of BMS in January 1996.
Mr. Donahue has been employed by Delta Design since 1978 and has been President
of Delta Design since 1983.
Mr. Lewellen has been employed by FRL since 1974 and has been President of FRL
since 1979.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Information regarding the market prices of the Company's stock, markets for that
stock and the number of stockholders is contained on the inside back cover of
the 1996 Annual Report to Stockholders under " Cohu Stock Information". Dividend
information is contained on page 3 of the 1996 Annual Report to Stockholders.
Such information is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
"Selected Financial Data" on page 3 of the 1996 Annual Report to Stockholders is
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 15 and 16 of the 1996 Annual Report to Stockholders is
incorporated herein by reference.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company, including the report
thereon of Ernst & Young LLP, on pages 9 - 14 and the unaudited Quarterly
Financial Data on page 3 of the 1996 Annual Report to Stockholders is
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors of the Company is set forth under "Election Of
Directors" in the Company's Proxy Statement for the 1997 Annual Meeting of
Stockholders ("the Proxy Statement"), which information is incorporated herein
by reference. Information concerning the executive officers of the Company is
included in Part I, on page 8. Information in the Proxy Statement under
"Compliance with Section 16(a) of the Securities Exchange Act of 1934" is also
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding the Company's compensation of its executive officers and
certain other information is set forth in the Proxy Statement under
"Compensation of Executive Officers and Other Information" and is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners and
management is set forth in the Proxy Statement under "Security Ownership Of
Certain Beneficial Owners and Management" and is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions is set
forth in the Proxy Statement under "Certain Relationships and Related
Transactions" and is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The financial statements listed in the accompanying
index to financial statements and financial statement
schedules are incorporated herein by reference as
part of this Annual Report on Form 10-K.
2. Financial Statement Schedules
See index to financial statements and financial
statement schedules.
3. Exhibits
The exhibits listed in the accompanying index to
exhibits are filed or incorporated herein by
reference as part of this Annual Report on Form 10-K.
(b) Reports on Form 8-K
On December 12, 1996, the Company filed a Form 8-K
reporting under Item 5, "Other Events", the adoption
of a Rights Agreement.
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COHU, INC.
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
(Item 14(a))
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Pages incorporated
from Annual Report
to Stockholders
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Consolidated balance sheets at
December 31, 1996 and 1995 9
Consolidated statements of income for
each of the three years in the
period ended December 31, 1996 10
Consolidated statements of cash flows
for each of the three years in
the period ended December 31, 1996 11
Consolidated statements of stockholders'
equity for each of the three years
in the period ended December 31, 1996 11
Notes to consolidated financial
statements 12 - 14
</TABLE>
All schedules are omitted since the required information is not present or is
not present in amounts sufficient to require submission of the schedules, or
because the information required is included in the consolidated financial
statements and the notes thereto.
The consolidated financial statements listed in the above index which are
included in the Annual Report to Stockholders of Cohu, Inc. for the year ended
December 31, 1996 are incorporated herein by reference. With the exception of
the pages listed in the above index and the Items referred to in Items 1, 5, 6,
7 and 8 the 1996 Annual Report to Stockholders is not to be deemed filed as part
of this report.
11
<PAGE> 12
COHU, INC.
INDEX TO EXHIBITS
(Item 14(a) 3)
<TABLE>
<CAPTION>
Exhibit Description
- ------- -----------
<S> <C>
3.1 Restated Certificate of Incorporation of Cohu, Inc. incorporated
herein by reference from the 1981 Form 10-K, Exhibit 1
3.1(a) Certificate of Amendment of Restated Certificate of Incorporation of
Cohu, Inc.
3.2 Amended and Restated Bylaws, of Cohu, Inc. incorporated herein by
reference from the Company's Form 8-K, filed December 12, 1996,
Exhibit 3.2
4.1 Rights Agreement dated November 15, 1996, between Cohu, Inc. and
ChaseMellon Shareholder Services, L.L.C, as Rights Agent, incorporated
herein by reference from the Company's Form 8-K, filed December 12,
1996, Exhibit 4.1
10.1 Cohu, Inc. 1988 Employee Stock Option Plan, incorporated herein by
reference from the Company's Proxy Statement for its 1988 Annual
Meeting of Stockholders.*
10.2 Description of Cohu, Inc. Executive Incentive Bonus Plan, incorporated
herein by reference from the Company's 1990 Form 10-K, Exhibit 10.3*
10.3 Termination Agreement between Cohu, Inc. and Charles A. Schwan,
incorporated herein by reference from the Company's 1990 Form 10-K,
Exhibit 10.5*
10.4 The Cohu, Inc. 1992 Stock Option Plan, incorporated herein by
reference from the Company's Proxy Statement for its 1992 Annual
Meeting of Stockholders*
10.5 The Cohu, Inc. 1994 Stock Option Plan, incorporated herein by
reference from the Company's Proxy Statement for its 1995 Annual
Meeting of Stockholders*
10.6 Agreement of Purchase and Plan of Merger by and among Cohu, Inc.,
Daymarc Corporation, Cohu Acquisition Corporation, N.J. Cedrone and
Melvyn Bosch as of June 16, 1994, incorporated herein by reference
from the Company's June 22, 1994 Form 8-K, Exhibit 2.1
10.7 Purchase and Sale Agreement dated October 17, 1995 between Daymarc,
Inc. and DOE Partners, L.P. incorporated herein by reference from the
Company's Form 10-Q dated September 30, 1995, Exhibit 10.1
10.8 The Cohu, Inc. 1996 Stock Option Plan, incorporated herein by
reference from the Company's Proxy Statement for its 1996 Annual
Meeting of Stockholders*
10.9 Employment Agreement between Cohu, Inc. and James W. Barnes
incorporated herein by reference from the Company's 1996 Form 10-K,
Exhibit 10.9*
10.10 Business Loan Agreement between Bank of America National Trust and
Savings Association and the Company, as amended May 15, 1996,
incorporated herein by reference from the Company's Form 10-Q for the
quarter ended June 30, 1996, Exhibit 10.1
10.11 Termination Agreement between Cohu, Inc. and John H. Allen*
10.12 The Cohu, Inc 1996 Outside Directors Stock Option Plan*
10.13 The Cohu, Inc. 1997 Employee Stock Purchase Plan*
</TABLE>
12
<PAGE> 13
COHU, INC.
INDEX TO EXHIBITS
(Item 14(a) 3)
13 1996 Annual Report to Stockholders (Provided for information only
except as specifically incorporated by reference)
21 Cohu, Inc. has the following wholly owned subsidiaries:
Delta Design, Inc., a Delaware corporation
Fisher Research Laboratory, Inc., a Delaware corporation
Broadcast Microwave Services, Inc., a Delaware corporation
Daymarc, Inc., a Delaware corporation
Cohu Foreign Sales Ltd., a Barbados corporation
23 Consent of Ernst & Young LLP, Independent Auditors
27 Financial Data Schedule
* Management contract or compensatory plan or arrangement
13
<PAGE> 14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
COHU, INC.
Date: March 14, 1997 By /s/ Charles A. Schwan
-------------------------------------
Charles A. Schwan
President & Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ William S. Ivans Chairman of the Board March 14, 1997
- ----------------------------
William S. Ivans
/s/ Charles A. Schwan President & Chief Executive Officer, March 14, 1997
- ----------------------------
Charles A. Schwan Director (Principal Executive Officer)
/s/ John H. Allen Vice President, Finance & Chief March 14, 1997
- ----------------------------
John H. Allen Financial Officer, Secretary (Principal
Financial & Accounting Officer)
/s/ J. W. Barnes Director March 14, 1997
- ----------------------------
J. W. Barnes
/s/ Harry L. Casari Director March 14, 1997
- ----------------------------
Harry L. Casari
/s/ Frank W. Davis Director March 14, 1997
- ---------------------------
Frank W. Davis
/s/ Gene E. Leary Director March 14, 1997
- ---------------------------
Gene E. Leary
</TABLE>
14
<PAGE> 1
Exhibit 3.1(a)
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
Cohu, Inc., a corporation organized and existing under and by virtue
of the General Corporation Law of the State of Delaware (the "Company"),
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of the Company,
resolutions were duly adopted setting forth a proposed amendment of the Restated
Certificate of Incorporation of the Company, declaring said amendment to be
advisable and calling a meeting of the stockholders of the Company for
consideration thereof. The resolution setting forth the proposed amendment is as
follows:
RESOLVED, that the Restated Certificate of Incorporation of the
Company be amended by changing the first paragraph of Article Fourth
so that, as amended, said paragraph shall be and read as follows:
"FOURTH: The total number of shares of all classes of stock which the
corporation shall have authority to issue is Twenty-six Million
(26,000,000) of which 1,000,000 shares shall constitute Preferred
Stock having a par value of $1.00 per share and 25,000,000 shares
shall constitute Common Stock having a par value of $1.00 per share."
SECOND: That thereafter, pursuant to resolution of its Board of
Directors, a special meeting of the stockholders of the Company was duly called
and held, upon notice in accordance with Section 222 of the General Corporation
law of the State of Delaware, at which meeting the necessary number of shares as
required by statute were voted in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, the Company has caused this certificate to be
signed by Charles A. Schwan , its President, and John H. Allen , its Secretary,
this 7th day of May , 1996.
By: /s/ Charles A. Schwan
-----------------------------
President
ATTEST: /s/ John H. Allen
--------------------------
Secretary
<PAGE> 1
Exhibit 10.11
TERMINATION AGREEMENT
This Termination Agreement is executed November 10, 1996 between COHU,
INC., a Delaware corporation ("Company") and John H. Allen ("Executive") in
light of the following facts:
A. Executive is a key and critically important member of the management of
Company upon whose continuing services Company is and will depend for its future
growth and prosperity.
B. Company desires to assure itself of the uninterrupted and unimpaired
performance of services by Executive in the future. In particular, Company
desires that there will be no interference with those services or Executive's
loyalty to Company which result from any actual or proposed change of control of
Company. Company believes that the interest of Company and its shareholders will
best be served by providing Executive with economic assurances which will
relieve him of worry about his economic interests in the event of any proposed
change of control and thereby permit him to devote his uninterrupted attention
to the performance of his duties to Company.
NOW, THEREFORE, IT IS AGREED:
1. "Event" Defined. The term "Event" as used in this Agreement shall mean any
one or a combination of the following:
a. A sale by Company of all or substantially all of its assets,
whether for money, securities or other consideration.
b. A merger or consolidation of Company with or into any other
corporation or business entity (excepting only a wholly owned subsidiary of
Company) without regard to whether Company or other party to such transaction is
the surviving corporation.
c. The acquisition of beneficial ownership of a majority of the
outstanding voting stock of Company by any person or entity or affiliated group
of persons and/or entities without regard to whether such stock is held directly
of indirectly.
d. A change in the identities of a majority of the directors of
Company occurring within a period of thirty (30) consecutive months resulting in
whole or in part from the election at one or more meetings of shareholders of
persons who are not listed in the Company's proxy statement as management
nominees.
e. Any other agreement, happening or device which has substantially
the same effect on control of Company as any of the foregoing.
2. "Termination" Defined. The term "Termination" as used in this Agreement
shall mean any one or a combination of the following:
1
<PAGE> 2
a. The discharge of Executive by Company or its successor in interest as
the operator of all or substantially all of the business assets of Company for
any reason whatsoever, excepting only discharge by reason of the following:
(i) Death of Executive;
(ii) The mental or physical disability of Executive continuing for a
period exceeding nine months, which prevents Executive from performing a major
portion of his duties;
(iii) For cause consisting of the commission by Executive of a
criminal act related to the performance of his duties, the furnishing of
proprietary confidential information of Company to a competitor or a potential
competitor except in the bona fide belief that such action was for the benefit
and best interests of Company;
(iv) Habitual intoxication by alcohol or drugs during working hours;
(v) Habitual neglect of duties not corrected following written notice
from Company specifying details thereof;
(vi) Required retirement of Executive at or after the Company's normal
retirement age for senior executives, in accordance with established policies
applied on a nondiscriminating basis.
b. Resignation of Executive following the occurrence of one or more
of the following:
(i) Relocation of the principal place at which Executive's duties are
performed to a location outside the County of San Diego, California;
(ii) A reduction in Executive's compensation;
(iii) A change in the benefits or perquisites provided to Executive
which is deemed materially adverse by Executive;
(iv) A change in Executive's responsibilities, authorities or
functions which is deemed materially adverse by Executive;
(v) A change in Executive's work conditions which is deemed
materially adverse by Executive.
3. Payment. In the event that a termination occurs concurrently with or within
five (5) years following an Event, forthwith upon such Termination occurring,
Company or its successor in interest shall pay to Executive a sum equal to the
largest sum of money which would not result in there being an "Excess Parachute
Payment" as defined in Section 280G of the Internal Revenue Code as amended to
the date of this Agreement. This payment shall be in addition to any and all
other benefits to which Executive may be entitled in connection with such
termination, including but not limited to, payment for accrued and unused
vacation or sick pay.
2
<PAGE> 3
4. Consideration. This contract is for the purpose of inducing Executive to
continue his employment with Company and is in consideration of the services
rendered by Executive to Company from and after the date of this Agreement,
which consideration Company hereby acknowledges is fair and adequate.
5. Complete Agreement. This constitutes the complete agreement between the
parties with respect to its subject matter. It shall not be amended or rescinded
except by a further written agreement executed by both parties.
6. Successors. This contract shall inure to the benefit of Executive, his
heirs, personal representatives and assigns and shall bind Company and its
successors.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written, in accordance with a resolution made and
instructions given by the Board of Directors of Cohu, Inc. at a meeting held May
7, 1996.
COHU, INC.
By: /s/ Charles A. Schwan
----------------------------
President & CEO
/s/ John H. Allen
----------------------------
EXECUTIVE
3
<PAGE> 1
Exhibit 10.12
COHU, INC.
1996 OUTSIDE DIRECTORS STOCK OPTION PLAN
1. Purpose. The Cohu, Inc. 1996 Outside Directors Stock Option Plan (the
"Plan") is established effective as of the date the Plan is approved by the
Board of Directors (the "Effective Date") to create additional incentive for the
non-employee directors of Cohu, Inc., a Delaware corporation, and any successor
corporation thereto (collectively referred to as the "Company") to promote the
financial success and progress of the Company and any present or future parent
and/or subsidiary corporations of the Company. For purposes of the Plan, a
parent corporation and a subsidiary corporation shall be as defined in sections
424(e) and 424(f) of the Internal Revenue Code of 1986, as amended (the "Code").
