<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF
THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
COHU, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
COHU, INC.
5755 Kearny Villa Road
San Diego, California 92123
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 12, 1998
TO OUR STOCKHOLDERS:
The Annual Meeting of Stockholders of Cohu, Inc. (the "Company") will be
held at the offices of the Company, 5755 Kearny Villa Road, San Diego,
California 92123 on Tuesday, May 12, 1998, at 2:00 p.m. Pacific Time, for the
following purposes:
1. To elect two Directors, each for a term of three years; and
2. To approve the Cohu, Inc. 1998 Stock Option Plan; and
3. To approve an amendment to the Company's Amended and Restated
Certificate of Incorporation to increase the Company's
authorized shares of Common Stock to 40,000,000; and
4. To act upon such other matters as may properly come before the
meeting or any adjournment thereof.
Only stockholders of record of the Company at the close of business on March
18, 1998 will be entitled to vote at the meeting.
Since the holders of a majority of the outstanding shares of voting stock of
the Company entitled to vote at the meeting must be represented to constitute a
quorum, all stockholders are urged either to attend the meeting in person or to
vote by proxy.
Please sign, date and return the enclosed proxy in the envelope enclosed for
your convenience. If you attend the meeting you may revoke your proxy and vote
in person. You may also revoke your proxy by delivering a written notice to the
Secretary of the Company, or by submitting another duly signed proxy bearing a
later date.
By Order of the Board of Directors,
/s/ JOHN H. ALLEN
John H. Allen
Secretary
San Diego, California
April 1, 1998
YOUR VOTE IS IMPORTANT
IN ORDER TO INSURE YOUR REPRESENTATION AT THE ANNUAL MEETING, YOU ARE
REQUESTED TO COMPLETE, SIGN AND DATE THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE
AND RETURN IT IN THE ENCLOSED POSTAGE PREPAID ENVELOPE.
<PAGE> 3
COHU, INC.
5755 Kearny Villa Road
San Diego, California 92123
PROXY STATEMENT
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors of Cohu, Inc., a Delaware corporation (the "Company"), of
your Proxy for use at the Annual Meeting of Stockholders to be held on Tuesday,
May 12, 1998, at 2:00 p.m. Pacific Time at 5755 Kearny Villa Road, San Diego,
California 92123 (the "Meeting"). This Proxy Statement and the accompanying
Proxy are being mailed to all stockholders on or about April 1, 1998. Any
stockholder may revoke a proxy at any time prior to its exercise by filing a
later dated proxy or written notice of revocation with the Company's Secretary
or by voting in person at the Meeting.
On March 18, 1998, the record date fixed by the Board of Directors (the
"Record Date"), the Company had outstanding 9,703,808 shares of Common Stock.
Stockholders have one vote for each share on all items to be considered at the
Meeting. In the election of directors stockholders may, under certain
circumstances, cumulate their votes, giving one candidate a number of votes
equal to the number of directors to be elected multiplied by the number of votes
to which the stockholder's shares are normally entitled, or distribute the
stockholder's votes on the same principle among as many candidates as the
stockholder thinks fit.
The affirmative vote of a majority of shares present in person or
represented by proxy is required under Delaware law for approval of the Cohu,
Inc. 1998 Stock Option Plan. The affirmative vote of a majority of shares
outstanding is required for the approval of the amendment to the Company's
Amended and Restated Certificate of Incorporation. To conduct any business at
the Meeting, a quorum must be present. A quorum generally consists of a majority
of the shares entitled to vote and present or represented by proxy at the
Meeting. Abstentions will not be considered to be a vote "for" or "against" a
proposal, but will be included in determining whether a quorum is present. If a
broker indicates on the enclosed proxy or its substitute that it does not have
discretionary authority as to certain shares to vote on a particular matter
("broker non-votes"), those shares will be included in determining whether a
quorum is present but will not be considered as present with respect to that
matter. Any proxy that is returned not marked as to a particular item will be
voted FOR the election of Directors, FOR the approval of the Cohu, Inc. 1998
Stock Option Plan and FOR the approval of the amendment to the Company's Amended
and Restated Certificate of Incorporation.
A complete list of the stockholders of record entitled to vote at the
Meeting, arranged in alphabetical order and showing the address of each
stockholder, and the number of shares registered in the name of each
stockholder, will be kept open at the office of the Company, 5755 Kearny Villa
Road, San Diego, California 92123, for the examination of any stockholder during
business hours for a period of ten days immediately prior to the Meeting.
This solicitation is made by the Board of Directors of the Company. Proxies
will be solicited by mail and may be solicited in person or by telephone and
facsimile transmission. Directors and officers may engage in such solicitation
but will not be entitled to any additional compensation for such efforts. The
Company has retained Georgeson & Co. to aid in the solicitation of proxies at an
anticipated cost of $6,500, plus expenses. The Company will bear the entire cost
of the solicitation. Votes will be tabulated by the Company's Transfer Agent,
ChaseMellon Shareholder Services, L.L.C.
1
<PAGE> 4
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of February 17, 1998 by (i) each
person known by the Company, based on information provided by such person, to
own more than 5% of the Company's Common Stock; (ii) each director of the
Company; (iii) each named executive officer included in the "Summary
Compensation Table"; and (iv) all directors and executive officers as a group.
<TABLE>
<CAPTION>
AMOUNT & NATURE OF PERCENT
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP (1) OF CLASS (2)
---------------------------- ------------------------- ------------
<S> <C> <C>
Nicholas J. Cedrone 718,819 7.41%
One Monarch Drive
Littleton, MA 01460
John H. Allen 7,500 *
James W. Barnes 225,136 2.32%
Harry L. Casari 3,300 *
Frank W. Davis 21,100 *
William S. Ivans 76,152 *
Gene E. Leary 12,500 *
Charles A. Schwan 147,746 1.52%
All current directors and
executive officers
as a group (7 persons) 493,434 5.07%
</TABLE>
- -----------------
* Less than 1%
(1) Includes 11,335, 2,500, 24,250 and 38,085 shares issuable upon exercise of
stock options held by Mr. Barnes, Mr. Casari and Mr. Schwan and all current
directors and executive officers as a group, respectively, that were
exercisable on, or exercisable within 60 days of, February 17, 1998.
(2) Computed on the basis of 9,697,308 shares of common stock outstanding as of
February 17, 1998, plus, with respect to those persons holding options to
purchase common stock exercisable within 60 days of February 17, 1998, the
number of shares of common stock issuable upon exercise thereof.
ITEM 1- ELECTION OF DIRECTORS
The Certificate of Incorporation divides the directors of the Company into
three classes whose terms expire at successive annual meetings over a period of
three years. One class of directors is elected for a term of three years at each
annual meeting with the remaining directors continuing in office. At the Meeting
two directors are to be elected for a term expiring in 2001. It is intended that
the shares represented by proxies in the accompanying form will be voted by the
proxy holders for the election of the two nominees named below. In the event the
election of directors is to be by cumulative voting, the proxy holders will vote
the shares represented by proxies in such proportions as the proxy holders see
fit. Should any nominee decline or become unable to accept nomination or
election, which is not anticipated, the proxies will be voted for such
substitute nominee as may be designated by a majority of the Board of Directors.
THE BOARD RECOMMENDS A VOTE IN FAVOR OF THE TWO NOMINEES NAMED BELOW.
2
<PAGE> 5
NOMINEES FOR TERMS EXPIRING IN 2001 - CLASS 1
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE PRINCIPAL OCCUPATION SINCE
---- --- -------------------- -----
<S> <C> <C> <C>
James W. Barnes 68 Retired President & Chief Executive Officer 1983
of the Company (1983-1996)
William S. Ivans 77 Chairman of the Board of the Company 1960
since February 1983
</TABLE>
INFORMATION CONCERNING OTHER DIRECTORS
DIRECTORS WHOSE TERMS EXPIRE IN 1999 - CLASS 2
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE PRINCIPAL OCCUPATION SINCE
---- --- -------------------- -----
<S> <C> <C> <C>
Charles A. Schwan 58 President & Chief Executive Officer of the 1990
Company since March 1996, Executive Vice
President & Chief Operating Officer from
September 1995 to March 1996, Vice
President, Finance from 1983 until
September 1995 and Secretary
from 1988 until September 1995
Gene E. Leary 77 Retired executive at Honeywell, Inc. and 1976
Control Data Corp.
