SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. __)
Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
[X] Definitive Proxy Statement Commission Only (as permitted by
[ ] Definitive Additional Materials Rule 14a-6(e)(2))
[ ] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
AEHR TEST SYSTEMS
----------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
----------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transactions applies:
(2) Aggregate number of securities to which transactions 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:
[Graphic Omitted]
AEHR TEST SYSTEMS
400 KATO TERRACE
FREMONT, CALIFORNIA 94539
-----------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON OCTOBER 17, 2001
-----------------------------
TO THE SHAREHOLDERS OF
AEHR TEST SYSTEMS:
You are cordially invited to attend the Annual Meeting of Shareholders
(the "Annual Meeting") of Aehr Test Systems, a California corporation (the
"Company") to be held on October 17, 2001, at 4:00 p.m., at 400 Kato Terrace,
Fremont, California 94539, for the following purposes:
1. To elect five directors.
2. To approve an amendment of the 1996 Stock Option Plan to increase the
number of shares issuable thereunder by 300,000 shares.
3. To ratify the selection of PricewaterhouseCoopers LLP as the Company's
independent accountants for the fiscal year ending May 31, 2002.
4. To transact such other business as may properly come before the Annual
Meeting or any adjournments thereof.
Only holders of record of the Common Stock at the close of business on
September 10, 2001 will be entitled to notice of and to vote at the Annual
Meeting. Please sign, date and mail the enclosed proxy so that your shares may
be represented at the Annual Meeting if you are unable to attend and vote in
person.
By Order of the Board of Directors,
/s/ Rhea J. Posedel
----------------------
RHEA J. POSEDEL
Chief Executive Officer and
Chairman of the Board of Directors
AEHR TEST SYSTEMS
400 KATO TERRACE
FREMONT, CALIFORNIA 94539
---------------
PROXY STATEMENT
---------------
ANNUAL MEETING OF SHAREHOLDERS
This Proxy Statement is being furnished to the Shareholders (the
"Shareholders") of Aehr Test Systems, a California corporation (the "Company"),
in connection with the solicitation of proxies by the Board of Directors for use
at the Annual Meeting of Shareholders (the "Annual Meeting") of the Company to
be held on October 17, 2001 and at any adjournments thereof.
At the Annual Meeting, the Shareholders will be asked:
1. To elect five directors.
2. To approve an amendment of the 1996 Stock Option Plan to increase the
number of shares issuable thereunder by 300,000 shares.
3. To ratify the selection of PricewaterhouseCoopers LLP as the Company's
independent accountants for the fiscal year ended May 31, 2002.
4. To transact such other business as may properly come before the Annual
Meeting or any adjournments of the Annual Meeting.
The Board of Directors has fixed the close of business on September 10,
2001 as the record date for the determination of the holders of Common Stock
entitled to notice of and to vote at the Annual Meeting. Each such Shareholder
will be entitled to one vote for each share of Common Stock ("Common Share")
held on all matters to come before the Annual Meeting and may vote in person or
by proxy authorized in writing.
This Proxy Statement and the accompanying form of proxy are first being
sent to holders of the Common Shares on or about September 27, 2001.
THE ANNUAL MEETING
DATE, TIME AND PLACE
The Annual Meeting will be held on October 17, 2001 at 4:00 p.m., local
time, at 400 Kato Terrace, Fremont, California 94539.
GENERAL
The Company's principal office is located at 400 Kato Terrace, Fremont,
California 94539 and its telephone number is (510) 623-9400.
RECORD DATE AND SHARES ENTITLED TO VOTE
Shareholders of record at the close of business on September 10, 2001 (the
"Record Date") are entitled to notice of and to vote at the Annual Meeting. As
of the Record Date, there were 7,128,811 Common Shares outstanding and entitled
to vote.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Company a written
notice of revocation or a duly executed proxy bearing a later date or by
attending the meeting and voting in person.