2. Administration. The Plan shall be administered by the Board of
Directors of the Company (the "Board") and/or by a duly appointed committee of
the Board having such powers as shall be specified by the Board. Any subsequent
references herein to the Board shall also mean the committee if such committee
has been appointed and, unless the powers of the committee have been
specifically limited, the committee shall have all of the powers of the Board
granted herein, including, without limitation, the power to terminate or amend
the Plan at any time, subject to the terms of the Plan and any applicable
limitations imposed by law. The Board shall have no authority, discretion, or
power to select the non-employee directors of the Company who will receive
options under the Plan, to set the exercise price of the options granted under
the Plan, to determine the number of shares of common stock to be granted under
option or the time at which such options are to be granted, to establish the
duration of option grants, or to alter any other terms or conditions specified
in the Plan, except in the sense of administering the Plan subject to the
provisions of the Plan. All questions of interpretation of the Plan or of any
options granted under the Plan (an "Option") shall be determined by the Board,
and such determinations shall be final and binding upon all persons having an
interest in the Plan and/or any Option. Any officer of the Company shall have
the authority to act on behalf of the Company with respect to any matter, right,
obligation, or election which is the responsibility of or which is allocated to
the Company herein, provided the officer has apparent authority with respect to
such matter, right, obligation, or election.
3. Eligibility and Type of Option. Options may be granted only to
directors of the Company who, at the time of such grant, are not employees of
the Company or of any parent or subsidiary corporation of the Company ("Outside
Directors"). Options granted to Outside Directors shall be nonqualified stock
options; that is, options which are not treated as having been granted under
section 422(b) of the Code.
4. Shares Subject to Option. Options shall be for the purchase of shares
of authorized but unissued common stock or treasury shares of common stock of
the Company (the "Stock"), subject to adjustment as provided in paragraph 8
below. The maximum number of shares of Stock which may be issued under the Plan
shall be One Hundred Thousand (100,000) shares. In the event that any
outstanding Option for any reason expires or is terminated and/or shares of
Stock subject to repurchase are repurchased by the Company, the shares allocable
to the unexercised portion of such Option, or such repurchased shares, may again
be subject to an Option grant. Notwithstanding the foregoing, any such shares
shall be made subject to a new
1
<PAGE> 2
Option only if the grant of such new Option and the issuance of such shares
pursuant to such new Option would not cause the Plan or any Option granted under
the Plan to contravene Rule 16b-3 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), or any successor rule.
5. Time for Granting Options. All Options shall be granted, if at all,
within ten years from the Effective Date.
6. Terms, Conditions and Form of Options. Options granted pursuant to the
Plan shall be evidenced by written agreements specifying the number of shares of
Stock covered thereby, in substantially the form attached hereto as Exhibit A
(the "Option Agreement"), which written agreement may incorporate all or any of
the terms of the Plan by reference and shall comply with and be subject to the
following terms and conditions:
(a) Automatic Grant of Options. Subject to execution by an Outside
Director of an appropriate Option Agreement, options shall be granted
automatically and without further action of the Board, as follows:
(i) Each person who is an Outside Director as of the Effective
Date, or who is newly elected or appointed as an Outside Director after the
Effective Date, shall be granted an Option on the Effective Date, or on the day
of such initial election or appointment, as the case may be, to purchase Ten
Thousand (10,000) shares of Stock.
(ii) Notwithstanding the foregoing, any Outside Director may
elect not to receive an Option granted pursuant to this paragraph 6(a) by
delivering written notice of such election to the Board in the case of an
initial Option grant, no later than the Effective Date or, in the case of an
Outside Director appointed or elected after the Effective Date, the date upon
which such Outside Director is appointed or elected to the Board.
(iii) Notwithstanding any other provision of the Plan to the
contrary, no Option shall be granted to any individual on a day when he or she
is no longer serving as an Outside Director of the Company.
(b) Option Exercise Price. The exercise price per share of Stock
subject to an Option shall be the fair market value of a share of the Stock on
the date of the granting of the Option. Where there is a public market for the
common stock of the Company, the fair market value per share of Stock shall be
the mean of the bid and asked prices of the common stock of the Company on the
business day immediately preceding the date of the granting of the Option, as
reported in the Wall Street Journal (or, if not so reported, as otherwise
reported by the National Association of Securities Dealers Automated Quotation
("NASDAQ") System) or, in the event the common stock of the Company is listed on
the NASDAQ National Market System or a securities exchange, the fair market
value per share of Stock shall be the closing price on such National Market
System or exchange on the business day immediately preceding the date of the
granting of the Option, as reported in the Wall Street Journal. If the common
stock of the Company is not listed on any exchange or quoted on NASDAQ, the
Board of Directors shall in good faith determine the fair market value after
consideration of all relevant factors.
2
<PAGE> 3
(c) Exercise Period and Exercisability of Options. An Option granted
pursuant to the Plan shall be exercisable for a term of ten years. Options
granted pursuant to the Plan shall first become exercisable on the day (the
"Initial Vesting Date") which is one year from the date on which the Option was
granted. The Option shall be exercisable on and after the Initial Vesting Date
and prior to termination of the Option in an amount equal to the number of
Option Shares multiplied by the Vested Ratio as set forth below, less the number
of shares previously acquired upon exercise of any portion of the Option.
<TABLE>
<CAPTION>
Vested Ratio
------------
<S> <C> <C>
(i) Prior to Initial Vesting Date 0
On Initial Vesting Date, provided the 1/4
Optionee has continuously served as a
director of the Company from the date the
Option was granted until the Initial Vesting
Date.
Plus
(ii) For each full year of the 1/4
Optionee's continuous service as a director
of the Company from the Initial Vesting Date.
</TABLE>
(d) Payment of Option Exercise Price. Payment of the exercise price
for the number of shares of Stock being purchased pursuant to any Option shall
be made (i) in cash, by check, or in cash equivalent, (ii) by the assignment of
the proceeds of a sale of some or all of the shares being acquired upon the
exercise of an Option (including, without limitation, through an exercise
complying with the provisions of Regulation T as promulgated from time to time
by the Board of Governors of the Federal Reserve System), (iii) by the delivery
to the Company of shares of Stock which have been owned by the holder of the
Option for more than six months and which have an aggregate value equal to such
exercise price, or (iv) by any combination thereof. The Company reserves, at any
and all times, the right, in the Company's sole and absolute discretion, to
establish, decline to approve and/or terminate any program and/or procedure for
the exercise of Options by means of an assignment of the proceeds of a sale of
some or all of the shares of Stock to be acquired upon such exercise or the
delivery of previously owned shares of Stock.
(e) Transfer of Control. A "Transfer of Control" shall be deemed to
have occurred in the event any of the following occurs with respect to the
Company:
(i) a merger or consolidation where the stockholders of the
Company before such merger or consolidation do not retain, directly or
indirectly, at least a majority of the beneficial interest in the voting stock
of the Company after such merger or consolidation;
3
<PAGE> 4
(ii) the sale, exchange, or transfer of all or substantially all
of the assets of the Company other than a sale, exchange, or transfer to one or
more subsidiary corporations (as defined in paragraph 1 above) of the Company;
or
(iii) the direct or indirect sale or exchange by the stockholders
of the Company of all or substantially all of the stock of the Company where the
stockholders of the Company before such sale or exchange do not retain, directly
or indirectly, at least a majority of the beneficial interest in the voting
stock of the Company after such sale or exchange;
(iv) a liquidation or dissolution of the Company.
In the event of a proposed Transfer of Control, any portion of an
Option that has not yet become exercisable shall automatically become
exercisable for a period of 30 days prior to the proposed effective date of the
Transfer of Control. In the event of a Transfer of Control, the Board, in its
sole discretion, may arrange with the surviving, continuing, successor, or
purchasing corporation or parent corporation thereof, as the case may be (the
"Acquiring Corporation"), for the Acquiring Corporation to assume the Company's
rights and obligations under outstanding Options or substitute options for the
Acquiring Corporation's stock for such outstanding Options. Any Options which
are neither assumed or substituted for by the Acquiring Corporation nor
exercised as of the date of the Transfer of Control shall terminate and cease to
be outstanding effective as of the date of the Transfer of Control.
7. Option Agreements; Authority to Vary Terms. Until amended, Options
shall be granted using the form of Option Agreement attached hereto. The Board
shall have the authority from time to time to vary the terms of the Option
Agreements either in connection with the grant of an individual Option or in
connection with the authorization of a new standard form or forms of Option;
provided, however, that the terms and conditions of such revised or amended
standard form or forms of stock option agreement shall be in accordance with the
terms of the Plan. Such authority shall include, but not by way of limitation,
the authority to grant Options which are immediately exercisable subject to the
Company's right to repurchase any unvested shares of Stock acquired by the
Optionee on exercise of an Option in the event such Optionee's service as a
director of the Company is terminated for any reason. In no event shall the
Board be permitted to vary the terms of the Option Agreements or the Plan if
such change would require stockholder approval pursuant to Rule 16b-3
promulgated under the Exchange Act, or any successor rule.
8. Effect of Change in Stock Subject to Plan. Appropriate adjustments
shall be made in the number and class of shares of Stock subject to the Plan,
the number of shares to be granted under the Plan and to any outstanding Options
and in the Option exercise price of any outstanding Options in the event of a
stock dividend, stock split, recapitalization, reverse stock split, combination,
reclassification, or like change in the capital structure of the Company.
9. Options Non-Transferable. During the lifetime of an Optionee, an
Option shall be exercisable only by the Optionee. No Option shall be assignable
or transferable by the Optionee, except by will or by the laws of descent and
distribution.
4
<PAGE> 5
10. Termination or Amendment of Plan. The Board, including any duly
appointed committee of the Board, may terminate or amend the Plan at any time;
provided, however, that without the approval of the stockholders of the Company,
there shall be (a) no increase in the total number of shares of Stock covered by
the Plan (except by operation of the provisions of paragraph 8 above), and (b)
no expansion in the class of persons eligible to receive Options; and provided,
further, that the provisions of the Plan addressing eligibility to participate
in the Plan and the amount, price and timing of grants of Options shall not be
amended more than once every six months, other than to comport to changes in the
Code, or the rules thereunder. In addition to the foregoing, the approval of the
Company's stockholders shall be sought for any amendment to the Plan for which
the Board deems stockholder approval necessary in order to comply with Rule
16b-3 under the Exchange Act, or any successor rule. In any event, no amendment
may adversely affect any then outstanding Option, or any unexercised portion
thereof, without the consent of the Optionee. This Plan shall be submitted for
stockholder approval at the next annual stockholders' meeting. In the event the
stockholders do not approve the Plan, no further options shall be granted
hereunder.
5
<PAGE> 6
EXHIBIT A
COHU, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
FOR OUTSIDE DIRECTORS
Cohu, Inc., a Delaware corporation (the "Company"), hereby grants to
(the "Optionee") an option to purchase a total of ________________________
(_______) shares of the common stock of the Company (the "Number of Option
Shares") under the Cohu, Inc. 1996 Outside Directors Stock Option Plan (the
"Plan"), at an exercise price of $ per share and in the manner and subject to
the provisions of this Option Agreement (the "Option"). The grant, in all
respects, is subject to the terms and conditions of this Option Agreement and
the Plan, the provisions of which are incorporated by reference herein. Unless
otherwise provided in this Option Agreement, capitalized terms shall have the
meaning given to such terms in the Plan. The Number of Option Shares and the
exercise price per share of the Option are subject to adjustment from time to
time as provided in the Plan.
1. Grant of the Option. The Option is granted effective as of (the "Date
of ___________________ Option Grant").
2. Status of the Option. The Option is intended to be a nonqualified
stock option and shall not be treated as an incentive stock option as described
in section 422 of the Internal Revenue Code of 1986, as amended (the "Code").
3. Term of the Option. The Option shall terminate and may no longer be
exercised on the first to occur of (i) the date ten years after the Date of
Option Grant, (ii) the last date for exercising the Option following termination
of the Optionee's service as a director of the Company as described in paragraph
6 below, or (iii) upon a Transfer of Control of the Company as described in the
Plan (the date of such first occurrence, the "Option Termination Date").
4. Exercise of the Option.
(a) Right to Exercise.
(i) The Option first becomes exercisable on the day which is one
year from the Date of Option Grant (the "Initial Vesting Date") provided the
Optionee has continuously served as a director of the Company from the Date of
Option Grant until the Initial Vesting Date. The Option shall be exercisable on
and after the Initial Exercise Date and prior to the Option Termination Date in
the amount equal to the Number of Option Shares multiplied by the Vested Ratio
as set forth in paragraph 4(a)(ii), below, less the number of shares previously
acquired upon exercise of the Option.
6
<PAGE> 7
<TABLE>
<CAPTION>
Vested Ratio
------------
<S> <C> <C>
(ii) Prior to Initial Vesting Date 0
On Initial Vesting Date, 1/4
provided the Optionee has
continuously served as a
director of the Company
from the date the Option was
granted until the Initial
Vesting Date.
Plus
- ----
For each full year 1/4
of the Optionee's continuous
service as a director of the
Company from the Initial
Vesting Date.
</TABLE>
(iii) In no event shall the Option be exercisable for more shares
than the Number of Option Shares. In addition to the foregoing, in the event
that the adoption of the Plan or any amendment of the Plan is subject to the
approval of the stockholders of the Company in order for the Option to comply
with the requirements of Rule 16b-3 promulgated under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), or any successor rule, the Option
shall not be exercisable in the absence of such stockholder approval.
(b) Method of Exercise. The Option may be exercised by written notice
to the Company which must state the election to exercise the Option, the number
of shares of stock for which the Option is being exercised and such other
representations and agreements as to the Optionee's investment intent with
respect to such shares as may be required pursuant to the provisions of this
Option Agreement and the Plan. The written notice must be signed by the Optionee
and must be delivered in person or by certified or registered mail, return
receipt requested, to the Chief Financial Officer of the Company, or other
authorized representative of the Company, prior to the termination of the Option
as set forth in paragraph 3 above, accompanied by full payment of the exercise
price for the number of shares of Stock being purchased in a form permitted
under the terms of the Plan.
(c) Withholding. At the time the Option is exercised, in whole or in
part, or at any time thereafter as requested by the Company, the Optionee shall
make adequate provision for the foreign, federal and state tax withholding
obligations of the Company, if any, which arise in connection with the Option
including, without limitation, obligations arising upon (i) the exercise, in
whole or in part, of the Option, (ii) the transfer, in whole or in part, of any
shares of stock acquired on exercise of the Option, or (iii) the lapsing of any
restriction with respect to any shares acquired on exercise of the Option.
7
<PAGE> 8
(d) Certificate Registration. The certificate or certificates for the
shares of stock as to which the Option shall be exercised shall be registered in
the name of the Optionee, or, if applicable, the heirs of the Optionee.