</TABLE>
DIRECTORS WHOSE TERMS EXPIRE IN 2000 - CLASS 3
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE PRINCIPAL OCCUPATION SINCE
---- --- -------------------- -----
<S> <C> <C> <C>
Frank W. Davis 83 Retired President of Convair Aerospace 1976
Division of General Dynamics
Harry L. Casari 61 Retired partner, Ernst & Young LLP 1995
Mr. Casari is also a director of Meade
Instruments
</TABLE>
BOARD OF DIRECTORS AND COMMITTEES
ORGANIZATION OF THE BOARD OF DIRECTORS
The Board held a total of seven meetings during 1997.
The Board of Directors has established two standing committees: the Audit
Committee and the Compensation Committee. The Audit Committee, composed of
Messrs. Leary, Casari and Davis, is the principal link between the Board and the
Company's independent auditors, and monitors audit and internal accounting
control procedures. The Audit Committee held one meeting during 1997. The
Compensation Committee, also consisting of Messrs. Davis, Casari and Leary,
recommends to the Board of Directors the compensation structure for the Officers
of the Company and each subsidiary. In addition, this Committee has the
responsibility for administration of the Company's stock option, stock purchase
and incentive compensation plans. The Compensation Committee held two meetings
in 1997.
3
<PAGE> 6
DIRECTORS' COMPENSATION
Outside Directors receive (i) an annual retainer of $8,500; (ii) $500 per
meeting attended in person to a maximum of $2,500 annually; and (iii) $1,000
annually for membership on one or more active committees. The Cohu, Inc. 1996
Outside Directors Stock Option Plan provides that each Outside Director will
receive an automatic grant of an option to purchase 10,000 shares of the
Company's Common Stock upon their appointment to the Board. For services as
Chairman of the Board, Mr. Ivans received compensation totaling approximately
$36,000 from the Company in 1997. Pursuant to an employment agreement with the
Company, Mr. Barnes is paid an annual salary of $30,000.
COMPENSATION OF EXECUTIVE OFFICERS AND OTHER INFORMATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table discloses compensation paid to the Company's Chief
Executive Officer and the other executive officers whose aggregate cash
compensation exceeded $100,000 (the "Named Executive Officers") during the last
three years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL ------------
COMPENSATION SECURITIES
----------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS($)(1) OPTIONS (#) COMPENSATION ($) (2)
---- ---------- ----------- ----------- --------------------
<S> <C> <C> <C> <C> <C>
Charles A. Schwan 1997 285,000 263,610 15,000 21,944
President & Chief Executive 1996 263,333 246,950 50,000(3) 20,878
Officer 1995 210,712 181,585 -- 13,047
John H. Allen (4) 1997 158,667 132,532 10,000 11,648
Vice President, Finance & 1996 143,000 122,846 40,000(3) 10,994
Chief Financial Officer, 1995 62,500 50,850 20,000 -
Secretary
</TABLE>
- ---------------------
(1) The amounts shown in this column reflect payments under the Company's
Incentive Bonus Plan for key executives.
(2) The amounts shown in this column reflect Company contributions to the
Employees' Retirement 401(k) Plan and the Key Executive Long Term Incentive
Plan.
(3) Includes 25,000 and 30,000 stock options for Mr. Schwan and Mr. Allen,
respectively, that were repriced on November 13, 1996 to $17.00 per share.
(4) Mr. Allen joined the Company in June, 1995. He was Director of Finance until
September 5, 1995, became Vice President, Finance and Secretary on September
6, 1995 and was appointed Chief Financial Officer on October 30, 1995. On an
annualized basis his salary for the year ended December 31, 1995 was
$125,000.
INCENTIVE BONUS PLAN. The Company has an incentive bonus plan for key
executives originally adopted in 1978 and continuing in effect for the present
fiscal year upon recommendation of the Compensation Committee. Under this plan,
corporate officers may receive incentive compensation based on overall corporate
earnings performance and the principal executive of each division and subsidiary
may receive incentive compensation based upon the earnings performance of the
operations they manage. In each case, the incentive compensation is determined
with reference to a pre-tax earnings "target" fixed by the Compensation
Committee, or in the case of divisions and subsidiaries, by the corporate
management.
4
<PAGE> 7
RETIREMENT PLAN. The Cohu, Inc. Employees' Retirement 401(k) Plan was
implemented on January 1, 1978. The majority of the Company's employees,
including the Named Executive Officers, who are at least 21 years of age and
complete six months of service are eligible to enroll in this Plan. The
participant may contribute up to 11% of his or her annual compensation. The
Company matches participant contributions up to 4% of annual employee
compensation not to exceed $160,000. The amounts contributed by the Company are
vested 10% after one year of participation, another 10% after two years, and an
additional 20% each year thereafter to the full 100%. None of the contributions
nor accumulated earnings are taxable to the participant until withdrawn. The
maximum annual amount that a participant could contribute in 1997 was $9,500.
KEY EXECUTIVE LONG TERM INCENTIVE PLAN. The Company adopted the Key
Executive Long Term Incentive Plan in 1994. Under this plan, corporate officers
and the principal executives of each division and subsidiary may elect to defer
a portion of their current compensation. The Company will then match participant
contributions up to 4% of the executive's compensation in excess of $160,000 per
year. These combined funds may be used by the Company to purchase a specifically
designed life insurance policy on the executive's life. The Company is not
entitled to a corporate tax deduction until the year in which the executive
recognizes taxable income in connection with the plan. However, this plan is
designed to compensate the Company for the present value of the deferred tax
deduction. Upon the executive's termination of employment, the Company reserves
in any policy for that executive an amount which is actuarially sufficient to
provide a death benefit equal to the present value of the Company's deferred tax
deduction. The remaining cash value of the policy is available for borrowing by
the Company for payment to the executive in accordance with a schedule
determined in the sole discretion of the Company. Upon the executive's death,
any policy proceeds will be paid to the Company. Then the executive's
beneficiaries will receive from the Company the amount of the net proceeds
(after repayment of all borrowings by the Company), reduced by the present value
of any tax deduction deferred by the Company and increased by the value of the
Company's tax deduction available as a result of the payment of the net
proceeds.
TERMINATION AGREEMENTS. The Company has entered into Termination Agreements
with Mr. Schwan and Mr. Allen pursuant to which those executives would be
entitled to a payment in the event of a termination of employment for specified
reasons following a change of control of the Company. For this purpose, a change
of control of the Company means a merger or consolidation of the Company (except
with a wholly owned subsidiary), a sale by the Company of all or substantially
all of its assets, the acquisition of beneficial ownership of a majority of the
outstanding voting stock of the Company by any person, entity or affiliated
group or a change in the identities of a majority of the directors of the
Company within a period of thirty consecutive months resulting in whole or in
part from the election of persons who were not management nominees. Termination
of employment for purposes of these agreements means a discharge of the
executive by the Company, other than for specified causes including death,
disability, wrongful acts, habitual intoxication, habitual neglect of duties or
normal retirement. Termination also includes resignation following the
occurrence of an adverse change in the executive's position, duties,
compensation or work conditions. The amounts payable under the agreements will
change from year to year based on the executive's compensation. In the event of
a termination in 1998 following a change of control, the amounts payable to Mr.
Schwan and Mr. Allen would be approximately $1,230,000 and $800,000,
respectively.
EMPLOYMENT AGREEMENT. James W. Barnes resigned as President & Chief
Executive Officer of the Company effective March 1, 1996. The Company and Mr.