1
VOTING AND PROXY SOLICITATION
Each shareholder voting for the election of directors may cumulate his or
her votes, giving one candidate a number of votes equal to the number of
directors to be elected multiplied by the number of shares that the shareholder
is entitled to vote, or distributing the shareholder's votes on the same
principle among as many candidates as the shareholder chooses. No shareholder
shall be entitled to cumulate votes for any candidate unless the candidate's
name has been properly placed in nomination prior to the voting and the
shareholder, or any other shareholder, has given notice at the meeting prior to
the voting of the intention to cumulate votes. On all other matters, each share
has one vote.
Proxies are being solicited by the Company. The cost of this solicitation
will be borne by the Company. The Company may reimburse brokerage firms and
other persons representing beneficial owners of shares for their expenses in
forwarding solicitation material to such beneficial owners. Proxies may also be
solicited by certain of the Company's directors, officers, and regular
employees, without additional compensation, personally or by telephone or
telegram.
QUORUM; ABSTENTIONS; BROKER NON-VOTES
The required quorum for the transaction of business at the Annual Meeting
is a majority of the shares of Common Stock issued and outstanding on the Record
Date. Shares that are voted "FOR," "AGAINST" or "WITHHELD FROM" a matter are
treated as being present at the meeting for purposes of establishing a quorum
and are also treated as shares "represented and voting" (the "Votes Cast") at
the Annual Meeting with respect to such matter.
While there is no definitive statutory or case law authority in California
as to the proper treatment of abstentions, the Company believes that abstentions
should be counted for purposes of determining both (i) the presence or absence
of a quorum for the transaction of business and (ii) the total number of Votes
Cast with respect to a proposal (other than the election of directors). In the
absence of controlling precedent to the contrary, the Company intends to treat
abstentions in this manner. Accordingly, abstentions will have the same effect
as a vote against the proposal.
Broker non-votes may be counted for purposes of determining the presence
or absence of a quorum for the transaction of business, but will not be counted
for purposes of determining the number of Votes Cast with respect to the
proposal on which the broker has expressly not voted. Thus, a broker non-vote
will not affect the outcome of the voting on a proposal.
DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS FOR 2002 ANNUAL MEETING
Shareholders are entitled to present proposals for action at a forthcoming
meeting if they comply with the requirements of the proxy rules promulgated by
the Securities and Exchange Commission ("SEC"). Proposals of shareholders of the
Company intended to be presented for consideration at the Company's 2002 Annual
Meeting of Shareholders must be received by the Company no later than May 31,
2002, in order that they may be included in the proxy statement and form of
proxy related to that meeting.
SHAREHOLDER INFORMATION
IN COMPLIANCE WITH RULE 14A-3 PROMULGATED UNDER THE SECURITIES EXCHANGE
ACT OF 1934, THE COMPANY HEREBY UNDERTAKES TO PROVIDE WITHOUT CHARGE TO EACH
PERSON UPON WRITTEN REQUEST, A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K,
INCLUDING THE FINANCIAL STATEMENTS AND FINANCIAL SCHEDULES THERETO. REQUESTS FOR
SUCH COPIES SHOULD BE DIRECTED TO AEHR TEST SYSTEMS, 400 KATO TERRACE, FREMONT,
CA 94539, ATTENTION: INVESTOR RELATIONS.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, DIRECTORS
AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of August 31, 2001, or
some other practical date in cases of the principal shareholders, by: (i) each
person (or group of affiliated persons) known to the Company to be the
beneficial owner of more than 5% of the Company's Common Stock, (ii) each
director of the Company, (iii) each of the Company's executive officers named in
the Summary Compensation Table appearing herein, and (iv) all directors and
executive officers of the Company as a group:
SHARES BENEFICIALLY
OWNED(1)
--------------------------
BENEFICIAL OWNER NUMBER PERCENT(2)
-------- ----------
NAMED EXECUTIVE OFFICERS AND DIRECTORS:
Rhea J. Posedel (3) ........................................................... 1,007,013 14.0%
Robert R. Anderson (4) ........................................................ 86,250 1.2%