(e) Restriction on Grant of the Option and Issuance of Shares. The
grant of the Option and the issuance of shares of stock on exercise of the
Option shall be subject to compliance with all of the applicable requirements of
federal or state law with respect to such securities. The Option may not be
exercised if the issuance of shares of stock upon such exercise would constitute
a violation of any applicable federal or state securities laws or other law or
regulation. In addition, no Option may be exercised unless (i) a registration
statement under the Securities Act of 1933, as amended (the "Securities Act"),
shall at the time of exercise of the Option be in effect with respect to the
shares of stock issuable upon exercise of the Option, or (ii) in the opinion of
legal counsel to the Company, the shares issuable upon exercise of the Option
may be issued in accordance with the terms of an applicable exemption from the
registration requirements of the Securities Act. As a condition to the exercise
of the Option, the Company may require the Optionee to satisfy any
qualifications that may be necessary or appropriate, to evidence compliance with
any applicable law or regulation and to make any representation or warranty with
respect thereto as may be requested by the Company.
(f) Fractional Shares. The Company shall not be required to issue
fractional shares of stock upon the exercise of the Option.
5. Non-Transferability of the Option. The Option may be exercised during
the lifetime of the Optionee only by the Optionee and may not be assigned or
transferred in any manner except by will or by the laws of descent and
distribution.
6. Termination of Service as a Director.
(a) Termination of Director Status. If the Optionee ceases to be a
director of the Company for any reason except death or disability within the
meaning of section 22(e)(3) of the Code, the Option, to the extent unexercised
and exercisable by the Optionee on the date on which the Optionee ceased to be a
director, may be exercised by the Optionee at any time prior to the expiration
of three months from the date on which the Optionee's service as a director of
the Company terminated, but in any event no later than the Option Termination
Date. If the Optionee ceases to be a director of the Company because of the
death or disability of the Optionee within the meaning of section 22(e)(3) of
the Code, the Option, to the extent unexercised and exercisable by the Optionee
on the date on which the Optionee ceased to be a director, may be exercised by
the Optionee (or the Optionee's legal representative) at any time prior to the
expiration of six months from the date on which the Optionee's service as a
director of the Company terminated, but in any event no later than the Option
Termination Date. The Optionee's service as a director of the Company shall be
deemed to have terminated on account of death if the Optionee dies within three
months after the Optionee's termination of service as a director of the Company.
Except as provided in this paragraph 6, an Option shall terminate and may not be
exercised after the Optionee ceases to be a director of the Company.
(b) Extension of Exercise Prevented by Law. Notwithstanding the
foregoing, if the exercise of the Option within the applicable time periods set
forth above is prevented because the issuance of shares of stock upon such
exercise would constitute a violation of any
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applicable federal or state securities law or other law or regulation, the
Option shall remain exercisable until three months after the date the Optionee
is notified by the Company that the Option is exercisable, but in any event no
later than the Option Termination Date.
(c) Extension if Optionee Subject to Section 16(b). Notwithstanding
the foregoing, if the exercise of the Option within the applicable time periods
set forth above would subject the Optionee to suit under Section 16(b) of the
Exchange Act, the Option shall remain exercisable until the earliest to occur of
(i) the tenth (10th) day following the date on which the Optionee would no
longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day
after the Optionee's termination of service as a director of the Company and
(iii) the Option Termination Date.
7. Rights as a Stockholder; Rights to Serve as a Director. The Optionee
shall have no rights as a stockholder with respect to any shares of stock
covered by the Option until the date of the issuance of a certificate or
certificates for the shares for which the Option has been exercised. No
adjustment shall be made for dividends or distributions or other rights for
which the record date is prior to the date such stock certificate or
certificates are issued, except as provided in the Plan. Nothing herein shall be
deemed to provide the Optionee with any right to serve as a director of the
Company for any length of time.
8. Effect of Change in Stock Subject to the Option. Appropriate
adjustments shall be made in the number, exercise price and class of shares of
stock subject to the Option in the event of a stock dividend, stock split,
reverse stock split, recapitalization, combination, reclassification, or like
change in the capital structure of the Company. In the event a majority of the
shares which are of the same class as the shares that are subject to the Option
are exchanged for, converted into, or otherwise become shares of another
corporation (the "New Shares"), the Company may unilaterally amend the Option to
provide that the Option is exercisable for New Shares. In the event of any such
amendment, the number of shares and the exercise price shall be adjusted in a
fair and equitable manner.
9. Transfer of Control. A "Transfer of Control" shall be deemed to have
occurred in the event any of the following occurs with respect to the Company:
(a) a merger or consolidation where the stockholders of the Company
before such merger or consolidation do not retain, directly or indirectly, at
least a majority of the beneficial interest in the voting stock of the Company
after such merger or consolidation;
(b) the sale, exchange, or transfer of all or substantially all of
the assets of the Company (other than a sale, exchange, or transfer to one or
more subsidiary corporations (as defined in the Plan) of the Company);
(c) the direct or indirect sale or exchange by the stockholders of
the Company of all or substantially all of the stock of the Company where the
stockholders of the Company before such sale or exchange do not retain, directly
or indirectly, at least a majority of the beneficial interest in the voting
stock of the Company after such sale or exchange; or
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(d) A liquidation or dissolution of the Company.
In the event of a proposed Transfer of Control, any portion of this
Option that has not yet become exercisable shall automatically become
exercisable for a period of 30 days prior to the proposed effective date of such
Transfer of Control. In the event of a Transfer of Control, the Board, in its
sole discretion, may arrange with the surviving, continuing, successor, or
purchasing corporation or parent corporation thereof, as the case may be (the
"Acquiring Corporation"), for the Acquiring Corporation to assume the Company's
rights and obligations under the Option or substitute options for the Acquiring
Corporation's stock for the Option. To the extent the Option is neither assumed
or substituted for by the Acquiring Corporation in connection with the Transfer
of Control nor exercised as of the date of the Transfer of Control, the Option
shall terminate and cease to be outstanding effective as of the date of the
Transfer of Control.
10. Legends. The Company may at any time place legends referencing any
applicable federal or state securities law restrictions on all certificates
representing shares of stock subject to the provisions of this Option Agreement.
The Optionee shall, at the request of the Company, promptly present to the
Company any and all certificates representing shares of stock acquired pursuant
to the Option in the possession of the Optionee in order to effectuate the
provisions of this paragraph.
11. Binding Effect. This Option Agreement shall inure to the benefit of
the successors and assigns of the Company and be binding upon the Company and
the Optionee and the Optionee's heirs, executors, administrators, successors and
assigns.
12. Termination or Amendment. The Board, including any duly appointed
committee of the Board, may terminate or amend the Plan and/or the Option at any
time subject to any limitations described in the Plan; provided, however, that
no such termination or amendment may adversely affect the Option or any
unexercised portion hereof without the consent of the Optionee.
13. Integrated Agreement. This Option Agreement and the Plan constitute
the entire understanding and agreement of the Optionee and the Company with
respect to the subject matter contained herein and therein, and there are no
agreements, understandings, restrictions, representations, or warranties among
the Optionee and the Company other than those as set forth or provided for
herein or therein. To the extent contemplated herein and therein, the provisions
of this Option Agreement and the Plan shall survive any exercise of the Option
and shall remain in full force and effect.
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14. Applicable Law. This Option Agreement shall be governed by the laws of
the State of California as such laws are applied to agreements between
California residents entered into and to be performed entirely within the State
of California.
COHU, INC.
By: _______________________________
Title: ______________________________
The Optionee represents that the Optionee is familiar with the terms and
provisions of this Option Agreement and the Plan and hereby accepts the Option
subject to all of the terms and provisions thereof. The Optionee hereby agrees
to accept as binding, conclusive and final all decisions or interpretations of
the Board upon any questions arising under this Option Agreement or the Plan.
The undersigned acknowledges receipt of a copy of the Plan.
Date:
------------------------------- -------------------------------
Signature
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Exhibit 10.13
COHU, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
1. ESTABLISHMENT AND PURPOSE
1.1 ESTABLISHMENT. The Cohu, Inc. 1997 Employee Stock Purchase Plan
(the "PLAN") is hereby established effective as of February 28, 1997 (the
"EFFECTIVE DATE").
1.2 PURPOSE. The purpose of the Plan to provide Eligible Employees of
the Participating Company Group with an opportunity to acquire a proprietary
interest in the Company through the purchase of Stock. The Company intends that
the Plan shall qualify as an "employee stock purchase plan" under Sections 421
and 423 of the Code (including any amendments or replacements of such section),
and the Plan shall be so construed.
2. DEFINITIONS AND CONSTRUCTION.
2.1 DEFINITIONS. Any term not expressly defined in the Plan but
defined for purposes of Section 423 of the Code shall have the same definition
herein. Whenever used herein, the following terms shall have their respective
meanings set forth below:
(a) "BOARD" means the Board of Directors of the Company. If one
or more Committees have been appointed by the Board to administer the Plan,
"Board" also means such Committee(s).
(b) "CODE" means the Internal Revenue Code of 1986, as amended,
and any applicable regulations promulgated thereunder.
(c) "COMMITTEE" means a committee of the Board duly appointed to
administer the Plan and having such powers as shall be specified by the Board.
Unless the powers of the Committee have been specifically limited, the Committee
shall have all of the powers of the Board granted herein, including, without
limitation, the power to amend or terminate the Plan at any time, subject to the
terms of the Plan and any applicable limitations imposed by law.
(d) "COMPANY" means Cohu, Inc., a Delaware corporation, or any
successor corporation thereto.
(e) "COMPENSATION" means, with respect to an Offering Period
under the Plan, all amounts paid in cash in the form of base salary, paid during
such Offering Period before deduction for any contributions to any plan
maintained by a Participating Company and described in Section 401(k) or Section
125 of the Code. Compensation shall not include payments of overtime, bonuses,
commissions, other incentive compensation, reimbursements of expenses,
allowances, long-term disability, workers' compensation or any amount deemed
received or any amounts directly or indirectly paid pursuant to the Plan or any
other stock purchase or stock option plan.
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(f) "ELIGIBLE EMPLOYEE" means an Employee who meets the
requirements set forth in Section 5 for eligibility to participate in the Plan.
(g) "EMPLOYEE" means any person treated as an employee
(including an officer or a director who is also treated as an employee) in the
records of a Participating Company and for purposes of Section 423 of the Code;
provided, however, that neither service as a director nor payment of a
director's fee shall be sufficient to constitute employment for purposes of the
Plan.
(h) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(i) "FAIR MARKET VALUE" means, as of any date, if there is then
a public market for the Stock, the closing price of a share of Stock (or the
mean of the closing bid and asked prices of a share of Stock if the Stock is so
reported instead) as reported on the National Association of Securities Dealers
Automated Quotation ("NASDAQ") System, the Nasdaq National Market System or such
other national or regional securities exchange or market system constituting the
primary market for the Stock. If the relevant date does not fall on a day on
which the Stock is trading on Nasdaq, the Nasdaq National Market System or other
national or regional securities exchange or market system, the date on which the
Fair Market Value shall be established shall be the last day on which the Stock
was so traded prior to the relevant date, or such other appropriate day as shall
be determined by the Board, in its sole discretion. If there is then no public
market for the Stock, the Fair Market Value on any relevant date shall be as
determined by the Board without regard to any restriction other than a
restriction which, by its terms, will never lapse.
(j) "OFFERING" means an offering of Stock as provided in Section
6.
(k) "OFFERING DATE" means, for any Offering Period, the first
day of such Offering Period.
(l) "OFFERING PERIOD" means a period determined in accordance
with Section 6.1.
(m) "PARENT CORPORATION" means any present or future "parent
corporation" of the Company, as defined in Section 424(e) of the Code.
(n) "PARTICIPANT" means an Eligible Employee participating in
the Plan.
(o) "PARTICIPATING COMPANY" means the Company or any Parent
Corporation or Subsidiary Corporation which the Board determines should be
included in the Plan. The Board shall have the sole and absolute discretion to
determine from time to time what Parent Corporations or Subsidiary Corporations
shall be Participating Companies.
(p) "PARTICIPATING COMPANY GROUP" means, at any point in time,
the Company and all other corporations collectively which are then Participating
Companies.
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(q) "PURCHASE DATE" means, for any Offering Period, the last day
of such Offering Period.
(r) "PURCHASE PRICE" means the price at which a share of Stock
may be purchased pursuant to the Plan, as determined in accordance with Section
9.
(s) "PURCHASE RIGHT" means an option pursuant to the Plan to
purchase such shares of Stock as provided in Section 8 which may or may not be
exercised at the end of an Offering Period. Such option arises from the right of
a Participant to withdraw such Participant's accumulated payroll deductions (if
any) and terminate participation in the Plan or any Offering therein at any time
during a Offering Period.
(t) "STOCK" means the common stock, $1.00 par value, of the
Company, as adjusted from time to time in accordance with Section 4.2.
(u) "SUBSIDIARY CORPORATION" means any present or future
"subsidiary corporation" of the Company, as defined in Section 424(f) of the
Code.
2.2 CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of the Plan. Except when otherwise indicated by the context, the
singular shall include the plural, the plural shall include the singular, and
use of the term "or" shall include the conjunctive as well as the disjunctive.
3. ADMINISTRATION. The Plan shall be administered by the Board, including
any duly appointed Committee of the Board. All questions of interpretation of
the Plan or of any Purchase Right shall be determined by the Board and shall be
final and binding upon all persons having an interest in the Plan or such
Purchase Right. Subject to the provisions of the Plan, the Board shall determine
all of the relevant terms and conditions of Purchase Rights granted pursuant to
the Plan; provided, however, that all Participants granted Purchase Rights
pursuant to the Plan shall have the same rights and privileges within the
meaning of Section 423(b)(5) of the Code. All expenses incurred in connection
with the administration of the Plan shall be paid by the Company.
4. SHARES SUBJECT TO PLAN.
4.1 MAXIMUM NUMBER OF SHARES ISSUABLE. Subject to adjustment as
provided in Section 4.2, the maximum aggregate number of shares of Stock that
may be issued under the Plan shall be three hundred thousand (300,000) and shall
consist of authorized but unissued or reacquired shares of the Stock, or any
combination thereof. If an outstanding Purchase Right for any reason expires or
is terminated or canceled, the shares of Stock allocable to the unexercised
portion of such Purchase Right shall again be available for issuance under the
Plan.