Barnes entered into an employment agreement for a three-year period commencing
March 1, 1996. Pursuant to this agreement, Mr. Barnes agreed to provide the
Company with employment services under the direction and control of the Company
on a part-time basis. For such services Mr. Barnes will be paid an annual salary
of $30,000. Mr. Barnes will continue to serve as a member of the Company's Board
of Directors, subject to reelection by the stockholders at the conclusion of his
term in office.
5
<PAGE> 8
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information on grants of options to purchase
the Company's Common Stock made to the Named Executive Officers during the year
ended December 31, 1997.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------------------
NUMBER OF POTENTIAL REALIZABLE VALUE
SECURITIES PERCENT OF AT ASSUMED ANNUAL RATES OF
UNDERLYING TOTAL OPTIONS STOCK PRICE APPRECIATION
OPTIONS GRANTED EXERCISE OR FOR OPTION TERM (2)
GRANTED TO EMPLOYEES BASE PRICE EXPIRATION -------------------------
NAME (#) (1) IN FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
------- ---------- -------------- ----------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Charles A. Schwan 15,000 6.4 27.00 5/6/07 254,700 645,450
John H. Allen 10,000 4.3 27.00 5/6/07 169,800 430,300
</TABLE>
- -------------------
(1) Consists of stock options, which (i) were granted at an exercise price of
100% of the market price of the underlying shares on the date of grant, (ii)
become exercisable over four years at the rate of one-fourth each year and
(iii) expire ten years from the date of grant. The options were granted
under the Company's 1996 Employee Stock Option Plan.
(2) The "potential realizable value" shown represents the potential gains based
on annual compound stock price appreciation of 5% and 10% from the date of
grant through the full 10-year option term, net of exercise price, but
before taxes associated with the exercise. The amounts represent assumed
rates of appreciation only based on the Securities and Exchange Commission
rules and do not represent the Company's estimate of the possible future
appreciation in the Company's common stock or gains, if any, that may
ultimately be realized by the above option holders.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table provides information on option exercises in 1997 by the
Named Executive Officers and the value of such officers' unexercised options at
December 31, 1997.
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS IN-THE-MONEY OPTIONS
ACQUIRED VALUE AT FISCAL YEAR-END (#) AT FISCAL YEAR-END ($) (1)
ON EXERCISE REALIZED ----------------------------- ------------------------------
NAME (#) ($) (1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------ ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Charles A. Schwan 17,000 476,300 44,250 43,750 946,528 535,713
John H. Allen -- -- 7,500 32,500 102,225 342,975
</TABLE>
- ----------------------
(1) Calculated on the basis of the fair market value of the Company's Common
Stock on the exercise date or at December 31, 1997, minus the aggregate
exercise price. The closing price of the Company's Common Stock on December
31, 1997 as reported on NASDAQ was $30.63.
COMPENSATION COMMITTEE REPORT
Notwithstanding any statement to the contrary in any of the Company's
previous or future filings with the Securities and Exchange Commission, this
Report shall not be incorporated by reference into any such filings.
The Compensation Committee (the "Committee") of the Board of Directors,
comprised of the non-employee directors, determines and administers the
Company's executive compensation policies and programs.
6
<PAGE> 9
COMPENSATION PHILOSOPHY
One of the Committee's primary objectives in establishing compensation
policies is to maintain competitive programs to attract, retain and motivate
high caliber executives and maximize the long term success of the Company by
appropriately rewarding such individuals for their achievements. Another
objective is to provide an incentive to executives to focus their efforts on
long term goals for the Company by closely aligning their financial interests
with those of the stockholders. To attain these goals, the Committee has
designed the Company's executive compensation program to include base salary,
annual cash bonus incentives and long term incentives in the form of stock
options. The Committee believes that the Company's executive compensation
programs, as summarized below, have met these objectives.
BASE SALARY
The Committee generally determines base salary levels for executive level
positions prior to the annual stockholders' meeting in May. The process involved
in the determination of executive base salaries for fiscal 1997 is summarized
below.
In April 1997, the Company's chief executive officer developed executive
compensation data from a nationally recognized survey for a group of similarly
sized high technology companies. The Company's chief financial officer's
position as well as the principal executives of each division and subsidiary
were matched to comparable survey positions and competitive market compensation
levels were determined for base salary. This data was provided to the Committee,
along with performance evaluations and salary recommendations.
In May 1997, the chief executive officer reviewed the competitive market
data with the Committee for each executive level position and the responsibility
level of each position, together with the individual's performance for the last
fiscal year and objectives for fiscal 1997. The Company's performance was
compared to objectives for the last fiscal year and performance targets for
fiscal 1997 were also reviewed. The Committee reviewed the recommendations,
performance evaluations and survey data outlined above. After discussion, the
Committee approved a base salary level to be effective May 1, 1997, for each
executive level position other than the chief executive officer.
The Committee reviewed the base salary of the chief executive officer and
compared it to those in peer positions in companies of similar size and
performance. As a result of this review, the Committee determined that effective
May 1, 1997, it was appropriate to increase the chief executive officer's base
salary to a level more consistent with the base salaries of other chief
executive officers of similarly sized high technology companies. The group of
companies used for salary comparison purposes is not the same group of companies
used to compare stock performance included elsewhere herein.
ANNUAL INCENTIVES
Bonuses are designed to be a significant component of cash compensation.
Incentives for executive level positions are determined according to the
Company's Incentive Bonus Plan (the "Incentive Plan"), based upon Company
performance. In general, the Incentive Plan performance target objectives must
be achieved before any bonuses may be paid to participants.
In January 1998, the Committee reviewed and approved incentive awards for
1997 for all eligible participants in the Company's Incentive Plan. The bonuses
were based upon actual Company performance compared to the target which followed
the process and formula outlined in the Incentive Plan. In each case, the
incentive compensation is determined with reference to a pre-tax earnings
"target" fixed by the Compensation Committee, or in the case of divisions and
subsidiaries, by the corporate management. Based on the Company's year-end
financial results, the threshold performance levels of the earnings objectives
were exceeded.
STOCK OPTIONS
The Committee grants stock options to focus the executive on the long term
performance of the Company and on maximizing stockholder value. The grant of
stock options is closely tied to individual executive performance. The Committee
grants such stock options after a review of various factors, including the
executive's current equity ownership in the Company, potential future
contributions to the Company and job responsibilities. The
7
<PAGE> 10
Committee members weigh these subjective factors individually and arrive at
final determinations for option grants through consensus. Stock options are
granted with an exercise price equal to the current fair market value of the
Company's stock and utilize vesting periods to encourage retention of executive
officers. The Committee believes stock options serve to align the interests of
executive officers with those of other stockholders.
SUBMITTED BY THE COMPENSATION COMMITTEE OF THE COMPANY'S BOARD OF DIRECTORS:
Frank W. Davis Harry L. Casari Gene E. Leary
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1997, Messrs. Davis, Casari and Leary served as members of the
Compensation Committee. None of the Compensation Committee members or Named
Executive Officers have any relationships which must be disclosed under this
caption.
COMPARATIVE STOCK PERFORMANCE GRAPH
The graph below compares the cumulative total stockholder return on the
Common Stock of the Company for the last five fiscal years with the cumulative
total return on the NASDAQ Market Index and a Peer Group Index over the same
period (assuming the investment of $100 in the Company's Common Stock, Peer
Group Index and NASDAQ Market Index on December 31, 1992, and reinvestment of
all dividends). The Peer Group Index set forth on the Performance Graph is the
index for Media General Financial Services, Inc. Industry Group 171, "Electronic
Equipment Manufacturers". Historical stock price performance is not necessarily
indicative of future stock price performance. Notwithstanding any statement to
the contrary in any of the Company's previous or future filings with the
Securities and Exchange Commission, the graph and other information in this
section shall not be incorporated by reference into any such filings.