William W. R. Elder (5) ....................................................... 42,083 *
Mukesh Patel (6) .............................................................. 30,000 *
Mario M. Rosati (7) ........................................................... 219,340 3.1%
Carl J. Meurell (8) ........................................................... 99,896 1.4%
Gary L. Larson (9) ............................................................ 65,678 *
Carl N. Buck (10) ............................................................. 57,335 *
Richard F. Sette (11) ......................................................... 62,602 *
All Directors and Executive Officers as a group (12 persons) (12) ............. 1,710,841 22.9%
PRINCIPAL SHAREHOLDERS:
Private Capital Management, Inc. (13) ......................................... 1,542,768 21.6%
8889 Pelican Bay Blvd., Naples, FL 34108
State of Wisconsin Investment Board (14) ...................................... 1,147,000 16.1%
121 East Wilson Street, Madison, WI 53702
Wellington Management Company, LLP (15) ....................................... 641,900 9.0%
75 State Street, 19th Floor, Boston, MA 02109
Dimensional Fund Advisors Inc. (16) ........................................... 370,900 5.2%
1299 Ocean Avenue, 11th Floor, Santa Monica, CA 90401
<FN>
--------------------------------
* Represents less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the
SEC. Unless otherwise indicated in the footnotes to this table, the
persons and entities named in the table have represented to the Company
that they have sole voting and sole investment power with respect to all
shares beneficially owned, subject to community property laws where
applicable. Unless otherwise indicated, the address of each of the
individuals listed in the table is c/o Aehr Test Systems, 400 Kato
Terrace, Fremont, California 94539.
(2) Shares of Common Stock subject to options that are currently exercisable
or exercisable within 60 days of August 31, 2001 are deemed to be
outstanding and to be beneficially owned by the person holding such
options for the purpose of computing the percentage ownership of such
person but are not treated as outstanding for the purpose of computing
the percentage ownership of any other person.
(3) Includes 20,000 shares held by Vivian Owen, Mr. Posedel's wife, 5,000
shares held by Rhea J. Posedel, trustee for Natalie Diane Posedel, Mr.
Posedel's daughter, and 50,832 shares issuable upon the exercise of stock
options exercisable within 60 days of August 31, 2001.
(4) Includes 13,750 shares issuable upon the exercise of stock options within
60 days of August 31, 2001.
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(5) Includes 17,083 shares issuable upon the exercise of stock options
exercisable within 60 days of August 31, 2001.
(6) Includes 25,000 shares issuable upon the exercise of stock options within
60 days of August 31, 2001.
(7) Includes 3,040 shares held of record by WS Investment Company 87A. Mr.
Rosati is a general partner of WS Investment Company 87A and disclaims
beneficial ownership of the shares held by WS Investment Company 87A
except to the extent of his proportionate partnership interest therein.
Also includes 27,000 shares held by Mario M. Rosati and Douglas Laurice,
trustees for the benefit of Mario M. Rosati, 151,016 shares held by Mario
M. Rosati, Trustee of the Mario M. Rosati Trust, U/D/T dated 1/9/90,
20,000 shares held by Douglas M. Laurice and Mario M. Rosati TTEE FBO
Sally Rosati Banks and 17,083 shares issuable upon the exercise of stock
options exercisable within 60 days of August 31, 2001.
(8) Includes 99,166 shares issuable upon the exercise of stock options within
60 days of August 31, 2001.
(9) Includes 36,248 shares issuable upon the exercise of stock options within
60 days of August 31, 2001.
(10) Includes 23,749 shares issuable upon the exercise of stock options within
60 days of August 31, 2001.
(11) Includes 27,602 shares issuable upon the exercise of stock options within
60 days of August 31, 2001.
(12) Includes 2,000 shares held in the name of Christopher S. Noe and 349,157
shares issuable upon the exercise of stock options within 60 days of
August 31, 2001.
(13) Based on Form 13F Holdings Report filed with the SEC by Private Capital
Management, Inc. ("PCM") for the period ended June 30, 2001 and
information provided by PCM. PCM has shared investment power and shared
voting power with respect to the shares.
