Proxy Statement (definitive) (def 14a)

Date : 03/28/2019 @ 7:24PM
Source : Edgar (US Regulatory)
Stock : Cohu, Inc. (COHU)
Quote : 15.75  0.06 (0.38%) @ 1:00AM
Cohu share price Chart

Proxy Statement (definitive) (def 14a)


UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A INFORMATION

 

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No.    )

 

Filed by the Registrant   ☒                            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))

 

 

Definitive Proxy Statement

 

 

Definitive Additional Materials

 

 

Soliciting Material under Rule 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):

 

 

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:

 

 

 

 

 

12367 Crosthwaite Circle

Poway, California 92064-6817

 


 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

To Be Held On May 8, 2019

 


 

 

TO OUR STOCKHOLDERS:

 

The Annual Meeting of Stockholders (the “ Meeting ”) of Cohu, Inc. (“ Cohu ”) will be held at Cohu’s corporate offices, located at 12367 Crosthwaite Circle, Poway, California 92064-6817 on Wednesday, May 8, 2019, at 1:00 p.m. Pacific Time, for the following purposes:

 

 

1.

To elect two Class 3 directors, for a term of three years each.

 

2.

Advisory vote to approve Named Executive Officer (“ NEO ”) compensation.

 

3.

To approve amendments to the Cohu 2005 Equity Incentive Plan (the “ 2005 Plan ”) to (i) increase the shares of stock available for issuance by 2,000,000 and (ii) eliminate a sublimit on the aggregate number of shares that may be issued pursuant to restricted stock, restricted stock units, performance shares or performance unit awards.

 

4.

To approve an amendment to the 1997 Employee Stock Purchase Plan (the “ 1997 ESPP ”) to increase the number of shares that may be issued under the 1997 ESPP by 500,000.

 

5.

To ratify the appointment of Ernst & Young LLP as Cohu’s independent registered public accounting firm for 2019.

 

6.

To act upon such other matters as may properly come before the Meeting or any adjournment or postponement thereof.

 

Only stockholders of record of Cohu as of the close of business on March 19, 2019 will be entitled to vote at the Meeting.

 

The holders of a majority of the outstanding shares of voting stock of Cohu entitled to vote at the Meeting must be represented in person or by proxy to constitute a quorum for the Meeting. All stockholders are urged either to attend the meeting in person or to vote by proxy.

 

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 available at Cohu’s corporate offices, for the examination of any stockholder during normal business hours for a period of ten days immediately prior to the meeting.

 

Your vote is very important to us, and voting your proxy will ensure your representation at the Meeting. Whether or not you plan to attend the Meeting, we urge you to vote as soon as possible and submit your proxy via the Internet, or if you requested to receive printed proxy materials, by telephone or by signing, dating and returning your proxy card. 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 Cohu, or by submitting another duly signed proxy bearing a later date.

 

 

 By Order of the Board of Directors,

 

Thomas D. Kampfer

Secretary

 

Poway, California

March 28, 2019

 

Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to be held on May 8, 2019: The Proxy Statement and Annual Report to Shareholders are available at www.proxyvote.com .

 

 

 

 

 

12367 Crosthwaite Circle

Poway, California 92064-6817

 


 

PROXY STATEMENT

 


 

GENERAL INFORMATION

 

This proxy statement is furnished in connection with the solicitation by the Board of Directors of Cohu, Inc., a Delaware corporation (" Cohu " or the “ Company ”), of your proxy for use at the 2019 Annual Meeting of Stockholders to be held on Wednesday, May 8, 2019, at 1:00 p.m. Pacific Time at Cohu’s corporate offices, located at 12367 Crosthwaite Circle, Poway, California 92064-6817 (the “ Meeting ”).

 

Distribution

 

We are furnishing our proxy materials to our stockholders over the internet using “Notice and Access” delivery. We elected to use this method as it reduces the environmental impact of our Meeting and our print and distribution costs. This proxy statement, the accompanying proxy card and the Cohu 2018 Annual Report are being made available to stockholders on or about March 28, 2019.

 

Voting

 

On March 19, 2019, the record date fixed by our Board of Directors (the “ Board ”), Cohu had outstanding 40,816,889 shares of common stock. Only stockholders of record as of the close of business on March 19, 2019, will be entitled to vote at the Meeting and any adjournment thereof. We encourage you to read the entire Proxy Statement for more information prior to voting.

 

Voting Procedures

 

As a stockholder of Cohu, you have a right to vote on certain business matters affecting Cohu. This proxy statement relates only to the solicitation of proxies from the stockholders with respect to the election of the two Class 3 directors nominated by the Board, an advisory vote on executive compensation, to approve amendments to Cohu’s 2005 Equity Incentive Plan, to approve amendments to Cohu’s 1997 Employee Stock Purchase Plan, and ratification of the appointment of the Company’s independent registered public accounting firm. Each share of Cohu’s common stock you own entitles you to one vote for each proposal.

 

Methods of Voting

 

If you received a Notice of Internet Availability of Proxy Materials on how to access the proxy materials via the Internet, a proxy card was not sent to you, and you may vote only via the Internet, unless you have requested a paper copy of the proxy materials, in which case, you may also vote by telephone or by signing, dating and returning your proxy card. Shares cannot be voted by marking, writing on and returning the Notice of Internet Availability. Any Notices of Internet Availability that are returned will not be counted as votes. Instructions for requesting a paper copy of the proxy materials are set forth on the Notice of Internet Availability.

 

If you are a stockholder of record and return a signed proxy card but do not specify how you want to vote your shares, your shares will be voted FOR the named nominees for director, FOR the advisory vote to approve executive compensation, FOR the amendments to Cohu’s 2005 Equity Incentive Plan, FOR the amendment to Cohu’s 1997 Employee Stock Purchase Plan, FOR the ratification of the appointment of Ernst & Young LLP as Cohu’s independent registered public accounting firm for 2019, and in the discretion of the proxies (as defined below) as to other matters that may properly come before the Meeting.

 

Voting over the Internet . To vote over the Internet, please follow the instructions included on your Notice of Internet Availability of Proxy Materials.

 

Voting by Mail . If you have requested a paper copy of the proxy materials you may vote by mail by signing and returning the proxy card in the prepaid and addressed envelope provided. If you do that, you are authorizing the individuals named on the proxy card (known as “proxies”) to vote your shares at the Meeting in the manner you indicate. We encourage you to sign and return the proxy card even if you plan to attend the Meeting. In this way, your shares will be voted if you are unable to attend the Meeting. If you receive more than one proxy card, it is an indication that your shares are held in multiple accounts. Please sign and return all proxy cards to ensure that all of your shares are voted.

 

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Voting by Telephone . If you have requested a paper copy of the proxy materials you may vote by telephone, please follow the instructions included on your proxy card. If you vote by telephone, you do not need to complete and mail your proxy card.

 

Voting in Person at the Meeting . If you plan to attend the Meeting and vote in person, we will provide you with a ballot at the Meeting. If your shares are registered directly in your name, you are considered the stockholder of record and you have the right to vote in person at the Meeting. If your shares are held in the name of your broker or other nominee, you are considered the beneficial owner of shares held in street name. If you wish to vote such shares at the Meeting, you will need to bring with you to the Meeting a legal proxy from your broker or other nominee authorizing you to vote such shares.

 

Revoking Your Proxy

 

You may revoke your proxy at any time before it is voted at the Meeting. In order to do this, you must:

 

• 

enter a new vote over the Internet, by telephone or by signing and returning another proxy card bearing a later date;

 

• 

provide written notice of the revocation to Cohu’s Secretary; or

 

• 

attend the Meeting and vote in person.

 

Quorum Requirement

 

A quorum, which is a majority of the outstanding shares entitled to vote as of the record date, March 19, 2019, must be present in order to hold the Meeting and to conduct business. Your shares are counted as being present at the Meeting if you appear in person at the Meeting or if you vote your shares over the Internet, by telephone or by submitting a properly executed proxy card. Proxies marked as abstaining on any matter and broker non-votes (as described below) will be counted as present for the purpose of determining a quorum.

 

Votes Required for the Proposals

 

For Proposal No. 1 , on May 16, 2018, the Company and its stockholders adopted a majority voting standard in uncontested elections of directors. In an uncontested election, a director nominee must receive a majority of the votes cast for such nominee’s election (meaning the number of shares voted “For” a nominee must exceed the number of shares voted “Against” such nominee) in order to be elected. If the number of shares voted “Against” a director exceeds the number of shares voted “For” such director in any election, then the director nominee(s) would be requested to submit a letter of resignation and the Board would decide, through a process managed by the Nominating and Governance Committee, whether to accept the resignation. A contested election will generally include any situation in which the Company receives a notice that a stockholder has nominated a person for election to the Board at a meeting of stockholders. A plurality voting standard continues to apply in contested director elections.

 

The affirmative vote of a majority of the shares of Cohu common stock cast at the Meeting is required for approval of the advisory vote on executive compensation ( Proposal No. 2 ), approval of amendments to the Cohu 2005 Equity Incentive Plan ( Proposal No. 3 ), approval of the amendment to the Cohu 1997 Employee Stock Purchase Plan ( Proposal No. 4 ), and the ratification of the appointment of the Company’s independent registered public accounting firm ( Proposal No. 5 ), as described herein.

 

Broker Non-Votes

 

Broker non-votes are shares held by brokers or nominees for which voting instructions have not been received from the beneficial owners or the persons entitled to vote those shares and for which the broker or nominee does not have discretionary voting power under rules applicable to broker-dealers. If your broker holds your shares in its name and you do not instruct your broker how to vote, your broker will nevertheless have discretion to vote your shares on our sole “routine” matter — the ratification of the appointment of the Company’s independent registered public accounting firm ( Proposal No. 5 ). Your broker will not have discretion to vote on any of the other matters, which are “non-routine” matters, absent direction from you. Accordingly, shares subject to a broker “non-vote” will not be considered entitled to vote with respect to Proposals No. 1, No. 2, No. 3 and No. 4 and will not affect the outcome of these proposals. We strongly encourage you to provide instructions to your broker regarding the voting of your shares.

 

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Abstentions

 

Abstentions will have no effect on the election of directors ( Proposal No. 1 ). Abstentions will be treated as being present and entitled to vote on the approval of the advisory vote on executive compensation ( Proposal No. 2 ), the approval of amendments to the Cohu 2005 Equity Incentive Plan ( Proposal No. 3 ), the approval of amendments to the Cohu 1997 Employee Stock Purchase Plan ( Proposal No. 4 ), and the ratification of the appointment of the Company’s independent registered public accounting firm ( Proposal No. 5 ) and, therefore, will have the effect of votes “Against” these proposals.

 

Voting Confidentiality

 

Proxies, ballots and voting tabulations are handled on a confidential basis to protect your voting privacy. Such information will not be disclosed except as required by law.

 

Voting Results

 

Final voting results will be announced at the Meeting and will be posted shortly after the Meeting on our website at www.cohu.com . Voting results will also be published in a Current Report on Form 8-K to be filed with the Securities and Exchange Commission (“ SEC ”) within four business days of the Meeting. After the reports are filed, you may obtain a copy by:

 

 

•  

visiting our website at www.cohu.com ;

 

 

• 

contacting our Investor Relations department at 781-467-5063; or

 

 

• 

viewing our Form 8-K on the SEC’s website at www.sec.gov .

 

Proxy Solicitation Costs

 

Cohu will bear the entire cost of proxy solicitation, including the preparation, assembly, printing, mailing and distribution of the proxy materials. Cohu’s officers, directors and regular employees will not receive additional compensation for such proxy solicitation services. Cohu may engage, as necessary, an outside solicitor in connection with this proxy solicitation. We will reimburse brokerage firms and other custodians for their reasonable out-of-pocket expenses for forwarding the proxy materials to you.

 

********************************  

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE
STOCKHOLDER MEETING TO BE HELD ON MAY 8, 2019

 

This proxy statement and Cohu’s Fiscal Year 2018 Annual Report are both available at www.proxyvote.com.

 

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PROPOSAL NO. 1

 

ELECTION OF DIRECTORS

 

Cohu’s Amended and Restated Certificate of Incorporation divides the directors into three classes whose terms expire at successive annual meetings over a period of three years. One class of directors is elected for a term of three years at each annual meeting with the remaining directors continuing in office. At the Meeting, two Class 3 directors are standing for re-election for a term expiring in 2022. The shares represented by proxies in the accompanying form will be voted by the proxy holders for the election of the nominees named below. Should the 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.

 

Mr. David G. Tacelli, currently a Class 3 director, is not standing for re-election, and his term will expire at the Meeting. Each of the two director nominees currently serves as a member of the Board, and there is no family relationship between the nominees, other directors or any of Cohu’s NEOs.

 

The following biographies describe the skills, qualities, attributes, and experience of the nominees that led our Board to determine that it is appropriate to nominate these directors.

 

Required Vote  

 

Nominees that receive a majority of the votes cast for such nominee’s election (meaning the number of shares voted “For” a nominee must exceed the number of shares voted “Against” such nominee) will be elected as Directors. Brokers do not have discretion to vote on this proposal without your instruction. If you do not instruct your broker how to vote on this proposal, your broker will deliver a non-vote on this proposal.

 

Recommendation of the Board  

 

The Board of Directors unanimously recommends a vote “FOR” the nominees named below.

 

Directors Whose Term Expires in 2022 (if elected) – Class 3

Steven J. Bilodeau, Director since 2009, age 60

Business Experience and Other Directorships

Experience, Qualifications and Attributes

Mr. Bilodeau is the retired President and Chief Executive Officer of SMSC, a semiconductor manufacturer, where he served from 1999 until 2008. Mr. Bilodeau has been a director of Maxwell Technologies since May 2016 and was appointed Chairperson in May 2017. Mr. Bilodeau also served as a director of SMSC from 1999 until 2012, and as SMSC’s Chairperson of the Board from 2000 until 2012. Mr. Bilodeau also previously served as a director of NuHorizons Electronic Corp., Conexant Systems, Inc. and Gennum Corporation.

We believe Mr. Bilodeau’s qualifications to sit on our Board include his more than thirty years of executive experience in the high technology and semiconductor industries and his knowledge of international operations, business strategy and corporate governance. Mr. Bilodeau was first appointed Lead Independent Director of the Board in May 2018. Mr. Bilodeau qualifies as an “audit committee financial expert” under SEC guidelines.

 

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Directors Whose Term Expires in 2022 (if elected) - Class 3 (continued)

James A. Donahue, Director since 1999 (non-executive Director since 2015), age 70

Business Experience and Other Directorships

Experience, Qualifications and Attributes

Mr. Donahue has been the non-executive Chairperson of Cohu since December 24, 2015. Prior to this he served as Executive Chairperson of Cohu from December 28, 2014 to December 24, 2015, and as Chairperson of the Board from 2010 until 2014. Mr. Donahue was President and Chief Executive Officer of Cohu from June 2000 to December 2014, and President and Chief Operating Officer of Cohu from 1999 to 2000. He also served concurrently as President of Delta Design, Inc., a wholly owned subsidiary of Cohu from 1983 to 2010. Mr. Donahue served as a director of SMSC from 2003 until 2012.

We believe Mr. Donahue’s qualifications to sit on our Board include his more than thirty years of executive experience in the semiconductor equipment industry and broad knowledge of business development and strategy, corporate governance and operations.

 

INFORMATION CONCERNING OTHER DIRECTORS NOT STANDING FOR ELECTION

 

Directors Whose Term Expires in 2020 - Class 1

William E. Bendush, Director since 2011, age 70

Business Experience and Other Directorships

Experience, Qualifications and Attributes

Mr. Bendush is the retired Senior Vice President and Chief Financial Officer of Applied Micro Circuits Corporation (AMCC), a communications semiconductor company where he served from 1999 to 2003. Mr. Bendush was a director of Microsemi Corp. from 2003 until the company was acquired in May 2018, and previously was a director of Conexant Systems, Inc.

We believe Mr. Bendush’s qualifications to sit on our Board include his executive experience in the semiconductor industry and his experience with financial accounting matters for complex global organizations as well as his knowledge of business strategy. Mr. Bendush qualifies as an “audit committee financial expert” under SEC guidelines.

 

Directors Whose Term Expires in 2020 (continued) - Class 1

Robert L. Ciardella, Director since 2003, age 66

Business Experience and Other Directorships

Experience, Qualifications and Attributes

Mr. Ciardella is the founder and retired Chief Executive Officer of AdvanJet, Inc. (a subsidiary of Graco, Inc.) and served in that role from June 2010 to January 2019. AdvanJet designs and manufactures advanced micro-dispensing equipment. Mr. Ciardella is also the founder and retired President of Asymtek (a subsidiary of Nordson Corporation) where he worked from 1983 until 2006. Asymtek designs, develops, manufactures and sells semiconductor and circuit board assembly equipment.

We believe Mr. Ciardella’s qualifications to sit on our Board include his more than thirty years of executive experience in the semiconductor equipment industry, including his knowledge of operations, product development and business strategy.

 

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Ritu C. Favre, Director since 2019, age 50

Business Experience and Other Directorships

Experience, Qualifications and Attributes

Ms. Favre currently serves as Chief Executive Officer of NEXT Biometrics ASA (Oslo Bors: NEXT), a supplier of fingerprint recognition sensors, a position she has held since February 2017.  She previously served as Senior Vice President and General Manager, Biometrics Products Division at Synaptics Incorporated from June 2014 to October 2016. Prior to Synaptics, she was Vice President and subsequently Senior Vice President and General Manager, RF Division at Freescale Semiconductor, Inc. from October 2010 to 2014. She also held several product, operations and supply chain management positions at Freescale and Motorola, Inc. from 1988 until 2010.

We believe Ms. Favre’s qualifications to sit on our Board include her executive experience in the semiconductor industry, including her knowledge of operations, product development and business strategy.

 

Directors Whose Term Expires in 2021 - Class 2

Andrew M. Caggia, Director since 2014, age 70

Business Experience and Other Directorships

Experience, Qualifications and Attributes

Mr. Caggia is the retired Senior Vice President and Chief Financial Officer of Standard Microsystems Corporation (SMSC), where he worked from 2000 until his retirement in 2006. Mr. Caggia also served as a director of SMSC from 2001 until its purchase by Microchip Technology Incorporated in 2012. Prior to SMSC, Mr. Caggia was Senior Vice President and Chief Financial Officer of General Semiconductor, Inc. from 1997 to 2000.

We believe Mr. Caggia’s qualifications to sit on our Board include his executive experience in the semiconductor industry and his experience with financial accounting matters for complex global organizations as well as his knowledge of business strategy. Mr. Caggia qualifies as an “audit committee financial expert” under SEC guidelines.

 

Directors Whose Term Expires in 2021 - Class 2 (continued)

Luis A. Müller, Director since 2014, age 49

Business Experience and Other Directorships

Experience, Qualifications and Attributes

Dr. Müller has been the President and Chief Executive Officer of Cohu since December 28, 2014. His previous roles at Cohu include serving as President of Cohu’s Semiconductor Equipment Group (“SEG”) from 2011 to 2014; Managing Director of Rasco GmbH from 2009 to 2011; Vice President of Delta Design’s High Speed Handling Group from 2008 to 2009; and Director of Engineering at Delta Design from 2005 to 2008. Prior to joining Cohu, Dr. Müller spent nine years at Teradyne Inc., where he held management positions in engineering and business development.

We believe Dr. Müller’s qualifications to sit on our Board include his more than twenty years of experience in the semiconductor equipment industry, broad knowledge of business development and strategy, semiconductor technologies, corporate governance and international operations.

 

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Jorge L. Titinger, Director since 2018, age 57

Business Experience and Other Directorships

Experience, Qualifications and Attributes

Mr. Titinger was President and Chief Executive Officer of Silicon Graphics International Corp. (“SGI”) from February 2012 to November 2016. After SGI was acquired by Hewlett Packard Enterprise, Mr. Titinger founded Titinger Consulting, a firm focused on providing strategy, corporate transformation, and culture advice to its clients. Mr. Titinger also served as President and Chief Executive Officer of Verigy Ltd. (“Verigy”) from January 2011 until October 2011, as its President and Chief Operating Officer from July 2010 to January 2011, and as its Chief Operating Officer from June 2008 to July 2010. Prior to his service at Verigy, Mr. Titinger held executive positions with FormFactor, Inc. from 2007 to 2008, and KLA-Tencor Corporation from 2002 to 2007. Mr. Titinger served as a director of Xcerra Corporation from August 2012 until it was acquired by Cohu on October 1, 2018. Mr. Titinger also currently serves as a director of CalAmp Corp., a position he has held since June 2015; and as a director of Hercules Capital, Inc., a position he has held since October 2017.

We believe Mr. Titinger’s qualifications to sit on our Board include his board and executive level experience in the automatic test equipment and semiconductor capital equipment industries.

 

 

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PROPOSAL NO. 2

 

ADVISORY VOTE TO APPROVE NAMED EXECUTIVE COMPENSATION

 

At last year’s Meeting, we provided our stockholders with the opportunity to cast an advisory vote regarding the compensation of our NEOs as disclosed in the proxy statement for the 2018 Annual Meeting of Stockholders. At our 2018 Annual Meeting, our stockholders approved the proposal, with approximately 96% of the votes cast voting in favor of the proposal.

 

We value the opinions of our stockholders and will continue to consider the outcome of future say-on-pay votes, as well as feedback received throughout the year, when making compensation decisions for our executive officers, including the NEOs. This year we are again asking our stockholders to vote “ FOR ” the compensation of our NEOs as disclosed in this proxy statement.

 

Compensation Program and Philosophy

 

As described under the Compensation Discussion and Analysis section of this proxy statement (the “ CD&A ”), the Compensation Committee has structured our executive compensation program to achieve the following key objectives:

 

 

• 

to pay for performance;

 

• 

to attract, motivate and retain talented executive officers;

 

• 

to motivate progress toward Company-wide financial and business objectives while balancing rewards for short-term and long-term performance; and

 

• 

to align the interests of our executive officers with those of stockholders. 

 

We urge stockholders to read the CD&A beginning on page 33 of this proxy statement, which describes in more detail how our executive compensation policies and procedures operate and are designed to achieve our compensation objectives, as well as the Summary Compensation Table and other related compensation tables and narrative, which provide detailed information on the compensation of our NEOs. The Compensation Committee and the Board of Directors believe that the policies and procedures articulated in the CD&A are effective in achieving our goals and that the compensation of our NEOs reported in this proxy statement has contributed to the Company’s recent and long-term success.

 

Required Vote  

 

 A majority of the votes cast is required to approve Proposal No. 2 . Brokers do not have discretion to vote on this proposal without your instruction. If you do not instruct your broker how to vote on this proposal, your broker will deliver a non-vote on this proposal.

 

Recommendation of the Board  

 

For the above reasons, we are asking our stockholders to indicate their support for the compensation of our NEOs as described in this proxy statement by voting in favor of the following resolution:

 

“RESOLVED, that the stockholders of Cohu approve, in a non-binding vote, the compensation of the Company’s NEOs as disclosed pursuant to the CD&A, the tabular disclosure regarding such compensation, and the accompanying narrative disclosure set forth in the proxy statement relating to the Company’s 2019 Annual Meeting of Stockholders.” 