(INSERT GRAPH)
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------
Index 1993 1994 1995 1996 1997
- ----- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Cohu, Inc. 287 342 782 719 954
Peer Group 144 160 220 302 324
NASDAQ 120 126 163 203 248
</TABLE>
ITEM 2- APPROVAL OF THE COHU, INC. 1998 STOCK OPTION PLAN
The Board has approved and recommended for adoption the Cohu, Inc. 1998
Stock Option Plan (the "1998 Plan"). The affirmative vote of the holders of a
majority of the shares voting in person or by proxy at the Meeting (provided a
quorum is present) will be required to approve the 1998 Plan. Any discrepancy
between the language of the 1998 Plan and the summary provided herein shall be
resolved in favor of the plan language.
PURPOSE
The 1998 Plan is intended to make available shares of stock to enable
selected officers, directors and employees to purchase Common Stock of the
Company. This will assist the Company in retaining the services of employees
holding key positions with the Company and attracting new employees capable of
filling key positions, providing an incentive for such employees and encouraging
stock ownership by participants thereby aligning their interests with those of
the Company's stockholders. At December 31, 1997 the Company had only 124,950
shares available for grant under all existing employee stock option plans.
8
<PAGE> 11
ADMINISTRATION
The 1998 Plan is administered by the Cohu, Inc. Compensation Committee (the
"Committee"). The members of the Committee must qualify as "non-employee
directors" under Rule 16b-3 of the Securities Exchange Act of 1934, and as
"outside directors" under Section 162(m) of the Internal Revenue Code. The
Committee will have final power to construe and interpret the 1998 Plan and to
grant options thereunder, and to determine all questions that may arise in the
administration of the 1998 Plan. The Committee has been authorized by the Board
to determine the persons to whom and the dates on which options will be granted,
the number of shares to be subject thereto, the time or times during the term of
each option within which all or a portion of such option may be exercised and
all other terms of the options. The Committee shall have the right to adopt,
amend, and repeal rules and regulations concerning the administration of the
1998 Plan. The Board may also appoint an "Employee Option Committee" consisting
of one or more directors which is authorized to grant options to employees
(other than executive officers) subject to such limitations as may be
established by the Board.
TERM, AMENDMENT AND TERMINATION
The Board or the Committee may suspend or terminate the 1998 Plan at any
time. Unless sooner terminated by the Committee, the term of the 1998 Plan shall
be for ten (10) years from the commencement date. Termination of the 1998 Plan
shall not affect any rights previously granted thereunder. The Committee may
terminate, modify or amend the 1998 Plan from time to time, provided that
stockholder approval would be required with respect to any amendment which would
(i) increase the number of shares of Common Stock reserved for issuance upon
exercise of options pursuant to the 1998 Plan or (ii) modify the requirements as
to eligibility to receive inventive stock options under the 1998 plan.
ELIGIBILITY
Stock options may be granted only to employees (including officers and
directors who are also employees) and non-employee directors of the Corporation
or its parent or subsidiaries or to individuals who are rendering services as
consultants, advisors, or other independent contractors to the Corporation or
its parent or subsidiaries.
No incentive stock option may be granted to a person who, at the time of the
grant, owns, directly or indirectly, stock constituting more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
entitled to vote or of any parent or subsidiary thereof, unless the exercise
price of the stock subject to the option is at least one hundred and ten percent
(110%) of the fair market value of such stock on the date the option is granted
and the term of the option does not exceed five (5) years from the date of
grant.
SHARES RESERVED FOR ISSUANCE
A total of 450,000 shares of the $1.00 par value Common Stock of the Company
shall be reserved for issuance pursuant to the 1998 Plan, subject to adjustment
in the event of stock dividends, splits, subdivisions or combinations. At
December 31, 1997 the Company had 857,247 options outstanding under all existing
employee stock option plans and 124,950 shares available for grant under such
plans.
TERMS OF OPTIONS
Set forth below is a description of terms of options granted pursuant to the
1998 Plan, provided, however, that individual option grants in any particular
case may be more restrictive as to any or all of the terms described below. The
Committee may grant nonqualified stock options, incentive stock options or a
combination thereof. During any calendar year no participant may be granted
options for more than 100,000 shares.
a. PRICE. The purchase price per share deliverable upon the exercise of an
incentive stock option shall not be less than the fair market value of a share
on the date of grant. The purchase price per share deliverable upon the exercise
of an incentive stock option granted to a person, who at the time of grant, owns
directly or indirectly, stock constituting more than ten percent (10%) of the
total combined voting power of all classes of stock of the Company entitled to
vote (or a parent or subsidiary thereof), must be at least one hundred and ten
percent (110%) of the fair market value of such stock on the date the option was
granted. The purchase price per share deliverable upon exercise of a
nonqualified stock option shall be not less than the fair market value of a
share on the date of grant of the nonqualified stock option except that the
purchase price for no more than 5% of the shares under the plan can be
determined by the Committee in its sole discretion. The exercise price of
options granted under the 1998 Plan may be paid either (i) in cash at the time
the option is exercised, or (ii) at the discretion of the Committee, by delivery
to the Company of other Common Stock of the Company owned by the optionee.
b. OPTION EXERCISE. A stock option may be exercisable, in part or in full,
at any time and from time to time twelve months after the date of grant and
during an exercise period, and may be subject to such performance criteria, and
conditions as shall be determined by the Committee on a case-by-case basis and
such exercise period and restrictions shall be described in the agreement
evidencing the stock option. The exercise period applicable to
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any incentive stock option shall not exceed ten (10) years from the date of
grant and in certain circumstances may not exceed five (5) years. The Committee
may accelerate the times at which a stock option may be exercised.
c. NONASSIGNABILITY. No incentive stock option may be transferred by an
optionee other than by will or by the laws of descent and distribution. During
the lifetime of an optionee, an option may be exercised only by the optionee.
d. EXPIRATION FOLLOWING TERMINATION OF EMPLOYMENT. Under the 1998 Plan, an
option will terminate immediately upon the optionee ceasing to be employed by
the Company or a parent or subsidiary thereof, unless the option by its terms
specifically provides otherwise. If termination is due to disability of the
optionee, the optionee or his or her legal representative will have no more than
three (3) months from the date of disability to exercise the option. If the
termination is due to the death of the optionee, his or her legal
representatives will have no more than one (1) year from the date of death to
exercise the option, to the extent such option was exercisable on the date of
death.
ADJUSTMENT PROVISIONS
If there is a change in the Common Stock subject to the 1998 Plan through
recapitalization, stock dividend, stock split, combination or otherwise, the
Committee may make appropriate adjustments to the maximum number of shares
subject to the 1998 Plan and shall make appropriate adjustments to the price per
share of stock subject to the 1998 Plan and to any outstanding options
thereunder.
REORGANIZATION
A "Reorganization" shall be deemed to have occurred when the Company and/or
its stockholders enter into an agreement to dispose of all or substantially all
of the assets of the Company or an amount of the outstanding stock of the
Company sufficient to constitute effective control of the Company by means of a
sale, merger, reorganization, separation, liquidation or any other transaction.
In the event of a Reorganization, the "Acquiring Corporation" may assume the
Corporation's rights and obligations under outstanding stock options or
substitute options for the Acquiring Corporation's stock for such outstanding
stock options. In the event the Acquiring Corporation elects not to assume or
substitute for such outstanding stock options in connection with the
Reorganization, any unexercisable and/or unvested portion of the outstanding
stock options shall be immediately exercisable and vested as of the date thirty
(30) days prior to the date of the Reorganization. Any stock options which are
neither assumed or substituted for by the Acquiring Corporation in connection
with the Reorganization nor exercised as of the date of the Reorganization shall
terminate and cease to be outstanding effective as of the date of the
Reorganization.
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
The following summary of the U.S. federal income tax consequences to
participants and the Company of the acquisition and disposition of shares under
the 1998 Plan does not purport to be complete and participants in the 1998 Plan
should refer to the applicable provisions of the Internal Revenue Code or
consult their own tax advisor. The summary does not address other taxes that may
affect an individual such as state and local income taxes, federal and state
estate, inheritance and gift taxes and foreign taxes. Furthermore, the tax
consequences described below are complex and subject to change, and a taxpayer's
personal situation may be such that some variation of the described rules
applies.