(14) Based solely on Form 13F Holdings Report filed with the SEC by the State
of Wisconsin Investment Board ("SWIB") for the period ended June 30,
2001. SWIB has sole investment and sole voting power with respect to the
shares.
(15) Based solely on Form 13F Holdings Report filed with the SEC by Wellington
Management Company, LLP ("WMC") for the period ended June 30, 2001. WMC,
in its capacity as investment advisor, may be deemed to have beneficial
ownership of the 641,900 shares which are held of record by investment
advisory clients of WMC. WMC has sole investment power and no voting
power with respect to 130,000 shares, sole investment and sole voting
power with respect to 190,000 shares and shared investment and shared
voting power with respect to the remaining shares.
(16) Based solely on Form 13F Holdings Report filed with the SEC by
Dimensional Fund Advisors Inc. ("DFA") for the period ended June 30,
2001. DFA has sole investment and sole voting power with respect to the
shares.
</FN>
PROPOSAL 1
ELECTION OF DIRECTORS
At the Annual Meeting, five directors are to be elected to serve until
the next Annual Meeting or until their successors are elected and qualified.
Unless otherwise instructed, the proxy holders will vote the proxies received by
them for the election of the five nominees named below, all of whom are
presently directors of the Company. Each nominee has consented to be named a
nominee in this Proxy Statement and to continue to serve as a director if
elected. Should any nominee become unable or decline to serve as a director or
should additional persons be nominated at the meeting, the proxy holders intend
to vote all proxies received by them in such a manner as will assure the
election of as many nominees listed below as possible (or, if new nominees have
been designated by the Board of Directors, in such a manner as to elect such
nominees) and the specific nominees to be voted for will be determined by the
proxy holders. The Company is not aware of any reason that any nominee will be
unable or will decline to serve as a director. There are no arrangements or
understandings between any director or executive officer and any other person
pursuant to which he is or was to be selected as a director or officer of the
Company.
4
The names of the nominees and certain information about them are set
forth below:
DIRECTOR
NAME OF NOMINEE AGE POSITION SINCE
---------------------------- --- ------------------------------------------------- --------
Rhea J. Posedel 59 Chairman of the Board and Chief Executive Officer 1977
Robert R. Anderson (1) 63 Director 2000
William W.R. Elder (1)(2) 62 Director 1989
Mukesh Patel (1) 43 Director 1999
Mario M. Rosati (2) 55 Director and Secretary 1977
<FN>
----------------------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
</FN>
The principal occupation of each of the Board members during the past
five years is set forth below. There is no family relationship between any
director or executive officer of the Company.
RHEA J. POSEDEL is a founder of the Company and has served as Chief
Executive Officer and Chairman of the Board of Directors since its inception in
1977. From the Company's inception through May 2000, Mr. Posedel also served as
President. Prior to founding the company, Mr. Posedel held various project
engineering and engineering managerial positions at Lockheed Martin Corporation
(formerly "Lockheed Missile & Space Corporation"), Ampex Corporation, and Cohu,
Inc. He received a B.S. in Electrical Engineering from the University of
California, Berkeley, an M.S. in Electrical Engineering from San Jose State
University and an M.B.A. from Golden Gate University.
ROBERT R. ANDERSON was appointed to the Company's Board of Directors in
October 2000. Mr. Anderson is a private investor. From January 1994 to January
2001, he was Chairman of Silicon Valley Research, Inc., a semiconductor design
automation software company, and its Chief Executive Officer from December 1996
to August 1998, and from April 1994 to July 1995. He also served as Chairman of
Yield Dynamics, Inc., a private semiconductor process control software company,
from October 1998 to October 2000, and as Chief Executive Officer from October
1998 to April 2001. Mr. Anderson co-founded KLA Instruments Corporation, now
KLA-Tencor Corporation, a supplier of semiconductor process control systems, in
1975 and served in various capacities including Chief Operating Officer, Chief
Financial Officer, Vice Chairman and Chairman. Mr. Anderson is a director of MKS
Instruments, Inc., Metron Technology N.V. and Trikon Technologies, Inc. He also
serves as a director for three private development stage companies, and as a
trustee of Bentley College.