4.2 ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of any
stock dividend, stock split, reverse stock split, recapitalization, combination,
reclassification or similar change in the capital structure of the Company, or
in the event of any merger (including a merger effected for the purpose of
changing the Company's domicile), sale of assets or other reorganization in
which the Company is a party, appropriate adjustments shall be made to the
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number and class of shares subject to the Plan, to the Per Offering Share Limit
set forth in Section 8.1 and to each Purchase Right and to the Purchase Price.
5. ELIGIBILITY.
5.1 EMPLOYEES ELIGIBLE TO PARTICIPATE. Any Employee of a
Participating Company is eligible to participate in the Plan except the
following:
(a) Employees who are customarily employed by the Participating
Company Group for twenty (20) hours or less per week;
(b) Employees who are customarily employed by the Participating
Company Group for not more than five (5) months in any calendar year; and
(c) Employees who own or hold options to purchase or who, as a
result of participation in the Plan, would own or hold options to purchase,
stock of the Company or of any Parent Corporation or Subsidiary Corporation
possessing five percent (5%) or more of the total combined voting power or value
of all classes of stock of such corporation within the meaning of Section
423(b)(3) of the Code.
5.2 LEASED EMPLOYEES EXCLUDED. Notwithstanding anything herein to the
contrary, any individual performing services for a Participating Company solely
through a leasing agency or employment agency shall not be deemed an "Employee"
of such Participating Company.
6. OFFERINGS.
6.1 OFFERING PERIODS. Except as otherwise set forth below, the Plan
shall be implemented by sequential Offerings of six (6) months duration (an
"OFFERING PERIOD"); provided, however that the first Offering Period shall
commence on July 1, 1997 and end on October 30, 1997 (the "INITIAL OFFERING
PERIOD"). Subsequent Offerings shall commence on the first days of November and
May of each year and end on the last days of the first April and October,
respectively, occurring thereafter. Notwithstanding the foregoing, the Board may
establish a different term for one or more Offerings or different commencing or
ending dates for such Offerings; provided, however, that no Offering may exceed
a term of twenty-seven (27) months. An Employee who becomes an Eligible Employee
after an Offering Period has commenced shall not be eligible to participate in
such Offering but may participate in any subsequent Offering provided such
Employee is still an Eligible Employee as of the commencement of any such
subsequent Offering. In the event the first or last day of an Offering Period is
not a business day, the Company shall specify the business day that will be
deemed the first or last day, as the case may be, of the Offering Period.
6.2 GOVERNMENTAL APPROVAL; STOCKHOLDER APPROVAL. Notwithstanding any
other provision of the Plan to the contrary, any Purchase Right granted pursuant
to the Plan shall be subject to (a) obtaining all necessary governmental
approvals or qualifications of the sale or issuance of the Purchase Rights or
the shares of Stock and (b) obtaining stockholder approval of the Plan.
Notwithstanding the foregoing, stockholder approval shall not be necessary in
order to grant any Purchase Right granted in the Plan's Initial Offering Period;
provided, however, that
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the exercise of any such Purchase Right shall be subject to obtaining
stockholder approval of the Plan.
7. PARTICIPATION IN THE PLAN.
7.1 INITIAL PARTICIPATION. An Eligible Employee shall become a
Participant on the first Offering Date after satisfying the eligibility
requirements of Section 5 and delivering to the Company's payroll office or
other office designated by the Company not later than the close of business for
such office on the last business day before such Offering Date (the
"SUBSCRIPTION DATE") a subscription agreement indicating the Employee's election
to participate in the Plan and authorizing payroll deductions. An Eligible
Employee who does not deliver a subscription agreement to the Company's payroll
or other designated office on or before the Subscription Date shall not
participate in the Plan for that Offering Period or for any subsequent Offering
Period unless such Employee subsequently enrolls in the Plan by filing a
subscription agreement with the Company by the Subscription Date for such
subsequent Offering Period. The Company may, from time to time, change the
Subscription Date as deemed advisable by the Company in its sole discretion for
proper administration of the Plan.
7.2 CONTINUED PARTICIPATION. A Participant shall automatically
participate in each subsequent Offering Period until such time as such
Participant (a) ceases to be an Eligible Employee, (b) withdraws from the Plan
pursuant to Section 13.2 or (c) terminates employment as provided in Section 14.
If a Participant automatically may participate in a subsequent Offering Period
pursuant to this Section 7.2, then the Participant is not required to file any
additional subscription agreement for such subsequent Offering Period in order
to continue participation in the Plan. However, a Participant may file a
subscription agreement with respect to a subsequent Offering Period if the
Participant desires to change any of the Participant's elections contained in
the Participant's then effective subscription agreement.
8. RIGHT TO PURCHASE SHARES.
8.1 PURCHASE RIGHT. Except as set forth below, during an Offering
Period each Participant shall have a Purchase Right consisting of the right to
purchase up to that number of whole shares of Stock arrived at by dividing
Twelve Thousand Five Hundred Dollars ($12,500) by the Fair Market Value of a
share of Stock on the Offering Date of such Offering Period. Shares of Stock may
only be purchased through a Participant's payroll deductions pursuant to Section
10.
8.2 PRO RATA ADJUSTMENT OF PURCHASE RIGHT. Notwithstanding the
foregoing, if the Board shall establish an Offering Period of less than five and
one-half (5 1/2) months or more than six and one-half (6 1/2) months in
duration, the dollar amount in Section 8.1 shall be determined by multiplying
$2,083.33 by the number of months in the Offering Period and rounding to the
nearest whole dollar. For purposes of the preceding sentence, fractional months
shall be rounded to the nearest whole month.
9. PURCHASE PRICE. The Purchase Price at which each share of Stock may be
acquired in a given Offering Period pursuant to the exercise of all or any
portion of a Purchase Right granted under the Plan shall be set by the Board;
provided, however, that the Purchase Price shall not be less than eighty-five
percent (85%) of the lesser of (a) the Fair Market Value of
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a share of Stock on the Offering Date of the Offering Period, or (b) the Fair
Market Value of a share of Stock on the Purchase Date of the Offering Period.
Unless otherwise provided by the Board prior to the commencement of an Offering
Period, the Purchase Price for that Offering Period shall be eighty-five percent
(85%) of the lesser of (a) the Fair Market Value of a share of Stock on the
Offering Date of the Offering Period, or (b) the Fair Market Value of a share of
Stock on the Purchase Date of the Offering Period.
10. ACCUMULATION OF PURCHASE PRICE THROUGH PAYROLL DEDUCTION. Shares of
Stock which are acquired pursuant to the exercise of all or any portion of a
Purchase Right for an Offering Period may be paid for only by means of payroll
deductions from the Participant's Compensation accumulated during the Offering
Period. Except as set forth below, the amount of Compensation to be deducted
from a Participant's Compensation during each pay period shall be determined by
the Participant's subscription agreement.
10.1 COMMENCEMENT OF PAYROLL DEDUCTIONS. Payroll deductions shall
commence on the first payday following the Offering Date and shall continue to
the end of the Offering Period unless sooner altered or terminated as provided
in the Plan.
10.2 LIMITATIONS ON PAYROLL DEDUCTIONS. The amount of payroll
deductions with respect to the Plan for any Participant during any pay period
shall be in one percent (1%) increments not to exceed ten percent (10%) of the
Participant's Compensation for such pay period. Notwithstanding the foregoing,
the Board may change the limits on payroll deductions effective as of a future
Offering Date, as determined by the Board. Amounts deducted from Compensation
shall be reduced by any amounts contributed by the Participant and applied to
the purchase of Company stock pursuant to any other employee stock purchase plan
qualifying under Section 423 of the Code.
10.3 ELECTION TO INCREASE, DECREASE OR STOP PAYROLL DEDUCTIONS. During
an Offering Period, a Participant may elect to increase or decrease the amount
deducted or stop deductions from his or her Compensation by filing an amended
subscription agreement with the Company on or before the "Change Notice Date."
The "CHANGE NOTICE DATE" shall initially be the seventh (7th) day prior to the
end of the first pay period for which such election is to be effective; however,
the Company may change such Change Notice Date from time to time.
10.4 PARTICIPANT ACCOUNTS. Individual Plan accounts shall be
maintained for each Participant. All payroll deductions from a Participant's
Compensation shall be credited to such account and shall be deposited with the
general funds of the Company. All payroll deductions received or held by the
Company may be used by the Company for any corporate purpose.
10.5 NO INTEREST PAID. Interest shall not be paid on sums deducted
from a Participant's Compensation pursuant to the Plan.
10.6 COMPANY ESTABLISHED PROCEDURES. The Company may, from time to
time, establish or change (a) a minimum required payroll deduction amount for
participation in an Offering, (b) limitations on the frequency or number of
changes in the rate of payroll deduction during an Offering, (c) an exchange
ratio applicable to amounts withheld in a currency other than U.S. dollars, (d)
payroll deduction in excess of or less than the amount designated by a
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Participant in order to adjust for delays or mistakes in the Company's
processing of subscription agreements, (e) the date(s) and manner by which the
Fair Market Value of a share of Stock is determined for purposes of
administration of the Plan, or (f) such other limitations or procedures as
deemed advisable by the Company in the Company's sole discretion which are
consistent with the Plan and in accordance with the requirements of Section 423
of the Code.
11. PURCHASE OF SHARES.
11.1 EXERCISE OF PURCHASE RIGHT. On each Purchase Date, each
Participant who has not withdrawn from the Offering or whose participation in
the Offering has not terminated on or before such Purchase Date shall
automatically acquire pursuant to the exercise of the Participant's Purchase
Right the number of whole shares of Stock arrived at by dividing the total
amount of the Participant's accumulated payroll deductions for the Purchase
Period by the Purchase Price; provided, however, in no event shall the number of
shares purchased by the Participant during an Offering Period exceed the number
of shares subject to the Participant's Purchase Right. No shares of Stock shall
be purchased on a Purchase Date on behalf of a Participant whose participation
in the Offering or the Plan has terminated on or before such Purchase Date.
11.2 RETURN OF CASH BALANCE. Any cash balance remaining in the
Participant's Plan account shall be refunded to the Participant as soon as
practicable after the Purchase Date. In the event the cash to be returned to a
Participant pursuant to the preceding sentence is an amount less than the amount
necessary to purchase a whole share of Stock, the Company may establish
procedures whereby such cash is maintained in the Participant's Plan account and
applied toward the purchase of shares of Stock in the subsequent Offering
Period.
11.3 TAX WITHHOLDING. At the time a Participant's Purchase Right is
exercised, in whole or in part, or at the time a Participant disposes of some or
all of the shares of Stock he or she acquires under the Plan, the Participant
shall make adequate provision for the foreign, federal, state and local tax
withholding obligations of the Participating Company Group, if any, which arise
upon exercise of the Purchase Right or upon such disposition of shares,
respectively. The Participating Company Group may, but shall not be obligated
to, withhold from the Participant's compensation the amount necessary to meet
such withholding obligations.
11.4 EXPIRATION OF PURCHASE RIGHT. Any portion of a Participant's
Purchase Right remaining unexercised after the end of the Offering Period to
which such Purchase Right relates shall expire immediately upon the end of such
Offering Period.
12. LIMITATIONS ON PURCHASE OF SHARES; RIGHTS AS A STOCKHOLDER.
12.1 FAIR MARKET VALUE LIMITATION. Notwithstanding any other provision
of the Plan, no Participant shall be entitled to purchase shares of Stock under
the Plan (or any other employee stock purchase plan which is intended to meet
the requirements of Section 423 of the Code sponsored by the Company or a Parent
Corporation or Subsidiary Corporation at a rate which exceeds $25,000 in Fair
Market Value, which Fair Market Value is determined for shares purchased during
a given Offering Period as of the Offering Date (or such other limit as may be
imposed by the Code), for each calendar year in which the Participant
participates in the Plan (or any other employee stock purchase plan described in
this sentence).
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12.2 PRO RATA ALLOCATION. In the event the number of shares of Stock
which might be purchased by all Participants in the Plan exceeds the number of
shares of Stock available in the Plan, the Company shall make a pro rata
allocation of the remaining shares in as uniform a manner as shall be
practicable and as the Company shall determine to be equitable.
12.3 RIGHTS AS A STOCKHOLDER AND EMPLOYEE. A Participant shall have no
rights as a stockholder by virtue of the Participant's participation in the Plan
until the date of the issuance of a stock certificate for the shares of Stock
being purchased pursuant to the exercise of the Participant's Purchase Right. No
adjustment shall be made for cash dividends or distributions or other rights for
which the record date is prior to the date such stock certificate is issued.
Nothing herein shall confer upon a Participant any right to continue in the
employ of the Participating Company Group or interfere in any way with any right
of the Participating Company Group to terminate the Participant's employment at
any time.
13. WITHDRAWAL.
13.1 WITHDRAWAL FROM AN OFFERING. A Participant may withdraw from an
Offering by signing and delivering to the Company's payroll or other designated
office a written notice of withdrawal on a form provided by the Company for such
purpose. Such withdrawal may be elected at any time prior to the end of an
Offering Period. Unless otherwise indicated, withdrawal from an Offering shall
not result in a withdrawal from the Plan or any succeeding Offering therein. A
Participant is prohibited from again participating in an Offering at any time
following withdrawal from such Offering. The Company may impose, from time to
time, a requirement that the notice of withdrawal be on file with the Company's
payroll office or other designated office for a reasonable period prior to the
effectiveness of the Participant's withdrawal from an Offering.
13.2 WITHDRAWAL FROM THE PLAN. A Participant may withdraw from the
Plan by signing and delivering to the Company's payroll office or other
designated office a written notice of withdrawal on a form provided by the
Company for such purpose. Withdrawals made after a Purchase Date shall not
affect shares of Stock acquired by the Participant on such Purchase Date. In the
event a Participant voluntarily elects to withdraw from the Plan, the
Participant may not resume participation in the Plan during the same Offering
Period, but may participate in any subsequent Offering under the Plan by again
satisfying the requirements of Sections 5 and 7.1. The Company may impose, from
time to time, a requirement that the notice of withdrawal be on file with the
Company's payroll office or other designated office for a reasonable period
prior to the effectiveness of the Participant's withdrawal from the Plan.
13.3 RETURN OF PAYROLL DEDUCTIONS. Upon a Participant's withdrawal
from an Offering or the Plan pursuant to Sections 13.1 or 13.2, respectively,
the Participant's accumulated payroll deductions which have not been applied
toward the purchase of shares of Stock shall be returned as soon as practicable
after the withdrawal, without the payment of any interest, to the Participant,
and the Participant's interest in the Offering or the Plan, as applicable, shall
terminate. Such accumulated payroll deductions may not be applied to any other
Offering under the Plan.