The Company may deduct from amounts otherwise due an optionee under a stock
option or from any wages or other compensation payable to such optionee any sums
required by federal, state or local tax to be withheld with respect to the
exercise or disposition of any option or other right, or require the optionee to
pay such sums as a condition of the issuance of shares. The 1998 Plan is not
qualified under Internal Revenue Code Section 401(a) and is not subject to the
provisions of the Employee Retirement Income Security Act of 1974.
The grant of a nonqualified stock option generally will not result in
taxable income to the optionee at the time of grant, and ordinary income will be
realized by an optionee at the time of exercise of a nonqualified option in the
amount by which the fair market value of the Common Stock on the date of
exercise exceeds the exercise price. The Company will be entitled to a deduction
from income for federal income tax purposes in an amount equal to the ordinary
income recognized by the optionee in such case. Any subsequent disposition of
the shares acquired pursuant to a nonqualified option will result in gain or
loss to the optionee in an amount equal to the difference between the sale price
and the market price at date of exercise.
With respect to incentive stock options, the excess of the fair market value
of stock received upon exercise over the exercise price is taken into account
for purposes of the alternative minimum tax described under Section 55 of the
Internal Revenue Code of 1986, as amended. Otherwise, there are generally no tax
consequences to
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either the Company or an optionee connected with the grant or the exercise of an
incentive stock option. If the stock acquired under an incentive stock option is
not disposed of within two years from the date of grant nor within one year from
the date of exercise, any gain on the sale thereof will generally be treated as
capital gain to the optionee, with no tax consequences to the Company. If the
stock is sold prior to such time, the optionee will recognize at the time of
sale ordinary income equal to the lesser of the gain on the sale or the
difference between the option price and the fair market value of the stock on
the date of exercise, and any additional gain will be treated as capital gain.
The Company may have a tax deduction equal to the ordinary income recognized by
the optionee.
BOARD RECOMMENDS APPROVAL
The Board of Directors has adopted and recommends that the stockholders
approve the 1998 Plan. THE AFFIRMATIVE VOTE OF A MAJORITY OF SHARES PRESENT, IN
PERSON OR BY PROXY, AT THE MEETING (PROVIDED A QUORUM IS PRESENT) IS REQUIRED TO
APPROVE THE 1998 PLAN.
ITEM 3- PROPOSED AMENDMENT TO THE COHU, INC.
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
TO INCREASE AUTHORIZED COMMON SHARES
The Board of Directors is requesting stockholder approval of an amendment to
the Company's Amended and Restated Certificate of Incorporation to increase the
number of shares of Common Stock authorized for issuance from 25,000,000 to
40,000,000.
The Board of Directors consider it advisable to have the additional shares
available for possible future stock dividends or stock splits, acquisitions,
issuance under the Company's stock option and purchase plans and for other
corporate purposes, although the Company has no present commitments which would
result in the issuance of new shares of Common Stock, except through the
Company's stock option and employee stock purchase plans.
If this amendment is adopted, the additional shares of Common Stock may be
issued by direction of the Board of Directors at such times, in such amounts and
upon such terms as the Board of Directors may determine, without further
approval of the stockholders unless, in any instance, such approval is expressly
required by regulatory agencies or otherwise. Stockholders of the Company have
no preemptive rights to purchase additional shares. The adoption of the
amendment will not of itself cause any change in the capital accounts of the
Company. However, the issuance of additional shares of Common Stock could dilute
the existing stockholders' equity interest in the Company.
BOARD RECOMMENDS APPROVAL
The Board of Directors recommends that the stockholders approve the proposed
amendment to the Cohu, Inc. Amended and Restated Certificate of Incorporation to
increase the Company's authorized common shares. THE AFFIRMATIVE VOTE OF THE
HOLDERS OF A MAJORITY OF THE COMPANY'S OUTSTANDING COMMON STOCK VOTING IN PERSON
OR BY PROXY AT THE MEETING (PROVIDED A QUORUM IS PRESENT) IS REQUIRED TO APPROVE
SUCH AMENDMENT.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In June 1994 the Company acquired Daymarc Corporation, currently Daymarc,
Inc. ("Daymarc") a wholly-owned subsidiary of the Company. Pursuant to the
related Agreement and Plan of Merger dated June 16, 1994 the Company is
obligated to pay to Nicholas J. Cedrone, the former owner of Daymarc Corporation
and a current stockholder and employee of the Company, a specified percentage of
the profits of Daymarc through June 1998. Certain of such payments are payable
in shares of Cohu, Inc. Common Stock and totaled approximately $551,000 in 1997.
Mr. Cedrone is currently a Vice President of Daymarc and pursuant to an
Employment Agreement dated June 16, 1994 receives an annual salary of $168,000
through June 1998 and was paid a bonus of $206,000 in 1997. Under an Agreement
and Covenant Not To Compete entered into in connection with the Daymarc
acquisition, Mr. Cedrone was paid approximately $344,000 in 1997. Rental
payments made in 1997 to Mr. Cedrone under a facilities lease for the Daymarc
operation totaled approximately $134,000.
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INDEPENDENT AUDITORS
Ernst & Young LLP has served as the Company's independent auditors
continuously since 1957 and the Board has selected this firm to serve as
independent auditors for the current year. Representatives of Ernst & Young LLP
will be present at the Meeting and be available to respond to appropriate
questions, and may make a statement if they desire to do so.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires that the
Company's executive officers and directors, and persons who own more than 10% of
a registered class of the Company's equity securities, file an initial report of
ownership on Form 3 and changes in ownership on Form 4 or 5 with the Securities
and Exchange Commission (the "SEC"). Such officers, directors and 10%
stockholders are also required by SEC rules to furnish the Company with copies
of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that no Forms 5 were
required for such persons, the Company believes that during the year ended
December 31, 1997 its executive officers, directors and 10% stockholders
complied with all Section 16(a) filing requirements applicable to them.
OTHER MATTERS
The Board of Directors is unaware of any other business to be presented for
consideration at the Meeting. If, however, such other business should properly
come before the Meeting, the proxies will be voted in accordance with the best
judgment of the proxy holders. The shares represented by proxies received in
time for the Meeting will be voted and if any choice has been specified the vote
will be in accordance with such specification.
All stockholder proposals must be submitted to the Secretary of the Company
no later than December 1, 1998 in order to be considered for inclusion in the
Company's 1999 proxy materials.
The Board of Directors invites you to attend the meeting in person. However,
if you are unable to do so, please sign, date and return the enclosed proxy
promptly.
By Order of the Board of Directors
/s/ JOHN H. ALLEN
John H. Allen
Secretary
San Diego, California
April 1, 1998
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APPENDIX A
COHU, INC.
1998 STOCK OPTION PLAN
The Cohu, Inc. 1998 Stock Option Plan, is hereby adopted for the benefit of
officers, directors, service providers and key employees of Cohu, Inc., a
Delaware corporation and its parent or subsidiaries, if any.
1. Purpose. The purpose of the Plan is to advance the growth and prosperity of
the Corporation and its stockholders by providing to officers, directors,
service providers and key employees of the Corporation an incentive to serve the
Corporation. By encouraging and enabling such persons to become owners of
capital stock of the Corporation, the Corporation seeks to attract and retain
persons of training, experience and ability and to furnish additional incentives
to those persons upon whose judgment, initiative and efforts the successful
conduct of the Corporation's business depends. It is the intention of the
Corporation that this objective will be accomplished through the granting of
incentive stock options and nonqualified stock options to certain officers,
directors, service providers and key employees of the Corporation.
2. Definitions. As used herein, the following terms shall have the corresponding
meanings.