 

Even though this say-on-pay vote is advisory and therefore will not be binding on the Company, the Compensation Committee and the Board value the opinions of our stockholders. Accordingly, to the extent there is a significant vote against the compensation of our NEOs, we will consider our stockholders’ concerns and the Compensation Committee will evaluate what actions may be necessary or appropriate to address those concerns. 

 

The Board of Directors unanimously recommends that you vote “FOR” approval, on an advisory basis, of the resolution on executive compensation.  

 

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PROPOSAL NO. 3

 

APPROVAL OF AMENDMENTS TO THE COHU, INC. 2005 EQUITY INCENTIVE PLAN

 

We are asking stockholders to approve amendments to our 2005 Equity Incentive Plan (the “2005 Plan”) to (i) increase the shares of common stock available for issuance under the 2005 Plan by 2,000,000 and (ii) eliminate a sublimit on the aggregate number of shares that may be issued under the 2005 Plan pursuant to restricted stock, restricted stock units (“ RSUs ”), performance shares or performance unit awards (together, the “ 2005 Plan Amendments ”). Our Board recommends stockholders approve the 2005 Plan Amendments to promote our long-term growth and profitability by aligning the interests of our key employees with those of other stockholders and providing additional incentives to enhance stockholder value.

 

Our Board believes that the Company’s success is due to its highly talented employee base and that future success depends on our ability to continue attracting and retaining high-caliber employees. Our ability to grant equity awards is a necessary and powerful recruiting and retention tool to maintain and create stockholder value. Further, with the acquisition of Xcerra Corporation (“ Xcerra ”) in 2018, our shares outstanding increased approximately 40% and our number of employees has nearly doubled. Apart from our broad-based 1997 Employee Stock Purchase Plan (see Proposal No. 4 in this proxy statement), the 2005 Plan is our only active employee equity incentive plan. As a result, we believe that the current authorized number of shares under the 2005 Plan is completely inadequate to provide reasonable incentives within a much larger company and to a much larger pool of management. In addition, the sublimit on the maximum number of shares that may be issued out of the overall share authorization under the 2005 Plan pursuant to restricted stock and other full-value awards is now an unnecessary impediment to operation of the 2005 Plan because our current practice is to provide equity incentives solely in the form of full-value awards. Non-approval of the 2005 Plan Amendments may compel us to increase the cash component of employee compensation because the Company would need to replace components of compensation previously delivered through equity awards.

 

In connection with our share-based compensation programs, we are committed to using equity incentive awards prudently and within reasonable limits. We closely monitor our share award annual “burn rate.” Our annual burn rate is determined by dividing a) two-times the number of our common shares subject to “full-value” time-based awards we grant during a fiscal year (currently all in the form of RSUs) and the performance share units (" PSUs ") that are earned and become vested based on the achievement of the applicable performance goals during the fiscal year by b) the weighted average number of our shares of common stock outstanding during that fiscal year. We do not include deferred stock unit awards issued in lieu of cash compensation of equal value in determining the burn rate illustrated in the following table.

 

                                   

Fiscal Year

 

Options

Granted

 

RSUs Granted

   

PSUs Vested

   

Total RSUs

Granted and

PSUs Vested

 

Weighted Average

Common Share

Outstanding

 

Burn Rate

 

2018

 

0

 

292,185 (1)

 

 

40,640

   

332,825

   

31,775,826

   

2.09%

 

2017

 

0

 

353,391

 

 

186,146

   

539,537

   

27,835,988

   

3.88%

 

2016

 

0

 

471,225

 

 

172,053

   

643,278

   

26,659,258

   

4.83%

 

3-Year Average

 

0

 

372,267

 

 

132,946

   

505,213

   

28,757,024

   

3.51%

 

 

(1) Excludes 529,995 assumed RSUs issued to Xcerra employees which, by its terms, do not reduce the shares available to grant under the 2005 Plan.

 

In determining the number of shares to request for approval under the 2005 Plan Amendments, our Compensation Committee considered various factors, including our recent share usage, anticipated hiring needs in the next two years, the addition of approximately 1,600 employees with the Xcerra acquisition, potential dilution, our current stock price, recent experiences in the equity awards expected by new hire candidates, and general guidance from institutional proxy advisory firms, such as ISS, that our stockholders might consider in evaluating the 2005 Plan Amendment. After reviewing this information, our Compensation Committee decided to request that our stockholders approve an additional 2,000,000 shares for issuance under the 2005 Plan.

 

Based on our current equity award practices and the significant increase in employees resulting from the Xcerra acquisition, the Compensation Committee estimates that the additional shares that would be authorized by the 2005 Plan Amendments may be sufficient to provide us with an opportunity to grant equity awards for approximately 3 to 4 years. Circumstances that could alter this estimate include the future price of our common shares, the mix of options and full-value awards provided as long-term incentive compensation, grant amounts provided by our competitors, payout of performance-based awards in excess of target in the event of superior performance, hiring activity, and promotions during the next few years.

 

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Our Board adopted the 2005 Plan Amendments on March 26, 2019, subject to approval by our stockholders. If stockholders do not approve the 2005 Plan Amendments, the maximum number of shares that may be issued under the 2005 Plan will not be increased and the current sublimit on the maximum number of shares that may be issued pursuant to restricted stock, restricted stock units, performance shares or performance unit awards will not be eliminated. A summary of the principal provisions of the 2005 Plan, as amended, is set forth below. The summary is qualified by reference to the full text of the 2015 Plan, a copy of which is attached as Appendix A to this Proxy Statement.

 

Highlights of the 2005 Plan

 

The 2005 Plan, as amended, contains a number of provisions that we believe are consistent with best practices in equity compensation and which protect the stockholders’ interests, as described below.

 

No evergreen authorization . The 2005 Plan does not have an evergreen provision, which would have permitted an annual increase in the share pool without further stockholder approval.

 

Gross share counting. The 2005 Plan generally provides for gross share counting. The number of shares remaining available for grant under the 2005 Plan is reduced by the gross number of shares subject to options and stock appreciation rights settled on a net basis, and any shares withheld for taxes in connection with the vesting or settlement of any award will not again be available for the future grant of awards. Further, any shares of our common stock we repurchase in the open market with option exercise proceeds will not increase the maximum number of shares that may be issued under the 2005 Plan.

 

Individual award limits . The 2005 Plan limits the maximum number of shares for which share-denominated awards may be granted to any employee in any fiscal year (or earned for each fiscal year contained in a performance period) and the maximum dollar amount that an employee may earn for each fiscal year contained in a performance period under a cash-denominated award.

 

Minimum vesting. The 2005 Plan requires each award to have a minimum vesting period of one year, except for 5% of the aggregate number of shares authorized for issuance under the 2005 Plan, or if vesting is accelerated upon a participant’s death or disability or in connection with a change in control.

 

No automatic vesting upon a change in control . The 2005 Plan does not provide for automatic acceleration of award vesting upon a change in control. An acquiring corporation may assume, continue or substitute new awards for outstanding awards, and if it does so, the vesting of the outstanding awards will generally not accelerate on the change in control. The vesting of awards that are not assumed, continued or replaced by a publicly held corporation will be accelerated. The plan administrator has the discretion to accelerate the vesting of outstanding awards or to require that participants exchange outstanding stock-based awards for a payment in cash.

 

Prohibition on repricing . The 2005 Plan prohibits the repricing of options or stock appreciation rights without the approval of our stockholders, including the cancellation and replacement of options or stock appreciation rights with a grant of options or stock appreciation rights having lower exercise prices, a grant of full-value awards or payments in cash.

 

No discounted options or stock appreciation rights. Options and stock appreciation rights must have an exercise price or base price at or above the fair market value per share of our common stock on the date of grant.

 

No tax gross-ups . The 2005 Plan does not provide for any tax gross-ups.

 

No liberal change-in-control definition . Under the 2005 Plan, a change in control occurs upon the consummation of the transaction rather than the announcement or stockholder approval of the transaction.

 

Limitation on dividends and dividend equivalents . Any dividends or dividend equivalents payable in connection with an award will be subject to the same restrictions as the underlying award and will not be paid until and unless such award vests or is settled, if later.

 

Summary of the 2005 Plan

 

The following summary of the 2005 Plan, as amended, is qualified in its entirety by the specific language of the 2005 Plan, as amended, a copy of which has been filed with the SEC and is available to any stockholder upon request.

 

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General. The purpose of the 2005 Plan is to advance the interests of the Company by providing an incentive program that will enable the Company to attract and retain employees, consultants and directors upon whose judgment, interest and efforts the Company’s success is dependent and to provide them with an equity interest in the success of the Company in order to motivate superior performance. These incentives may be provided through the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units, deferred stock units (“ DSUs ”), certain other stock-based awards and cash-based performance awards.

 

Authorized Shares. Our stockholders have previously authorized the issuance of up to 8,230,747 shares of our common stock under the 2005 Plan. As of March 19, 2019, a total of 5,460,418 shares of common stock have been issued under the 2005 Plan, either in the form of direct issuances of restricted stock awards or upon the exercise or settlement of options, stock appreciation rights, RSUs or similar unit-based awards. In addition, as of March 19, 2019, awards covering 2,286,554 shares were outstanding and have yet to be exercised or settled in shares of common stock. Accordingly, as of March 19, 2019, total of 483,775 shares remain available for the future grant of awards under the 2005 Plan. The reduction in shares available for grant as of December 29, 2018 (which was 1,198,058 shares) is primarily driven by the Company’s recent award of annual employee grants, which is typically done each year in March.

 

In addition to the aggregate limit on the maximum number of shares that may be issued under the plan, the 2005 Plan previously placed a sublimit of 6,000,000 on the number of shares that may be issued pursuant to restricted stock awards, RSUs, performance shares and performance unit awards. Because our current practice is to provide equity incentives solely in the form of these full-value awards, the Board recognized that this sublimit no longer serves a useful purpose and accordingly has amended the 2005 Plan, subject to stockholder approval, to eliminate the sublimit on full-value awards.

 

If the 2005 Plan Amendments are approved by the stockholders, the aggregate number of shares authorized for issuance under the 2005 Plan will increase by 2,000,000, from 8,230,747 shares to 10,230,747 shares, and the sublimit on the number of shares that may be issued pursuant to restricted stock awards, RSUs, performance shares and performance unit awards will be eliminated.

 

In addition to awards that may be granted under the 2005 Plan, on October 1, 2018, the Company assumed a total of 529,995 restricted stock units held by Xcerra employees in connection with our acquisition of Xcerra and converted them into restricted stock unit awards to be settled upon vesting in shares of our common stock. Of these, 426,792 restricted stock units remained outstanding as of March 19, 2019. As provided by the 2005 Plan’s terms, these assumed Xcerra RSU awards do not reduce the number of shares authorized for issuance under the 2005 Plan.

 

If any award granted under the 2005 Plan expires, lapses or otherwise terminates for any reason without having been exercised or settled in full, or if shares subject to forfeiture or repurchase are forfeited or repurchased by the Company, any such shares that are reacquired or subject to such a terminated award will again become available for issuance under the 2005 Plan. Upon any stock dividend, stock split, reverse stock split, recapitalization or similar change in our capital structure, appropriate adjustments will be made to the shares subject to the 2005 Plan, to the award limits described below and to all outstanding awards. However, shares will not again become available for issuance under the 2005 Plan if they are (i) withheld or surrendered to satisfy tax withholding obligations, (ii) surrendered in payment of stock option exercise prices (either by means of a cashless exercise, attestation or actual surrender of shares) or (iii) subject to a stock appreciation right and are not issued upon settlement of the stock appreciation right.

 

Award Limits. The 2005 Plan limits the numbers of shares for which awards may be granted or dollar value for which awards may be paid during specified periods of time, subject to appropriate adjustment in the event of any change in the capital structure of the Company, as follows:

 

 

Options and Stock Appreciation Rights . No employee may be granted in any fiscal year of the Company options or stock appreciation rights which in the aggregate are for more than 500,000 shares, provided that the Company may make an additional one-time grant to any newly-hired employee of a stock option or stock appreciation right award for the purchase of up to an additional 250,000 shares.

 

Restricted stock and RSUs. No employee may be granted in any fiscal year of the Company awards of restricted stock or RSUs for more than 200,000 shares, provided that the Company may make an additional one-time grant to any newly-hired employee of a restricted stock or RSU award for up to an additional 100,000 shares.

 

Performance Shares and Performance Units. For each fiscal year of the Company contained in the applicable performance period, no employee may be granted performance shares that could result in the employee receiving more than 250,000 shares of common stock or performance units that could result in the employee receiving more than $2,000,000. A participant may receive only one performance award with respect to any performance period. Prior to the Board’s amendment of the 2005 Plan on March 26, 2019, these limits were 100,000 shares and $1,000,000 respectively.

 

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Performance Bonus Awards . No participant may be paid a performance cash bonus which is greater than $2,000,000 for each fiscal year of the Company contained in the applicable performance period. Prior to the Board’s amendment of the 2005 Plan on March 26, 2019, this limit was $1,000,000.

 

Administration. The 2005 Plan is administered by the Compensation Committee of the Board of Directors, or, in the absence of such committee, by the Board of Directors (for purposes of this summary, the term “Committee” refers to either such committee or the Board of Directors). Subject to the provisions of the 2005 Plan, the Committee determines in its discretion the persons to whom and the times at which awards are granted, the types and sizes of such awards, and all of their terms and conditions. All awards granted under the 2005 Plan must be evidenced by a written agreement between the Company and the participant specifying the number of shares subject to the award and the other terms and conditions of the award, consistent with the requirements of the 2005 Plan. The Committee may amend, cancel, renew any award, waive any restrictions or conditions applicable to any award, and accelerate, continue, extend or defer the vesting of any award. The 2005 Plan provides, subject to certain limitations, for indemnification by the Company of any director, officer or employee against all reasonable expenses, including attorneys’ fees, incurred in connection with any legal action arising from such person’s action or failure to act in administering the 2005 Plan. The Committee will interpret the 2005 Plan and awards granted thereunder, and all determinations of the Committee will be final and binding on all persons having an interest in the 2005 Plan or any award.

 

Prohibition of Option and SAR Repricing. The 2005 Plan expressly provides that, without the approval of a majority of the votes cast in person or by proxy at a meeting of our stockholders, the Committee may not provide for any of the following with respect to underwater options or stock appreciation rights: (1) either the cancellation of such outstanding options or stock appreciation rights in exchange for the grant of new options or stock appreciation rights at a lower exercise price or the amendment of outstanding options or stock appreciation rights to reduce the exercise price, (2) the issuance of new full-value awards in exchange for the cancellation of such outstanding options or stock appreciation rights, or (3) the cancellation of such outstanding options or stock appreciation rights in exchange for payments in cash.

 

Minimum Vesting. No more than 5% of the aggregate number of shares authorized under the 2005 Plan may be issued pursuant to awards that provide for vesting over a period of less than one year. This minimum vesting requirement will not prohibit the Committee from accelerating the vesting of awards in connection with a “Change in Control,” as defined by the 2005 Plan, or upon a participant’s death or disability.

 

Eligibility. Awards may be granted to employees, directors and consultants of the Company or any present or future parent or subsidiary corporations of the Company. Incentive stock options may be granted only to employees who, as of the time of grant, are employees of the Company or any parent or subsidiary corporation of the Company. As of March 19, 2019, the Company had approximately 3,500 employees, including seven Named Executive Officers and eight non-employee directors who are eligible under the 2005 Plan.

 

Stock Options. The exercise price of each option may not be less than the fair market value of a share of our common stock on the date of grant. However, any incentive stock option granted to a person who at the time of grant owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or any parent or subsidiary corporation of the Company (a “Ten Percent Stockholder”) must have an exercise price equal to at least 110% of the fair market value of a share of common stock on the date of grant. On March 19, 2019, the closing price of our common stock on the Nasdaq Global Select Market was $14.80 per share.

 

The 2005 Plan provides that the option exercise price may be paid in cash, by check, or in cash equivalent, by the assignment of the proceeds of a sale with respect to some or all of the shares being acquired upon the exercise of the option, to the extent legally permitted, by tender of shares of common stock owned by the optionee having a fair market value not less than the exercise price, by such other lawful consideration as approved by the Committee, or by any combination of these. Nevertheless, the Committee may restrict the forms of payment permitted in connection with any option grant. No option may be exercised unless the optionee has made adequate provision for federal, state, local and foreign taxes, if any, relating to the exercise of the option, including, if permitted or required by the Company, through the optionee’s surrender of a portion of the option shares to the Company.

 

Options will become vested and exercisable at such times or upon such events and subject to such terms, conditions, performance criteria or restrictions as specified by the Committee, subject to the minimum vesting requirements described above. The maximum term of any option granted under the 2005 Plan is ten years, provided that an incentive stock option granted to a Ten Percent Stockholder must have a term not exceeding five years. The Committee will specify in each written option agreement, and solely in its discretion, the period of post-termination exercise applicable to each option.

 

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Generally, stock options are nontransferable by the optionee other than by will or by the laws of descent and distribution, and are exercisable during the optionee’s lifetime only by the optionee. However, a nonstatutory stock option may be assigned or transferred to the extent permitted by the Committee in its sole discretion, other than to a third party financial institution for value.

 

Stock Appreciation Rights. A stock appreciation right gives a participant the right to receive the appreciation in the fair market value of Company common stock between the date of grant of the award and the date of its exercise. The Company may pay the appreciation either in cash or in shares of common stock. The Committee may grant stock appreciation rights under the 2005 Plan in tandem with a related stock option or as a freestanding award. A tandem stock appreciation right is exercisable only at the time and to the same extent that the related option is exercisable, and its exercise causes the related option to be canceled. Freestanding stock appreciation rights vest and become exercisable at the times and on the terms established by the Committee, subject to the minimum vesting requirements described above. The maximum term of any stock appreciation right granted under the 2005 Plan is ten years.

 

Stock appreciation rights are generally nontransferable by the participant other than by will or by the laws of descent and distribution, and are generally exercisable during the participant’s lifetime only by the participant.

 

Restricted Stock Awards. The Committee may grant restricted stock awards under the 2005 Plan in the form of a restricted stock bonus, for which the participant furnishes consideration in the form of services to the Company. Restricted stock awards may be subject to vesting conditions based on such service or performance criteria as the Committee specifies, subject to the minimum vesting requirements described above, and the shares acquired may not be transferred by the participant until vested. Unless otherwise provided by the Committee, a participant will forfeit any shares of restricted stock as to which the restrictions have not lapsed prior to the participant’s termination of service. Participants holding restricted stock will have the right to vote the shares and to receive any dividends or other distributions paid with respect to our common stock, except that such dividends and other distributions will be subject to the same restrictions as the original award.

 

Restricted Stock Units. The Committee may grant RSUs under the 2005 Plan which represent a right to receive shares of common stock at a future date determined in accordance with the participant’s award agreement. No monetary payment is required for receipt of RSUs or the shares issued in settlement of the award, the consideration for which is furnished in the form of the participant’s services to the Company. The Committee may grant RSU awards subject to the attainment of performance goals similar to those described below in connection with performance shares and performance units, or may make the awards subject to vesting conditions similar to those applicable to restricted stock awards. RSUs are subject to the minimum vesting requirements described above. Participants have no voting rights or rights to receive cash dividends with respect to RSU awards until shares of common stock are issued in settlement of such awards. Non-employee directors who elect to defer settlement of their RSU shares are eligible to receive dividend equivalents during the deferral period and are paid when the award is ultimately settled at the deferred settlement date. The Committee may grant RSUs that entitle their holders to receive dividend equivalents, which are rights to receive additional RSUs for a number of shares whose value is equal to any cash dividends we pay and that are settled at the time that the vested RSUs are settled.

 

Performance Awards. The Committee may grant performance awards subject to such conditions and the attainment of such performance goals over such periods as the Committee determines, subject to the minimum vesting requirements described above. The performance goals are set forth in a written agreement between the Company and the participant. These awards may be designated as performance shares, performance units or cash-based performance bonuses. Performance shares and performance units are unfunded bookkeeping entries generally having initial values, respectively, equal to the fair market value determined on the grant date of a share of common stock and a dollar amount per unit which may be determined by the Committee. Performance awards will specify a predetermined amount of performance shares or performance units that may be earned by the participant to the extent that one or more predetermined performance goals are attained within a predetermined performance period. To the extent earned, performance awards may be settled in cash, shares of common stock (including shares of restricted stock) or any combination thereof.

 

Any participant selected by the Committee may be granted one or more performance-based awards in the form of a cash bonus payable upon the attainment of performance goals that are established by the Committee, in each case on a specified date or dates or over any period or periods determined by the Committee. Any such performance bonus award paid to a participant will be based upon objectively determinable bonus formulas established in accordance with the 2005 Plan.

 

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In granting a performance award, the Committee will establish one or more performance goals based on the attainment of specified target levels with respect to one or more measures of business or financial performance of the Company and each parent and subsidiary corporation consolidated therewith for financial reporting purposes, or such division or business unit of the Company as may be selected by the Committee.

 

The Committee, in its discretion, may base performance goals on one or more, or a combination of any, of the following or other similar items (including ones based on or derived from them), as determined by the Committee: (i) sales; (ii) gross margin; (iii) operating margin; (iv) operating income or net operating income; (v) pre-tax profit; (vi) earnings before any one or more of the following: stock-based compensation expense, interest, taxes and depreciation; (vii) net income or net operating income; (viii) cash flow, free cash flow, or operating cash flow; (ix) expenses or operating expenses; (x) the market price of our common stock, including how it performs compared to other companies or indexes; (xi) total stockholder return (xii) earnings per share; (xiii) return on stockholder equity; (xiv) return on capital or investment; (xv) return on assets or net assets; (xvi) economic value added; (xvii) number of customers or new customers; (xviii) market share; (xix) return on investment; (xx) profit after tax; (xxi) customer satisfaction; (xxii) business divestitures and acquisitions; (xxiii) supplier awards from significant customers; (xxiv) new product development or introduction; (xxv) product costs; (xxvi) operational efficiencies; (xxvii) balance sheet turnover; (xxviii) project implementation;  (xxix) working capital and (xxx) contribution margin.

 

Following completion of the applicable performance period, the Committee will determine the extent to which the applicable performance goals have been attained and the resulting value to be paid to the participant. In its discretion, the Committee may provide for the payment to a participant awarded performance shares of dividend equivalents with respect to cash dividends paid on the Company’s common stock, provided that the dividend equivalents will be paid only to the extent that the performance award becomes nonforfeitable.

 

Unless otherwise provided by the Committee, if a participant’s service terminates prior to completion of the applicable performance period for any reason, the performance award will be forfeited. No performance award may be sold or transferred other than by will or the laws of descent and distribution prior to the end of the applicable performance period.

 

Deferred Stock Unit Awards. The 2005 Plan provides that the Committee may grant deferred stock unit awards in lieu of payment in cash or stock of all or any portion of such participant’s cash and/or stock compensation. Deferred stock units are unfunded bookkeeping units, each representing a right to receive one share of our common stock in accordance with the terms and conditions of a deferred stock unit award agreement.

 

Deferred stock unit awards granted in lieu of cash compensation are fully vested upon grant and will be settled by distribution to the participant of a number of whole shares of common stock equal to the number of units subject to the award on a date set forth in the participant’s written agreement in accordance with the terms of the 2005 Plan at the time of his or her advance election. Such deferred stock units are not subject to the minimum vesting requirements described above. The Committee may also grant deferred stock units that are linked to the achievement of performance goals or other vesting criteria, in which case they would be subject to the minimum vesting requirements.