8
<PAGE> 9
14. TERMINATION OF EMPLOYMENT OR ELIGIBILITY. Termination of a
Participant's employment with a Participating Company for any reason, including
retirement, disability or death or the failure of a Participant to remain an
Eligible Employee, shall terminate the Participant's participation in the Plan
immediately. In such event, the payroll deductions credited to the Participant's
Plan account since the last Purchase Date shall, as soon as practicable, be
returned to the Participant or, in the case of the Participant's death, to the
Participant's legal representative, and all of the Participant's rights under
the Plan shall terminate. Interest shall not be paid on sums returned to a
Participant pursuant to this Section 14. A Participant whose participation has
been so terminated may again become eligible to participate in the Plan by again
satisfying the requirements of Sections 5 and 7.1.
15. TRANSFER OF CONTROL.
15.1 DEFINITIONS.
(a) An "OWNERSHIP CHANGE EVENT" shall be deemed to have occurred
if any of the following occurs with respect to the Company: (i) the direct or
indirect sale or exchange in a single or series of related transactions by the
stockholders of the Company of more than fifty percent (50%) of the voting stock
of the Company; (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.
(b) A "TRANSFER OF CONTROL" shall mean an Ownership Change Event
or a series of related Ownership Change Events (collectively, the "TRANSACTION")
wherein the stockholders of the Company immediately before the Transaction do
not retain immediately after the Transaction, in substantially the same
proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent (50%) of the total combined voting power of the
outstanding voting stock of the Company or the corporation or corporations to
which the assets of the Company were transferred (the "TRANSFEREE
CORPORATION(S)"), as the case may be. For purposes of the preceding sentence,
indirect beneficial ownership shall include, without limitation, an interest
resulting from ownership of the voting stock of one or more corporations which,
as a result of the Transaction, own the Company or the Transferee
Corporation(s), as the case may be, either directly or through one or more
subsidiary corporations. The Board shall have the right to determine whether
multiple sales or exchanges of the voting stock of the Company or multiple
Ownership Change Events are related, and its determination shall be final,
binding and conclusive.
15.2 EFFECT OF TRANSFER OF CONTROL ON PURCHASE RIGHTS. In the event of
a Transfer of Control, the surviving, continuing, successor, or purchasing
corporation or parent corporation thereof, as the case may be (the "ACQUIRING
CORPORATION"), may assume the Company's rights and obligations under the Plan or
substitute substantially equivalent Purchase Rights for stock of the Acquiring
Corporation. If the Acquiring Corporation elects not to assume or substitute for
the outstanding Purchase Rights, the Board shall, notwithstanding any other
provision herein to the contrary, adjust the Purchase Date of the then current
Offering Period to a date immediately before the date of the Transfer of
Control, but shall not adjust the number of shares of Stock subject to any
Purchase Right. All Purchase Rights which are neither assumed or substituted for
by the Acquiring Corporation in connection with the Transfer of Control nor
9
<PAGE> 10
exercised as of the date of the Transfer of Control shall terminate and cease to
be outstanding effective as of the date of the Transfer of Control.
Notwithstanding the foregoing, if the corporation the stock of which is subject
to the outstanding Purchase Rights immediately prior to an Ownership Change
Event described in Section 15.1(a)(i) constituting a Transfer of Control is the
surviving or continuing corporation and immediately after such Ownership Change
Event less than fifty percent (50%) of the total combined voting power of its
voting stock is held by another corporation or by other corporations that are
members of an affiliated group within the meaning of section 1504(a) of the Code
without regard to the provisions of section 1504(b) of the Code, the outstanding
Purchase Rights shall not terminate unless the Board otherwise provides in its
sole discretion.
16. NONTRANSFERABILITY OF PURCHASE RIGHTS. A Purchase Right may not be
transferred in any manner otherwise than by will or the laws of descent and
distribution and shall be exercisable during the lifetime of the Participant
only by the Participant. Any attempt to pledge, assign or transfer such Purchase
Rights or accumulated payroll deductions shall be treated as an election to
withdraw from the Plan. The Company, in its absolute discretion, may impose such
restrictions on the transferability of the shares purchasable upon the exercise
of a Purchase Right as it deems appropriate and any such restriction shall be
set forth in the respective subscription agreement and may be referred to on the
certificates evidencing such shares.
17. REPORTS. Each Participant who exercised all or part of his or her
Purchase Right for an Offering Period shall receive, as soon as practicable
after the Purchase Date, a report of such Participant's Plan account setting
forth the total payroll deductions accumulated, the number of shares of Stock
purchased, the Purchase Price for such shares, the date of purchase and the
remaining cash balance to be refunded or retained in the Participant's Plan
account pursuant to Section 11.2, if any. Each Participant shall be provided
information concerning the Company equivalent to that information generally made
available to the Company's common stockholders.
18. RESTRICTION ON ISSUANCE OF SHARES. The issuance of shares under the
Plan shall be subject to compliance with all applicable requirements of foreign,
federal or state law with respect to such securities. A Purchase Right may not
be exercised if the issuance of shares upon such exercise would constitute a
violation of any applicable foreign, federal or state securities laws or other
law or regulations. In addition, no Purchase Right may be exercised unless (a) a
registration statement under the Securities Act of 1933, as amended, shall at
the time of exercise of the Purchase Right be in effect with respect to the
shares issuable upon exercise of the Purchase Right, or (b) in the opinion of
legal counsel to the Company, the shares issuable upon exercise of the Purchase
Right may be issued in accordance with the terms of an applicable exemption from
the registration requirements of said Act. The inability of the Company to
obtain from any regulatory body having jurisdiction the authority, if any,
deemed by the Company's legal counsel to be necessary to the lawful issuance and
sale of any shares under the Plan shall relieve the Company of any liability in
respect of the failure to issue or sell such shares as to which such requisite
authority shall not have been obtained. As a condition to the exercise of a
Purchase Right, the Company may require the Participant to satisfy any
qualifications that may be necessary or appropriate, to evidence compliance with
any applicable law or regulation, and to make any representation or warranty
with respect thereto as may be requested by the Company.
10
<PAGE> 11
19. LEGENDS. The Company may at any time place legends or other
identifying symbols referencing any applicable foreign, federal or state
securities law restrictions or any provision convenient in the administration of
the Plan on some or all of the certificates representing shares of Stock issued
under the Plan. The Participant shall, at the request of the Company, promptly
present to the Company any and all certificates representing shares acquired
pursuant to a Purchase Right in the possession of the Participant in order to
carry out the provisions of this Section. Unless otherwise specified by the
Company, legends placed on such certificates may include but shall not be
limited to the following:
"THE SHARES EVIDENCED BY THIS CERTIFICATE WERE ISSUED BY THE CORPORATION TO
THE REGISTERED HOLDER UPON THE PURCHASE OF SHARES UNDER AN EMPLOYEE STOCK
PURCHASE PLAN AS DEFINED IN SECTION 423 OF THE INTERNAL REVENUE CODE OF 1986, AS
AMENDED. THE TRANSFER AGENT FOR THE SHARES EVIDENCED HEREBY SHALL NOTIFY THE
CORPORATION IMMEDIATELY OF ANY TRANSFER OF THE SHARES BY THE REGISTERED HOLDER
HEREOF MADE ON OR BEFORE , 19 . THE REGISTERED HOLDER SHALL HOLD ALL
SHARES PURCHASED UNDER THE PLAN IN THE REGISTERED HOLDER'S NAME (AND NOT IN THE
NAME OF ANY NOMINEE) PRIOR TO THIS DATE."
20. NOTIFICATION OF SALE OF SHARES. The Company may require the
Participant to give the Company prompt notice of any disposition of shares
acquired by exercise of a Purchase Right within two years from the date of
granting such Purchase Right or one year from the date of exercise of such
Purchase Right. The Company may require that until such time as a Participant
disposes of shares acquired upon exercise of a Purchase Right, the Participant
shall hold all such shares in the Participant's name (and not in the name of any
nominee) until the lapse of the time periods with respect to such Purchase Right
referred to in the preceding sentence. The Company may direct that the
certificates evidencing shares acquired by exercise of a Purchase Right refer to
such requirement to give prompt notice of disposition.
21. AMENDMENT OR TERMINATION OF THE PLAN. The Plan shall terminate on the
earliest to occur of (i) February 28, 2007; (ii) the date on which all available
shares are issued; or (iii) the date on which the outstanding Purchase Rights
are exercised in connection with a Transfer of Control. The Board may at any
time amend or terminate the Plan, except that (a) such termination shall not
affect Purchase Rights previously granted under the Plan, except as permitted
under the Plan, and (b) no amendment may adversely affect a Purchase Right
previously granted under the Plan (except to the extent permitted by the Plan or
as may be necessary to qualify the Plan as an employee stock purchase plan
pursuant to Section 423 of the Code or to obtain qualification or registration
of the shares of Stock under applicable foreign, federal or state securities
laws). In addition, an amendment to the Plan must be approved by the
stockholders of the Company within twelve (12) months of the adoption of such
amendment if such amendment would (a) authorize the sale of more shares than are
authorized for issuance under the Plan; or (b) change the definition of the
corporations that may be designated by the Board as Participating Companies; or
(c) materially modify the eligibility requirements of the Plan except as
required by changes in the Code; or (d) permit payroll deductions with respect
to the Plan in excess of 10% of the Participant's Compensation; or (e)
materially increase the benefits which may accrue under the Plan.
11
<PAGE> 1
EXHIBIT 13
================================================================================
COMPANY PROFILE
Cohu, Inc. is the largest U.S. based, and one of the world's largest, suppliers
of test handling equipment used by semiconductor manufacturers in final test
operations. The Company, with sales and service facilities worldwide, also
manufactures closed circuit television, metal detection and microwave equipment.
FINANCIAL HIGHLIGHTS
(in thousands, except per share data)
OPERATIONS:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Orders $ 147,857 $ 189,394
Net sales 159,353 178,759
Net income 24,239 23,622
Net income per share 2.50 2.46
BALANCE SHEET:
Cash, cash equivalents and
short-term investments 52,986 28,874
Working capital 78,003 57,228
Total assets 117,926 103,934
Stockholders' equity 96,272 72,029
</TABLE>
<TABLE>
<CAPTION>
YEAR ORDERS SALES NET INCOME STOCKHOLDERS' EQUITY
<S> <C> <C> <C> <C>
1992 55.5 54.4 3.1 27.5
1993 77.9 75.3 6.8 33.6
1994 106.8 102.7 10.1 47.4
1995 189.4 178.8 23.6 72.0
1996 147.9 159.4 24.2 96.3
</TABLE>
FORWARD-LOOKING STATEMENTS
THIS ANNUAL REPORT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, AND IS SUBJECT
TO THE SAFE HARBOR PROVISIONS CREATED BY THAT STATUTE. THE WORDS "PLAN",
"FORECAST", "EXPECT", "BELIEVE" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY
SUCH STATEMENTS THAT ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES, INCLUDING
BUT NOT LIMITED TO THOSE DISCUSSED UNDER THE CAPTION "BUSINESS RISKS AND
UNCERTAINTIES" ON PAGE 16 OF THIS ANNUAL REPORT, THAT COULD CAUSE ACTUAL RESULTS
TO DIFFER MATERIALLY FROM THOSE PROJECTED. READERS ARE CAUTIONED NOT TO PLACE
UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE
DATE HEREOF.
<PAGE> 2
LETTER TO STOCKHOLDERS:
================================================================================
Sales for 1996 were $159.4 million, a decrease of 11% from 1995 sales of
$178.8 million. Net income for 1996 increased 3% to $24.2 million, or $2.50 per
share, from $23.6 million, or $2.46 per share for 1995. Orders for 1996 were
$147.9 million, a decrease of 22% from 1995 orders of $189.4 million.
Sales and orders declined from 1995 levels as the slowdown in the
semiconductor industry had an adverse effect on orders for test handling
equipment manufactured by the Company's Delta Design and Daymarc subsidiaries.
Fourth quarter sales and net income were also impacted by the slowdown. On the
positive side, orders for the fourth quarter were 47% higher than the prior
quarter, thereby reversing the 1996 downward order trend.
Sales of semiconductor test handling equipment accounted for 79% of
consolidated sales for 1996 compared to 82% of sales in 1995. Sales of
television cameras and related equipment by the Electronics Division accounted
for 14% of sales and the FRL and BMS subsidiaries, combined, contributed 7% of
sales. International sales for 1996 were $71.7 million compared to 1995
international sales of $72 million and accounted for 45% of consolidated sales
compared to 40% for the prior year. Most of these sales were to off-shore
operations of major multinational semiconductor manufacturers. The largest
segment of international sales is supported by our subsidiary located in
Singapore with additional service personnel located in Malaysia, Hong Kong,
Taiwan, Thailand, China and the Philippines.
Despite the difficult conditions that the Company and the semiconductor
equipment industry faced in 1996, it was a year of significant accomplishments
for Cohu. The Company generated $30.1 million in cash from operations and ended
1996 in the strongest financial position in its history with no bank debt and
$53 million in cash and short-term investments. The new Daymarc facility in
Littleton, Massachusetts was opened and that along with the expansion of Delta's
facilities in San Diego increased our semiconductor equipment floor space by 60%
to 206,000 square feet. More resources were committed to research and
development which increased 37% to $14.0 million in 1996 from $10.2 million in
1995. We plan on continuing these efforts in 1997.
In addition, Cohu was included in the Forbes magazine list of the "200
Best Small Companies in America" and the Fortune magazine list of the "100
Fastest Growing Companies in America". These lists were compiled based on
financial information through mid 1996. We are proud of this recognition for our
outstanding financial performance and realize that inclusion on any such future
lists will be challenging.
We believe that Cohu's global market presence, strong balance sheet and
the increased investment in research and development places the Company in a
position to benefit from the promising long-term outlook of the semiconductor
industry.
Dividends of $1.9 million or $.20 per share were paid in 1996, the 18th
consecutive year of cash dividend payments and the 10th year in a row in which
dividends were increased.
We thank our customers and stockholders for their confidence and our
employees and suppliers for their support and loyalty.