2.1. "Committee" shall mean the Cohu, Inc. Compensation Committee,
appointed by the Board of Directors of the Corporation. If no such Committee is
appointed, the entire Board of Directors of the Corporation shall be deemed to
constitute the Committee. The Board of Directors of the Corporation may also
appoint an Employee Option Committee, consisting of one or more directors, which
is authorized to grant options to employees (other than executive officers of
the Corporation) subject to such limitations as may be established by the Board
of Directors from time to time. If an Employee Option Committee is established,
references to the term "Committee" shall also include the Employee Option
Committee, as the case may be.
2.2. "Corporation" shall mean Cohu, Inc. and any successor corporation
thereto and/or its parent or subsidiaries, if any, as the context requires. The
terms "parent" and "subsidiary" shall mean any existing or future corporation
which would be a parent or subsidiary corporation of the Corporation, as those
terms are defined in Section 424 of the Internal Revenue Code of 1986, as
amended, and the Treasury Regulations promulgated thereunder (the "Code").
2.3. "Date of Grant" shall mean the date of grant of a Stock Option
granted hereunder as set forth in the Stock Option Agreement. In the event of a
grant conditioned, among other things, upon stockholder ratification of this
Plan, the date of such conditional grant shall be the Date of Grant for purposes
of this Plan.
2.4. "Employee" shall mean any common-law employee of the Corporation.
The determination of whether or not a person is an Employee of the Corporation
with respect to the grant or exercise of an Incentive Stock Option shall be made
in accordance with the rule of Income Tax Regulation Section 1.421-7(h) (or
successor regulation).
2.5. "Fair Market Value" shall mean, with respect to the exercise of an
option under the Plan, (a) if the Common Stock is listed on a national
securities exchange or the NASDAQ National Market System, the closing price of
the Common Stock for the business day immediately preceding the day for which
the determination is being made, or (b) if the Common Stock is not then listed
on an exchange, the average of the closing bid and asked prices per share for
the Common Stock in the over-the-counter market as quoted on NASDAQ for the
business day immediately preceding the day for which the determination is being
made, or (c) if the Common Stock is not then listed on any exchange or quoted on
NASDAQ, an amount determined in good faith by the Board of Directors to be the
fair market value of the Common Stock, after consideration of all relevant
factors.
2.6. "Holder" shall mean any person entitled to exercise a Stock Option
pursuant to the terms of the Plan.
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2.7. "Incentive Stock Option" shall mean a Stock Option which is
intended to qualify for tax treatment as an incentive stock option under Section
422 of the Code. An Incentive Stock Option may only be granted to an Employee.
2.8. "Nonqualified Stock Option" shall mean a Stock Option which is not
intended to qualify for tax treatment as an Incentive Stock Option under Section
422 of the Code.
2.9. "Plan" shall mean the Cohu, Inc. 1998 Stock Option Plan, as herein
adopted and as may be amended from time to time.
2.10. "Purchase Price" shall mean the price paid for Shares upon the
exercise of a Stock Option granted hereunder.
2.11. "Shares" shall mean those shares of Common Stock of the
Corporation which are available for issuance pursuant to the terms of the Plan.
2.12. "Stock Option" shall mean a stock option giving a Holder the right
to purchase Shares. A Stock Option may be an Incentive Stock Option or a
Nonqualified Stock Option.
3. Term. All Stock Options shall be granted, if at all, within ten (10) years
from the earlier of the date the Plan is adopted by the Board of Directors of
the Corporation and the date the Plan is duly approved by the stockholders of
the Corporation.
4. Eligibility. Stock Options may be granted only to employees (including
officers and directors who are also employees) of the Corporation or its parent
or subsidiaries or to individuals who are rendering services as directors,
consultants, advisors, or other independent contractors to the Corporation or
its parent or subsidiaries. For purposes of the foregoing sentence, "employees"
shall include prospective employees to whom Stock Options are granted in
connection with written offers of employment with the Corporation or its parent
or subsidiaries and "consultants" or "advisors" shall include prospective
consultants or advisors to whom Stock Options are granted in connection with
written consulting or advising offers with the Corporation or its parent or
subsidiaries. The Committee shall, in the Committee's sole discretion, determine
which persons shall be granted Stock Options. An individual who is rendering
services as a director (and who is not an employee), consultant, advisor, or
other independent contractor or who is a prospective employee, consultant or
advisor shall be eligible to be granted only a Nonqualified Stock Option. A
Holder may, if otherwise eligible, be granted more than one Stock Option. In no
event may a Stock Option be granted to an individual where such grant, together
with all other Stock Options granted during that calendar year, would entitle
the holder of the Stock Option to purchase more than 100,000 Shares.
5. Shares of Stock Subject to the Plan. Subject to the adjustments set forth in
the Plan, the Shares which may be issued pursuant to the Plan shall not exceed
in the aggregate 450,000 shares of the Corporation's Common Stock, $1.00 par
value. Such Shares shall be authorized and unissued shares. Any Shares subject
to a Stock Option granted under this Plan which for any reason expires or is
terminated unexercised and/or Shares subject to repurchase which are repurchased
by the Corporation shall again be subject to and be available for issuance
pursuant to the terms of this Plan. Notwithstanding the foregoing, any such
shares shall be made subject to a new Stock Option only if the grant of such new
Stock Option and the issuance of such shares pursuant to such new Stock Option
would not cause the Plan or any Stock Option granted under the Plan to
contravene Rule 16b-3, as promulgated under the Securities Exchange Act of 1934,
as amended (the "Exchange Act") and as amended from time to time or any
successor rule or regulation ("Rule 16b-3").
6. Administration of the Plan. Within the limitations described herein, the
Committee shall administer the Plan, select the officers, directors, service
providers and Employees of the Corporation to whom Stock Options shall be
granted, determine the number of Shares to be subject to each grant, determine
the method of payment upon exercise of each Stock Option, determine all other
terms of Stock Options granted hereunder and interpret, construe and implement
the provisions of the Plan. By the adoption of this Plan, the Board of Directors
of the Corporation
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is delegating to the Committee plenary authority to administer the Plan. All
questions of interpretation of the Plan or any Stock Option granted under the
Plan shall be determined by the Committee, and such decisions shall be binding
upon all persons having an interest in the Plan and/or any Stock Option.
With respect to the participation of eligible participants who are
subject to Section 16(b) of the Exchange Act, the Plan shall be administered in
compliance with the requirements of Rule 16b-3. In the case of officers or other
Employees or persons who are not directors of the Corporation, grants may be
approved by the Committee or by a majority of the members of the Board of
Directors. Notwithstanding the above, the Committee, in its sole discretion, may
delegate its powers hereunder to grant Stock Options to persons who are not
subject to Section 16(b) of the Exchange Act, to certain officers of the
Corporation. Any such delegation shall be in writing and shall clearly describe
any limitations to which such delegation of authority is subject.
In the event the Corporation is a "publicly held corporation" as defined in
paragraph (2) of section 162(m) of the Code, as amended by the Revenue
Reconciliation Act of 1993 (P.L. 103-66), and the regulations promulgated
thereunder ("Section 162(m)"), the Corporation shall establish a committee of
outside directors meeting the requirements of Section 162(m) to approve the
grant of Stock Options which might reasonably be anticipated to result in the
payment of employee remuneration that would otherwise exceed the limit on
employee remuneration deductible for income tax purposes pursuant to Section
162(m).
7. Indemnification. In addition to such other rights of indemnification as they
may have as directors or as members of the Committee, members of the Board of
Directors of the Corporation, members of the Committee and any officers to whom
authority to act for the Committee is delegated shall be indemnified by the
Corporation against all reasonable expenses, including attorneys' fees, actually
and necessarily incurred in connection with the defense of any action, suit or
proceeding, or in connection with any appeal therein, to which they or any of
them may be a party by reason of any action taken or failure to act under or in
connection with the Plan, or any right granted thereunder, and against all
amounts paid by them in settlement thereof (provided such settlement is approved
by independent legal counsel selected by the Corporation) or paid by them in
satisfaction of a judgment in any such action, suit or proceeding, except in
relation to matters as to which it shall be adjudged in such action, suit or
proceeding that such person is liable for gross negligence or misconduct in
duties; provided, however, that within sixty (60) days after the institution of
such action, suit or proceeding, such person shall offer to the Corporation, in
writing, the opportunity at its own expense to handle and defend the same.