 

A holder of a deferred stock unit has no voting rights or other rights as a stockholder until shares of common stock are issued to the participant in settlement of the deferred stock unit. However, the Committee may grant deferred stock units entitling their holders to be credited with dividend equivalents with respect to any payment of cash dividends on an equivalent number of shares of common stock. Such dividend equivalents will be credited in the form of additional whole and fractional units determined by the fair market value of a share of common stock on the dividend payment date and will be paid to the holder at the same time that the deferred stock units are settled. Prior to settlement, no deferred stock unit may be assigned or transferred other than by will or the laws of descent and distribution.

 

Other Stock-Based Awards. The Committee may also grant one or more awards not specifically identified by the terms of the 2005 Plan that would provide a participant with either: (i) a share of stock; (ii) the right to purchase a share of stock; (iii) has a value derived from a share of stock; or (iv) an exercise or conversion privilege related to a share of stock. Other stock-based awards may be subject to vesting conditions based on such service or performance criteria as the Committee specifies, subject to the minimum vesting requirements described above, and any such award may not be transferred by the participant until vested.

 

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Change in Control. The 2005 Plan defines a “Change in Control” of the Company as any of the following events upon which the stockholders of the Company immediately before the event do not retain immediately after the event, in substantially the same proportions as their ownership of shares of the Company’s voting stock immediately before the event, direct or indirect beneficial ownership of a majority of the total combined voting power of the voting securities of the Company, its successor or the corporation to which the assets of the Company were transferred: (i) a sale or exchange by the stockholders in a single or series of related transactions of more than 50% of the Company’s voting stock; (ii) a merger or consolidation in which the Company is a party; (iii) the sale, exchange or transfer of all or substantially all of the assets of the Company; or (iv) a liquidation or dissolution of the Company. If a Change in Control occurs, the surviving, continuing, successor or purchasing corporation or parent corporation thereof may, without any participant’s consent, assume or continue any or all outstanding awards or substitute substantially equivalent new awards for any or all outstanding awards. The 2005 Plan also authorizes the Committee, in its discretion and without the consent of any participant, to cancel each or any award denominated in shares of stock upon a Change in Control in exchange for a payment to the participant with respect each share subject to the cancelled award of an amount equal to the excess of the consideration to be paid per share of common stock in the Change in Control transaction over the exercise or purchase price per share, if any, under the award.

 

In the event of a Change in Control in which outstanding awards are not assumed, continued or replaced by a publicly held corporation, then all unexercisable, unvested or unpaid portions of such outstanding awards will become immediately exercisable, vested and payable in full immediately prior to the date of the Change in Control.

 

Any award not assumed, exercised or settled prior to the Change in Control will terminate. The 2005 Plan authorizes the Committee, in its discretion, to provide for different treatment of any award, as may be specified in such award’s written agreement, which may provide for acceleration of the vesting or settlement of any award, or provide for longer periods of exercisability, upon a Change in Control.

 

Termination or Amendment. The 2005 Plan will continue in effect until the first to occur of (i) its termination by the Board or (ii) the date on which all shares available for issuance under the 2005 Plan have been issued and all restrictions on such shares under the terms of the 2005 Plan and the agreements evidencing awards granted under the 2005 Plan have lapsed. However, all incentive stock options granted, if at all, must be granted within ten (10) years from the date the 2005 Plan was adopted by the Board. The Board may terminate or amend the 2005 Plan at any time, provided that no amendment may be made without stockholder approval if the Board deems such approval necessary for compliance with any applicable tax or securities law or other regulatory requirements, including the requirements of any stock exchange or market system on which the common stock of the Company is then listed. No termination or amendment may affect any outstanding award unless expressly provided by the Board, and, in any event, may not adversely affect an outstanding award without the consent of the participant unless necessary to comply with any applicable law, regulation or rule.

 

Summary of U.S. Federal Income Tax Consequences

 

The following is only a summary of the United States federal income tax consequences to participants in the 2005 Plan and does not purport to be complete. Interested parties and participants should refer to the applicable provisions of the Code. The summary does not address other taxes such as state and local income taxes, federal and state estate, inheritance and gift taxes and foreign taxes. Each participant should consult his or her own tax advisor concerning the tax consequences of the 2005 Plan.

 

Incentive Stock Options. An optionee recognizes no taxable income for regular income tax purposes as a result of the grant or exercise of an incentive stock option qualifying under Section 422 of the Code. Optionees who neither dispose of their shares within two years following the date the option was granted nor within one year following the exercise of the option will normally recognize a capital gain or loss equal to the difference, if any, between the sale price and the purchase price of the shares. If an optionee satisfies such holding periods upon a sale of the shares, the Company will not be entitled to any deduction for federal income tax purposes. If an optionee disposes of shares within two years after the date of grant or within one year after the date of exercise (a “disqualifying disposition”), the difference between the fair market value of the shares on the determination date (see discussion under “Nonstatutory Stock Options” below) and the option exercise price (not to exceed the gain realized on the sale if the disposition is a transaction with respect to which a loss, if sustained, would be recognized) will be taxed as ordinary income at the time of disposition. Any gain in excess of that amount will be a capital gain. If a loss is recognized, there will be no ordinary income, and such loss will be a capital loss. Any ordinary income recognized by the optionee upon the disqualifying disposition of the shares generally should be deductible by the Company for federal income tax purposes, except to the extent such deduction is limited by applicable provisions of the Code.

 

The difference between the option exercise price and the fair market value of the shares on the determination date of an incentive stock option (see discussion under “Nonstatutory Stock Options” below) is treated as an adjustment in computing the optionee’s alternative minimum taxable income and may be subject to an alternative minimum tax which is paid if such tax exceeds the regular tax for the year. Special rules may apply with respect to certain subsequent sales of the shares in a disqualifying disposition, certain basis adjustments for purposes of computing the alternative minimum taxable income on a subsequent sale of the shares and certain tax credits which may arise with respect to optionees subject to the alternative minimum tax.

 

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Nonstatutory Stock Options. Options not designated or qualifying as incentive stock options will be nonstatutory stock options having no special tax status. An optionee generally recognizes no taxable income as the result of the grant of such an option. Upon exercise of a nonstatutory stock option, the optionee normally recognizes ordinary income in the amount of the difference between the option exercise price and the fair market value of the shares on the determination date (as defined below). If the optionee is an employee, such ordinary income generally is subject to withholding of income and employment taxes.

 

The “determination date” is the date on which a nonstatutory stock option is exercised unless the shares are subject to a substantial risk of forfeiture (as in the case where an optionee is permitted to exercise an unvested option and receive unvested shares which, until they vest, are subject to the Company’s right to repurchase them at the original exercise price upon the optionee’s termination of service) and are not transferable, in which case the determination date is the earlier of (i) the date on which the shares become transferable or (ii) the date on which the shares are no longer subject to a substantial risk of forfeiture. If the determination date is after the exercise date, the optionee may elect, pursuant to Section 83(b) of the Code, to have the exercise date be the determination date by filing an election with the Internal Revenue Service no later than 30 days after the date the option is exercised. Upon the sale of stock acquired by the exercise of a nonstatutory stock option, any gain or loss, based on the difference between the sale price and the fair market value on the determination date, will be taxed as capital gain or loss. No tax deduction is available to the Company with respect to the grant of a nonstatutory stock option or the sale of the stock acquired pursuant to such grant. The Company generally should be entitled to a deduction equal to the amount of ordinary income recognized by the optionee as a result of the exercise of a nonstatutory stock option, except to the extent such deduction is limited by applicable provisions of the Code.

 

Stock Appreciation Rights. No taxable income is recognized when a stock appreciation right is granted to a participant. Upon exercise, the participant will recognize ordinary income in an amount equal to the amount of cash received and the fair market value of any shares of our common stock received. Any additional gain or loss recognized upon any later disposition of the shares would be capital gain or loss.

 

Restricted Stock Awards. A participant acquiring restricted stock generally will recognize ordinary income equal to the fair market value of the shares on the “determination date” (as defined above under “Nonstatutory Stock Options”). If the participant is an employee, such ordinary income generally is subject to withholding of income and employment taxes. If the determination date is after the date on which the participant acquires the shares, the participant may elect, pursuant to Section 83(b) of the Code, to have the date of acquisition be the determination date by filing an election with the Internal Revenue Service no later than 30 days after the date the shares are acquired. Upon the sale of shares acquired pursuant to a restricted stock award, any gain or loss, based on the difference between the sale price and the fair market value on the determination date, will be taxed as capital gain or loss. The Company generally should be entitled to a deduction equal to the amount of ordinary income recognized by the participant on the determination date, except to the extent such deduction is limited by applicable provisions of the Code.

 

Performance and Restricted Stock Units Awards. A participant generally will recognize no income upon the grant of performance shares, performance units, RSUs and cash-based performance bonus opportunities. Upon the settlement and/or payment of such awards, participants normally will recognize ordinary income in the year of receipt in an amount equal to the cash received and the fair market value of any nonrestricted shares received. If the participant is an employee, such ordinary income generally is subject to withholding of income and employment taxes. If the participant receives shares of restricted stock, the participant generally will be taxed in the same manner as described above (see discussion under “Restricted Stock”). Upon the sale of any shares received, any gain or loss, based on the difference between the sale price and the fair market value on the “determination date” (as defined above under “Nonstatutory Stock Options”), will be taxed as capital gain or loss. The Company generally should be entitled to a deduction equal to the amount of ordinary income recognized by the participant on the determination date, except to the extent such deduction is limited by applicable provisions of the Code.

 

Deferred Stock Unit Awards. A participant generally will recognize no income upon the grant of a Deferred Stock Unit Award. Upon the settlement of such an award, the participant normally will recognize ordinary income in the year of settlement in an amount equal to the fair market value of any unrestricted shares of our common stock received. Upon the sale of any shares received, any gain or loss, based on the difference between the sale price and the fair market value on the determination date, will be taxed as capital gain or loss. The Company generally should be entitled to a deduction equal to the amount of ordinary income recognized by the participant on the determination date, except to the extent such deduction is limited by applicable provisions of the Code.

 

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Other Stock-Based Awards. A participant generally will recognize income with respect to any other stock-based award at the time and in the manner required by the applicable provisions of the Code and such taxation will depend upon the specifics of any such award. Upon the sale of any shares received, any gain or loss, based on the difference between the sale price and the fair market value on the determination date, will be taxed as capital gain or loss. The Company generally should be entitled to a deduction equal to the amount of ordinary income recognized by the participant on the determination date, except to the extent such deduction is limited by applicable provisions of the Code.

 

Historical Plan Benefits

 

Stock Options Granted to Certain Individuals and Groups.   The number of options or other awards (if any) that an individual may receive under the 2005 Plan is at the discretion of the Compensation Committee and therefore cannot be determined in advance. Our executive officers are eligible to receive awards under the 2005 Plan and, accordingly, our executive officers have an interest in this proposal. The following table sets forth the total number of shares of the Company’s common stock subject to options granted under the 2005 Plan to the listed persons and groups since the initial adoption of the 2005 Plan.

 

Aggregate Past Stock Option Grants Under the 2005 Plan

 

   

Number

 
   

of

 
   

Options

 

Name and Position

 

Granted

 
         

Luis A. Müller

       

President and Chief Executive Officer

    255,721  
         

Jeffrey D. Jones

       

Vice President, Finance and Chief Financial Officer

    175,972  
         

Thomas D. Kampfer

       

Vice President, Corp. Development, General Counsel and Secretary

    -  
         

Christopher G. Bohrson

       

Sr. Vice President and General Manager, Test Handler Group

    -  
         

Pascal Rondé

       

Sr. Vice President, Global Customer Group

    -  
         

Hock W. Chiang

       

Vice President, Sales-Asia

    46,844  
         

Ian von Fellenberg

       

Vice President of Integration & Managing Director of Multitest GmbH

    25,000  
         

All Current Named Executive Officers, as a Group (7 Persons)

    503,537  
         

All Current Non-Employee Directors who are not Executive Officers, as a Group (8 Persons)

    663,949  
         

All Other Employees, Including all Current Officers who are not Named Executive Officers, as a Group

    2,158,822  

 

Required Vote

 

A majority of the votes cast is required to approve Proposal No. 3 . Brokers do not have discretion to vote on this proposal without your instruction. If you do not instruct your broker how to vote on this proposal, your broker will deliver a non-vote on this proposal.

 

Recommendation of the Board  

 

The Board of Directors believes that the proposed amendments to the 2005 Plan are in the best interests of the Company and its stockholders for the reasons stated above. Therefore, the Board unanimously recommends a vote “FOR” approval of the amendments to the 2005 Plan.

 

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PROPOSAL NO. 4

 

APPROVAL OF AMENDMENTS TO THE COHU 1997 EMPLOYEE STOCK PURCHASE PLAN

 

We are asking stockholders to approve an amendment to our 1997 Employee Stock Purchase Plan (the “ 1997 ESPP ”) to increase the number of shares that may be issued under the ESPP by 500,000 shares from 2,650,000 to 3,150,000 (the “ 1997 ESPP Amendment ”). Our Board recommends stockholders approve the 1997 ESPP Amendment to promote our long-term growth and profitability by aligning the interests of our key employees with those of other stockholders and providing additional incentives to enhance stockholder value. The 1997 ESPP is designed to allow eligible employees of the Company and its participating subsidiaries (whether now existing or subsequently established or acquired) to purchase common shares at designated intervals at a discount through their accumulated payroll deductions or other contributions.

 

Our Board believes that the Company’s success is due to its highly talented employee base and that future success depends on our ability to continue attracting and retaining high-caliber employees. Our ability to grant equity awards is a necessary and powerful recruiting and retention tool to maintain and create stockholder value. Further, with the acquisition of Xcerra in 2018, our shares outstanding increased approximately 40% and our number of employees has nearly doubled. As a result, we believe that the current authorized number of shares under the 1997 ESPP is completely inadequate to provide reasonable incentives within a much larger company and to a much larger pool of employees.

 

As of March 19, 2019, a total of 2,051,390 shares of our common stock have been issued under the 1997 ESPP, and only 598,610 shares are available for future issuances. The 1997 ESPP is otherwise substantially unchanged since our stockholders approved certain amendments to the 1997 ESPP at the 2015 Annual Meeting of Stockholders. Our employees are our most valuable assets, and the 1997 ESPP is important to our ability to attract and retain outstanding and highly skilled individuals in the extremely competitive labor markets in which we must compete. The purchase of stock is also crucial to our ability to motivate employees to achieve our long-term goals and provides a source of capital.

 

Our Board adopted the 1997 ESPP Amendment on March 26, 2019, subject to approval by stockholders. If stockholders do not approve the 1997 ESPP Amendment, no shares will be added to the number of shares reserved for issuance under the 1997 ESPP. A summary of the principal provisions of the 1997 ESPP is set forth below. The summary is qualified by reference to the full text of the 1997 ESPP, a copy of which is attached as Appendix B to this Proxy Statement.

 

Summary of the 1997 ESPP

 

The following summary of the 1997 ESPP is qualified in its entirety by the specific language of the 1997 ESPP, a copy of which has been filed with the SEC and is available to any stockholder upon request.

 

Purpose. The Board of Directors believes that the recruitment and retention of qualified personnel are essential to the Company’s continued growth and success and that the 1997 ESPP is necessary for the Company to remain competitive in its compensation practices. The majority of high technology companies have purchase plans similar to the 1997 ESPP described herein. The 1997 ESPP provides employees the opportunity to purchase our common stock at a discount from market through payroll deductions.

 

Administration. The 1997 ESPP is administered by the Compensation Committee of the Board. The Committee has full authority to adopt such rules and procedures as it may deem necessary for proper plan administration and to interpret the provisions of the 1997 ESPP. All costs and expenses incurred in plan administration are paid by the Company without charge to participants.

 

Eligibility and Participation. Any regular employee, including officers, who is employed by the Company (or any of its majority-owned subsidiaries) for more than 20 hours per week and more than five months in a calendar year is eligible to participate in the 1997 ESPP, provided that the employee is employed on the first day of an offering period and subject to certain limitations imposed by the Code. As of March 19, 2019, approximately 1,750 employees were eligible to participate in the 1997 ESPP. In addition, we plan to offer participation to approximately 1,600 additional employees who joined the Company with our acquisition of Xcerra. Eligible employees become participants in the 1997 ESPP by delivering a subscription agreement authorizing payroll deductions prior to the applicable offering date, or at such other time as may be determined by the Compensation Committee with respect to a given offering. By executing a subscription agreement to participate in the 1997 ESPP, each employee is granted a right to purchase shares of our common stock. No employee may subscribe for shares under the 1997 ESPP if, immediately after the grant of the purchase right, the employee would own 5% or more of the voting stock of all classes of stock of the Company, nor may any employee be granted purchase right that would permit such employee to purchase stock under the 1997 ESPP at a rate that exceeds $25,000 in value (determined at the fair market value of the shares at the time the purchase right is granted) for each calendar year in which such purchase right is outstanding at any time.

 

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Offering Periods . The 1997 ESPP is implemented in a series of successive offering periods each with a duration of six months. Offering periods commence on or about November 1 and May 1. Shares are purchased by participants on the last business day of each offering period. The Board of Directors may alter the duration of the offering periods without stockholder approval, provided that no offering period may have a term exceeding 27 months.

 

Purchase Price. The price per share at which shares are purchased under the 1997 ESPP is equal to the lower of (i) 85% of the fair market value of the common stock on the date of commencement of the offering period and (ii) 85% of the fair market value of the common stock on the last day of the offering period. The fair market value of our common stock on any relevant date will be deemed to equal the closing price on such date on the NASDAQ Global Select Market. On March 19, 2019, the closing price of the Company’s common stock on the NASDAQ Global Select Market was $14.80 per share.

 

Payment of Purchase Price; Payroll Deductions. The purchase price for shares is accumulated by payroll deductions during the offering period. The deductions may not exceed 10% of a participant’s eligible compensation, which is defined in the 1997 ESPP to include regular straight-time salary, exclusive of any payments for overtime, bonuses, commissions or incentive compensation. Each participant’s right to purchase shares during a six-month offering period is limited to the lesser of (i) the number of shares determined by dividing $12,500 by the fair market value of a share of stock on the offering date or (ii) 3,000 shares. Payroll deductions commence on the first payday following the commencement of the offering and continue until the end of the offering period unless sooner terminated as provided for in the 1997 ESPP. All payroll deductions are credited to the participant’s account under the 1997 ESPP and are deposited with our general funds and may be used by the Company for any corporate purpose.

 

Withdrawal. A participant’s interest in a given offering may be terminated in whole, but not in part, by signing and delivering a notice of withdrawal from the 1997 ESPP. Such withdrawal may be elected at any time prior to the end of the applicable six-month offering period and will result in a refund of all payroll deductions for that offering period. Any withdrawal by the participant of accumulated payroll deductions for a given offering automatically terminates the participant’s interest in that offering. A participant who ceases to be an eligible employee receives a refund of their payroll deductions for the offering period in which such loss of eligibility status occurs. No interest is paid on such refunds.

 

Shares Reserved for Issuance; Capital Changes. Currently, a maximum of 2,650,000 shares of our common stock may be issued under the 1997 ESPP. If the amendment is approved by the stockholders, the number of shares authorized for issuance under the 1997 ESPP will increase by 500,000 to 3,150,000. In the event any change is made in the capitalization of the Company, such as stock splits or stock dividends, which results in an increase or decrease in the number of shares of common stock outstanding, we will make appropriate adjustments in the shares subject to purchase and in the purchase price per share. In the event the Company is acquired by merger or asset sale during an offering period, all outstanding purchase rights may be assumed or equivalent purchase rights may be substituted by the successor corporation. If the successor corporation does not agree to assume or substitute for the purchase rights, the Board will provide for outstanding purchase rights to be exercised immediately prior to the acquisition.

 

Nonassignability. No rights or accumulated payroll deductions of an employee under the 1997 ESPP may be pledged, assigned or transferred for any reason, and any such attempt may be treated as an election to withdraw from the 1997 ESPP.

 

Amendment and Termination. The 1997 ESPP will continue in effect until the first to occur of (i) its termination by the Board of Directors, (ii) the date on which all shares available for issuance under the 1997 ESPP have been issued or (iii) the date on which all outstanding purchase rights are exercised in connection with an acquisition of the Company. The Board of Directors may at any time amend or terminate the 1997 ESPP, except that such termination shall not affect purchase rights previously granted nor may any amendment make any change in a purchase right granted prior thereto which adversely affects the rights of any participant. No amendment may be made to the 1997 ESPP without the prior approval of our stockholders if such amendment would increase the number of shares reserved under the 1997 ESPP, permit payroll deductions in excess of 10% of the participant’s compensation, materially modify the eligibility requirements or materially increase the benefits which may accrue under the 1997 ESPP.

 

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Summary of U.S. Federal Income Tax Consequences

 

The following is only a summary of the United States federal income tax consequences to participants in the 1997 ESPP and does not purport to be complete. Interested parties and participants should refer to the applicable provisions of the Code. The summary does not address other taxes such as state and local income taxes, federal and state estate, inheritance and gift taxes and foreign taxes. Each participant should consult his or her own tax advisor concerning the tax consequences of the 1997 ESPP.

 

The 1997 ESPP is intended to qualify under the provisions of Sections 421 and 423 of the Code. Under these provisions, no income will be taxable to a participant at the time of grant of the purchase right or when shares are purchased. Upon disposition of the shares, the participant will generally be subject to tax, and the amount of the tax will depend upon the holding period. If the shares have been held by the participant for more than two years after the first day of the offering period in which the shares were acquired and more than one year after the purchase date of the shares then the lesser of (i) the excess of the fair market value of the shares at the time of such disposition over the purchase price of the shares, or (ii) 15% of the fair market value of the shares on the first day of the offering period, will be treated as ordinary income, and any further gain upon such disposition will be treated as long-term capital gain. If the shares are disposed of before the expiration of the holding periods described above, the excess of the fair market value of the shares on the last day of the offering period over the purchase price will be treated as ordinary income, and any further gain or loss on such disposition will be long-term or short-term capital gain or loss, depending on the holding period. We are not entitled to a deduction for amounts taxable to a participant, except to the extent of ordinary income reported by participants upon disposition of shares prior to the expiration of the holding periods described above.

 

Amended Plan Benefits and Additional Information.

 

Because benefits under the 1997 ESPP will depend on employees’ elections to participate and the fair market value of the Company’s common stock at various future dates, it is not possible to determine the benefits that will be received by executive officers and other employees if the proposed amendment to the 1997 ESPP is approved by the stockholders. Non-employee directors are not eligible to participate in the 1997 ESPP. The numbers of shares of common stock purchased under the 1997 ESPP by certain persons since its inception are as follows: Mr. Bohrson purchased 1,221 shares; all current executive officers as a group purchased 1,221 shares; and all employees, including officers who are not executive officers, as a group purchased 2,050,169 shares. No shares were purchased under the 1997 ESPP by any directors who are not executive officers, any other nominees for election as directors or any associates of such directors or nominees or of any executive officers, and no person has purchased five percent or more of the total number of shares issued under the 1997 ESPP.