WILLIAM W. R. ELDER has been a director of the Company since 1989. Dr.
Elder was the Chief Executive Officer of Genus, Inc. ("Genus"), a semiconductor
company, from his founding of Genus in 1981 to September 1996, and has been
serving in that same position again since April 1998. Dr. Elder has been a
director of Genus since its inception. Dr. Elder holds a B.S.I.E. and an
honorary Doctorate Degree from the University of Paisley in Scotland.
MUKESH PATEL was appointed to the Company's Board of Directors in June
1999. Mr. Patel is a director and the Chief Executive Officer of Sparkolor Corp.
Mr. Patel co-founded SMART Modular Technologies, Inc., where he served on its
Board of Directors since its inception and he acted in various executive
capacities from 1989 to 1999. Mr. Patel holds a B.S. degree in Engineering with
emphasis on digital electronics from Bombay University, India. and a director of
Nazomi Communications Inc., Yatra Corporation and Parama Networks.
MARIO M. ROSATI has been a director of the Company since 1977. He is a
member of the law firm Wilson Sonsini Goodrich & Rosati, Professional
Corporation which he joined in 1971. Mr. Rosati is a graduate of Boalt Hall,
University of California at Berkeley. Mr. Rosati is a director of Genus, Inc.,
5
Sanmina Corporation, Symyx Technologies, Inc., The Management Network Group,
Inc., and Vivus, as well as several privately-held companies.
BOARD MEETINGS AND COMMITTEES
The Board of Directors held a total of four (4) meetings and acted five
(5) times by unanimous written consent during the fiscal year ended May 31,
2001. No incumbent director during his period of service in such fiscal year
attended fewer than 75% of the aggregate of all meetings of the Board of
Directors and the committees of the Board upon which such director served. The
Board of Directors has two committees, the Audit Committee and the Compensation
Committee.
The Compensation Committee of the Board of Directors currently consists
of Messrs. Elder and Rosati. The Compensation Committee held one (1) meeting
during fiscal year 2001. The Compensation Committee reviews and advises the
Board of Directors regarding all forms of compensation to be provided to the
officers, employees, directors and consultants of the Company.
The Board of Directors has no nominating committee or any committee
performing such function.
REPORT OF THE AUDIT COMMITTEE(1)
The Audit Committee of the board of directors of the Company serves as
representatives of the board for general oversight of the Company's financial
accounting and reporting system of internal control, audit process and process
for monitoring compliance with laws and regulations. The Audit Committee,
consisting of Messrs. Patel, Anderson and Elder, held two (2) meetings in fiscal
year 2001. Each member is an independent director in accordance with the Nasdaq
National Market Audit Committee requirements. The Audit Committee evaluates the
scope of the annual audit, reviews audit results, consults with management and
the Company's independent accountants prior to the presentation of financial
statements to stockholders and, as appropriate, initiates inquiries into aspect
of the Company's financial affairs.
The Company's management has primary responsibility for preparing the
Company's financial statements and for the Company's financial reporting
process. The Company's independent accountants, PricewaterhouseCoopers LLP, are
responsible for expressing an opinion on the conformality of the Company's
audited financial statements to generally accepted accounting principles. The
Audit Committee has reviewed and discussed with management the audited financial
statements for the year ended May 31, 2001. PricewaterhouseCoopers LLP ("PwC"),
the Company's independent accountants for fiscal year 2001, issued their
unqualified report dated June 28, 2001 on the Company's financial statements.
The Audit Committee has also discussed with PwC the matters required to
be discussed by AICPA Statement on Auditing Standards No. 61, "Communication
with Audit Committees." The Audit Committee has also received the written
disclosures and the letter from PwC required by Independence Standards Board
Standard No. 1, "Independence Discussions with Audit Committees," and has
conducted a discussion with PwC relative to its independence. The Audit
Committee has considered whether PwC's provision of non-audit services is
compatible with its independence. The Audit Committee has an Audit Committee
Charter. A copy of the charter is attached as Appendix A.