Sincerely,
/s/ CHARLES A. SCHWAN
-------------------------------------
Charles A. Schwan
President and Chief Executive Officer
February 17, 1997
<PAGE> 3
SELECTED FINANCIAL DATA
(in thousands, except per share and employee data)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31 1996 1995 1994 1993 1992
--------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Sales:
Semiconductor test handling equipment $ 126,236 $ 146,093 $ 72,502 $ 47,827 $ 30,045
Television and other equipment 33,117 32,666 30,224 27,451 24,353
--------- --------- --------- -------- --------
$ 159,353 $ 178,759 $ 102,726 $ 75,278 $ 54,398
========= ========= ========= ======== ========
Operating profit:
Semiconductor test handling equipment $ 34,460 $ 36,490 $ 15,063 $ 9,261 $ 4,582
Television and other equipment 2,826 1,964 1,829 1,821 1,386
--------- --------- --------- -------- --------
Less: 37,286 38,454 16,892 11,082 5,968
Corporate administrative expense (407) (224) (128) (99) (61)
Interest income 1,960 704 60 31 -
Interest expense - (12) (206) (4) (130)
--------- --------- --------- -------- --------
Income before income taxes and effect of accounting change 38,839 38,922 16,618 11,010 5,777
Provision for income taxes 14,600 15,300 6,500 4,200 2,290
--------- --------- --------- -------- --------
Income before effect of accounting change 24,239 23,622 10,118 6,810 3,487
Transition effect of accounting change, net of taxes - - - - 410
--------- --------- --------- -------- --------
Net income $ 24,239 $ 23,622 $ 10,118 $ 6,810 $ 3,077
========= ========= ========= ======== ========
Income per share before effect of accounting change $ 2.50 $ 2.46 $ 1.15 $ 0.81 $ 0.43
Net income per share 2.50 2.46 1.15 0.81 0.38
Cash dividends per share, paid quarterly 0.20 0.16 0.12 0.10 0.09
Depreciation and amortization deducted in arriving
at operating profit:
Semiconductor test handling equipment $ 990 $ 1,051 $ 498 $ 260 $ 224
Television and other equipment 663 833 683 692 675
--------- --------- --------- -------- --------
$ 1,653 $ 1,884 $ 1,181 $ 952 $ 899
========= ========= ========= ======== ========
Capital expenditures:
Semiconductor test handling equipment $ 3,586 $ 4,932 $ 649 $ 409 $ 342
Television and other equipment 1,550 355 371 328 870
--------- --------- --------- -------- --------
$ 5,136 $ 5,287 $ 1,020 $ 737 $ 1,212
========= ========= ========= ======== ========
AT DECEMBER 31
Total assets by industry segment:
Semiconductor test handling equipment $ 39,981 $ 48,708 $ 45,316 $ 19,733 $ 17,449
Television and other equipment 18,022 19,126 18,730 18,313 17,337
Corporate 59,923 36,100 3,922 4,789 1,274
--------- --------- --------- -------- --------
$ 117,926 $ 103,934 $ 67,968 $ 42,835 $ 36,060
========= ========= ========= ======== ========
Working capital $ 78,003 $ 57,228 $ 37,680 $ 26,352 $ 19,126
Long-term debt - - 1,400 - -
Number of employees 796 903 707 562 476
Number of equivalent shares 9,677 9,584 8,816 8,366 8,140
</TABLE>
<TABLE>
<CAPTION>
QUARTERLY FINANCIAL DATA (UNAUDITED FIRST SECOND THIRD FOURTH YEAR
- ----------------------------------- ----- ------ ----- ------ ----
<S> <C> <C> <C> <C> <C>
Net sales: 1996 $ 50,232 $ 45,864 $ 34,763 $ 28,494 $159,353
1995 32,182 45,212 49,035 52,330 178,759
Gross profit: 1996 22,884 21,066 14,876 11,949 70,775
1995 12,281 17,268 18,905 22,591 71,045
Net income: 1996 7,894 7,582 5,191 3,572 24,239
1995 3,480 4,940 6,500 8,702 23,622
Net income per share: 1996 0.81 0.78 0.54 0.37 2.50
1995 0.37 0.52 0.67 0.90 2.46
</TABLE>
<PAGE> 4
SEMICONDUCTOR TEST HANDLING EQUIPMENT
================================================================================
Through its Delta Design and Daymarc subsidiaries, Cohu is the largest
U.S. based and one of the world's largest, suppliers of semiconductor test
handling equipment. Test handlers are electromechanical systems designed to
automatically handle, temperature condition, contact and sort integrated
circuits (ICs) during the IC test process. Testers are specialized, computer
controlled electronic systems that perform electronic evaluation of ICs,
including proper functionality, voltage/current characteristics and critical
timing parameters. Testing is used to determine the quality and performance of
the packaged IC prior to shipment to customers. Testers are designed to test
specific IC types, such as microprocessor, logic, DRAM or mixed signal, without
regard to the package used to house the IC. On the other hand, the package,
rather than the circuit type, is critical to the test handler, which is
connected to the tester and automates the flow of ICs through the test process.
The Company designs, manufactures, markets and services IC test handling
equipment from facilities in San Diego, California (Delta Design) and Littleton,
Massachusetts (Daymarc). Sales, service and technical personnel are located
throughout the U.S., Asia and Europe. Most test handlers use one of two handling
technologies to transport ICs: gravity-feed or pick-and-place. Generally, the
preferred handling approach is dictated by the IC package type. ICs with leads
on only two sides, such as dual-in-line and Small Outline (SOIC), are usually
handled in gravity feed equipment. ICs with leads on all four sides, such as the
Quad Flat Pack and certain ICs with leads on two sides, such as the TSOP, are
typically run in pick-and-place systems. Delta Design's Semiconductor Test
Handling Equipment systems utilize pick-and-place handling approaches while
Daymarc's equipment employs gravity feed techniques. The two product lines are
complementary, with effectively no overlap.
As a significant portion of IC test is performed at hot and/or cold
temperatures, many of the Company's test handlers are designed to provide a
controlled test environment over the range -60 degrees C to +160 degrees C. Both
Delta Design and Daymarc are recognized throughout the industry for their
expertise in hot/cold test handling. In addition to temperature capability,
other key factors in the design of test handlers are equipment speed,
flexibility, parallel test capability and size.
Handlers are complex, electromechanical systems which are used
continuously in high production environments, and many are in service
twenty-four hours per day, seven days a week. Handler "uptime" is a critically
important issue to customers and the availability of trained technical support
personnel is a key competitive factor in the marketplace. For these reasons, the
Company employs direct sales and service engineers wherever possible, including
Southeast Asia, where over 50% of IC testing takes place.
In 1996, after five years of unprecedented growth, the semiconductor
industry went into a downturn. Semiconductor manufacturers found themselves with
too much manufacturing capacity and many sharply reduced capital spending.
Suppliers of equipment to the semiconductor industry, such as Delta Design and
Daymarc, felt the effects of this slowdown in lower order rates, reduced
backlog, and less visibility from customers concerning future purchase plans.
Both Delta Design and Daymarc took steps throughout the year to reduce
production rates and control costs in this uncertain operating environment.
The Company believes that the long-term prospects for the semiconductor
industry are excellent. VLSI Research forecasts that the semiconductor industry
will grow on average at an annual rate of 20% through 2001. Equipment suppliers,
like Delta Design and Daymarc, must be prepared for the volatility that
characterizes the semiconductor business but should continue to have exciting
business opportunities in a dynamic growth industry.
<PAGE> 5
================================================================================
DELTA DESIGN
Through the use of IC package dedication kits, Delta Design's
pick-and-place test handlers are capable of accommodating virtually any
semiconductor package type. This flexibility is a key requirement of
semiconductor manufacturers, who must continously produce new IC package types
to meet the needs of their customers and the requirements of IC design
engineers.
Delta is believed to have the largest installed base of pick-and-place
test handlers, with more than 1,300 systems installed at over 100 locations
worldwide.
Historically, most pick-and-place handlers have been used in logic test
applications, where the transition in packaging technology first occurred.
Because of the relatively short test times of logic devices, handler index time,
or the idle time between test cycles, is critical. Two of Delta's pick-and-place
handlers are believed to have among the fastest index times in the industry.
Increasingly, the shift in packaging is taking place in memory packages,
as well. Due to the longer test times associated with memory testing,
simultaneous testing of multiple devices (parallel testing) is required. Delta
has successfully adapted several of its handlers to test up to eight devices in
parallel and is developing systems capable of testing 16 or more devices in
parallel.
The Delta Turbo Flex(TM), available in three models with various levels of
automation, provides hot/cold test capability and unmatched versatility in IC
package and media (tray or tube) handling. The "Flex" is considered an industry
workhorse, and more Flexes have been sold than any other pick-and-place test
handler. Through Delta's continuous product improvement process, the Flex has
been successfully adapted to meet the evolving needs of IC manufacturers.
The Model 2040, or RFS(TM), is a fast-index time pick-and-place handler,
designed for high production applications. The handler's large environmental
storage capacity enables uninterrupted operation in short test applications and
parallel testing of up to four devices. The RFS(TM) utilizes a patented
contactor indexing mechanism to achieve an index time of approximately 500
milliseconds.
The Model 1688 is an ambient pick-and-place handler, which uses the same
fast contactor indexing mechanism as the RFS(TM). The small size footprint of
only eleven square feet, combined with the high speed and dependable operation
of this handler, make it a highly-cost effective solution for test applications
where environmental capability is not required.
DELTA RFS, HIGH PRODUCTION HANDLER
<PAGE> 6
================================================================================
DAYMARC
Daymarc, which was acquired by Cohu in June 1994, was established in 1959
and was the first equipment company to introduce a gravity feed, fully automatic
test handler.
The Company relocated during March 1996 to a larger facility in Littleton,
Massachusetts approximately 30 miles from Boston. The Littleton facility has
102,000 square feet and is twice the size of the former facility. The new
facility, with expansion options for future growth, will support Daymarc's needs
for the foreseeable future.
Daymarc test handlers are designed to deliver high throughput, maximize
operator productivity and increase yields through proprietary, high performance
contacting technology.
Daymarc manufactures three lines of test handlers; the 717 Series, 3000
Series and 4000 Series. The 717 Series test handlers are designed specifically
for SOIC packages. The small dimensions and high speed applications of the SOIC
package require a handler with minimal transition distances, high performance
contacting and automation features to reduce the need for operator intervention.
The 717 ambient and tri-temperature handlers feature index times of 350 and 500
milliseconds, respectively. Changeover for a different device package requires
less than 30 minutes.
The 3000 Series is available in single, dual/quad and thirty-two site
configurations. These handlers can be reconfigured with device dedication kits
to accommodate a wide range of package types at throughput rates up to 4,200
units per hour (UPH). The 3000 Series handlers provide tri-temperature operation
and input/output automation for increased productivity.
The 4000 Series handlers combine high speed with multi-site capability.
The first in the Series, the 4100, may operate at speeds up to 18,000 UPH in
dual or quad site configurations. The 4100 is currently available as an ambient
only handler and will eventually include a tri-temperature version with other
configurations. The 4100, which occupies only seven square feet of floor space,
is believed to be one of the fastest handlers available on the market.
DAYMARC 3287, 32 SITE GRAVITY FED HANDLER
<PAGE> 7
TELEVISION AND OTHER EQUIPMENT
================================================================================
The Electronics Division has been a leading American designer and
manufacturer of closed circuit television (CCTV) cameras and systems for over 40
years. The customer base is broadly distributed between machine vision,
scientific imaging and security/surveillance markets.
Sales reached new records in 1996, with gains in both original equipment
manufacturing (OEM) and traffic surveillance products. The Division manufactures
video cameras for a number of OEM companies that integrate Cohu cameras into
their products. Cohu's reputation of quality products and manufacturing
capability has made it an excellent choice in highway system surveillance
cameras throughout the United States.
Other distribution channels for television products include direct sales
to end users, contractors and value-added resellers. The Division is most
readily differentiated from the competition by its willingness and ability to
create quality products that solve a customer's unique requirements. Cohu's long
established role in advanced CCTV technology is based on a continuing commitment
to quality, product performance and competitiveness. The current product line
represents a comprehensive array of indoor and outdoor CCTV cameras as well as
camera control equipment.
Cohu cameras are ideally suited to video-based machine imaging systems and
are used by numerous suppliers of these systems. Cameras are most commonly used
for assembly, test and measurement applications. Opportunities for Cohu
cameras also exist in scientific industries using video technology. The Division
builds cameras that are integrated into systems for gel analysis, medical
research, optical comparison and image cataloging.
Cohu is among the leaders in video systems for traffic management in the
U.S. and is an OEM provider to a key manufacturer of wide area detection
products for intersection control. In addition to sales of standard cameras to
state and federal highway departments, the Division successfully demonstrated,
then sold its new technology cameras which are capable of reading license plates
in diverse sunlight conditions. More than 300 Cohu CCTV cameras were integrated
into an existing system providing video surveillance of Atlanta's streets,
freeways and rail system at the 1996 Olympics.
The Division continues to pursue opportunities in the international market
through the support of existing distribution channels and OEM opportunities.
Process monitoring and advanced imaging applications provide the majority of
international sales. In 1996 a distribution agreement was signed with a major
sales organization that will provide Cohu with increased exposure on the
European continent.
The Division has been involved with a number of large scale construction
projects where specialized design expertise is provided to major engineering
firms. Typical installations include process monitoring for waste handling
facilities, water works, hazardous material surveillance and
COHU CCTV CAMERAS USED FOR TOLL EVASION DETECTION
<PAGE> 8
================================================================================
facility security. Advances in digital imaging software may provide increased
opportunities for Cohu systems and cameras in surveillance and process control
applications.
The Division is registered compliant to ISO-9001 standards, the most rigid
of five levels of standards in the ISO 9000 series. ISO registration is a
competitive advantage in market areas where ISO 9000 is heavily supported, such
as Europe and the Middle East.
In 1997 key markets for Cohu CCTV products will include applications for
transportation, machine vision, microscopy and surveillance.
FRL
Fisher Research Laboratory (FRL) designs, manufactures and sells metal
detectors and related underground detection devices for industrial and hobby
markets. All products are sold under the Fisher M-Scope label.
Industrial products include pipe and cable locators, buried-cable fault
locators, water leak detectors, property marker locators and instruments for
finding reinforcing bars in concrete. Fisher's new XLT-20 water leak detector
can detect the sound of escaping water and pinpoint small leaks in buried pipes
to a depth of six feet.
Consumer metal detectors include models for prospectors, sport divers,
relic hunters and weekend treasure hunters. As with the industrial line,
Fisher's consumer products have a well earned reputation for quality,
performance and durability. As a result, many of the metal detectors designed
for the hobby market are used by law enforcement officials, archaeologists and
professional treasure salvors.
Fisher products are sold world wide with major markets in the U.S.,
Western Europe, Canada and the Pacific rim. Emerging markets include such
countries as Russia, China and Turkey. Export sales were nearly 30% of sales in
1996.
BMS
Broadcast Microwave Services, Inc. (BMS) manufactures high quality
microwave radio equipment, antenna systems and related support items. These
products are used in the transmission of telemetry, data, video and audio
signals. Customers include government test ranges, law enforcement agencies,
unmanned air vehicle programs and television broadcasters.