 

Required Vote

 

A majority of the votes cast is required to approve Proposal No. 4 . Brokers do not have discretion to vote on this proposal without your instruction. If you do not instruct your broker how to vote on this proposal, your broker will deliver a non-vote on this proposal.

 

Recommendation of the Board  

 

The Board of Directors believes that the proposed amendment to the 1997 ESPP is in the best interests of the Company and its stockholders for the reasons stated above. Therefore, the Board unanimously recommends a vote “FOR” approval of the amendment to the 1997 ESPP.

 

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PROPOSAL NO. 5

 

RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

The Audit Committee of the Board has appointed Ernst & Young LLP as Cohu’s independent registered public accounting firm for the fiscal year ending December 28, 2019. Ernst & Young LLP served as Cohu’s independent registered public accounting firm for the fiscal year ended December 29, 2018, and also provided certain tax services. See “Principal Accounting Fees and Services" on page 32. Representatives of Ernst & Young LLP are expected to attend the Meeting, where they will be available to respond to appropriate questions and, if they desire, to make a statement.

 

Our Board recommends that the stockholders approve the ratification of the appointment of Ernst & Young LLP as Cohu’s independent registered public accounting firm for the fiscal year ending December 28, 2019. If the appointment is not ratified, the Audit Committee will consider whether it should select another independent registered public accounting firm.

 

Required Vote

 

A majority of the votes cast is required to approve Proposal No. 5 . If you hold your shares through a broker and you do not instruct the broker on how to vote on this “routine” proposal, your broker will nevertheless have authority to vote your shares on this “routine” proposal in your broker’s discretion.

 

Recommendation of the Board  

 

The Board of Directors unanimously recommends a vote “FOR” the ratification of the appointment of Ernst & Young LLP as Cohu’s independent registered public accounting firm for the fiscal year ending December 28, 2019.

 

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BOARD OF DIRECTORS AND COMMITTEES

 

Director Independence

 

Cohu has adopted standards for director independence pursuant to Nasdaq listing standards and SEC rules, and recently adopted more restrictive guidelines (than set forth by Nasdaq) on the independence of former employee directors and the amounts of compensation for professional services that can be accepted. An “independent director” means a person other than an officer or employee of Cohu or its subsidiaries, or any other individual having a relationship that, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.

 

The Board has considered relationships, transactions and/or arrangements with each of the directors, and has determined that six of its directors, Messrs. Bendush, Bilodeau, Caggia, Ciardella, Titinger and Ms. Favre, are independent directors. In addition, the Board has also considered and determined that:

 

all directors who serve on the Audit, Compensation and Nominating and Governance committees are independent under applicable Nasdaq listing standards, Internal Revenue Code requirements and SEC rules, and

 

all members of the Audit and Compensation Committee meet the additional independence requirements as required by Nasdaq listing standards and SEC rules.

 

Board Structure and Committee Composition

 

As of the date of this proxy statement, our Board has nine directors. Upon conclusion of the Meeting, the Board intends to reduce the size of the Board to eight directors. Our Board has the following three standing committees: (1) Audit, (2) Compensation and (3) Nominating and Governance. The membership and function of each of the committees are described below, and we believe that the composition of these committees meets the criteria for independence, and the functioning of these committees complies with the applicable requirements of the Sarbanes-Oxley Act of 2002, as amended, the current rules of the NASDAQ Global Select Market and applicable SEC rules and regulations. Each of the committees operates under a written charter adopted by the Board, and each of the charters are available on Cohu’s website at https://cohu.gcs-web.com/corporate-governance-0 .

 

During 2018, the Board held twenty meetings. Each director attended at least 75% of all Board and applicable committee meetings on which they served and held during the period for which they were directors or committee members. We encourage all of our directors to attend annual meetings of Cohu stockholders and all of our directors attended the 2018 Annual Meeting.

 

Cohu’s Corporate Governance Guidelines set forth the circumstances in which the Nominating and Governance Committee shall nominate an independent director to serve as the Lead Independent Director, the selection of whom shall be subject to approval by a vote of the majority of the independent directors.

 

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The table below breaks down committee membership, as of the date of this proxy statement, for each committee and each director.

 

               

Nominating and

Name of Director

 

Audit

 

Compensation

 

   Governance

Independent Directors:

           

William E. Bendush

 

Chair

 

X (1)

 

X

Steven J. Bilodeau (2)

 

X

 

Chair

 

X

Andrew M. Caggia

 

X

     

Chair

Robert L. Ciardella

         

X

Ritu C. Favre (3)

     

X

   

Jorge L. Titinger (4)

     

X

   
                 
   

Total committee size:

 

3

 

4

 

4

                 

Other Directors:

           

James A. Donahue

           

Luis A. Müller

           

David G. Tacelli (4)

           
                 

Number of Meetings in 2018

 

9

 

7

 

7

(1)

Mr. Bendush will transition off the Compensation Committee on March 31, 2019, resulting in a committee size of three.

(2)

Lead Independent Director.

(3)

Ms. Favre was appointed to the Board effective January 2, 2019.

(4)

Messrs. Titinger and Tacelli were appointed to the Board effective October 1, 2018. Mr. Tacelli is not standing for re-election and his term will expire as of the Meeting date.

 

Audit Committee

 

The Audit Committee assists the Board in fulfilling its responsibilities for general oversight of the integrity of Cohu’s financial statements, Cohu’s compliance with legal and regulatory requirements, the independent registered public accounting firm’s qualifications and independence, risk assessment and risk management. Among other things, the Audit Committee prepares the Audit Committee report for inclusion in the annual proxy statement; annually reviews the Audit Committee charter and the committee’s performance; appoints, evaluates and approves the fees of Cohu’s independent registered public accounting firm; reviews and approves the scope of the annual audit, the audit fee and the financial statements; reviews Cohu’s disclosure controls and procedures, internal controls, including such controls over financial reporting, information security policies and corporate policies with respect to financial information and earnings guidance; oversees investigations into complaints concerning financial and accounting matters; oversees the work of internal auditors; and reviews other risks that may have a significant impact on Cohu’s financial statements. The Audit Committee works closely with management as well as Cohu’s independent registered public accounting firm. The Audit Committee has the authority to obtain advice and assistance from, and receive appropriate funding from Cohu for, outside legal, accounting or other advisors as the Audit Committee deems necessary in order to carry out its duties.

 

The report of the Audit Committee is set forth on page 31 and the charter of the Audit Committee is available at https://cohu.gcs-web.com/corporate-governance-0 .

 

Compensation Committee

 

The Compensation Committee discharges the Board’s responsibilities relating to compensation of Cohu’s executives and directors and, among other things, reviews and discusses the “Compensation Discussion and Analysis” with management, and prepares an annual compensation committee report for inclusion in Cohu’s proxy statement; provides general oversight of Cohu’s compensation structure, including Cohu’s equity compensation plans and benefits programs; and retains and approves the terms of the retention of any compensation consultants and other compensation experts. Other specific duties and responsibilities of the Compensation Committee include reviewing and approving objectives relevant to executive officer compensation, participating in the evaluation of the performance and determining the compensation of executive officers, including equity awards, in accordance with those objectives; approving employment agreements for executive officers; approving and amending Cohu’s equity and non-equity incentive compensation and related performance goals and measures and stock-related programs (subject to stockholder approval, if required); approving any changes to non-equity based benefit plans involving a material financial commitment by Cohu; recommending director compensation to the Board; monitoring director and executive stock ownership; and annually evaluating its performance and its charter.

 

The report of the Compensation Committee is set forth on page 52. The charter of the Compensation Committee is available at https://cohu.gcs-web.com/corporate-governance-0 .

 

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Nominating and Governance Committee

 

The Nominating and Governance Committee identifies individuals qualified to become Board members and recommends to the Board candidates to be nominated for election as directors at Cohu’s annual meeting consistent with criteria the Committee deems appropriate, as approved by the Board; develops Cohu’s Corporate Governance Guidelines for approval by the Board, and reviews and recommends updates to such Guidelines, as appropriate; oversees the organization of the Board to discharge the Board’s duties and responsibilities properly and efficiently; identifies best practices; and recommends corporate governance principles, including giving proper attention and making effective responses to stockholder concerns regarding corporate governance. Other specific duties and responsibilities of the Nominating and Governance Committee include annual assessment of the size and composition of the Board; developing membership qualifications for Board committees; defining specific criteria for director independence; monitoring compliance with Board and Board committee membership criteria; annually reviewing and recommending directors for continued service; coordinating and assisting management and the Board in recruiting new members to the Board; annually, and together with the Compensation Committee and the Lead Independent Director, providing input to the performance evaluation of the CEO; reviewing and recommending proposed changes to Cohu’s articles or bylaws and Board committee charters; periodically assessing and recommending action with respect to stockholder rights plans or other stockholder protections; recommending Board committee assignments; reviewing and approving any employee director or executive officer standing for election for outside for-profit or non-profit boards of directors; reviewing governance-related stockholder proposals and recommending Board responses; overseeing the evaluation of the Board and management and conducting a preliminary review of director independence and the financial literacy and expertise of Audit Committee members; and monitor industry trends regarding corporate responsibility and sustainability efforts, including the impact of environmental and social issues on Cohu. The Chair of the Nominating and Governance Committee receives communications directed to non-employee directors.

 

The charter of the Nominating and Governance Committee is available at https://cohu.gcs-web.com/corporate-governance-0 .

 

Board Leadership Structure, Risk Oversight

 

Board Leadership Structure

 

As of the date of this proxy statement our Board is currently comprised of six independent directors, one former employee director (former CEO of Cohu), one former employee of an acquired company (former CEO of Xcerra), and one employee director. The former CEO of Xcerra, Mr. Tacelli, is not standing for re-election at the Meeting. Our corporate governance principles provide that the Board will fill the Chairperson and Chief Executive Officer positions based upon the Board’s view of what is in Cohu’s best interests at any point in time and do not prevent our Chief Executive Officer from also serving as our Chairperson of the Board. Our Board evaluates its leadership structure and elects the Chairperson and the Chief Executive Officer based on the criteria it deems to be appropriate and in the best interests of the Company and its stockholders, given the circumstances at the time of such election. While we have in the past had one person serve as Chairperson of the Board and Chief Executive Officer, the positions are currently held by separate individuals.

 

Separating the positions of Chief Executive Officer and Chairperson of the Board allows our Chief Executive Officer to focus on the day-to-day operations and strategy of our business, while allowing the Chairperson of the Board to lead the Board in its fundamental role of providing advice to and independent oversight of management. Given his long tenure with and status within Cohu, our Board believes Mr. Donahue possesses detailed and in-depth knowledge of the issues, opportunities, and challenges facing Cohu and we believe he is best positioned to develop agendas that ensure that the Board’s time and attention are focused on the most critical matters. Our Board believes that having Dr. Müller serve as Cohu’s Chief Executive Officer and Mr. Donahue serve as Chairperson, in combination with Mr. Bilodeau’s service as Lead Independent Director, is in the best interests of Cohu and its stockholders.

 

Cohu’s Corporate Governance Guidelines provide for the circumstances in which the Nominating and Governance Committee shall nominate an independent director to serve as the Lead Independent Director, the selection of whom shall be subject to approval by a vote of the majority of the independent directors. Although annually elected, the Lead Independent Director is generally expected to serve for more than one year.

 

The specific responsibilities of the Lead Independent Director include presiding at executive sessions of directors and at board meetings where the Chairperson is not present, calling meetings of independent directors, serving as a liaison between the directors and the Chairperson and CEO, and performing such other duties and responsibilities as the Board may determine.

 

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Risk Oversight

 

Our Board oversees our risk management process. The Board focuses on general risk management strategy, the most significant risks facing Cohu, and ensures that appropriate risk mitigation strategies are implemented by management. The Board is also apprised of particular risk management matters in connection with its general oversight and approval of corporate matters. Cohu’s management is responsible for day-to-day risk management. This responsibility includes identifying, evaluating, and addressing potential risks that may exist at the enterprise, strategic, financial, operational, and compliance and reporting levels.

 

Stockholder Nominees

 

The policy of the Nominating and Governance Committee is to consider properly submitted stockholder nominations for candidates for membership on the Board as described below under “Identifying and Evaluating Nominees for Directors.” In evaluating such nominations, the Nominating and Governance Committee seeks to achieve a balance of knowledge, experience and capability on the Board and to address the membership criteria set forth under “Director Qualifications.” Any stockholder nominations proposed for consideration by the Nominating and Governance Committee should include the nominee’s name and qualifications for Board membership and should be addressed to:

 

Corporate Secretary
Cohu, Inc.
12367 Crosthwaite Circle
Poway, CA 92064-6817

 

In addition, the bylaws of Cohu permit stockholders to nominate directors for consideration at an annual stockholder meeting. For a description of the process for nominating directors in accordance with Cohu’s bylaws, see “Stockholder Proposals – 2020 Annual Meeting” on page 61.

 

Director Qualifications

 

Cohu’s Corporate Governance Guidelines are available at https://cohu.gcs-web.com/corporate-governance-0 and contain Board membership criteria that apply to nominees recommended by the Nominating and Governance Committee for a position on Cohu’s Board. Under these criteria, members of the Board should have high professional and personal ethics and values, consistent with longstanding Cohu values and standards. They should have relevant experience at the policy-making level in business, government, education, technology and/or public interest. They should also be committed to enhancing stockholder value and should have sufficient time to carry out their duties and to provide insight and practical wisdom, based on their experience. Their service on other boards of public companies should be limited to a number that permits them, given their individual circumstances, to responsibly perform all director duties. Each director will seek to represent the diverse interests of all stockholders.

 

Identifying and Evaluating Nominees for Directors

 

Our Nominating and Governance Committee uses a variety of methods for identifying and evaluating nominees for director. The Nominating and Governance Committee assesses the appropriate size of the Board, and whether any vacancies on the Board are expected due to retirement or otherwise. In the event that vacancies are anticipated, or otherwise arise, the Nominating and Governance Committee considers various potential candidates for director. Candidates may come to the attention of the Nominating and Governance Committee through current Board members, professional search firms, stockholders or other persons. These candidates are evaluated at regular or special meetings of the Nominating and Governance Committee, and may be considered at any point during the year. As described above, the Nominating and Governance Committee also considers properly submitted stockholder nominations for candidates for the Board. Following verification of the stockholder status of persons proposing candidates, recommendations are aggregated and considered by the Nominating and Governance Committee at a regularly scheduled meeting. If any materials are provided by a stockholder in connection with the nomination of a director candidate, such materials are forwarded to the Nominating and Governance Committee. The Nominating and Governance Committee also reviews materials provided by professional search firms or other parties in connection with a nominee who is not proposed by a stockholder. In evaluating such nominations, the Nominating and Governance Committee seeks to achieve a balance of knowledge, experience and capability on the Board. While we do not have a formal diversity policy, the Board believes it is important for the Board to have diversity of knowledge base, perspectives, professional experience and skills, and the Board and Nominating and Governance Committee takes these qualities into account when considering director nominees.

 

Executive Sessions

 

Executive sessions of independent directors, without management present, are held at least three times a year. The sessions may be scheduled or held on an impromptu basis, and are chaired by the Lead Independent Director or, in the absence of the Lead Independent Director, the Chair of the Nominating and Governance Committee or another independent director. Any independent director can request that an additional executive session be initiated or scheduled.

 

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Communications with the Board

 

Individuals may communicate with the Board, including the non-employee directors, by submitting an e-mail to Cohu’s Board at corp@cohu.com or by sending a letter to the Cohu Board of Directors, c/o Corporate Secretary, Cohu, Inc., 12367 Crosthwaite Circle, Poway, California 92064-6817.

 

Compensation of Directors

 

Cash Compensation

 

Directors who are employees of Cohu do not receive any additional compensation for their services as directors. During fiscal 2018, non-employee directors received an annual retainer, and Board committee Chairs and members received annual fees, all paid quarterly, as set forth below.

 

Annual Retainer:

 

2018

   

2019 (1)

 

Chairperson of the Board

  $ 75,000     $ 95,000  

Lead Independent Director

  $ 60,000     $ 75,000  

Other Directors

  $ 50,000     $ 60,000  

Annual Fees for Committee Chairs:

               

Audit Committee

  $ 22,000     $ 22,000  

Compensation Committee

  $ 15,000     $ 15,000  

Nominating and Governance Committee

  $ 10,000     $ 10,000  

Annual Fees for Other Committee Members :

               

Audit Committee

  $ 8,800     $ 10,000  

Compensation Committee

  $ 7,500     $ 7,500  

Nominating and Governance Committee

  $ 5,000     $ 5,000  

 

In addition to the retainers and fees noted above, non-employee directors are reimbursed for out-of-town travel and other reasonable out-of-pocket expenses related to attendance at Board and committee meetings.

 

Under the terms and conditions of the Cohu 2005 Equity Incentive Plan (the “ 2005 Plan ”) members of the Board may make an annual irrevocable election to defer receipt of all or a portion of their cash-based non-employee director fees (including, as applicable, any annual retainer fee, committee fee and any other compensation payable with respect to their service as a member of the Board). In the event that a director makes such an election, the Company will grant deferred stock units (“ DSUs ”) in lieu of cash, with an initial value equal to the deferred cash, which will be settled at a future date through the issuance of Cohu common stock. Mr. Ciardella elected to defer 100% of his 2018 cash-based non-employee director fees.

 

(1) On December 11, 2018, the Board considered the significant increase in the size of the Company in light of the Xcerra acquisition, the commensurate increase in complexity and director workload, and after consultation with its outside compensation consultant, Compensia, determined to change non-employee director compensation for 2019 as set forth above.

 

Equity Compensation   

 

Non-employee directors participate in the 2005 Plan that provides for grants of restricted stock units or other forms of equity compensation to non-employee directors, as authorized by the Board. Cohu’s stock ownership guidelines provide that independent and non-employee directors should accumulate, over the three-year period commencing with their appointment or following an increase in the director’s annual cash retainer or a new guideline being approved, a minimum number of shares of Cohu stock with a value equal to three times the director’s annual cash retainer and should not sell any Cohu shares until these ownership guidelines are met and once met subsequent sales, if any, should not reduce their Cohu stock ownership below these minimum guideline amounts.

 

Equity compensation for non-employee directors during 2018 was as follows:

 

Initial appointment:

RSUs with a total value of $115,000, but the total value of such grant is prorated based on the period of time between appointment as director and the next scheduled director annual equity grant date

 

27

 

 

Annual grants:

RSUs with a total value of $115,000

 

On December 11, 2018, the Board considered the significant increase in the size of the Company in light of the Xcerra acquisition, commensurate increase in complexity and director workload, and after consultation with its outside compensation consultant, Compensia, determined to change non-employee director equity compensation for 2019 as follows:

 

Initial appointment:

RSUs with a total value of $125,000, but the total value of such grant is prorated based on the period of time between appointment as director and the next scheduled director annual equity grant date

 

Annual grants:

RSUs with a total value of $125,000

 

Each RSU represents a contingent right to receive one share of Cohu common stock upon vesting. Assuming continued service on the Board, the RSUs granted to non-employee directors upon their initial appointment to the Board will vest over three years, and shares are issued in three equal annual installments beginning one year after the date of grant. The annual RSU awards vest over approximately one year, and shares are issued upon the earlier to occur of the one-year anniversary of the grant date or the next annual meeting of stockholders. RSUs may be accelerated upon a change in control, as defined in the 2005 Plan.

 

On May 16, 2018, 4,931 RSUs were awarded to each of Messrs. Bendush, Bilodeau, Caggia, Ciardella, and Donahue. Upon joining the board on October 1, 2018, 2,738 RSUs were awarded to each of Messrs. Tacelli and Titinger. Cohu will issue to each recipient, assuming continued service as a director, shares of Cohu common stock at the end of the required RSU vesting period. Messrs. Bilodeau, Caggia and Ciardella elected to defer the settlement of 100% of their 2018 RSU grants under the 2005 Plan, respectively. Upon vesting of their RSUs, the deferred amounts will be credited in the form of DSU awards and ultimately payable, including dividends accrued during the deferral period, in shares of Cohu common stock. The DSUs will be settled upon the first to occur of cessation of service as a director for any reason, a change in control of Cohu or a future date selected at the time of deferral.

 

Medical Benefits

 

One Cohu director, who is a retired officer of Cohu, and his spouse receive medical benefits consisting of reimbursement of health insurance premiums and other medical costs not covered by insurance. These benefits are no longer offered to any other retired Cohu employees.

 

.

 

2018 DIRECTOR COMPENSATION

 

The following table provides information on compensation for Cohu’s non-employee directors for fiscal 2018.

 

       

Fees

                         
       

Earned

                         
       

or Paid

   

Stock

   

All Other

         
       

in Cash

   

Awards

   

Compensation

         

Name

   

($)

   

($) (1)

   

($) (2)

   

Total ($)

 

William E. Bendush

    81,327       113,815       -       195,142  

Steven J. Bilodeau (3)

    88,031       113,815       -       201,846  

Andrew M. Caggia (3)

    63,800       113,815       -       177,615  

Robert L. Ciardella (3)

    73,319       113,815       -       187,134  

James A. Donahue

    75,000       113,815       28,107       216,922  

Ritu C. Favre (4)

    -       -       -       -  

Karl H. Funke (5)

    11,602       -       -       11,602  

David G. Tacelli (6)

    12,500       67,056       -       79,556  

Jorge L. Titinger (6)

    16,575       67,056       -       83,631  

 

 

(1)

Amounts shown do not reflect compensation actually received by the directors. Instead, the amounts above are the grant date fair value for stock awards issued in the form of RSUs granted in fiscal 2018. The assumptions used to calculate the grant date fair value of the stock awards are set forth in Note 6, “Employee Benefit Plans,” included in Part IV, Item 15(a) of Cohu’s Annual Report on Form 10-K for the year ended December 29, 2018, filed with the SEC. The derived grant date fair value for the stock award is recognized, for financial statement purposes, over the number of days of service required for the award to vest in full. As of December 29, 2018, Messrs. Bendush, Bilodeau, Caggia and Ciardella each had 4,931 unvested RSUs outstanding, Mr. Donahue had 15,343 and Messrs. Tacelli and Titinger had 2,738.

 

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(2)

Amount shown for Mr. Donahue is for reimbursement of health insurance premiums and other medical costs not covered by insurance.

 

(3)

During the year ended December 29, 2018, Messrs. Bilodeau, Caggia and Ciardella elected to defer settlement of their RSUs under the 2005 Plan and Mr. Ciardella elected to defer his cash director fees. The deferred amounts are credited in the form of DSU awards and ultimately payable in shares of Cohu common stock, if the director ceases to be a director for any reason, upon the occurrence of a change in control of Cohu or at a future date selected at the time of deferral. As of December 29, 2018, Messrs. Bilodeau, Caggia and Ciardella had 79,737 and 5,298 and 15,651 DSUs, respectively.

 

(4)

Ms. Favre joined the Board on January 2, 2019.

 

(5)

Effective March 26, 2018, Mr. Funke resigned from the Board.

 

(6)

Messrs. Tacelli and Titinger joined the Board on October 1, 2018.