Based on the reviews and discussions referred to above, the Audit
Committee recommended to the Board of Directors of Aehr Test Systems that the
Company's audited financial statements for the fiscal year ended May 31, 2001 be
included in the Annual Report on Form 10-K.
6
AUDIT COMMITTEE
Mukesh Patel
Robert R. Anderson
William W.R. Elder
(1) The information regarding the Audit Committee is not "soliciting" material
and is not deemed "filed" with the SEC, and is not incorporated by reference
into any filings of the Company under the Securities Act or the Exchange Act,
whether made before or after the date hereof and irrespective of any general
incorporation language contained in such filing.
AUDIT FEES
The following table sets forth the aggregate fees billed or to be billed
by PricewaterhouseCoopers LLP for the following services during fiscal 2001:
DESCRIPTION OF SERVICES
Audit fees(1) $95,157
Financial information system design
and implementation fees(2) 0
All other fees(3) 3,000
-------
TOTAL $98,157
=======
(1) Represents the aggregate fees billed or to be billed for professional
services rendered for the audit of the Company's fiscal 2001 annual
financial statements and for the review of the financial statements
included in the Company's quarterly reports during such period.
(2) Represents the aggregate fees billed for operating or supervising the
operation of the Company's information system or managing the Company's
local area network and/or designing or implementing a hardware or
software system that aggregates data or generates information that is
significant to the generation of the Company's financial statements.
(3) Represents the aggregate fees billed in fiscal 2001 for services other
than audit and other than financial information system design and
implementation including fees for tax services and registration
statements.
DIRECTOR COMPENSATION
Rhea J. Posedel, the only inside director of the Company, does not
receive any cash compensation for his services as a member of the Board of
Directors. Each outside director receives (1) an annual retainer of $5,000, (2)
$1,000 for each regular board meeting he attends, and (3) $500 for each
committee meeting he attends if not held in conjunction with a regular board
meeting, in addition to being reimbursed for certain expenses incurred in
attending Board and committee meetings. An inside director is a director who is
a regular employee of the Company, whereas an outside director is not an
employee of the Company. Directors are eligible to participate in the Company's
stock option plans. In fiscal 1999, outside directors William Elder, Mario
Rosati and David Torresdal were each granted options to purchase 5,000 shares at
$4.25 per share. In fiscal 2000, outside directors William Elder, Mario Rosati,
David Torresdal and Mukesh Patel were each granted options to purchase 5,000
shares at $5.06 per share and an additional option to
7
purchase 15,000 shares at $3.88 per share was granted to Mukesh Patel. In fiscal
2001, outside directors William Elder, Mario Rosati and Mukesh Patel were each
granted options to purchase 5,000 shares at $6.25 per share, additional options
to purchase 20,000 shares at $4.00 per share were each granted to William Elder
and Mario Rosati, and an option to purchase 15,000 shares at $6.00 was granted
to outside director Robert Anderson. Mr. Torresdal, a long-term director of the
Company, passed away during fiscal 2000.
VOTE REQUIRED
The five nominees receiving the highest number of affirmative votes of
the shares entitled to be voted for them shall be elected as directors. Votes
withheld from any director are counted for purposes of determining the presence
or absence of a quorum for the transaction of business, but have no other legal
effect in the election of directors under California law. See "Quorum;
Abstentions; Broker Non-Votes."
MANAGEMENT RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE NOMINEES LISTED ABOVE
PROPOSAL 2
AMENDMENT TO 1996 STOCK OPTION PLAN
PROPOSAL
Management is proposing that the 1996 Stock Option Plan (the "Stock
Plan") be amended to increase the number of shares authorized thereunder to
provide for the issuance of up to an aggregate of 1,550,000 shares of Common
Stock of the Company to employees, directors and consultants of the Company.