BMS has seen an increase in business related to unmanned air vehicles and
this trend may continue as government related projects consider switching from
large development programs to available standard equipment. This application
requires transmitters, receivers, airborne antennas and automatic tracking
antenna and control systems. Similar products are also being sold for coastal
surveillance applications.
We believe opportunities in the broadcast television market may exist as
older point-to-point microwave links and ENG (electronic news gathering)
equipment is replaced. New product development has been directed at these
markets. Additional growth opportunities may be created in the future as
television stations add the capability to transmit High Definition Television
signals.
<PAGE> 9
CONSOLIDATED BALANCE SHEETS
================================================================================
(in thousands, except par value)
<TABLE>
<CAPTION>
ASSETS December 31,
1996 1995
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 24,660 $ 28,874
Short-term investments 28,326 -
Accounts receivable less allowance for
doubtful accounts of $1,827 in 1996
and $1,565 in 1995 19,170 27,572
Inventories, at lower of average cost or market:
Finished goods 2,395 3,466
Work in process 6,012 7,759
Material and parts 7,175 10,019
-------- --------
15,582 21,244
Deferred income taxes 9,681 9,413
Prepaid expenses 1,166 973
-------- --------
Total current assets 98,585 88,076
Property, plant and equipment, at cost:
Land and land improvements 2,114 1,150
Buildings and building improvements 11,932 10,355
Machinery and equipment 14,069 11,697
-------- --------
28,115 23,202
Less accumulated depreciation and amortization 11,304 10,031
-------- --------
Net property, plant and equipment 16,811 13,171
Goodwill, net of accumulated amortization of
$658 in 1996 and $501 in 1995 2,469 2,626
Other assets 61 61
-------- --------
$117,926 $103,934
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,464 $ 7,453
Commissions payable 1,565 1,735
Income taxes payable 1,552 7,062
Accrued compensation and benefits 6,291 7,881
Accrued warranty 2,726 2,567
Other accrued liabilities 3,984 4,150
-------- --------
Total current liabilities 20,582 30,848
Accrued retiree medical benefits 916 859
Deferred income taxes 156 198
Commitments
Stockholders' equity:
Preferred stock, $1 par value; 1,000 shares
authorized, none issued - -
Common stock, $1 par value; 25,000 shares
authorized, 9,341 shares issued and
outstanding in 1996 and 9,092 shares
in 1995 9,341 9,092
Paid in excess of par 5,863 4,252
Retained earnings 81,068 58,685
-------- --------
Total stockholders' equity 96,272 72,029
-------- --------
$117,926 $103,934
======== ========
</TABLE>
See accompanying notes.
<PAGE> 10
CONSOLIDATED STATEMENTS OF INCOME
================================================================================
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995 1994
-------- --------- ---------
<S> <C> <C> <C>
Net sales $159,353 $ 178,759 $ 102,726
Cost and expenses:
Cost of sales 88,578 107,714 64,323
Research and development 13,968 10,192 7,477
Selling, general and administrative 19,928 22,623 14,162
-------- --------- ---------
Income from operations 36,879 38,230 16,764
Interest income 1,960 704 60
Interest expense - (12) (206)
-------- --------- ---------
Income before income taxes 38,839 38,922 16,618
Provision for income taxes 14,600 15,300 6,500
-------- --------- ---------
Net income $ 24,239 $ 23,622 $ 10,118
======== ========= =========
Net income per share $ 2.50 $ 2.46 $ 1.15
======== ========= =========
Average common shares and equivalents 9,677 9,584 8,816
======== ========= =========
</TABLE>
See accompanying notes.
<PAGE> 11
CONSOLIDATED STATEMENTS OF CASH FLOWS
================================================================================
(in thousands)
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $24,239 $23,622 $10,118
Adjustments to reconcile net income to
net cash provided from operating activities:
Depreciation and amortization 1,653 1,884 1,181
Purchase consideration paid with stock 589 1,593 -
Deferred income taxes (310) (6,929) (1,886)
Increase in accrued retiree medical benefits 57 58 58
Changes in assets and liabilities, net
of effects from purchase of Daymarc:
Accounts receivable 8,402 (7,085) (8,332)
Inventories 5,662 7,197 (3,116)
Prepaid expenses (193) (335) (261)
Accounts payable (2,989) 1,071 3,032
Commissions payable (170) (482) 642
Income taxes payable (5,200) 5,132 490
Accrued compensation, warranty
and other liabilities (1,597) 7,295 1,312
------- ------- -------
Net cash provided from operating
activities 30,143 33,021 3,238
Cash flows from investing activities:
Purchases of short-term investments (28,326) - -
Purchase of Daymarc, net of cash acquired - - (3,590)
Purchases of property, plant and equipment (5,136) (5,287) (1,020)
Other assets - 1 (29)
------- ------- -------
Net cash used for investing activities (33,462) (5,286) (4,639)
Cash flows from financing activities:
Reduction in line of credit and long-term borrowings - (1,400) (2,600)
Proceeds from long-term borrowings - - 4,000
Issuance of stock, net 961 836 202
Dividends paid (1,856) (1,393) (1,016)
------- ------- -------
Net cash provided from (used for)
financing activities (895) (1,957) 586
------- ------- -------
Net increase (decrease) in cash and cash equivalents (4,214) 25,778 (815)
Cash and cash equivalents at beginning of year 28,874 3,096 3,911
------- ------- -------
Cash and cash equivalents at end of year $24,660 $28,874 $ 3,096
======= ======= =======
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Income taxes $20,110 $17,097 $ 7,047
Interest - 12 206
Liabilities assumed in purchase of Daymarc - - 4,971
</TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
================================================================================
(in thousands, except par value and per share amounts)
<TABLE>
<CAPTION>
Years ended December 31, 1996, 1995 and 1994
------------------------------------------------------
Common Stock Paid Retained
$1 par value excess of par earnings Total
------------ ------------- -------- -----
<S> <C> <C> <C> <C>
Balance at December 31, 1993 $4,053 $2,184 $27,354 $33,591
Cash dividends - $.12 per share - - (1,016) (1,016)
Daymarc acquisition 298 4,178 - 4,476
Repurchase and retirement of stock (2) (25) - (27)
Exercise of stock options 56 173 - 229
Net income - - 10,118 10,118
------ ------ ------- -------
Balance at December 31, 1994 4,405 6,510 36,456 47,371
Two-for-one stock split 4,405 (4,405) - -
Cash dividends - $.16 per share - - (1,393) (1,393)
Daymarc acquisition 62 1,531 - 1,593
Repurchase and retirement of stock (6) (114) - (120)
Exercise of stock options 226 730 - 956
Net income - - 23,622 23,622
------ ------ ------- -------
Balance at December 31, 1995 9,092 4,252 58,685 72,029
Cash dividends - $.20 per share - - (1,856) (1,856)
Daymarc acquisition 29 560 - 589
Repurchase and retirement of stock (1) (30) - (31)
Exercise of stock options 221 771 - 992
Tax benefit from stock options - 310 - 310
Net income - - 24,239 24,239
------ ------ ------- -------
Balance at December 31, 1996 $9,341 $5,863 $81,068 $96,272
====== ====== ======= =======
</TABLE>
See accompanying notes.
<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRESENTATION - The consolidated financial statements include the accounts of
Cohu, Inc. (the "Company") and its wholly-owned subsidiaries. All significant
intercompany accounts and balances have been eliminated in consolidation.
Reclassification has been made to certain prior year amounts to conform to the
1996 presentation.
INVESTMENTS - Highly liquid investments with insignificant interest rate risk
and original maturities of three months or less are classified as cash and cash
equivalents. Investments with maturities greater than three months are
classified as short-term investments. All of the Company's investments are
classified as available-for-sale and are reported at fair value with unrealized
gains and losses, net of tax, recorded in stockholders' equity. Gross unrealized
gains and losses were not significant at December 31, 1996 and 1995. The Company
manages its cash equivalents and short-term investments as a single portfolio of
highly marketable securities, all of which are intended to be available for the
Company's current operations.
CONCENTRATION OF CREDIT RISK - Financial instruments that potentially subject
the Company to significant credit risk consist principally of cash equivalents,
short-term investments and trade accounts receivable. The Company invests in a
variety of financial instruments and by policy limits the amount of credit
exposure with any one issuer. The Company's customers include semiconductor
manufacturers and others located throughout the world. The Company performs
ongoing credit evaluations of its customers and generally requires no collateral
from them.
DEPRECIATION AND AMORTIZATION - Depreciation and amortization of property,
plant and equipment is calculated principally on the straight-line method based
on estimated useful lives of five to forty years for buildings and building
improvements and three to ten years for machinery and equipment. Goodwill is
being amortized on the straight-line method over twenty years.
INCOME PER SHARE - Per share information is based on the weighted average
number of shares outstanding during each period and the dilutive effect of the
assumed exercise of stock options.
REVENUE RECOGNITION - Revenue is generally recognized upon shipment or, in
instances where products are required to meet certain customer requirements,
upon successful completion of such requirements. Product warranty costs are
accrued in the period sales are recognized.
STOCK BASED COMPENSATION - The Company grants stock options for a fixed
number of shares to employees and outside directors. The Company accounts for
stock option grants in accordance with APB Opinion No. 25, Accounting for Stock
Issued to Employees, and recognizes no compensation expense for such option
grants. Had compensation cost for the Company's 1995 and 1996 option grants been
determined consistent with FASB Statement 123, Accounting for Stock-Based
Compensation, the impact on net income and net income per share would not have
been significant.
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions about the future that effect the amounts reported in the
consolidated financial statements. These estimates include assessing the
collectibility of accounts receivable, the usage and recoverability of inventory
and long-lived assets and the incurrence of warranty costs. The actual results
could differ from those estimates.
2. ACQUISITION OF DAYMARC
In June 1994 the Company acquired Daymarc Corporation in a transaction
accounted for as a purchase. The Company's consolidated financial statements
include the results of Daymarc from June 1994 forward. If the acquisition had
occurred on January 1, 1994 the Company's unaudited pro forma net sales, net
income and net income per share for the year ended December 31, 1994 would have
been $114,988,000, $11,688,000 and $1.28, respectively. In 1996, 1995 and 1994
performance-based consideration and compensation totaling $1,472,000, $3,982,000
and $833,000, respectively, was earned and charged to operations.
3. INVESTMENTS
Investments at December 31, 1996 and 1995, all with maturities of one
year or less, were as follows:
<TABLE>
<CAPTION>
(in thousands) 1996 1995
-------- --------
<S> <C> <C>
U.S. Treasuries and
obligations of U.S.
Government Agencies $ 9,880 $ 10,069
Corporate debt securities 26,322 -
Bankers Acceptances 5,847 -
-------- --------
Total investments 42,049 10,069
Less amounts classified
as cash equivalents (13,723) (10,069)
-------- --------
Short-term investments $ 28,326 $ -
======== ========
</TABLE>
At December 31, 1996 and 1995 the estimated fair value of the Company's
investments approximated amortized cost.
4. LINE OF CREDIT
The Company maintains a $5,000,000 unsecured bank line-of-credit facility
bearing interest at the bank's prime reference rate. The facility requires
compliance with certain financial covenants and expires in May 1998. No
borrowings were outstanding at December 31, 1996 or 1995.
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
================================================================================
5. INCOME TAXES
Significant components of the provision for income taxes are as
follows:
<TABLE>
<CAPTION>
(in thousands) 1996 1995 1994
------- ------- ------
<S> <C> <C> <C>
Current:
Federal $12,283 $18,154 $6,404
State 2,627 4,075 1,982
------- ------- ------
Total current 14,910 22,229 8,386
Deferred:
Federal (256) (5,627) (1,458)
State (54) (1,302) (428)
------- ------- ------
Total deferred (310) (6,929) (1,886)
------- ------- ------
$14,600 $15,300 $6,500
======= ======= ======
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
and tax purposes. Significant components of the Company's deferred tax assets
and liabilities are as follows:
<TABLE>
<CAPTION>
(in thousands)
Deferred tax assets: 1996 1995
------ ------
<S> <C> <C>
Reserves and accrued warranty
not currently deductible $ 8,634 $ 8,284
Accrued state taxes 584 784
Accrued employee benefits 966 926
Other 421 202
------ ------
Total deferred tax assets 10,605 10,196
====== ======
Deferred tax liabilities:
Tax over book depreciation 1,080 981
------ ------
Net deferred tax assets $9,525 $9,215
====== ======
</TABLE>
The reconciliation of income tax computed at the U.S. federal statutory
tax rates to the provision for income taxes is as follows:
<TABLE>
<CAPTION>
(in thousands) 1996 1995 1994
------- ------- ------
<S> <C> <C> <C>
Tax at U.S. statutory rates $13,594 $13,623 $5,816
State income taxes, net of
federal tax benefit 1,672 1,827 1,026
FSC benefit (1,100) (1,278) (228)
Nondeductible goodwill and
performance-based
consideration expense 261 799 34
Other - net 173 329 (148)
------- ------- ------
$14,600 $15,300 $6,500
======= ======= ======
</TABLE>
6. STOCKHOLDER RIGHTS PLAN
In November 1996 the Company adopted a Stockholder Rights Plan and
declared a dividend distribution of one Right for each share of Common Stock,
payable to holders of record on December 3, 1996. Under certain conditions, each
Right may be exercised to purchase 1/100 of a share of Series A Preferred Stock
at a purchase price of $90, subject to adjustment. The Rights are not presently
exercisable and will only become exercisable following the occurrence of certain
specified events. If these specified events occur, each Right will be adjusted
to entitle its holder to receive upon exercise Common Stock having a value equal
to two times the exercise price of the Right or each Right will be adjusted to
entitle its holder to receive common stock of the acquiring company having a
value equal to two times the exercise price of the Right, depending on the
circumstances. The Rights expire on November 14, 2006 and may be redeemed by the
Company for $0.001 per Right. The Rights do not have voting or dividend rights
and, until they become exercisable, have no dilutive effect on the net income
per share of the Company.
7. INFORMATION ON INDUSTRY SEGMENTS
The Company operates in two industry segments. Semiconductor test handling
equipment is designed, manufactured and sold to semiconductor manufacturers
throughout the world and accounted for 79% of 1996 consolidated net sales. The
television and other equipment segment includes electronic products used in
electronic imaging, surveillance, detection and microwave communication that are
manufactured and sold to government agencies, original equipment manufacturers,
contractors, distributors and consumers throughout the world. Export sales,
mainly to the Far East and Europe, were approximately $71,700,000, $72,000,000
and $37,900,000 in 1996, 1995 and 1994, respectively. One customer of the test
handling equipment segment accounted for 12%, 17% and 22% of net sales 1996,
1995 and 1994, respectively. Another customer of the same segment accounted for
14%, 17% and 10% of net sales in 1996, 1995 and 1994, respectively. Information
regarding industry segments for 1996, 1995 and 1994 contained in the Selected
Financial Data on page 3 is an integral part of these financial statements.