 

CORPORATE GOVERNANCE

 

Cohu has adopted Corporate Governance Guidelines (the “ Guidelines ”) that outline, among other matters, the role and functions of the Board, the responsibilities of various Board committees, selection of new directors and director independence. The Guidelines are available, along with other important corporate governance materials, on our website at https://cohu.gcs-web.com/corporate-governance-0 . As the operation of the Board is a dynamic process, the Board regularly reviews new or changing legal and regulatory requirements, evolving best practices and other developments, and the Board may modify the Guidelines, as appropriate, from time to time.

 

CODE OF BUSINESS CONDUCT AND ETHICS

 

Cohu has adopted a Code of Business Conduct and Ethics (the “ Code of Conduct ”). The Code of Conduct applies to all of Cohu’s directors and employees including its principal executive officer, principal financial officer and principal accounting officer. The Code of Conduct, among other things, is designed to promote:

 

honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;

 

full, fair, accurate, timely and understandable disclosure in reports and documents that Cohu files with, or submits to, the SEC and in other public communications made by Cohu;

 

compliance with applicable governmental laws, rules and regulations;

 

the prompt internal reporting of violations of the Code of Conduct to an appropriate person or persons identified in the Code of Conduct; and

 

accountability for adherence to the Code of Conduct.

 

The Code of Conduct is available at https://cohu.gcs-web.com/corporate-governance-0 . We intend to make all required disclosures concerning any amendments to, or waivers from, our Code of Conduct on our website within four business days.

 

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The following table sets forth certain information regarding beneficial ownership of Cohu’s common stock as of March 19, 2019, by (i) each stockholder who has reported or is known by Cohu to have beneficial ownership of more than 5% of our common stock; (ii) each director of Cohu; (iii) each NEO included in the “2018 Summary Compensation Table”; and (iv) all directors and executive officers as a group.

 

     

Beneficially owned

 

Common stock

     

Percent

Name and address of beneficial owner

 

common stock

 

equivalents (1)

 

Total

 

of class (2)

                   

BlackRock, Inc. (3)

 

5,929,905

 

-

 

5,929,905

 

14.53%

55 East 52nd Street, New York, NY 10055

               
                 

Barrow, Hanley, Mewhinney & Strauss, LLC (4)

 

2,546,810

 

-

 

2,546,810

 

6.24%

2200 Ross Avenue, Dallas, TX 75201

               
                 

Dimensional Fund Advisors LP (5)

 

3,170,908

 

-

 

3,170,908

 

7.77%

6300 Bee Cave Road, Austin, TX 78746

               
                 

The Vanguard Group (6)

 

2,549,204

 

-

 

2,549,204

 

6.25%

100 Vanguard Blvd. Malvern, PA 19355

               
                 

Wellington Management Group LLP (7)

 

3,262,389

 

-

 

3,262,389

 

7.99%

250 Park Ave South, Winter Park, FL 32789

               
                 

William E. Bendush

 

25,440

 

10,000

 

35,440

 

*

Steven J. Bilodeau (8)

 

79,737

 

10,000

 

89,737

 

*

Christopher G. Bohrson

 

5,923

 

-

 

5,923

 

*

Andrew M. Caggia (9)

 

24,986

 

10,000

 

34,986

 

*

Robert L. Ciardella (10)

 

79,563

 

15,000

 

94,563

 

*

Hock W. Chiang

 

36,982

 

-

 

36,982

 

*

James A. Donahue

 

339,371

 

186,699

 

526,070

 

1.29%

Ritu C. Favre

 

-

 

-

 

-

 

*

Jeffrey D. Jones

 

93,750

 

72,222

 

165,972

 

*

Thomas D. Kampfer

 

1,190

 

-

 

1,190

 

*

Luis A. Müller

 

176,114

 

45,000

 

221,114

 

*

Pascal Rondé

 

35,009

 

-

 

35,009

 

*

David G. Tacelli

 

170,393

 

-

 

170,393

 

*

Jorge L. Titinger

 

15,751

 

-

 

15,751

 

*

Ian von Fellenberg

 

17,375

 

-

 

17,375

 

*

                   

All directors and named executive officers as a group (15 persons)

 

1,101,584

 

348,921

 

1,450,505

 

3.52%

* Less than 1%

 

(1)

Shares issuable upon exercise of stock options held by directors and executive officers that were exercisable on or within 60 days of March 19, 2019.

 

(2)

Computed on the basis of 40,816,889 shares of Cohu common stock outstanding as of March 19, 2019, plus, with respect to each person holding options to purchase Cohu common stock exercisable within 60 days of March 19, 2019, the number of shares of Cohu common stock issuable upon exercise thereof.

 

(3)

According to Schedule 13G filed with the SEC on January 24, 2019, BlackRock, Inc. reported that its affiliated companies collectively had sole voting and dispositive power with respect to 5,845,726 and 5,929,905 shares, respectively, and no shared voting or dispositive power with respect to these shares.

 

(4)

According to Schedule 13G filed with the SEC on February 12, 2019, Barrow, Hanley, Mewhinney & Strauss, LLC reported that it had sole voting and dispositive power with respect to 1,772,410 and 2,546,810 shares, respectively and shared voting power with respect to 774,000 shares and no shared dispositive power with respect to these shares.

 

(5)

According to Schedule 13G filed with the SEC on February 8, 2019, Dimensional Fund Advisors LP reported that it had sole voting and dispositive power with respect to 3,052,592 and 3,170,908 shares, respectively, and no shared voting or dispositive power with respect to these shares.

 

(6)

According to Schedule 13G filed with the Securities SEC on February 11, 2019, The Vanguard Group reported that it had sole voting and dispositive power with respect to 55,612 and 2,496,321 shares, respectively and shared voting and dispositive power with respect to 2,675 and 52,883 shares, respectively.

 

(7)

According to Schedule 13G filed with the SEC on February 12, 2019, Wellington Management Group LLP reported that it had shared voting and shared dispositive power respect to 2,906,446 and 3,262,389 shares, respectively, and no sole voting or dispositive power with respect to these shares.

 

(8)

Beneficially owned common stock includes 79,737 deferred stock unit awards issued pursuant to the 2005 Plan.

 

(9)

Beneficially owned common stock includes 5,298 deferred stock unit awards issued pursuant to the 2005 Plan.

 

(10)

Beneficially owned common stock includes 15,651 deferred stock unit awards issued pursuant to the 2005 Plan.

 

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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

 

Section 16(a) of the Exchange Act requires that Cohu’s executive officers, directors and persons who own more than 10% of a registered class of Cohu’s equity securities, file an initial report of ownership on Form 3 and changes in ownership on Form 4 or 5 with the SEC. Such officers, directors and 10% stockholders are also required by SEC rules to furnish Cohu with copies of all Section 16(a) forms they file.

 

Based solely upon 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, Cohu believes that during the year ended December 29, 2018 its executive officers, directors and 10% stockholders timely complied with all Section 16(a) filing requirements except as follows: i) on November 27, 2018, a Form 3/A was filed for Pascal Rondé to correct an inadvertent error in the amount of his beneficial ownership of securities reported as of October 11, 2018; and ii) on November 27, 2018, a Form 3/A was filed for Stephen R. Wigley to correct an inadvertent error in the amount of his beneficial ownership of securities reported as of October 11, 2018.

 

AUDIT COMMITTEE REPORT

 

The information contained in this report shall not be deemed to be “soliciting material” or “filed” with the SEC or subject to the liabilities of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) except to the extent that Cohu specifically incorporates it by reference into a document filed under the Securities Act of 1933, as amended (the “ Securities Act ”) or the Exchange Act.

 

Composition

 

The Audit Committee of the Board of Directors is composed of three (3) independent directors, as defined in the Nasdaq listing standards, and operates under a written charter adopted by the Board of Directors. The current members of the Audit Committee are William E. Bendush (Chair), Steven J. Bilodeau and Andrew M. Caggia.

 

Responsibilities

 

The Audit Committee assists the Board in fulfilling its responsibilities for general oversight of the integrity of Cohu’s financial statements, Cohu’s compliance with legal and regulatory requirements, the independent registered public accounting firm’s qualifications and independence, and risk assessment and risk management. The Audit Committee manages Cohu’s relationship with its independent registered public accounting firm (who report directly to the Audit Committee). The Audit Committee has the authority to obtain advice and assistance from outside legal, accounting or other advisors as the Audit Committee deems necessary to carry out its duties and receive appropriate funding, as determined by the Audit Committee, from Cohu for such advice and assistance.

 

Cohu’s management has primary responsibility for preparing Cohu’s financial statements and Cohu’s financial reporting process. Cohu’s independent registered public accounting firm, Ernst & Young LLP, is responsible for expressing an opinion on (i) the conformity of Cohu’s audited financial statements with accounting principles generally accepted in the United States, and (ii) the effectiveness of Cohu’s internal control over financial reporting.

 

Review with Management and Independent Registered Public Accounting Firm

 

In this context, the Audit Committee has reviewed and discussed the audited consolidated financial statements contained in Cohu’s Annual Report on Form 10-K for the year ended December 29, 2018 and Cohu’s effectiveness of internal control over financial reporting, together and separately, with management and the independent registered public accounting firm. The Audit Committee also discussed with Ernst & Young LLP matters required to be discussed pursuant to standards of the Public Company Accounting Oversight Board.

 

Ernst & Young LLP also provided to the Audit Committee the written disclosures and the letter required by applicable requirements of the Public Company Accounting Oversight Board regarding Ernst & Young’s communications with the Audit Committee concerning independence. The Audit Committee discussed with Ernst & Young LLP any relationships that may impact their objectivity and independence, and satisfied itself as to Ernst & Young’s independence.

 

Summary

 

Based upon the Audit Committee’s discussions with management and Ernst & Young LLP and the Audit Committee’s review of the representations of management, and the reports of Ernst & Young LLP to the Audit Committee, the Audit Committee recommended to the Board of Directors, and the Board approved, that the audited consolidated financial statements be included in Cohu’s Annual Report on Form 10-K for the year ended December 29, 2018, for filing with the SEC.

 

31

 

 

The Audit Committee appointed Ernst & Young LLP as Cohu’s independent registered public accounting firm for fiscal 2019 and recommends to stockholders that they ratify the appointment of Ernst & Young LLP as Cohu’s independent registered public accounting firm for fiscal 2019.

 

This report is submitted by the Audit Committee.

 

William E. Bendush (Chair)       Steven J. Bilodeau        Andrew M. Caggia

 

PRINCIPAL ACCOUNTING FEES AND SERVICES

 

The following table shows the fees billed to Cohu for the audit and other services provided by Ernst & Young LLP for the years ended December 29, 2018 and December 30, 2017.

 

(in thousands)

 

2018

     2017 (5)  

Audit Fees (1)

  $ 2,414     $ 1,880  

Audit-Related Fees (2)

    254       256  
                 

Tax Fees:

               

Tax Compliance (3)

    825       44  

Tax Planning and Advice (4)

    360       48  
      1,185       92  

Total

  $ 3,853     $ 2,228  

 

The Audit Committee has established pre-approval policies and procedures concerning the engagement of Cohu’s independent registered public accounting firm to perform any services. These policies require that all services rendered by Cohu’s independent registered public accounting firm be pre-approved by the Audit Committee within specified, budgeted fee amounts. In addition to the approval of all audit fees in 2018 and 2017, 100% of the non-audit fees were pre-approved by the Audit Committee.

 

The Audit Committee has delegated to the Chair of the Audit Committee the authority to pre-approve audit-related and non-audit services not prohibited by law to be performed by Cohu’s independent registered public accounting firm with associated fees up to a maximum of $10,000 for any one such service, provided that the Chair shall report any decisions to pre-approve such audit-related or non-audit services and fees to the full Audit Committee at its next regular meeting.


 

(1)

Audit fees represent fees for professional services provided in connection with the audit of Cohu’s financial statements and review of Cohu’s quarterly financial statements and audit services provided in connection with other statutory or regulatory filings. In addition, audit fees include those fees related to Ernst & Young LLP’s audit of the effectiveness of Cohu’s internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act of 2002.

 

(2)

Audit-related fees include accounting consultation services related to business acquisitions and divestitures and other attestation services. Audit-related fees incurred in 2018, were for due diligence related services provided in conjunction with the acquisition of Xcerra. Audit-related fees incurred in 2017 were for services provided in conjunction with the new revenue recognition standard as well as the new United States tax reform laws that were enacted in 2017.

 

(3)

Tax compliance fees consisted primarily of assistance with (i) review or preparation of Cohu’s federal, state and foreign tax returns and (ii) tax return examinations. The increase from 2017 was primarily driven by tax compliance services associated with Xcerra entities, acquired on October 1, 2018.

 

(4)

The increase from 2017 was primarily driven by tax planning services associated with integrating Xcerra and Cohu.

 

(5)

Audit fees and audit-related fees reported for 2017 have been adjusted for invoices received after the filing date of Cohu’s 2018 proxy statement.

 

32

 

 

EXECUTIVE COMPENSATION AND RELATED INFORMATION

 

Compensation Discussion and Analysis

 

This Compensation Discussion and Analysis provides information regarding the 2018 compensation program for our Chief Executive Officer, Chief Financial Officer, and the next three most highly-compensated executive officers of the Company at the end of 2018. In addition, information is provided for two additional officers that would have been among the most highly-compensated executive officers if they had been still serving as an executive officer at year-end 2018. These individuals were:

 

Luis A. Müller, President and Chief Executive Officer (our “ CEO ”);

 

Jeffrey D. Jones, Vice President, Finance and Chief Financial Officer;

 

Christopher G. Bohrson, Senior Vice President and General Manager Test Handler Group;

 

Thomas D. Kampfer, Vice President Corporate Development, General Counsel and Secretary;

 

Pascal Rondé, Senior Vice President Global Customer Group;

 

Hock W. Chiang, Vice President, Sales - Asia; and

 

Ian von Fellenberg, Vice President of Integration and Managing Director of Multitest GmbH.

 

Effective October 1, 2018, upon consummation of the acquisition of Xcerra Corporation (“ Xcerra ”), our Board of Directors determined that Hock W. Chiang and Ian von Fellenberg would no longer be deemed to hold executive officer positions as they would assume new roles of Vice President, Sales Asia and Vice President of Integration and Managing Director of Multitest GmbH, respectively. Further, our Board of Directors appointed Mr. Rondé to the position of Senior Vice President Global Customer Group, also effective upon the consummation of the acquisition of Xcerra, and that this role would be deemed an executive officer position.

 

We refer to our named executive officers collectively in this Compensation Discussion and Analysis and the related compensation tables as our “NEOs.” This Compensation Discussion and Analysis provides an overview of our philosophy and principles that govern our executive compensation program, how we applied those principles in compensating our executive officers for 2018, and how we use our executive compensation program to drive performance. In addition, we explain how and why the Compensation Committee of our Board of Directors (the “ Compensation Committee ”) arrived at the specific compensation policies and decisions involving the NEOs during 2018.

 

Executive Summary

 

2018 Business Highlights

 

Cohu delivered another year of solid sales and profitability growth in fiscal 2018:

 

Orders were at a new record level;

 

Sales were up 28% year-over-year to $451.8 million;

 

Non-GAAP earnings per share were $1.49;

 

We completed the transformative acquisition of Xcerra expanding our total addressable market to $5 billion, diversifying revenue and customers, expanding our offering of handlers, test equipment and consumables, and building a larger footprint in high growth markets and strengthening our financial profile; and

 

We returned $6.9 million to stockholders through quarterly cash dividends.

 

2018 Executive Compensation Highlights

 

Consistent with our performance and compensation objectives, the Compensation Committee approved the following compensation actions for our executive officers, including the NEOs, for 2018:

 

Made merit adjustments to their base salaries, including an 11.2% increase to the CEO;

 

Paid annual cash incentives ranging from 89% to 117% of their target annual cash incentive opportunity, including an annual cash incentive of 109% of target to our CEO;

 

Granted long-term incentive compensation in the form of time-based restricted stock units (“ RSUs ”) and performance share units (“ PSUs ”) to be earned based on our total stockholder return (“ TSR ”) relative to a pre-selected comparator group for a 3-year period from 2018 through 2020. Our CEO received a grant of 30,755 RSUs and 30,755 PSUs at target performance; and

 

33

 

 

 

In connection with his appointment as our Senior Vice President Global Customer Group on October 1, 2018, approved the following compensation arrangements for Mr. Rondé:

 

an annual base salary of $363,421;

 

a target annual cash incentive opportunity equal to 60% of his annual base salary through participation in the Cohu annual cash incentive plan effective with the fiscal 2019 plan year; and

 

an annual car allowance of $12,742.

 

Mr. Rondé’s compensation arrangements were negotiated on our behalf by our CEO and approved by the Compensation Committee. Mr. Rondé resides in and works from France and his contract terms are consistent with applicable French law. As his compensation is paid based in Euros, currency fluctuations may cause volatility in the U.S. Dollar amounts of his reported compensation. In establishing the compensation arrangements for Mr. Rondé, we took into consideration the requisite experience and skills that a qualified candidate would need to work in a growing business in a dynamic and ever-changing environment, the competitive market for similar positions at other comparable companies based on a review of compensation survey data and the need to integrate him into our existing executive compensation structure, while balancing both competitive and internal equity considerations.

 

Pay for Performance

 

Our Board of Directors believes that the compensation of our executive officers for 2018 is reasonable and appropriate, is justified by our performance, and carefully balances both time-based and performance-based compensation elements. The following chart illustrates the mix of elements of the target total direct compensation opportunity for our CEO for 2018.

 

 

Further, the compensation of the NEOs over the previous five years demonstrates the alignment between pay and performance. The variable cash compensation for the NEOs for each year from 2014 through 2018 varied from 89% to 152% of their target annual cash incentive opportunities based on our performance. For example:

 

In 2014, we attained then record sales along with high profitability and all NEOs received variable cash compensation above their target amounts ranging from 111% to 129% of their target annual cash incentive opportunities.

 

In 2015, we delivered solid sales and profitability levels while executing several key strategic deliverables relating to divesting non-core businesses. All NEOs received variable cash compensation near their target amounts ranging from 100% to 107% of their target annual cash incentive opportunities.

 

In 2016, our results were again strong and we executed the acquisition of Kita Manufacturing. All NEOs received variable cash compensation above their target amounts ranging from 114% to 119% of their target annual cash incentive opportunities.

 

In 2017, we had another successful year where we delivered strong results and executed on our strategic objectives. All NEOs received variable cash compensation above their target amounts ranging from 138% to 152% of their target annual cash incentive opportunities.

 

2018, as discussed above was a solid year when we delivered good results as the market softened in the second half of the year particularly in the mobility markets we serve and slowing growth in China impacted our consumer market. We executed the transformative acquisition of Xcerra, doubling our sales and employee population, based on the last twelve months immediately preceding the acquisition. NEOs received variable cash compensation amounts ranging from 89% to 117% of their target annual cash incentive opportunities, which lagged our absolute results due to the challenging performance targets established for the 2018 plan year.

 

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Since 2012, all NEOs have had some portion of their long-term incentive compensation based on PSUs that require achievement of business goals to earn a payout. Starting in 2015, the PSU portion of the long-term incentive program is earned based solely on our TSR relative to a pre-selected comparator group of companies. The weighting of these PSUs in relation to time-based RSU grants has also evolved over the years and currently stands at 50% of each NEOs total annual equity grant value. The NEOs have earned from a low of 25% of their target award for the 2016 Long-Term Incentive program to a high of 180% of their target award for the 2014 long-term incentive program.

 

While the past five years indicate that the program effectively rewards our executive officers when we deliver superior performance and appropriately adjusts compensation downward in the case of less-than-superior performance, the Compensation Committee will continue to review the executive compensation program to ensure it reflects the correct balance between short-term financial performance and long-term stockholder return. For example, in March 2016, the Compensation Committee increased the performance period for the TSR measurement to three years to enhance the focus on long-term results. This formula is described in detail in the section entitled “Long-Term Incentive Compensation” below.

 

2018 Executive Compensation Policies and Practices

 

We endeavor to maintain sound governance standards consistent with our executive compensation policies and practices. The Compensation Committee evaluates our executive compensation program on an ongoing basis to ensure that it is consistent with our short-term and long-term goals given the dynamic nature of our business and the market in which we compete for executive talent. The following policies and practices were in effect during 2018:

 

-

Independent Compensation Committee. The Compensation Committee is comprised solely of independent directors.

 

-

Independent Compensation Committee Advisors. The Compensation Committee engaged its own compensation consultant to assist with its 2018 compensation and governance reviews. This consultant performed no other consulting or services for us.

 

-

Annual Executive Compensation Review. The Compensation Committee conducts an annual review and approval of our compensation strategy, including a review of our compensation peer group used for comparative purposes.

 

-

Annual Compensation-Related Risk Review. The Compensation Committee conducts an annual review of our compensation-related risk profile to ensure that compensation practices are not reasonably likely to have a material adverse effect on the Company.

 

-

Executive Compensation Policies and Practices. Our compensation philosophy and related corporate governance policies and practices are complemented by several specific compensation policies and practices that are designed to align our executive compensation with long-term stockholder interests, including the following:

 

Compensation At-Risk. Our executive compensation program is designed so that a significant portion of compensation is “at risk” based on corporate performance, as well as equity-based to align the interests of our executive officers and stockholders;

 

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No Defined Benefit Pension Plans . We do not currently offer, nor do we have plans to provide, defined benefit pension arrangements for our executive officers; provided however that Mr. von Fellenberg, who is employed outside of the United States, has a pension plan as further described in the 2018 Summary Compensation Table, which was established prior to our acquisition of Ismeca in 2013;

 

Limited Perquisites. We provide minimal perquisites and other personal benefits to our executive officers;

 

No Tax Reimbursements. We do not provide any tax reimbursement payments (including “gross-ups”) on any perquisites or other personal benefits other than standard relocation benefits and tax equalization agreements related to expatriate assignments;

 

No Post-Employment Tax Reimbursements. We do not provide any tax reimbursement payments (including “gross-ups”) on any severance or change-in-control payments or benefits with the exception of certain potential immaterial payments of COBRA premiums under specific circumstances;

 

“Double-Trigger” Change-in-Control Arrangements. All change-in-control payments and benefits are based on a “double-trigger” arrangement (that is , they require both a change-in-control of the Company plus a qualifying termination of employment before payments and benefits are paid), although the vesting of equity awards will accelerate in full if the awards are not assumed or replaced by an acquiring corporation;

 

Performance-Based Incentives. We use performance-based short-term and long-term incentives and do not have common or overlapping metrics between these programs;

 

Incentive Compensation Recoupment Policy. Incentive compensation awarded to our executive officers is subject to recoupment under certain circumstances if our financial results are restated;

 

Multi-Year Vesting Requirements. The equity awards granted to our executive officers vest or are earned over multi-year periods, consistent with current market practice and our retention objectives;

 

Hedging and Pledging Prohibited. We prohibit our employees, including our executive officers, and directors from hedging or pledging any Company securities; and

 

Stock Ownership Policy. We maintain a stock ownership policy for our executive officers and directors that require each of them to beneficially own a specified value of shares of our common stock.

 

2018 Stockholder Advisory Vote on Executive Compensation

 

At our 2018 Annual Meeting of Stockholders, we conducted a stockholder advisory vote on the 2018 compensation of the NEOs (commonly known as a “Say-on-Pay” vote). Our stockholders approved the 2017 compensation of the NEOs, as disclosed in our proxy statement for the 2018 Annual Meeting of Stockholders with approximately 96% of the votes cast in favor of the proposal.