8. Stock Options. The granting of a Stock Option shall be evidenced by a stock
option agreement ("Stock Option Agreement"), in such form and not inconsistent
with this Plan, as the Committee shall approve from time to time. The Committee
shall determine for each Stock Option (which need not be identical), the
exercise price of the Stock Option, the timing and terms of exercisability and
vesting of the Stock Option, the time of expiration of the Stock Option, the
effect of the Holder's termination of employment or service, whether the Stock
Option is to be treated as an Incentive Stock Option or as a Nonqualified Stock
Option, the method for satisfaction of any tax withholding obligation arising in
connection with the Stock Option, including by the withholding or delivery of
shares of Common Stock, and all other terms and conditions of the Stock Option
not inconsistent with the Plan. Each Stock Option Agreement shall contain in
substance the following terms and conditions:
8.1. Price. The Stock Option Agreement shall specify the Purchase Price
per Share. The Purchase Price per Share deliverable upon the exercise of an
Incentive Stock Option shall not be less than the Fair Market Value of a Share
on the Date of Grant of the Incentive Stock Option. In the case of a grant of an
Incentive Stock Option to an Employee who, at the time the Incentive Stock
Option is granted, owns stock possessing more than ten percent (10%) of the
total combined voting power of all classes of stock of the Corporation, or of
any parent or subsidiary corporation, the Purchase Price per Share deliverable
upon the exercise of the Incentive Stock Option shall not be less than one
hundred ten percent (110%) of the Fair Market Value of such Share on the Date of
Grant of the Incentive Stock Option. Notwithstanding the foregoing, an Incentive
Stock Option may be granted with a Purchase Price lower than the minimum price
set forth above if such Stock Option is granted pursuant to an assumption or
substitution for another Stock Option in a manner qualifying with the provisions
of Section 424(a) of the Code. The Purchase Price per Share deliverable upon
exercise of a Nonqualified Stock Option shall be not less than the Fair Market
Value of a Share on the Date of Grant of the Nonqualified Stock Option except
that the
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purchase price for no more than 5% of the shares under the plan can be
determined by the Committee in its sole discretion.
8.2. Number of Shares. The Stock Option Agreement shall specify the
number of Shares subject to the Stock Option.
8.3. Exercisability of Stock Options. A Stock Option may be exercisable,
in part or in full, at any time and from time to time during an exercise period,
and subject to such performance criteria, conditions and restrictions as
determined by the Committee on a case-by-case basis for each Stock Option, and
as set forth in the Stock Option Agreement; provided, however, that a Stock
Option granted to a prospective employee, prospective consultant or prospective
advisor shall not be exercisable prior to the date on which the person commences
employment or service. In no event shall the exercise period of any Incentive
Stock Option granted hereunder exceed ten (10) years from the Date of Grant of
such Option; provided, however, that in the case of a grant of an Incentive
Stock Option to an Employee, who, at the time the Incentive Stock Option is
granted, owns stock possessing more than ten percent (10%) of the total combined
voting stock of the Corporation or of any parent or subsidiary corporation, such
Incentive Stock Option shall not be exercisable after the expiration of five (5)
years from its Date of Grant.
In the event that the aggregate Fair Market Value (determined as of
the Date of Grant) of stock with respect to which Incentive Stock Options are
exercisable for the first time by an Employee during any calendar year (under
all stock option plans of the Corporation and its parent or subsidiary
corporations) exceeds $100,000, the excess shall be treated as a Nonqualified
Stock Option. This paragraph shall be applied by taking Incentive Stock Options
into account in the order in which they were granted.
8.4. Payment of Purchase Price.
(a) Forms of Payment Authorized. Payment of the Purchase Price
for the number of Shares being purchased pursuant to any Stock Option shall be
made (1) in cash, by check, or cash equivalent, (2) by tender to the Corporation
of shares of the Corporation's Common Stock owned by the Holder having a value,
as determined by the Committee (but without regard to any restrictions on
transferability applicable to such stock by reason of federal or state
securities laws or agreements with an underwriter for the Corporation), not less
than the option price, (3) if specifically permitted by the Committee and set
forth in the Holder's Stock Option Agreement, by the Holder's recourse
promissory note, (4) by the assignment of the proceeds of a sale of some or all
of the shares being acquired upon the exercise of a Stock Option or the proceeds
of a loan with respect to the shares acquired upon the exercise of a Stock
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), or (5) by any combination thereof. The
Committee may at any time or from time to time, grant Stock Options which do not
permit all of the foregoing forms of consideration to be used in payment of the
option price and/or which otherwise restrict one (1) or more forms of
consideration.
(b) Tender of Corporation Stock. Notwithstanding the foregoing, a
Stock Option may not be exercised by tender to the Corporation of shares of the
Corporation's Common Stock to the extent such tender of stock would constitute a
violation of the provisions of any law, regulation and/or agreement restricting
the redemption of the Corporation's stock or result in the recognition of
compensation expense to the Corporation under generally accepted accounting
principles. Unless otherwise provided by the Committee, a Stock Option may not
be exercised by tender to the Corporation of shares of the Corporation's Common
Stock unless such shares of the Corporation's common stock either have been
owned by the Holder for more than six (6) months or were not acquired, directly
or indirectly, from the Corporation.
(c) Promissory Notes. No promissory note shall be permitted if an
exercise using a promissory note would be a violation of any law. Any permitted
promissory note shall be due and payable not more than five (5) years after the
Stock Option is exercised, and interest shall be payable at least annually and
be at least equal to the minimum interest rate necessary to avoid imputed
interest pursuant to all applicable sections of the Code. The Committee shall
have the authority to permit or require the Holder to secure any promissory note
used to exercise a Stock Option with the Shares acquired on exercise of the
Stock Option and/or with other collateral acceptable to the Corporation. Unless
otherwise provided by the Committee, in the event the Corporation at any
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time becomes subject to the regulations promulgated by the Board of Governors of
the Federal Reserve System or any other governmental entity affecting the
extension of credit in connection with the Corporation's securities, any
promissory note shall comply with such applicable regulations, and the Holder
shall pay the unpaid principal and accrued interest, if any, to the extent
necessary to comply with such applicable regulations.
(d) Assignment of Proceeds of Sale. The Corporation reserves, at
any and all times, the right, in the Corporation's sole and absolute discretion,
to establish, decline to approve and/or terminate any program and/or procedures
for the exercise of Stock Options by means of an assignment of the proceeds of a
sale of some or all of the Shares to be acquired upon such exercise, or the
assignment of the proceeds of a loan with respect to the Shares to be acquired
upon such exercise.
9. Recapitalization. Appropriate adjustments shall be made in the number and
class of Shares subject to the Plan, to the annual limit on Stock Options that
may be granted to any individual, and to any outstanding Stock Options and in
the Purchase Price per Share of any outstanding Stock Options in the event of a
stock dividend, stock split, reverse stock split, combination, reclassification,
or like change in the capital structure of the Corporation.
10. Reorganization. A "Reorganization" shall be deemed to have occurred in the
event any of the following occurs with respect to the Corporation: (a) the
direct or indirect sale or exchange by the stockholders of the Corporation of
all or substantially all of the stock of the Corporation where the stockholders
of the Corporation 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 Corporation after such sale or exchange; (b) a merger or consolidation in
which the Corporation is not the surviving corporation; (c) a merger or
consolidation in which the Corporation is the surviving corporation where the
stockholders of the Corporation 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 Corporation after such merger or consolidation; (d)
the sale, exchange, or transfer of all or substantially all of the assets of the
Corporation (other than a sale, exchange, or transfer to one (1) or more
subsidiary corporations (as defined in paragraph 2.2 above) of the Corporation);
or (e) a liquidation or dissolution of the Corporation.