8. EMPLOYEE BENEFIT PLANS
RETIREMENT PLAN - The Company has a voluntary defined contribution
retirement 401(k) plan whereby it will match contributions up to 4% of employee
compensation. Company contributions to the plan were $841,000 in 1996, $737,000
in 1995 and $700,000 in 1994.
RETIREE MEDICAL BENEFITS -- The Company provides postretirement health
benefits under a noncontributory plan to certain executives and directors. The
net periodic benefit cost was $78,000, $68,000 and $65,000 in 1996, 1995 and
1994, respectively. The accumulated postretirement benefit obligation at
December 31, 1996 consisted of $397,000 attributable to retired employees,
$280,000 to active eligible employees and $239,000 attributable to other active
employees. The weighted average discount rate used in determining the
accumulated postretirement benefit obligation was 7.5%. Annual rates of increase
of the cost of health benefits were assumed to be approximately 9.25% in 1996.
These rates were then assumed to decrease 0.25% per year to 6% in 2009 and
remain level thereafter. A 1% increase in the rate would increase the net
periodic benefit cost by approximately $14,000 and the accumulated
post-retirement benefit obligation as of December 31, 1996 by approximately
$150,000.
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
================================================================================
STOCK OPTIONS - Under the Company's stock option plans, options may be
granted to key employees and outside directors to purchase shares of the
Company's common stock at prices not less than 100% of the fair market value at
the date of grant. The Cohu, Inc. 1996 Outside Directors Stock Option Plan was
adopted in November 1996 and is subject to stockholder approval. Options become
exercisable from one-third to one-fourth annually beginning one year after the
grant date and expire 5 to 10 years from the grant date. In November 1996
options to purchase a total of 239,750 shares were granted to employees in
exchange for an equal number of canceled options pursuant to an exchange plan
approved by the Board of Directors. The newly granted options have exercise
prices equal to the fair market value on the date of grant and become
exercisable over the four year period ended November 2000. At December 31, 1996
328,900 and 70,000 shares were available for future grants under the employee
and outside director plans, respectively.
Stock option activity under all option plans was as follows:
(in thousands, except per share data)
<TABLE>
<CAPTION>
1996 1995 1994
------------------- -------------------- ------------------
Wt. Avg. Wt. Avg. Wt. Avg.
Shares Ex. Price Shares Ex. Price Shares Ex. Price
------ --------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year 878 $ 9.11 1,022 $ 6.20 672 $ 5.50
Granted 471 20.17 114 24.97 490 6.24
Exercised (221) 4.48 (226) 4.23 (112) 2.04
Canceled/Forfeited (289) 24.41 (32) 6.86 (28) 3.92
---- ----- -----
Outstanding, end of year 839 11.28 878 9.11 1,022 6.20
==== ===== =====
Options exercisable at year end 378 7.74 399 5.80 414 3.74
</TABLE>
The estimated weighted average fair value of options granted during 1996 and
1995 was $9.24 and $11.48, respectively. The fair value of each option grant was
estimated on the grant date using the Black-Scholes option-pricing model with
the following assumptions for 1995 and 1996: risk-free interest rates ranging
from 5.5% to 6.8%; dividend yield of 1%; expected life of 5 years and
volatility of 48%.
Information about stock options outstanding at December 31, 1996 is as follows:
(options in thousands)
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------- -------------------------
Number Approximate Wt. Avg. Number
Range of Outstanding Remaining Wt. Avg. Exercisable Wt. Avg.
Exercise Prices at 12/31/96 Life Ex. Price at 12/31/96 Ex. Price
<S> <C> <C> <C> <C> <C>
$ 1.65 8 2 years $ 1.65 8 $ 1.65
7.60 to 9.69 518 5 years 7.88 367 7.78
17.00 to 20.75 313 10 years 17.17 3 19.50
--- ---
839 378
=== ===
</TABLE>
================================================================================
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Cohu, Inc.
We have audited the accompanying consolidated balance sheets of Cohu, Inc.
as of December 31, 1996 and 1995, and the related consolidated statements of
income, stockholders' equity, and cash flows for each of the three years in the
period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Cohu, Inc. at
December 31, 1996 and 1995, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
1996, in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
San Diego, California
February 3, 1997
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
================================================================================
RESULTS OF OPERATIONS
1996 COMPARED TO 1995
Net sales decreased 11% to $159.4 million in 1996 compared to net sales of
$178.8 million in 1995. Sales of semiconductor test handling equipment declined
14% in 1996 and accounted for 79% of consolidated net sales in 1996 versus 82%
in 1995. The decline in semiconductor equipment sales reflected the
semiconductor industry downturn experienced in 1996. Sales of television cameras
and other equipment increased 1%. Export sales accounted for 45% of net sales in
1996 compared to 40% in 1995.
Gross margin as a percentage of net sales was 44% in 1996 versus 40% in
1995 as a result of increased margins in the semiconductor equipment business.
Within the semiconductor equipment segment, margins increased in 1996 as a
result of a significant reduction in provisions for excess and obsolete
inventories and warranty from 1995 levels. These provisions were recorded due to
the risks and uncertainties in the semiconductor equipment industry (see
"Business Risks and Uncertainties"). The gross margin in 1995 would have been
higher than the 1996 margin absent such provisions. Research and development
expense as a percentage of net sales was 9% in 1996 up from 6% in 1995 and
reflected the Company's increased investment in new product development,
particularly in the semiconductor equipment business. Selling, general and
administrative expense as a percentage of net sales remained at 13% as a
reduction in certain performance based compensation charges was offset by an
increase in other selling and administrative expenses in the 1996 period.
Interest income in 1996 increased 178% to $2 million due to the significant
increase in cash equivalents and short-term investments.
The provision for income taxes expressed as a percentage of pre-tax income
was 38% in 1996 and 39% in 1995. The decrease in the effective tax rate was
largely attributable to a decline in nondeductible expenses.
1995 COMPARED TO 1994
Net sales increased 74% to $178.8 million in 1995 compared to $102.7
million in 1994. Sales of semiconductor test handling equipment by Delta Design
and Daymarc increased 102% and accounted for 82% of net sales in 1995 versus 71%
in 1994. Daymarc was acquired in June 1994 and its operating results are
included from that date forward. Net sales of television and other equipment
increased 8% and accounted for 18% of net sales in 1995. Export sales accounted
for 40% of net sales in 1995 compared to 37% in 1994.
Gross margin as a percentage of net sales was 40% in 1995 and 37% in 1994.
The increase in margin was due to the increasing percentage of total net sales
attributable to semiconductor equipment which has higher margins than television
and other equipment. Within the semiconductor equipment segment margins improved
due to production efficiencies, volume material purchase discounts and price
increases in certain product lines offset by increased provisions for excess and
obsolete inventories and warranty. Research and development expense increased to
$10.2 million in 1995 although as a percentage of net sales it decreased to 6%
versus 7% in 1994. Selling, general and administrative expense increased 60% in
1995 over 1994 but decreased as a percentage of net sales to 13% from 14% in
1994 as the revenue growth rate exceeded the growth rate in this expense area.
The effective tax rate was 39% in 1995 and 1994. The effective rate was
substantially unchanged from 1994 as increased benefits from the Company's
foreign sales corporation were offset by the effect of nondeductible expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company's net cash flows generated from operating activities in 1996
totaled $30.1 million. The major components of cash flows from operating
activities were net income of $24.2 million and decreases in accounts receivable
of $8.4 million and inventories of $5.7 million offset by decreases in accounts
payable, income taxes payable and other accrued liabilities totaling $10
million. Net cash used for investing activities was $33.5 million and was used
for the purchase of short-term investments and property, plant and equipment.
Net cash used for financing activities was $.9 million. Cash used for financing
activities included $1.9 million for
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
the payment of dividends offset by $1 million received from the issuance of
stock upon the exercise of stock options. The Company had $5 million available
under its bank line of credit and working capital of $78 million at December 31,
1996. It is anticipated that present working capital and cash generated from
operations will be sufficient to meet the Company's 1997 operating requirements
including estimated capital expenditures during 1997 of approximately $5
million.
BUSINESS RISKS AND UNCERTAINTIES
The Company's operating results are substantially dependent on the
semiconductor test handling equipment business conducted through its Delta
Design and Daymarc subsidiaries. This capital equipment business is in turn
highly dependent on the overall strength of the semiconductor industry.
Historically, the semiconductor industry has been highly cyclical with recurring
periods of oversupply, which often have had a significant effect on the
semiconductor industry's demand for capital equipment, including equipment of
the type manufactured and marketed by the Company. The Company believes that the
markets for newer generations of semiconductors may also be subject to similar
cycles and downturns such as that experienced in 1996. Reductions in capital
equipment investment by semiconductor manufacturers will adversely affect the
Company's results of operations.
As is common in the semiconductor equipment industry, the Company relies
on a limited number of customers for a substantial percentage of its net sales.
The loss of or a significant reduction in orders by these customers would
adversely impact the Company's results of operations. Furthermore, the
concentration of the Company's revenues in a limited number of large customers
may cause significant fluctuations in the Company's future annual and quarterly
operating results.
The semiconductor equipment industry is intensely competitive and the
Company faces substantial competition from numerous companies throughout the
world. Some of these competitors have substantially greater financial,
engineering, manufacturing, and customer support capabilities than the Company.
In addition, there are smaller, emerging semiconductor equipment companies that
provide or may provide innovative technology incorporated in products that may
compete favorably against those of the Company. The Company expects its
competitors to continue to improve the design and performance of their current
products and to introduce new products with improved performance capabilities.
Failure to introduce new products in a timely manner, the introduction by
competitors of products with perceived or actual advantages or disputes over
rights of the Company or its competitors to use certain intellectual property or
technology could result in a loss of the Company's competitive position and
reduced sales of existing products.
Semiconductor equipment and processes are subject to rapid technological
change. The Company believes that its future success will depend in part on its
ability to enhance existing products and develop new products with improved
performance capabilities. The Company expects to continue to invest heavily in
research and development and must manage product transitions successfully as
introductions of new products could adversely impact sales of existing products.
There can be no assurance that future technologies, processes and product
developments will not render the Company's current product offerings obsolete or
that the Company will be able to develop and introduce new products or
enhancements to its existing products in a timely manner to satisfy customer
needs or achieve market acceptance.
Due to these and other factors, historical results may not be indicative
of results of operations for any future period. In addition, certain matters
discussed above are forward-looking statements that are subject to the risks and
uncertainties noted herein and the other risks and uncertainties listed from
time to time in the Company's filings with the Securities and Exchange
Commission, including but not limited to the 1996 Annual Report on Form 10-K,
that could cause actual results to differ materially from those projected or
forecasted. The Company undertakes no obligation to update the information,
including the forward-looking statements, in this Annual Report.
<PAGE> 17
BOARD OF DIRECTORS CORPORATE OFFICERS
WILLIAM S. IVANS CHARLES A. SCHWAN
Chairman of the Board President and Chief Executive
of the Company Officer
JOHN H. ALLEN
JAMES W. BARNES Vice President, Finance and
Retired President and Chief Chief Financial Officer, Secretary
Executive Officer of the Company
TRANSFER AGENT AND REGISTRAR
HARRY L. CASARI ChaseMellon Shareholder Services, L.L.C.
Retired Partner P.O. Box 469
Ernst & Young LLP Washington Bridge Station
New York, NY 10033
(800) 356-2017
FRANK W. DAVIS
Retired President of Convair
Aerospace Division of INDEPENDENT AUDITORS
General Dynamics Ernst & Young LLP
San Diego, California
GENE E. LEARY
Retired Executive at LEGAL COUNSEL
Honeywell, Inc. and Gray Cary Ware & Freidenrich
Control Data Corporation San Diego, California
COHU STOCK INFORMATION
CHARLES A. SCHWAN Cohu, Inc. stock is traded on the NASDAQ
President and Chief Executive National Market System
Officer of the Company under the symbol "COHU."
The following table sets forth the high and low sales prices as reported on the
NASDAQ National Market System during the last two years.
<TABLE>
<CAPTION>
1996 1995
--------------- --------------
HIGH LOW High Low
<S> <C> <C> <C> <C>
First Quarter 36.25 20.75 16.38 10.88
Second Quarter 26.75 17.75 24.38 13.88
Third Quarter 21.00 14.75 36.00 23.75
Fourth Quarter 24.13 14.75 33.50 23.50
</TABLE>
At December 31, 1996 the Company had approximately 10,000 stockholders of record
and holders in street name.
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION FOR 1996 AND OTHER INFORMATION ABOUT COHU IS AVAILABLE
WITHOUT CHARGE BY CONTACTING:
Investor Relations
Cohu, Inc.
5755 Kearny Villa Road
San Diego, CA 92123
(619) 514-6203
or visit our website at http://www.cohu.com
ANNUAL MEETING
The annual meeting of stockholders will be held at 2:00 p.m.
on Tuesday, May 6, 1997 at the Company's corporate headquarters.
<PAGE> 1
EXHIBIT 23
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Cohu, Inc. of our report dated February 3, 1997, included in the 1996
Annual Report to Stockholders of Cohu, Inc.
We also consent to the incorporation by reference in the Registration Statements
(Form S-8) and in the related Prospectuses of our report dated February 3, 1997,
with respect to the consolidated financial statements of Cohu, Inc.,
incorporated by reference in the Annual Report (Form 10-K) for the year ended
December 31, 1996.
ERNST & YOUNG LLP
San Diego, California
March 14, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 1996
FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 24,660
<SECURITIES> 28,326
<RECEIVABLES> 19,170
<ALLOWANCES> 0
<INVENTORY> 15,582
<CURRENT-ASSETS> 98,585
<PP&E> 28,115
<DEPRECIATION> 11,304
<TOTAL-ASSETS> 117,926
<CURRENT-LIABILITIES> 20,582
<BONDS> 0
0
0
<COMMON> 9,341
<OTHER-SE> 86,931
<TOTAL-LIABILITY-AND-EQUITY> 117,926
<SALES> 159,353
<TOTAL-REVENUES> 159,353
<CGS> 88,578
<TOTAL-COSTS> 88,578
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 38,839
<INCOME-TAX> 14,600
<INCOME-CONTINUING> 24,239
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,239
<EPS-PRIMARY> 2.50
<EPS-DILUTED> 2.50
</TABLE>