 

We believe that the outcome of the Say-on-Pay vote reflects our stockholders’ strong support of our executive compensation program. We value the opinions of our stockholders and will continue to consider the outcome of future Say-on-Pay votes, as well as feedback received throughout the year, when making compensation decisions for our executive officers, including the NEOs.

 

Based on the results of a separate stockholder advisory vote on the frequency of future stockholder advisory votes regarding the compensation of the NEOs (commonly known as a “Say-When-on-Pay” vote) conducted at our 2018 Annual Meeting of Stockholders, our Board of Directors determined that we will hold our Say-on-Pay votes on an annual basis.

 

Compensation Philosophy

 

Our executive compensation program is intended to meet three principal objectives:

 

 

attract, reward and retain our executive officers;

 

 

motivate these individuals to achieve our short-term and long-term corporate goals that enhance stockholder value; and

 

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support our core values and culture by promoting internal equity and external competitiveness.

 

To meet these objectives, we have adopted the following overarching policies:

 

 

-

we pay compensation that is competitive with the practices of other leading semiconductor equipment and similar technology companies; and

 

 

-

we pay for performance by:

 

 

providing a short-term cash incentive opportunity that is based on challenging financial and individual performance objectives for our executive officers; and

 

 

providing long-term incentive opportunities in the form of a combination of RSU awards, PSU awards, and/or stock options that enable us to motivate and retain those executive officers with the leadership abilities necessary to create sustainable long-term value for our stockholders.

 

These policies guide the Compensation Committee in determining the proper allocation between current cash compensation and short-term and long-term incentive compensation. Other considerations include our business objectives, our fiduciary and corporate responsibilities (including internal equity considerations and affordability), competitive practices and trends, and applicable regulatory requirements.

 

Compensation-Setting Process

 

Role of the Compensation Committee

 

Our executive compensation program is designed and overseen by the Compensation Committee, which is comprised entirely of independent directors, as determined in accordance with the rules of the SEC and the listing standards of the NASDAQ. The Compensation Committee conducts an annual review of our executive compensation strategy to ensure that it is appropriately aligned with our short-term business plan and long-term strategy. The Compensation Committee also reviews market trends and changes in competitive compensation practices, as further described below. Based on its review and assessment, the Compensation Committee from time to time recommends changes in our executive compensation program.

 

The Compensation Committee reviews our executive compensation program on an annual basis, including each of the elements of compensation provided under the program (other than deferred compensation and 401(k) benefits, which are reviewed from time to time to ensure that benefit levels remain competitive but are not included in the annual determination of our executive officers’ compensation arrangements). In determining the overall compensation arrangements for our executive officers, including the NEOs, as well as the level of each specific element of compensation, the Compensation Committee takes into consideration a number of factors, including the following:

 

 

the recommendations of our CEO (except with respect to his own compensation) as described below;

 

our corporate growth and other elements of financial performance;

 

the individual performance of each executive officer, including his or her achievement of management objectives;

 

a review of the relevant competitive market data, as described below;

 

the skill set, prior experience, and tenure of the executive officer;

 

the role and responsibilities of the executive officer;

 

the past and expected future contribution of the executive officer;

 

internal pay consistency for similar positions or skill levels within the Company; and

 

external pressures to attract and retain talent and overall market conditions.

The Compensation Committee does not weigh these factors in any predetermined manner, nor does it apply any formulas in developing its compensation recommendations. The members of the Compensation Committee consider all of this information in light of their individual experience, knowledge of the Company, knowledge of the competitive market, knowledge of each executive officer, and business judgment in making these recommendations.

 

The Compensation Committee’s authority, duties, and responsibilities are described in its charter, which is reviewed annually and revised and updated as warranted. The charter is available at https://cohu.gcs-web.com/corporate-governance-0 in the corporate governance section of our website.

 

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Role of Management

 

On occasion, the Compensation Committee meets with our CEO and/or our other executive officers and our Vice President of Human Resources to obtain information and recommendations with respect to our executive compensation program, policies, and practices, as well as the compensation arrangements of our executive officers. In 2018, the Compensation Committee met with Dr. Müller, our CEO, who made recommendations to the Compensation Committee on the base salary, target annual cash incentive award opportunities, and long-term incentive compensation for our executive officers, including the NEOs (except with respect to his own compensation). In formulating these recommendations, our CEO used, among other things, competitive market data, an internal equity analysis and individual performance factors. The Compensation Committee considers, but is not bound by and does not always accept, these recommendations with respect to executive compensation. In recent years, the Compensation Committee has changed several of our CEO’s compensation proposals and regularly seeks input from its compensation consultant or data from other independent sources prior to making its decisions.

 

In 2018, our CEO attended some of the Compensation Committee’s meetings, but the Compensation Committee also held regular executive sessions not attended by any members of management or non-independent members of our Board of Directors. The Compensation Committee held discussions and made its decisions with respect to our CEO’s compensation without him present.

 

The Compensation Committee has the ultimate authority to make decisions with respect to the compensation of our executive officers, including the NEOs, but may, if it chooses, delegate any of its responsibilities to subcommittees. The Compensation Committee has authorized our CEO to make base salary adjustments and short-term cash incentive award decisions for all employees other than our executive officers, including the NEOs.

 

Role of Compensation Consultant

 

The Compensation Committee has the authority to engage independent advisors to assist in carrying out its responsibilities. In 2018, the Compensation Committee engaged Compensia, a national compensation consulting firm, to advise and assist it on various aspects of executive and director compensation, including base salaries, annual and long-term incentive compensation. The Chair of the Compensation Committee reviewed and approved all payments to Compensia.

 

It has been the Compensation Committee’s practice to have Compensia prepare a comprehensive executive compensation analysis in alternating years, and update this analysis in interim years only if warranted by changing conditions. As a result of the Xcerra acquisition and its impact on the scope of director and executive responsibilities, the Compensation Committee engaged Compensia to prepare full director and executive compensation analyses in September 2018 and December 2018, respectively. In addition, the Compensation Committee directed Compensia to report on trends in executive and director compensation policies and practices, executive severance and equity practices, corporate governance, compensation peer group design, and to conduct a compensation-related risk assessment of our compensation and change in control programs in 2018.

 

Compensia reports directly to the Compensation Committee, although one or more of its consultants met with management for purposes of gathering information on the compensation proposals that management submitted to the Compensation Committee. The Compensation Committee may replace Compensia or hire additional advisors at any time. Compensia does not provide any other services to us and receives compensation only with respect to the services provided to the Compensation Committee.

 

The Compensation Committee has considered the independence of Compensia in light of the rules of the SEC and the listing standards of Nasdaq. Based on these rules and standards, the Compensation Committee has concluded that the work performed by Compensia did not raise any conflict of interest.

 

Competitive Positioning

 

In arriving at its compensation decisions for our executive officers, including the NEOs, for 2018, the Compensation Committee considered competitive market data and an analysis prepared by Compensia. In making its decisions, the Compensation Committee evaluates this data and analysis as an important reference point, but does not reach its conclusions on a formulaic basis. This analysis was based on a review of the compensation practices of a select group of peer companies which was approved by the Compensation Committee after reviewing data prepared by Compensia and input from management. In selecting companies for the compensation peer group, the Compensation Committee identified companies headquartered in the U.S. in the semiconductor capital equipment and electronic capital equipment and instrumentation sectors that were comparable to us on the basis of 0.4x – 2.5x revenue, 0.25 – 5.0x our market capitalization, and that had similar scope of operations, and which the Compensation Committee believed compete with us for executive talent.

 

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For 2018, the compensation peer group as of March 2018 consisted of the following 14 companies:

 

Advanced Energy Industries

Kulicke & Soffa

Axcelis Technologies

Nanometrics

Brooks Automation

Photronics

Cabot Microelectronics

Rudolph Technologies

Electro Scientific Industries

Ultra Clean Holdings

FARO Technologies

Veeco Instruments

FormFactor

Xcerra

 

The compensation peer group shared 12 of 13 members with the 2018 Glass-Lewis-identified peer group and 10 of 18 members in the 2018 Institutional Shareholder Services (“ ISS ”) identified peer group.

 

In December 2018, based on the significantly changed financial profile of Cohu after the acquisition of Xcerra, the Compensation Committee determined that more substantial than usual revision to the peer group was appropriate. It approved a revised peer group for 2019, consisting of 17 companies, Electro Scientific Industries (acquired), FARO Technologies (low end of revenue range and not direct industry peer) and Xcerra (acquired) were removed from the peer group, while Cirrus Logic, Entegris, MTS Systems, Novanta, OSI Systems and Synaptics were added to the peer group, all of which met the criteria based on Cohu’s post acquisition financial and product profile.

 

For 2019, the compensation peer group consists of the following 17 companies:

 

Advanced Energy Industries

Nanometrics

Axcelis Technologies

Novanta

Brooks Automation

OSI Systems

Cabot Microelectronics

Photronics

Cirrus Logic

Rudolph Technologies

Entegris

Synaptics

FormFactor

Ultra Clean Holdings

Kulicke & Soffa

Veeco Instruments

MTS Systems

 

 

Generally, data on the compensation practices of the companies in the compensation peer group was gathered by Compensia from publicly-available sources, including publicly available databases. Peer company data is gathered with respect to base salary, target annual incentive opportunities, equity awards (including stock options, RSU awards, and PSU awards), and long-term cash-based awards. In addition, similar data was gathered from the Radford High-Technology Executive Compensation survey for purposes of providing additional perspective in the case of executive positions where the compensation peer group offered a limited number of relevant data points.

 

Compensation Elements

 

Our executive compensation program consists of six principal elements:

 

 

base salary;

 

annual cash incentive opportunities;

 

long-term incentive compensation in the form of equity awards;

 

deferred compensation benefits;

 

welfare and health benefits, including a Section 401(k) plan; and

 

limited perquisites and other personal benefits.

 

The Compensation Committee has selected these elements because each is considered necessary, appropriate and when combined, are effective, and will continue to be effective, in achieving our compensation objectives.

 

Base Salary

 

We believe that a competitive base salary is a necessary element of our executive compensation program, so that we can attract and retain experienced executive officers. Base salaries for our executive officers are also intended to be competitive with those received by other individuals in similar positions at the companies with which we compete for talent, as well as to be equitable across the management team.

 

The Compensation Committee reviews the base salaries of our executive officers, including the NEOs, annually and makes adjustments to base salaries as it determines to be necessary or appropriate.

 

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In February 2018, the Compensation Committee reviewed the base salaries of our executive officers, including the NEOs, taking into consideration a competitive market analysis prepared by Compensia in December 2017 and the recommendations of our CEO (except with respect to his own base salary), as well as the other factors described above. Following this review, the Compensation Committee determined to make merit adjustments to maintain the competitiveness of certain executive officers’ base salaries. The increases for Dr. Müller and Mr. von Fellenberg were above general merit increase market data levels due to the Committee’s intention to reward successful performance and to address the Committee’s view that both salaries were below market salary levels considering the performance, experience and skills of these two individuals.

 

Effective March 1, 2018, the annual base salaries of our NEOs for 2018 were as follows:

 

       

Prior

   

2018

         
       

Base

   

Base

   

Percentage

 

Named Executive Officer

   

Salary

   

Salary

   

Change

 

Luis A. Müller

  $535,000     $595,000       11.2 %

Jeffrey D. Jones

  $329,500     $342,680       4.0 %

Thomas D. Kampfer

  $285,000     $293,550       3.0 %

Christopher G. Bohrson

  $250,000     $277,002       10.8 %

Hock W. Chiang (1)

  $222,672     $240,486       8.0 %

Ian von Fellenberg (2)

  $241,064     $277,002       10.0 %
 

(1)

Mr. Chiang is paid in Singapore Dollars and the base salary rates above have been converted to U.S. Dollars as required by SEC rules. The salary change percentage was applied to his base salary in Singapore Dollars and the year-over-year change in U.S. Dollars as reflected above is impacted by the currency exchange rates in effect at the time of the change.

 

(2)

Mr. von Fellenberg is paid in Swiss Francs and the base salary rates above have been converted to U.S. Dollars as required by SEC rules. The salary change percentage was applied to his base salary in Swiss Francs and the year-over-year change in U.S. Dollars as reflected above is impacted by the currency exchange rates in effect at the time of the change.

 

     On December 11, 2018, the Compensation Committee, based on the recommendations of Dr. Müller and a review of market salary data performed by Compensia in December 2018, as well as the other factors described above, including specifically the expanded scope of responsibilities that certain officers including certain NEOs had assumed upon the acquisition of Xcerra, approved base salary increases for our executive officers including the NEOs.

 

Effective on January 1, 2019, the annual base salaries of our NEOs are as follows:

 

       

2018

   

2019

         
       

Base

   

Base

   

Percentage

 

Named Executive Officer

   

Salary

   

Salary

   

Change

 

Luis A. Müller

  $595,000     $595,000       0.0 %

Jeffrey D. Jones

  $342,680     $380,000       10.9 %

Thomas D. Kampfer

  $293,550     $335,000       14.1 %

Christopher G. Bohrson

  $277,002     $350,000       26.4 %

Hock W. Chiang (1)

  $240,486     $240,486       0.0 %

Pascal Rondé (2)

  $363,421     $363,421       0.0 %

Ian von Fellenberg (3)

  $270,739     $277,002       2.3 %
 

(1)

Mr. Chiang is paid in Singapore Dollars and the base salary rates above have been converted to U.S. Dollars as required by SEC rules.

 

(2)

Mr. Rondé is paid in Euros and the base salary rates above have been converted to U.S. Dollars as required by SEC rules.

 

(3)

Mr. von Fellenberg is paid in Swiss Francs and the base salary rates above have been converted to U.S. Dollars as required by SEC rules. The salary change percentage was applied to his base salary in Swiss Francs and the year-over-year change in U.S. Dollars as reflected above is impacted by the currency exchange rates in effect at the time of the change.

 

On February 12, 2019, the Compensation Committee held an executive session without the presence of management or our CEO to discuss his base salary level in relation to the competitive market, his performance in the role and his expanded responsibilities. Dr. Müller declined to accept a salary increase at that time due to then current market conditions.

 

The base salaries of our NEOs during 2018 are set forth in the “2018 Summary Compensation Table” below.

 

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Annual Cash Incentives

 

Each year, the Compensation Committee approves an annual management incentive plan for our executive officers, including the NEOs, to encourage and award their achievement of our financial and operational objectives as set forth in our annual operating plan. Under this annual management incentive plan, the Compensation Committee establishes an incentive formula that is applied to the actual level of achievement for each of the selected performance measures. The incentive formula is based on the anticipated difficulty and relative importance of achieving the target level for each respective performance measure. Accordingly, the actual incentives paid, if any, for any given year will vary depending on our actual performance.

 

To support our retention objectives, typically the annual management incentive plan provides that an executive officer must be an employee when the incentives for the year is paid. The annual management incentive plan provides that the Compensation Committee has the discretion to decrease, but not increase, any incentives paid under the plan, even if the applicable performance objectives have been achieved. Historically, incentives have been payable in cash unless an executive officer elects to defer all or part of his or her incentive into the Cohu, Inc. Deferred Compensation Plan.

 

On February 8, 2018, the Compensation Committee adopted the annual management incentive plan for 2018 (the “ 2018 MIP ”). The 2018 MIP was adopted pursuant to the Cohu 2005 Equity Incentive Plan (the “ 2005 Plan ”).

 

On December 11, 2018, the Compensation Committee, based on the recommendation of Dr. Müller and a review of market salary data performed by Compensia in December 2018, as well as the other factors described above, approved an increase in Messrs. Jones and Bohrson’s target annual cash incentive opportunities from 60% to 70% and 50% to 60%, respectively, for fiscal year 2019.

 

Target Annual Cash Incentive Opportunities

 

For purposes of the 2018 MIP, our CEO made recommendations to the Compensation Committee with respect to target annual cash incentive opportunities (expressed as a percentage of base salary) for each of our executive officers, including the NEOs (except with respect to his own target annual cash incentive opportunity). The target annual cash incentive opportunities approved by the Compensation Committee for the NEOs, and the range of the potential incentive, as a percentage of base salary, were as follows:

 

     

Target Annual Cash

 

Range of Possible 2018

Named Executive Officer

 

Incentive Opportunity

 

Incentive Awards

Luis A. Müller

 

100%

 

0% - 166.7%

Jeffrey D. Jones

 

60%

 

0% - 100%

Christopher G. Bohrson

 

50%

 

0% - 83.3%

Thomas D. Kampfer

 

50%

 

0% - 75%

Hock W. Chiang

 

60%

 

0% – 105%

Ian von Fellenberg

 

50%

 

0% - 83.3%

 

Performance Measures

 

For purposes of the annual management incentive plan, the Compensation Committee may select one or more performance measures from a range of performance measures specified in the 2005 Plan. For purposes of the 2018 MIP, the Compensation Committee selected two financial performance measures for our executive officers:

 

 

sales; and

 

non-GAAP operating income.

The Compensation Committee selected these two performance measures because they believe sales reflect the overall acceptance of the market for our products and non-GAAP operating income reflects how effectively management delivered our products to our customers during the year. Sales targets were based on our consolidated results for the year, except in the case of Messrs. Bohrson and von Fellenberg whose sales target were based on their respective business unit results.

 

For purposes of the 2018 MIP, “non-GAAP operating income” was calculated by adjusting our 2018 actual results prepared under GAAP to exclude charges for share-based compensation, the amortization of acquired intangible assets, manufacturing transition costs, employee severance costs, acquisition related costs, fair value adjustment to contingent consideration, purchase accounting inventory step-up included in cost of sales and the reduction of an uncertain tax position liability and related indemnification receivable. This methodology is identical to that used in our quarterly earnings press releases. A reconciliation of GAAP to non-GAAP operating income used for the 2018 MIP is included as Appendix C to this proxy statement.

 

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In addition, the Compensation Committee determined that each executive officer’s annual cash incentive would be based, in part, on his or her individual performance as measured against multiple management objectives, which included, among other things, specific quantitative and qualitative goals in the areas of market expansion, business development, implementation of improved business systems and processes, operating and financial performance, and/or new product development.

 

The weighting of these corporate and individual performance measures for purposes of the 2018 MIP for each NEO were as follows:

 

         

Non-GAAP

 

Individual

         

Operating

 

Management

Named Executive Officer

 

Sales

 

Income

 

Objectives

Luis A. Müller

 

33%

 

33%

 

33%

Jeffrey D. Jones

 

33%

 

33%

 

33%

Christopher G. Bohrson

 

33%

 

33%

 

33%

Thomas D. Kampfer

 

25%

 

25%

 

50%

Hock W. Chiang

 

50%

 

25%

 

25%

Ian von Fellenberg

 

33%

 

33%

 

33%

 

The performance measures and their respective weightings were selected to reflect the principal role and responsibilities of each of our executive officers. The Compensation Committee determined that using our consolidated results for non-GAAP operating income and sales, except as noted above, were appropriate for all executive officers given their responsibilities for the overall success of our business.

 

In addition, to further motivate our executive officers and based on a competitive market analysis prepared by Compensia, the Compensation Committee determined that the following features would apply to the 2018 MIP:

 

 

with respect to the portion of the annual cash incentive related to the sales and non-GAAP operating income performance measures, no amount would be paid unless such sales and non-GAAP operating income were at least 85% and 75%, respectively, of our target levels as reflected in our annual operating plan; and

 

 

the threshold, target, and maximum performance and payout levels for the sales and non-GAAP operating income performance measures were scaled to provide both greater reward for exceeding our target levels and greater penalty for missing target levels as follows:

 

 

To ensure that the annual cash incentives served our goal of increasing stockholder value and because the Compensation Committee wanted to pay incentives at above target levels only upon the achievement of what it considered to be exceptional performance, it determined that the maximum annual cash incentive for any executive officer would be payable only if the actual performance significantly exceeded our target operating results. Accordingly, if our actual results for 2018 exceeded the applicable target level for sales and non-GAAP operating income, each portion of their target annual cash incentive opportunity subject to those performance measures could have been increased up to an amount that was two times the target cash incentive opportunity subject to those measures.

 

Payouts for performance between the threshold and maximum performance levels were to be determined on a linear basis. However, no incentive with respect to the sales performance measures would be paid if the Company reported a non-GAAP operating loss.

 

Individual Performance Objectives

 

For purposes of the 2018 MIP, the Compensation Committee selected individual performance objectives for our CEO and our other executive officers that reflected their responsibilities for the overall management of the Company. These performance objectives for each NEO are set forth in the table below.

 

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Performance Measure Target Levels

 

With respect to the target levels for sales and non-GAAP operating income, the Compensation Committee believed that, at the time the target level for each performance measure was set, these target levels would be challenging and difficult, but achievable under normal business conditions with significant effort and skill. For 2018, the Compensation Committee expected that these target levels would be difficult to achieve because they would require delivery of results in uncertain market conditions, adroitly executing our business strategy, the development and acceptance by customers of new products, and successful entry into certain new markets in a highly competitive and volatile environment. In addition, the Compensation Committee set the 2018 sales and non-GAAP operating income targets at levels significantly higher than those achieved in 2017.

 

For purposes of the 2018 MIP, the target levels for Company sales and non-GAAP operating income are set forth in the following table, which also summarizes the individual performance objectives for each NEO. The sales target levels for Mr. von Fellenberg were based on their respective business units, and since we do not report financial results at the business unit level, these specific target levels and results have not been disclosed. These activities were determined to be challenging to achieve due to the highly competitive markets in which we operate and the impact that achievement of the objectives would have on our business results.

 

 

2018 MIP Performance Measures and Objectives

Goals (as defined)

Dr. Müller

Mr. Jones

 

Mr. Bohrson

Mr. Kampfer

 

Mr. Chiang

Mr. von Fellenberg

Sales (Target)

$394.4 million

$394.4 million

Confidential

$394.4 million

$394.4 million

Confidential

Non-GAAP (1) Operating Income (Target)

$68.5 million

$68.5 million

$68.5 million

$68.5 million

$68.5 million

$68.5 million

Personal Objective #1

Profitably grow with new products aligned to end-application markets

Execute corporate development projects

Develop next generation digital handlers

Execute corporate development projects

Grow contactor market share

Improve analog systems competitiveness with new product features and operational efficiencies

Personal Objective #2

Execute operational standardization and quality excellence

Improve business systems and processes

Significantly improve profitability of digital systems

Assess growth alternatives

Gain system market share at target accounts

Grow analog systems customer share

Personal Objective #3

Drive strategic corporate development projects

Optimize financial and valuation metrics

Grow digital systems customer share

Harmonize global policies

Improve sales & service business model

Develop new solutions for expansion of addressable market

 

(1) A reconciliation of GAAP to non-GAAP operating income is included as Appendix C to this proxy.

 

Annual Incentive Decisions

 

Following the end of 2018, the Compensation Committee compared our actual financial performance to the target performance levels established for the year and applied the incentive formula under the 2018 MIP to this actual performance. In addition, the Compensation Committee determined that the NEOs had achieved a majority of their individual performance objectives for 2018.