In the event of a Reorganization, the surviving, continuing, successor,
or purchasing corporation or parent corporation thereof, as the case may be (the
"Acquiring Corporation"), may assume the Corporation's rights and obligations
under outstanding Stock Options or substitute options for the Acquiring
Corporation's stock for such outstanding Stock Options. In the event the
Acquiring Corporation elects not to assume or substitute for such outstanding
Stock Options in connection with the Reorganization, any unexercisable and/or
unvested portion of the outstanding Stock Options shall be immediately
exercisable and vested as of the date thirty (30) days prior to the date of the
Reorganization. The exercise and/or vesting of any Stock Option that was
permissible solely by reason of this paragraph 10 shall be conditioned upon the
consummation of the Reorganization. Any Stock Options which are neither assumed
or substituted for by the Acquiring Corporation in connection with the
Reorganization nor exercised as of the date of the Reorganization shall
terminate and cease to be outstanding effective as of the date of the
Reorganization.
11. Investment Representations. The Committee may require a Holder to whom a
Stock Option is granted, as a condition of receipt and/or exercise of the Stock
Option, to give written assurances in substance and form satisfactory to the
Committee to the effect that the Holder is acquiring the Stock Option granted
hereunder or the Shares issuable upon exercise thereof for the Holder's own
account and not with any present intention of selling or otherwise distributing
the same, and to such other effects as the Committee deems necessary or
appropriate in order to comply with federal and applicable state securities
laws. Appropriate legends may be placed on any Shares issued under the Plan
evidencing such representations.
12. Compliance With Securities Laws. Each Stock Option granted hereunder shall
be subject to the requirement that, if at any time the Committee, in its
discretion, shall determine that the listing, registration or qualification of
the Shares subject to such Stock Option upon any securities exchange or under
any state or federal law, or the consent or approval of any government or
regulatory body, is necessary or desirable as a condition of, or in connection
with, the granting of such Stock Option granted hereunder or the issue of
Shares, such Stock Option may not be granted or exercised in whole or in part
unless such listing, registration, qualification, consent or approval shall have
been effected or obtained free of any conditions not acceptable to the
Committee. Nothing in
5
<PAGE> 20
the Plan or related Stock Option Agreements shall be deemed to require the
Corporation to apply for or obtain such listing, registration or qualification.
13. Rights as a Stockholder. A Holder shall have no rights as a stockholder of
the Corporation with respect to any Shares covered by a Stock Option granted
hereunder until said Holder tenders an effective and unconditional notice of
exercise of the Stock Option to the Corporation, complies with all other terms
and conditions of exercise and, if applicable, pays the Purchase Price. Except
as otherwise expressly provided in the Plan, no adjustment shall be made for
dividends or other rights for which the record date is prior to the date on
which the Holder tenders notice of exercise, complies with all other terms and
conditions of exercise, and pays any applicable Purchase Price. The Committee
shall use its best efforts to secure prompt issuance of stock certificates
following full performance of exercise by any Holder.
14. Non-Assignability of Options. No Incentive Stock Option shall be assignable
or transferable by the Holder except by will or by the laws of descent and
distribution. During the life of the Holder, an Incentive Stock Option shall be
exercisable only by the Holder or by the duly appointed legal representative of
an incompetent Holder. A Nonqualified Stock Option may be assignable or
transferable to the extent set forth in the Stock Option Agreement governing
such Stock Option.
15. Withholding Taxes. The Corporation shall have the right to deduct from
amounts otherwise due Holder under a Stock Option granted hereunder or from any
wages or other compensation to be paid to Holder any sums required by federal,
state and local tax law to be withheld with respect to the exercise of any Stock
Option or with respect to the disposition of Shares issued hereunder or, in the
alternative, to require the Holder to pay such sums to the Corporation. The
Corporation may also retain any certificate representing Shares issuable upon
exercise of Stock Options until all such tax withholding requirements are
satisfied. The Corporation may, in its discretion and upon request by Holder,
withhold from the Shares to be issued to Holder under this Plan a number of
Shares (based on the Fair Market Value of the Shares on the date of exercise of
the Stock Option) necessary to satisfy any tax withholding requirements.
16. Termination or Amendment of the Plan and Stock Options. The Committee may
terminate or amend the Plan or any Stock Option at any time; except that,
without stockholder approval, the Committee may not increase the number of
Shares which may be issued under the Plan (except by operation of paragraph 9)
or modify the requirements as to eligibility to receive Incentive Stock Options
under the Plan. In addition, the approval of the Corporation's stockholders
shall be sought for any amendment to the Plan or a Stock Option for which the
Committee deems stockholder approval necessary in order to comply with Rule
16b-3. In any event, no amendment may adversely affect any then outstanding
Stock Option or any unexercised portion thereof, without the consent of the
Holder, unless such amendment is required to enable a Stock Option designated as
an Incentive Stock Option to qualify as an Incentive Stock Option.
17. No Special Employment Rights. Nothing contained in this Plan or in any Stock
Option granted hereunder shall confer upon any Holder any right with respect to
continued employment or engagement with the Corporation or interfere in any way
with the right of the Corporation, subject to the terms of any separate
agreement with the Holder to the contrary, at any time to terminate such
employment or engagement or to increase or decrease the compensation or other
benefits paid to the Holder.
18. Governing Law. This Plan and any Stock Options issued hereunder shall be
governed by and construed in accordance with the laws of the State of
California.
IN WITNESS WHEREOF, the undersigned Secretary of the Corporation
certifies that the foregoing Cohu, Inc. 1998 Stock Option Plan was duly adopted
by the Board of Directors of the Corporation on January 29, 1998.
/s/ JOHN H. ALLEN
-------------------------------------
John H. Allen
6
<PAGE> 21
COHU, INC.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF THE COMPANY
FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MAY 12, 1998
The undersigned hereby (i) acknowledge(s) receipt of the Notice and
Proxy Statement dated April 1, 1998 relating to the Annual Meeting of
Stockholders of Cohu, Inc. (the "Company") to be held May 12, 1998 and (ii)
appoint(s) WILLIAM S. IVANS, CHARLES A. SCHWAN and JOHN H. ALLEN as proxies,
with full power of substitution, and authorizes them, or any of them, to vote
all the shares of common stock of the Company standing in the name of the
undersigned at said meeting or any adjournment thereof upon the matter specified
below and upon such other matters as may be properly brought before the meeting,
conferring discretionary authority upon such proxies as to such other matters.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR PROPOSAL 1, 2, AND 3.
<TABLE>
<S> <C> <C>
1. ELECTION OF DIRECTORS [ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY
(except as marked to the contrary below) to vote for all nominees listed
JAMES W. BARNES WILLIAM S. IVANS
</TABLE>
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name on the space provided below.)
- --------------------------------------------------------------------------------
(Please sign and date on the reverse side)
<PAGE> 22
2. APPROVAL OF THE COHU, INC. 1998 STOCK OPTION PLAN.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. APPROVAL TO INCREASE THE COMPANY'S AUTHORIZED SHARES OF COMMON STOCK.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
IN THEIR DISCRETION, UPON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE
MEETING.
STOCKHOLDERS WHO ATTEND THE MEETING MAY VOTE IN PERSON EVEN THOUGH THEY HAVE
PREVIOUSLY MAILED THIS PROXY.
Dated:_____________________1998
-------------------------------
Signature of Stockholder
-------------------------------
Signature of Stockholder
IMPORTANT:Please date this
Proxy and sign exactly as
your name(s) appears hereon.
When signing as a fiduciary,
please give your full title.
If shares are held by joint
tenants, both should sign.
PLEASE DATE, SIGN AND MAIL THIS PROXY CARD IN THE ENVELOPE. NO POSTAGE IS
REQUIRED FOR MAILING IN U.S.A.