 

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Based on these determinations, the annual cash incentives paid to the NEOs for 2018 were as follows:

 

 

Actual Achievement of 2018 MIP Performance Measures and Objectives (as defined)

 

Dr. Müller

Mr. Jones

 

Mr. Bohrson

Mr. Kampfer

 

Mr. Chiang

Mr. von Fellenberg

Sales (Actual)

$451.8 million

$451.8 million

Confidential

$451.8 million

$451.8 million

Confidential

Goal Payout %

149%

149%

91%

149%

149%

107%

Non-GAAP (1) Operating Income (Actual)

$65.3 million

$65.3 million

$65.3 million

$65.3 million

$65.3 million

$65.3 million

Goal Payout %

91%

91%

91%

91%

91%

91%

Personal Goal #1

81%

93%

81%

93%

67%

100%

Personal Goal #2

91%

78%

94%

100%

78%

89%

Personal Goal #3

97%

90%

84%

100%

100%

62%

Total Personal Goal Achievement

89%

87%

86%

98%

82%

84%

 

Actual Amount of Fiscal 2018 Annual Cash Incentives

Annual Cash Incentive Bonus Payment

$651,000

$223,589

$123,537

$159,704

$165,290

$127,708

% of Target Annual Cash Incentive Bonus Opportunity

109%

109%

89%

109%

117%

94%

 

(1)     A reconciliation of GAAP to non-GAAP operating income is included as Appendix C to this proxy.

 

As required under the terms and conditions of the Xcerra acquisition, executives continuing their employment after the acquisition were entitled to a pro-rated payment of the Xcerra FY19 Executive Profit Sharing Plan based on Xcerra Adjusted Operating Income (“ Xcerra AOI ”) results for the period of August 1, 2018 through December 31, 2018. On February 12, 2019, the Compensation Committee reviewed the Xcerra AOI calculations used to determine the Xcerra FY19 Executive Profit Sharing Plan payments and approved payments to certain executives including NEOs as follows:

 

Actual Amount of Xcerra FY19 Executive Profit Sharing Plan Payments

 

Mr. Rondé

Xcerra Executive Profit Sharing Plan Payment

$51,795

% of Xcerra Executive Profit Sharing Plan Opportunity

74%

 

The annual cash incentives paid to the NEOs for 2018 are set forth in the “2018 Summary Compensation Table” below.

 

Long-Term Incentive Compensation

 

We provide long-term incentive compensation in the form of equity awards to our executive officers, including our NEOs. These awards are intended to align the interests of our executive officers with those of our stockholders by creating an incentive for them to maximize long-term stockholder value. They are also designed to encourage our executive officers to remain employed with us in a very competitive labor market. The Compensation Committee regularly monitors the environment in which we operate and revises our long-term incentive compensation arrangements as it determines to be necessary and appropriate to help meet our business objectives, including increasing long-term stockholder value.

 

Generally, in determining the size of the equity awards granted to our executive officers, including the NEOs, the Compensation Committee takes into consideration the recommendations of our CEO (except with respect to his own equity awards), competitive market data (with particular reference to the median of the competitive market), the potential GAAP accounting expense associated with the proposed awards (as compared to the companies in the compensation peer group), and the other factors described above. The Compensation Committee also considers the dilutive effect of our long-term incentive compensation practices, and the overall impact that these equity awards, as well as awards to other employees, will have on stockholder value. Further, the Compensation Committee has the discretion to determine whether awards in any given year will be made in the form of RSU awards, PSU awards, other awards or a combination thereof.

 

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On March 20, 2018, the Compensation Committee, based on the factors described above, approved the grant of RSU awards and PSU awards to our executive officers, including the NEOs. The Compensation Committee also determined that, to balance the retention value of the RSU awards with the performance focus of the PSU awards, the total dollar value of the equity awards should be equally weighted between RSU awards and PSU awards. The equity awards granted to the NEOs in 2018 were as follows:

 

   

Number of

   

Number of

 
   

Restricted

   

Performance

 
   

Stock Units

   

Stock Units

 

Named Executive Officer

 

Granted

   

Granted (1)

 

Luis A. Müller

    30,755       30,755  

Jeffrey D. Jones

    13,181       13,181  

Christopher G. Bohrson

    7,249       7,249  

Thomas D. Kampfer

    7,249       7,249  

Hock W. Chiang

    5,492       5,492  

Ian von Fellenberg

    7,249       7,249  

 

 

(1)

PSUs granted at the target award level.

 

Restricted Stock Unit Awards

 

Consistent with our other employee equity awards, the RSU awards granted to our executive officers in 2018 vest at the rate of 25% of the shares of our common stock subject to the awards per year.

 

Performance Stock Unit Awards

 

2018 PSU Awards

 

The PSU awards granted to our executive officers in March 2018 will be earned based on our TSR as compared to a pre-established comparator group measured over a three-year performance period beginning on the first day of 2018, with earned shares vesting fully at the end of three years from the date of grant. The performance period for the 2018 PSU Awards was set at three years (rather than the two-year performance period used in the 2015 PSU awards) to enhance the long-term focus of the program.

 

The number of shares of our common stock that may be earned under the 2018 PSU Awards range from a minimum award level of 25% of the target number of shares subject to the awards, up to a maximum of 200% of the target number of shares as follows:

 

TSR Ranking Relative to Comparator Group

Percentage of Target Number of Shares Earned

Below 25 th Percentile

25%

25 th Percentile

25%

57 th Percentile

100%

100 th Percentile

200%

 

For performance between the percentile rankings listed above, the 2018 PSU Awards operate on a linear basis with an additional 7% of the target number of shares earned for each 3% increase in our TSR performance above the threshold performance level of 25%. TSR performance is calculated by an outside firm, Research Data Group, Inc.

 

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The following graph illustrates how the number of shares of common stock subject to the 2018 PSU awards that are earned will be calculated:

 

 

For purposes of the 2018 PSU awards, the comparator group as of March 2018 consisted of the following companies that the Compensation Committee believes represent competition for our stockholders’ investments. Xcerra was acquired in October 2018 and Electro Scientific Industries in February 2019, and therefore were removed from the comparator group at those points. The Compensation Committee believes that it is appropriate for the peer group used for the TSR calculations to include companies from our industry that are competitive to us for investment, but that are excluded from the compensation peer group described above primarily as they are based outside of the U.S. or are have financial profiles outside the criteria ranges considered:

 

Advanced Energy Industries

Camtek

 

Nanometrics

Advantest

 

Electro Scientific Industries

 

Photronics

ASM Pacific

 

FormFactor

 

Rudolph Technologies

Axcelis Technologies

 

Intevac

 

Teradyne

Besi

 

Kulicke & Soffa

 

Ultra Clean Holdings

Brooks Automation

 

Micronics

 

Veeco

Cabot Microelectronics

 

MKS Instruments

 

Xcerra

 

The equity awards granted to the NEOs in 2018 are set forth in the “2018 Summary Compensation Table” and the “2018 Grants of Plan-Based Awards Table” below.

 

2016 PSU Awards

 

The 2016 PSU awards had a three-year performance period after which the number of shares of our common stock earned was determined. Following the end of 2018, the Compensation Committee compared our actual performance with respect to the TSR peer group. The TSR result for the fiscal year 2016 through 2018 period as calculated by an outside firm, Research Data Group, Inc., was at the 21 st percentile of the comparator group and, therefore, the number of shares of our common stock earned under the 2016 PSU awards was 25% of the target award number of shares.

 

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The number of shares of our common stock earned by the NEOs with respect to their 2016 PSU awards was:

 

   

Performance

                   

Final Shares Earned

 
   

Stock Unit Award

   

2016-18

   

Final

   

as a Percentage of

 

Named

 

(Target number

   

TSR Percentile

   

Shares

   

Target Number of

 

Executive Officer

 

of shares)

   

Result

   

Earned

   

Shares

 

Luis A. Müller

    41,050       21%       10,262       25%  

Jeffrey D. Jones

    20,935       21%       5,233       25%  

Ian von Fellenberg

    9,852       21%       2,463       25%  

 

For purposes of the 2016 PSU awards, the pre-selected peer group consisted of the following companies that we felt represented competition for our stockholders’ investments. This group includes all the peer companies used for executive compensation comparisons at the time of grant plus seven others that provide similar products to our customers but that for various reasons such as revenue size or being located outside the U.S. would not be valid compensation peer members. During the performance period Ultratech was acquired and therefore removed from the peer group:

 

Advanced Energy Industries

Camtek

 

Photronics

Advantest

 

Electro Scientific Industries

 

Rudolph Technologies

ASM Pacific

 

FormFactor

 

Teradyne

Axcelis Technologies

 

Kulicke & Soffa

 

Ultra Clean Holdings

Besi

 

Micronics

 

Veeco

Brooks Automation

 

MKS Instruments

 

Xcerra

Cabot Microelectronics

 

Nanometrics

 

 

 

Deferred Compensation Benefits and 401(k) Plan

 

We maintain a nonqualified deferred compensation plan, the Cohu, Inc. Deferred Compensation Plan (the “ Deferred Compensation Plan ”), for our U.S. based executive officers and other employees designated by the Compensation Committee. Under the Deferred Compensation Plan, participants may elect to voluntarily defer receipt of up to 25% of their base salary and/or up to 100% of their annual cash incentive payment, thereby allowing them to defer taxation on such amounts.

 

We may match participant contributions to the Deferred Compensation Plan up to 4% of the participant’s annual base salary in excess of the specified annual compensation limit allowed under the Code for contributions under the Section 401(k) plan. The annual limit, which is indexed, was $275,000 for 2018. Our matching contributions and any deemed investment earnings attributable to these contributions will be 100% vested when the participant has two years of service with us. Prior to that time, such amounts are unvested. Participant contributions and deemed investment earnings are 100% vested at all times. We have not matched any participant contributions to the Deferred Compensation Plan since 2008.

 

For additional information on the Deferred Compensation Plan, see “2018 Nonqualified Deferred Compensation” below.

 

We maintain a tax-qualified defined contribution plan, the Cohu Employees’ Retirement Plan (the “ 401(k) Plan ”), for our U.S. based executive officers and other employees. The majority of our U.S. based employees, including all of the U.S. based NEOs, who are at least 21 years of age, are eligible to enroll in the 401(k) Plan. Under the 401(k) Plan, participants may contribute a percentage of their annual compensation subject to maximum annual contribution limitations. We may match participant contributions not to exceed specified annual limits. Our matching contributions in 2018 are immediately vested and our matching contribution was at the rate of 50% of the first 8% of employee pre-tax contributions to the plan. Generally, during 2018 the maximum annual amount that any participant could contribute to the 401(k) Plan was $18,500 unless aged 50 or more which allows participants to make an additional $6,000 in “catch-up” contributions and our maximum matching contribution was $11,000.

 

Welfare and Health Benefits

 

In 2018, our executive officers, including the NEOs, were eligible to receive health care insurance coverage and additional benefits that are generally available to our other employees located in the same country. These benefit programs include the employee stock purchase plan, medical, dental and vision insurance, long-term and short-term disability insurance, life and accidental death and dismemberment insurance, health and dependent care flexible spending accounts, business travel insurance, relocation/expatriate programs and services, educational assistance, employee assistance, and certain other benefits.

 

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In accordance with agreements executed prior to 1997, we pay certain health care-related costs for certain retired executive officers of the Company and their dependents, including insurance premiums and non-insurance covered costs, such as prescription copays and other health care costs. These health benefits continue after retirement if certain lengths of service and age requirements are satisfied at the time of retirement.

 

The 401(k) Plan and other generally-available benefit programs allow us to be competitive for employee talent and we believe that the availability of these programs generally enhances employee productivity and loyalty. The principal objectives of our benefit programs are to give our employees access to quality healthcare, financial protection from unforeseen events, assistance in achieving retirement financial goals, enhanced health and productivity, and to provide support for global workforce mobility, in full compliance with applicable legal requirements. Typically, these generally-available benefits do not specifically factor into decisions regarding an individual executive officer’s total compensation or equity awards.

 

Each year, we informally review our U.S. based benefit programs against our peers with data provided by Aon, our health and welfare benefits broker of record, and by Retirement Benefits Group, our independent 401(k) Plan consultant. Similar evaluations are made in other regions with local benefit consultants. We also evaluate the competitiveness of the 401(k) Plan against the companies in the compensation peer group, including an analysis of the dollar value to an employee and the dollar cost to us for the benefits under the applicable plan using a standard population of employees. We analyze changes to our benefit programs in light of the overall objectives of the programs, including the effectiveness of their incentive and retention features.

 

Perquisites and Other Personal Benefits

 

Currently, we do not view perquisites or other personal benefits as a significant component of our executive compensation program. Accordingly, we do not provide perquisites to our executive officers, except in situations where we believe it is appropriate to assist an individual in the performance of his or her duties, to make our executive officers more efficient and effective, and for recruitment and retention purposes.

 

During 2018, we provided the NEOs with automobile expense reimbursement or allowances as follows:

 

       

Annual

       

Auto

Named Executive Officer

 

Allowance

Luis A. Müller

 

$9,000

Jeffrey D. Jones

 

$6,000

Christopher G. Bohrson

 

$6,000

Hock W. Chiang (1)

 

$17,837

Thomas D. Kampfer

 

$6,000

Pascal Rondé

 

$3,186

Ian von Fellenberg (2)

 

$10,636

 

(1) Mr. Chiang is based in Singapore which has notably higher transportation costs.

 

(2) Mr. von Fellenberg is not provided an auto allowance. The amount presented above represents non-taxable mileage expense reimbursement he received during 2018.

 

In the future, we may provide perquisites or other personal benefits to our executive officers in limited circumstances, such as where we believe it is appropriate to assist an individual executive officer in the performance of his or her duties, to make our executive officers more efficient and effective, and for recruitment, motivation or retention purposes. We do not expect that these perquisites or other personal benefits will be a significant aspect of our executive compensation program. All future practices with respect to perquisites or other personal benefits will be approved and subject to periodic review by the Compensation Committee.

 

Employment Agreements

 

In connection with his appointment as our President and Chief Executive Officer on October 7, 2014, we entered into an “at-will” employment agreement with Dr. Müller effective December 28, 2014.

 

We have a standard Swiss employment contract with Mr. von Fellenberg, which was revised effective October 1, 2018, to reflect his new responsibilities related to his new role as Vice President of Integration and Managing Director of Multitest GmbH.

 

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Mr. Rondé is a party to an employment agreement dated December 19, 2011 and amended on April 26, 2014 and again on October 1, 2018, with our French subsidiary. His employment is also subject to a Collective Bargaining Agreement of “Metallurgie (ingenieurs et cadres),” which is also applicable to all employees of our French subsidiary. As part of the October 1, 2018 amendment, Mr. Rondé was offered a retention incentive consisting of the accelerated vesting of any outstanding restricted stock units outstanding on November 30, 2020 and a gross cash incentive payment equal to six months of his then base salary at November 30, 2020; provided, however, that he has met certain management performance objectives, as defined in his amended agreement.

 

Post-Employment Compensation

 

With the exception of Dr. Müller and Messrs. Jones, Kampfer and Rondé, and except as may be stated in our 2005 Equity Incentive Plan with respect to a change in control, we do not have any employment or other arrangements providing for post-employment compensation with any NEO.

 

Under the terms of the employment agreement with Dr. Müller, he is entitled to, absent a change in control, severance of 12 months base salary and health benefits under certain conditions, provided that the termination is not for cause, as defined in his agreement.

 

Under the terms of the employment agreement with Mr. Rondé, Mr. Rondé is entitled to receive the following compensation in the event his employment is terminated by us, except in the case of his gross or willful misconduct, subject to Mr. Rondé executing and not revoking a Company provided settlement agreement: i) a termination indemnity equal to one year of Mr. Rondé’s gross base salary, inclusive of any amount of dismissal or retirement indemnity that Mr. Rondé may otherwise be entitled to under any applicable Collective Bargaining Agreement; ii) a pro rata portion of Mr. Rondé’s target annual incentive (based on the target incentive percentage in effect as of the termination date); iii) an amount equal to Mr. Rondé’s target annual incentive (based on the target incentive percentage in effect as of the termination date). To the extent that we are required to make the severance payments described above to Mr. Rondé, we will not be required to make the social payment under the Collective Bargaining Agreement described above. In addition, unless waived by us, upon his termination, Mr. Rondé would be subject to a non-competition agreement which would restrict him from working for certain of our competitors for a period of one year following his termination. During this non-competition period, Mr. Rondé would be entitled to receive a monthly payment equal to either 50% or 60% (as determined under French law) of his average monthly salary over the twelve months preceding the month in which he is terminated.

 

In the case of Dr. Müller and Messrs. Jones and Kampfer, their arrangements provide, under certain circumstances, for payments and benefits upon termination of employment following a change in control of the Company. The payments and benefits payable under these arrangements in the event of a change in control of the Company are subject to a “double trigger,” meaning that both a change in control of the Company and a subsequent involuntary termination of employment are required. In other words, the change in control of the Company does not by itself trigger any payments or benefits; rather, payments and benefits are paid only if the employment of Dr. Müller and Messrs. Jones and Kampfer are subsequently terminated without “cause” (or they resign for “good reason”) during a specified period following the change in control. We believe that a “double trigger” arrangement maximizes stockholder value because it prevents an unintended windfall to these executive officers in the event of a change in control of the Company, while still providing them appropriate incentives to cooperate in negotiating a transaction involving a potential change in control of the Company in which they believe they may lose their jobs.

 

The post-employment payments and benefits which our NEOs are eligible to receive are described in more detail in “Potential Payments upon Termination or Change in Control” below.

 

We believe providing these arrangements help us compete for and retain executive talent. After reviewing the practices of companies represented in the compensation peer group, we believe that these arrangements are generally comparable with the severance packages offered to executives by the companies in the compensation peer group.

 

Other Compensation Policies

 

Stock Ownership Policy

 

We believe that stock ownership by our executive officers is important to link the risks and rewards inherent in stock ownership of these individuals and our stockholders. The Compensation Committee has adopted a stock ownership policy that requires our executive officers to own a minimum number of shares of our common stock. These mandatory ownership levels are intended to create a clear standard that ties a portion of these individuals’ net worth to the performance of our stock price. The policy provides that over the five-year period commencing with their appointment or employment as an executive officer or over a three-year period following an increase in their annual base salary or a new ownership level being approved, these individuals must accumulate and hold shares of our common stock having the following values:

 

Individual Subject to Stock

Ownership Policy

 

Minimum Required Level of

Stock Ownership

Chief Executive Officer

 

Three times annual base salary

Chief Financial Officer

 

Two times annual base salary

All other executive officers

 

One times annual base salary

 

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Under our stock ownership policy, our executive officers should not sell any shares of our common stock, other than to settle tax withholding obligations due to the vesting of shares, until the applicable ownership level has been met and, once met, subsequent sales, if any, should not reduce their ownership of our common stock below these minimum ownership levels unless approved by the Compensation Committee in advance. Vested “phantom” and deferred but unissued shares of our common stock are included as shares owned for purposes of our stock ownership policy.

 

The Compensation Committee monitors compliance with these stock ownership levels on an annual basis using the average closing price of our common stock during the preceding fiscal year. As of December 29, 2018, each of the NEOs was compliant with the policy.

 

Compensation Recoupment Policy

 

We have adopted a formal compensation recoupment (“clawback”) policy under which our Board of Directors may seek reimbursement of the amount paid, awarded or granted to any executive officer if, as a result of their fraud or misconduct, we restate our financial results due to our material noncompliance with any financial reporting requirements under the federal securities laws.

 

In addition, we will comply with the requirements of Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act and will amend our compensation recoupment policy once final regulations implementing this provision have been adopted.

 

Equity Award Grant Policy

 

We grant equity awards to our executive officers under our stockholder-approved 2005 Plan. Pursuant to this plan, all stock option grants must have a per share exercise price at least equal to the fair market value of our common stock on the grant date.

 

Grants of equity awards to newly hired or appointed executive officers, including NEOs, will typically be made at a regularly scheduled meeting of the Compensation Committee held subsequent to the new hire or appointment date. Ongoing equity award grants to our executive officers, including the NEOs, will be approved on an annual basis at a meeting of the Compensation Committee or our Board of Directors, as applicable, which is typically held in the first quarter of each fiscal year.

 

The Compensation Committee has not granted, nor does it intend in the future to grant, equity awards to our executive officers or any other individual in anticipation of the release of material nonpublic information that is likely to result in changes to the price of our common stock, such as a significant positive or negative earnings announcement. Similarly, the Company has not timed, nor does it intend in the future to time, the release of material nonpublic information based on equity award grant dates. In addition, because our equity awards typically vest or are earned over a multi-year period, the value to recipients of any immediate increase in the price of our common stock following an award will be minimal.

 

Tax and Accounting Considerations

 

In designing our executive compensation program, the Compensation Committee takes into consideration the tax and accounting effects that each element of compensation will or may have on the Company and our executive officers. The Compensation Committee seeks to keep the compensation expense associated with our executive compensation program as a whole within reasonable levels. When determining how to apportion between differing elements of compensation, the Compensation Committee’s goal is to meet our business objectives while maintaining cost neutrality. For example, if the Compensation Committee increases benefits under one compensation plan or arrangement resulting in higher compensation expense, it may seek to decrease benefits under another plan or arrangement to avoid compensation expense that is above the desired level.

 

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Deductibility of Executive Compensation

 

Prior to January 1, 2018, Section 162(m) of the Code generally disallowed a deduction for federal income tax purposes to any publicly-traded corporation for any remuneration in excess of $1 million paid in any taxable year to its chief executive officer and each of the three other most highly-compensated executive officers (other than its chief financial officer). Generally, remuneration in excess of $1 million could be deducted if, among other things, it qualified as “performance-based compensation” within the meaning of the Code.

 

Pursuant to the Tax Cuts and Jobs Act of 2017, which was signed into law on December 22, 2017 (the “ Tax Act ”), for taxable years beginning after December 31, 2017, the remuneration of a publicly-traded corporation’s chief financial officer is also subject to the deduction limit. In addition, subject to certain transition rules (which apply to remuneration provided pursuant to written binding contracts which were in effect on November 2, 2017 and which are not subsequently modified in any material respect), for taxable years beginning after December 31, 2017, the exemption from the deduction limit for “performance-based compensation” is no longer available. Consequently, for fiscal years beginning after December 31, 2017, all remuneration in excess of $1 million paid to a specified executive will not be deductible.

 

In the case of stock options and performance stock unit awards which were outstanding on November 2, 2017 and which are not subsequently modified in any material respect, the compensation income realized upon the exercise of such stock options or upon the vesting of such performance stock unit awards granted under a stockholder-approved employee stock plan generally are expected to be deductible as long as the options or awards, as applicable, were granted by a committee whose members are outside directors and certain other conditions are satisfied.

 

The Compensation Committee reserves the discretion, in its judgment, to approve compensation payments that may not be deductible as a result of the deduction limit of Section 162(m) when it believes that such payments are appropriate to attract and retain executive talent and are in the best interests of the Company and our stockholders.

 

Taxation of Nonqualified Deferred Compensation

 

Section 409A of the Code requires that amounts that qualify as “nonqualified deferred compensation” satisfy requirements with respect to the timing of deferral elections, timing of payments, and certain other matters. Generally, the Compensation Committee intends to administer our executive compensation program and design individual compensation elements, as well as the compensation plans and arrangements for our employees generally, so that they are either exempt from, or satisfy the requirements of, Section 409A, which primarily results in negative tax consequences to our executive officers rather than the Company. From time to time, we may be required to amend some of our compensation plans and arrangements to ensure that they are either exempt from, or compliant with, Section 409A.

 

We are not obligated under any compensation plan or arrangement to prevent or minimize any negative tax consequences that may affect our executive officers, nor are we required to pay any “gross-up” should any such consequences arise.

 

Taxation of “Parachute” Payments

 

Sections 280G and 4999 of the Code provide that executive officers and directors who hold significant equity interests and certain other service providers may be subject to significant additional taxes if they receive payments or benefits in connection with a change in control of the Company that exceeds certain prescribed limits, and that the Company (or a successor) may forfeit a deduction on the amounts subject to this additional tax. We are not obligated to provide any NEO with a “gross-up” or other reimbursement payment for any tax liability that he or she may owe as a result of the application of Sections 280G or 4999 in the event of a change in control of the Company.

 

Accounting for Stock-Based Compensation

 

The Compensation Committee takes accounting implications into consideration in designing compensation plans and arrangements for our executive officers and other employees. Chief among these is Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation—Stock Compensation, (“ ASC Topic 718 ”), the standard which governs the accounting treatment of stock-based compensation awards.

 

ASC Topic 718 requires us to measure and recognize in our financial statements all share-based payment awards to employees, directors and consultants, including stock option grants, restricted stock unit awards, and performance stock unit awards to our executive officers, under the fair value method.  Our estimate of share-based compensation expense requires a number of complex and subjective assumptions including our stock price volatility, employee exercise patterns (expected life of the options), forfeitures and related tax effects. The assumptions used in calculating the fair value of share-based payment awards represent our best estimates, but these estimates involve inherent uncertainties and the application of management judgment. We estimate the fair value of each share-based payment award on the grant date using either the Black-Scholes or the Monte Carlo simulation valuation model.  Option valuation models require the input of highly subjective assumptions and changes in the assumptions used can materially affect the grant date fair value of an award.  These assumptions for the Black-Scholes model include the risk-free rate of interest, expected dividend yield, expected volatility, and the expected life of the award.  The risk-free rate of interest is based on the U.S. Treasury rates appropriate for the expected term of the award as of the grant date.  Expected dividends are based, primarily, on historical factors related to our common stock.  Expected volatility is based on historic, weekly stock price observations of our common stock during the period immediately preceding the share-based award grant that is equal in length to the award’s expected term.  We believe that historical volatility is the best estimate of future volatility.  Expected life of the award is based on historical option exercise data. The Monte Carlo simulation model incorporates assumptions for the risk-free interest rate, Cohu and the selected peer group price volatility, the correlation between Cohu and the selected index, and dividend yields.

 

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Share-based compensation expense related to restricted stock unit awards is calculated based on the market price of our common stock on the date of grant, reduced by the present value of dividends expected to be paid on our common stock prior to vesting of the restricted stock unit. ASC Topic 718 also requires us to recognize the compensation cost of our share-based payment awards in our income statement over the period that an employee, including our executive officers, is required to render service in exchange for the award (which, generally, will correspond to the award’s vesting schedule). We record a provision for equity-based performance units outstanding based on our current assessment of achievement of the performance goals.  Through 2015, estimated forfeitures were required to be included as a part of the grant date expense estimate.  In 2016, we adopted Financial Accounting Standards Board (“ FASB ”) Accounting Standards Update (“ ASU ”) No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting and elected to eliminate the use of an estimated forfeiture rate and recognize actual forfeitures as they occur. Prior to 2016, we used historical data to estimate expected employee behaviors related to option exercises and forfeitures.

 

Compensation Committee Report

 

The Committee has reviewed and discussed with management the Compensation Discussion and Analysis for fiscal 2018. Based on such review and discussions, the Committee recommended to the Board, and the Board has approved, that the Compensation Discussion and Analysis be included in Cohu’s proxy statement for its 2019 Annual Meeting of Stockholders.

 

This report is submitted by the Compensation Committee.

 

Steven J. Bilodeau (Chair)      William E. Bendush      Ritu C. Favre       Jorge L. Titinger

 

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2018 SUMMARY COMPENSATION TABLE

 

The following table shows compensation information for fiscal 2018 for our NEOs.

 

                     

Non-Equity

 

Nonqualified

       
                     

Incentive

 

Deferred

       
                 

Stock

 

Plan

 

Comp.

 

All Other

   

Name and

     

Salary

 

Bonus

 

Awards

 

Comp.

 

Earnings

 

Comp.

 

Total

Principal Position

 

Year

 

($)

 

($) (1)

 

($) (2)

 

($) (3)

 

($) (4)

 

($) (5)

 

($)

                                   

Luis A. Müller

 

2018

 

585,769

 

-

 

1,418,959

 

651,000

 

-

 

19,037

 

2,674,765

President &

 

2017

 

527,308

 

-

 

1,386,829

 

794,361

 

-

 

17,581

 

2,726,079

Chief Executive Officer

 

2016

 

485,000

 

-

 

1,048,309

 

577,485

 

-

 

17,527

 

2,128,321

                                 

Jeffrey D. Jones

 

2018

 

340,652

 

-

 

608,138

 

223,589

 

-

 

17,787

 

1,190,166

Vice President, Finance &

 

2017

 

328,039

 

-

 

599,090

 

292,884

 

-

 

14,887

 

1,234,900

Chief Financial Officer

 

2016

 

320,000

 

-

 

534,619

 

225,413

 

-

 

14,737

 

1,094,769

                                 

Thomas D. Kampfer

 

2018

 

292,235

 

-

 

334,451

 

159,704

 

-

 

17,955

 

804,345

Vice President, Corp. Development,

 

2017

 

208,942

 

50,000

 

358,533

 

114,803

 

-

 

4,206

 

736,484

General Counsel & Secretary

                               
                                 

Christopher G. Bohrson

 

2018

 

266,925

 

-

 

334,451

 

123,573

 

-

 

17,649

 

742,598

Sr. Vice President & General Manager, Test Handler Group

 

2017

 

248,077

 

-

 

332,836

 

190,171

 

-

 

12,952

 

784,036

                                   

Hock W. Chiang (6)

 

2018

 

236,043

 

-

 

253,387

 

165,290

 

-

 

24,767

 

679,487

Vice President,

 

2017

 

212,168

 

-

 

116,536

 

199,695

 

-

 

27,218

 

555,617

Sales Asia

 

2016

 

198,632

 

-

 

115,367

 

135,204

 

-

 

25,844

 

475,047

                                 

Pascal Rondé (7)

 

2018

 

94,997

 

51,795

 

-

 

-

 

-

 

3,186

 

149,978

Sr. Vice President,

                               

Global Customer Group

                               
                                 

Ian von Fellenberg (8)

 

2018

 

273,780

 

-

 

334,451

 

127,708

 

58,930

 

68,769

 

863,638

Vice President of Integration &

 

2017

 

249,431

 

-

 

332,836

 

188,849

 

198,049

 

55,693

 

1,024,858

Managing Director of Multitest GmbH

                               
                                 

(1)

Amount shown for Mr. Kampfer was a new-hire bonus of $50,000. Mr. Rondé’s cash bonus $51,795 represents incentive compensation earned during his employment by Cohu under the terms of his agreement with Xcerra.

(2)

Amounts shown do not reflect compensation actually received by the NEOs. Instead, the amounts shown above are the grant date fair value for stock awards issued in the form of RSUs and PSUs granted in fiscal 2018, 2017 and 2016. The assumptions used to calculate the grant date fair value of the stock awards are set forth in Note 6, “Employee Benefit Plans,” included in Part IV, Item 15(a) of Cohu’s Annual Report on Form 10-K for the year ended December 29, 2018, filed with the SEC. The derived grant date fair value for the stock award is recognized, for financial statement purposes, over the number of days of service required for the award to vest in full. No stock options were granted to the NEOs during the three -year period ended December 29, 2018. Assuming the highest level of performance conditions are achieved, the grant date fair values for performance-based stock awards made in fiscal 2018 would be $1,495,696, $641,026, $352,538, $352,538, $267,090 and $352,538 for Dr. Müller and Messrs. Jones, Kampfer, Bohrson, Chiang and von Fellenberg, respectively.

(3)

Amounts consist of performance-based cash incentives received by the NEO earned for services rendered in fiscal 2018, 2017 and 2016. Such amounts were paid under the 2005 Plan in February or March of the following fiscal year.

(4)

Amounts reflect the aggregate change in the actuarial present value of each NEO’s accumulated benefits under defined benefit plans, during the fiscal year. The amounts reported in this column vary with a number of factors, including the discount rate applied. The assumptions used to calculate the present value of Mr. von Fellenberg’s accumulated benefit obligation are set forth in Note 6, “Employee Benefit Plans,” included in Part IV, Item 15(a) of Cohu’s Annual Report on Form 10-K for the year ended December 29, 2018, filed with the SEC.

(5)

The amounts shown in this column reflect the following for each NEO:

 

(a)

For U.S. based NEOs, includes amounts of Cohu’s matching contributions in fiscal 2018 under the Cohu 401(k) Plan (which is more fully described elsewhere herein under the heading “Retirement Benefits Under the 401(k) Plan, Executive Perquisites and Generally Available Benefits”).

 

(b)

For Mr. von Fellenberg during 2018 and 2017 Cohu made contributions totaling $33,133 and $30,693, respectively, to the Ismeca Europe Semiconductor BVG Pension Plan. The amounts reported above also includes an estimate of $25,000 for tax preparation and tax equalization payments he is entitled to.

 

53

 

 

 

(c)

The value attributable to life insurance benefits provided by Cohu (such amount is taxable to the recipient). No life insurance benefits are provided to Messrs. Rondé and von Fellenberg.

 

(d)

Monthly automobile expense allowance paid by Cohu (such amount is taxable to the recipient). Mr. von Fellenberg is not provided a monthly automobile expense allowance, but is reimbursed for actual expenses.

Except as noted above, the amount attributable to each such perquisite or benefit for each NEO does not exceed the greater of $25,000 or 10% of the total amount of perquisites and personal benefits received by such NEO.

(6)

Payments to Mr. Chiang were made in Singapore Dollars. Compensation amounts presented have been converted to U.S. Dollars using the average daily exchange rate for the annual period presented above.

(7)

Mr. Rondé joined Cohu and was appointed an executive officer on October 1, 2018 upon the closing of the acquisition of Xcerra. Payments to Mr. Rondé were made in Euros and the reported salary amounts represent compensation earned subsequent to becoming employees of Cohu.

(8)

Payments to Mr. von Fellenberg were made in Swiss Francs. Compensation amounts presented have been converted to U.S. Dollars using the average daily exchange rate for the annual period presented above.

 

We have not entered into any employment agreement with any of our NEOs, with the exception of Dr. Müller, Mr. Rondé and Mr. von Fellenberg, whose employment agreements are described in more detail in “Employment Agreements” above. Similarly, the material terms of stock awards granted to our NEOs in 2018 and performance-based cash incentives earned by our NEOs for 2018 are described in more detail in “Long-Term Incentive Compensation” and “Annual Cash Incentive,” respectively, above.

 

2018 CEO PAY RATIO

 

As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item 401(u) of Regulation S-K, we are providing the following information about the relationship of the annual total compensation of our employees and the annual total compensation of Dr. Luis Müller, our CEO.

 

For 2018, our last completed fiscal year:

 

 

The median of the annual total compensation of all employees of our company (other than our CEO), was $32,476; and

 

The annual total compensation of our CEO, as reported in the Summary Compensation Table presented elsewhere in this Proxy Statement, was $2,674,765.

 

Based on this information, for 2018 the ratio of the annual total compensation of Dr. Müller, our CEO, to the median of the annual total compensation of all our employees was 82 to 1.

 

We believe that this pay ratio is a reasonable estimate calculated in a manner consistent with SEC rules based on our payroll and employment records and the methodology described below. The SEC rules for identifying the median compensated employee and calculating the pay ratio based on that employee’s annual total compensation allow companies to adopt a variety of methodologies, to apply certain exclusions, and to make reasonable estimates and assumptions that reflect their compensation practices. As such, the pay ratio reported by other companies may not be comparable to the pay ratio reported above, as other companies may have different employment and compensation practices and may utilize different methodologies, exclusions, estimates and assumptions in calculating their own pay ratios.

 

For the purpose of establishing the median total compensation of all employees in 2018, we determined that we would exclude the employees that joined Cohu via the acquisition of Xcerra Corporation on October 1, 2018. Additionally, we determined that the balance of the global workforce remained substantially similar to 2017 and therefore as allowed under SEC rules, we would use the same median compensated employee as identified in 2017.

 

To identify the median compensated employee in 2017, we determined that, as of October 1, 2017, our employee population consisted of approximately 1,745 individuals globally, with 17% of these individuals located in the United States, 16% located in Europe (primarily in Germany and Switzerland), and 67% located in Asia (primarily in Malaysia and the Philippines). We selected October 1, 2017, which is within the last three months of 2017, as the date upon which we would identify the “median employee” to allow sufficient time to identify the median employee given the global scope of our operations. We excluded equity compensation as a factor in identifying the median employee as less than 10% of our employee population receives equity grants as part of their compensation. Additionally, we used forecasted 2017 compensation (actual compensation paid January through September 2017 plus estimated compensation for October through December 2017) based on salary or wages, overtime pay, monthly allowances, statutory bonuses, and incentive pay received. Due to the geographical distribution of our employee populations, we also excluded social program contributions and other benefits as these vary greatly from country to country.

 

54

 

 

Using this methodology, we determined that the “median employee” was a full-time, salaried employee located in China. The median employee’s actual annual total compensation for the 12-month period ending December 31, 2018, was $32,476. This amount includes all wages, overtime pay, statutory and variable incentive payments, localized personal benefits, and mandatory payments to the government regarding pension, healthcare and housing converted to U.S. Dollars.

 

2018 GRANTS OF PLAN-BASED AWARDS

 

The following table shows all plan-based awards granted to our NEOs during fiscal 2018, which ended on December 29, 2018. The stock awards identified in the table below are also reported in the “Outstanding Equity Awards at December 29, 2018” table included herein. The Company did not grant any stock options to NEOs under the 2005 Plan in fiscal 2018.

                                   

All Other

   
       

Estimated Future

 

Estimated Future

 

Stock

 

Grant

       

Payouts Under Non-

 

Payouts Under

 

Awards:

 

Date Fair

       

Equity Incentive

 

Equity Incentive

 

Number of

 

Value of

       

Plan Awards (1)

 

Plan Awards (2)

 

Shares of

 

Stock and

           

Thres-

     

Maxi-

 

Thres-

     

Maxi-

 

Stock or

 

Option

       

Grant

 

hold

 

Target

 

mum

 

hold

 

Target

 

mum

 

Units

 

Awards

Name

 

Award Type

 

Date

 

($)

 

($)

 

($)

 

(#)

 

(#)

 

(#)

 

(#) (3)

 

($) (4)

                                         

Luis A.

 

Cash Incentive

 

-

 

0

 

595,000

 

991,865

 

-

 

-

 

-

 

-

 

-

Müller

 

Time-based RSUs

 

3/20/2018

 

-

 

-

 

-

 

-

 

-

 

-

 

30,755

 

671,111

   

Performance-based RSUs

 

3/20/2018

 

-

 

-

 

-

 

7,689

 

30,755

 

61,510

 

-

 

747,848

                                         

Jeffrey D.

 

Cash Incentive

 

-

 

0

 

205,608

 

342,680

 

-

 

-

 

-

 

-

 

-

Jones

 

Time-based RSUs

 

3/20/2018

 

-

 

-

 

-

 

-

 

-

 

-

 

13,181

 

287,625

   

Performance-based RSUs

 

3/20/2018

 

-

 

-

 

-

 

3,295

 

13,181

 

26,362

 

-

 

320,513

                                         

Thomas D.

 

Cash Incentive

 

-

 

0

 

146,775

 

220,163

 

-

 

-

 

-

 

-

 

-

Kampfer

 

Time-based RSUs

 

3/20/2018

 

-

 

-

 

-

 

-

 

-

 

-

 

7,249

 

158,182

   

Performance-based RSUs

 

3/20/2018

 

-

 

-

 

-

 

1,812

 

7,249

 

14,498

 

-

 

176,269

                                         

Christopher G.

 

Cash Incentive

 

-

 

0

 

138,501

 

230,743

 

-

 

-

 

-

 

-

 

-

Bohrson

 

Time-based RSUs

 

3/20/2018

 

-

 

-

 

-

 

-

 

-

 

-

 

7,249

 

158,182

   

Performance-based RSUs

 

3/20/2018

 

-

 

-

 

-

 

1,812

 

7,249

 

14,498

 

-

 

176,269

                                         

Hock W.

 

Cash Incentive

 

-

 

0

 

143,396

 

250,943

 

-

 

-

 

-

 

-

 

-

Chiang

 

Time-based RSUs

 

3/20/2018

 

-

 

-

 

-

 

-

 

-

 

-

 

5,492

 

119,842

   

Performance-based RSUs

 

3/20/2018

 

-

 

-

 

-

 

1,373

 

5,492

 

10,984

 

-

 

133,545

                                         

Pascal

 

Cash Incentive

 

-

 

0

 

-

 

-

 

-

 

-

 

-

 

-

 

-

Rondé (5)

 

Time-based RSUs

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

   

Performance-based RSUs

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

                                         

Ian

 

Cash Incentive

 

-

 

0

 

138,330

 

230,457

 

-

 

-

 

-

 

-

 

-

von Fellenberg

 

Time-based RSUs

 

3/20/2018

 

-

 

-

 

-

 

-

 

-

 

-

 

7,249

 

158,182

   

Performance-based RSUs

 

3/20/2018

 

-

 

-

 

-

 

1,812

 

7,249

 

14,498

 

-

 

176,269

                                         
 

(1)

Amounts shown are estimated possible payouts for fiscal 2018 under the executive cash incentive plan. These amounts are based on the individual’s fiscal 2018 base salary amounts, and position. The maximum amount shown is 133% of the target amount for each of the NEOs. Actual cash incentives received by the NEOs for fiscal 2018 are reported in the Summary Compensation Table under the column entitled “Non-Equity Incentive Plan Compensation.” Amounts earned by our NEOs for performance in 2018 are based on the attainment of performance goals for both the Company and the individual NEO, as described in more detail in “Annual Cash Incentives” above.

 

(2)

The PSU awards granted to our NEOs in 2018 are subject to certain adjustments resulting from the performance of our total stockholder return (“TSR”) relative to a pre-selected comparator group over the three-year period following the date of grant. The PSU awards granted in 2018 vest 100% on the third anniversary of the date of grant.

 

(3)

The amounts reflect the number of RSUs awarded to each NEO under the 2005 Plan. The RSU awards granted to our NEOs in 2018 vest at the rate of 25% of the shares of our common stock subject to the awards per year.

 

(4)

The amounts shown are the grant date fair value for stock awards issued in fiscal 2018. The assumptions used to calculate the grant date fair value of the awards are set forth in Note 6, “Employee Benefit Plans,” included in Part IV, Item 15(a) of Cohu’s Annual Report on Form 10-K for the year ended December 29, 2018, filed with the SEC.

 

(5)

Mr. Rondé joined Cohu on October 1, 2018.

 

55

 

 

OUTSTANDING EQUITY AWARDS AT DECEMBER 29, 2018

 

The following table shows all outstanding equity awards held by our NEOs at the end of fiscal 2018, which ended on December 29, 2018.

 

     

OPTION AWARDS

 

STOCK AWARDS

                                 

Equity

                             

Equity

 

Incentive

                             

Incentive

 

Plan

                             

Plan

 

Awards:

                             

Awards:

 

Market

                             

Number

 

or Payout

                             

of

 

Value of

                         

Market

 

Unearned

 

Unearned

                         

Value of

 

Shares,

 

Shares,

     

Number of

 

Number of

         

Number

 

Shares or

 

Units or

 

Units or

     

Securities

 

Securities

         

of Shares

 

Units of

 

Other

 

Other

     

Underlying

 

Underlying

         

or Units

 

Stock

 

Rights

 

Rights

     

Unexercised

 

Unexercised

         

of Stock

 

That

 

That

 

That

     

Options

 

Options

 

Option

 

Option

 

That Have

 

Have Not

 

Have Not

 

Have Not

     

Exercisable

 

Unexercisable

 

Exercise

 

Expiration

 

Not

 

Vested

 

Vested

 

Vested

Name

 

(#) (1)

 

(#) (1)

 

Price ($)

 

Date

 

Vested (#)

 

($) (2)

 

(#) (3)

 

($) (4)

                                 

Luis A.

 

45,000

 

-

 

9.44

 

3/26/2023

 

79,398

 

1,275,926

 

109,297

 

1,756,403

Müller

                               
                                 

Jeffrey D.

 

33,780

 

-

 

10.58

 

3/6/2022

 

41,017

 

659,143

 

50,312

 

808,514

Jones

 

38,442

 

-

 

9.44

 

3/26/2023

               
                                 

Thomas D.

 

-

 

-

 

-

 

-

 

14,204

 

228,258

 

16,523

 

265,525

Kampfer

                               
                                 

Christopher G.

-

 

-

 

-

 

-

 

20,685

 

332,408

 

29,624

 

476,058

Bohrson

                               
                                 

Hock W.

 

-

 

-

 

-

 

-

 

11,729

 

188,485

 

-

 

-

Chiang

                               
                                 

Pascal

 

-

 

-

 

-

 

-

 

69,642

 

1,119,147

 

-

 

-

Rondé

                           
                                 

Ian

 

-

 

-

 

-

 

-

 

21,561

 

346,485

 

26,099

 

419,411

von Fellenberg

                               
 

(1)

All stock options vest at a rate of 25% per year over the first four years after the date of grant and have a ten-year term.

 

(2)

Based on a closing price of Cohu’s common stock of $16.07 as reported on the Nasdaq Global Select Market on December 31, 2018. RSUs vest and shares are issued in four equal annual installments beginning one year after the date of grant.

 

(3)

Reflects PSUs granted under the 2016, 2017 and 2018 PSU program at the target award level. PSUs granted in 2018, 2017 and 2016 vest 100% on the third anniversary of their grant and PSUs granted in 2015 vest 50% on the second and third anniversary of their grant, respectively.

 

(4)

Based on a closing price of Cohu’s common stock of $16.07 as reported on the Nasdaq Global Select Market on December 31, 2018. RSUs vest and shares are issued in four equal annual installments beginning one year after the date of grant.

 

56

 

 

2018 OPTION EXERCISES AND STOCK VESTED

 

The following table shows all stock options exercised and the value realized upon exercise and all stock awards vested and the value realized upon vesting by our NEOs during fiscal 2018, which ended on December 29, 2018.

 

                   

Stock Awards

 
   

Option Awards

   

Number

         
   

Number

   

Value

   

of Shares

   

Value

 
   

of Shares

   

Realized

   

Acquired

   

Realized

 
   

Acquired on

   

on Exercise

   

on Vesting

   

on

 

Name

 

Exercise (#)

   

a($) (1)

   

a($) (2)

   

Vesting ($) (3)

 

Luis A. Müller