This would require the reservation of an additional 300,000 shares of Common
Stock for issuance upon exercise of the options granted pursuant to the Stock
Plan, in addition to the 1,250,000 shares previously reserved under the Stock
Plan.
Management is proposing this amendment in order to allow for sufficient
stock options to cover the Company's needs for at least the next fiscal year.
SUMMARY OF STOCK PLAN
Purpose. The purposes of the Stock Plan are to attract and retain the
best available personnel, to provide additional incentive to employees,
directors and consultants of the Company and to promote the success of the
Company's business.
Status of Shares. As of September 1, 2001, options to purchase a total
of 1,203,208 (net of cancelled or expired options) shares were outstanding under
the Stock Plan. In addition, no options (except any shares that might in the
future be returned to the plan as a result of cancellations or expiration of
options) remained available for future grant thereunder.
Eligibility; Administration. Under the Stock Plan, employees may be
granted "incentive stock options" intended to qualify within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") and
employees, directors and consultants may be granted "non-statutory stock
options" not intended to qualify under such statute. The Stock Plan is
administered by the Board of Directors of the Company, or by a committee
appointed by the Board of Directors and consisting of at least two members of
the Board, which determine the terms of options granted, including the exercise
price, the number of shares subject of the option and the options'
exercisability. The Board or its committee has sole discretion to interpret any
provision of the Stock Plan.
Exercise Price. The exercise price of options granted under the Stock
Plan is determined by the Board of Directors or its committee. The exercise
price of incentive stock options may not be less than 100% of the fair market
value of the Common Stock on the date the option is granted. However, the
exercise price of options granted to an optionee who owns more than 10% of the
voting power or value of all classes of stock of the Company must not be less
than 110% of the fair market value on the date of grant. The Common Stock is
currently traded on The Nasdaq Stock Market. While the Company's stock is traded
on The Nasdaq Stock Market, the fair market value is the reported closing price
on the date of grant.
8
Exercisability. Options granted to new optionees under the Stock Plan
generally become exercisable starting one month after the date of grant with
1/48th of the shares covered thereby becoming exercisable at that time and with
an additional 1/48th of the total number of option shares becoming exercisable
each month thereafter, with full vesting occurring on the fourth anniversary of
the date of grant. The term of an option may not exceed ten years. No option may
be transferred by the optionee other than by will or the laws of descent or
distribution. Each option may be exercised, during the lifetime of the optionee,
only by such optionee.
Stock Purchase Rights. The Stock Plan permits the Company to grant
rights to purchase Common Stock. After the Board or Committee determines that it
will offer stock purchase rights under the Stock Plan, it shall advise the
offeree in writing or electronically of the terms, conditions and restrictions
related to the offer, including the number of shares that the offeree shall be
entitled to purchase, and the time within which the offeree must accept such
offer. The offer shall be accepted by execution of a stock purchase agreement or
a stock bonus agreement in the form determined by the Board or Committee.
Unless the Board or Committee determines otherwise, the stock purchase
agreement or a stock bonus agreement shall grant the Company a repurchase option
exercisable upon the voluntary or involuntary termination of the purchaser's
employment with the Company for any reason. The purchase price for shares
repurchased pursuant to the stock purchase agreement or a stock bonus agreement
shall be the original price paid by the purchaser and may be paid by
cancellation of any indebtedness of the purchaser to the Company. The repurchase
option shall lapse at such rate as the Board or Committee may determine.
Amendment and Termination. The Board may at any time amend or terminate
the Stock Plan without approval of the shareholders; provided, however, that the
Company will obtain shareholder approval of any amendment to the Stock Plan to
the extent necessary to comply with Rule 16b-3 under the Securities Exchange Act
of 1934 (the "Exchange Act"), with Section 422 of the Code, or with any other
applicable law or regulation, including requirements of the NASD or any
established stock exchange. Any amendment or termination of the Stock Plan is
subject to the rights of optionees under agreements entered into prior to such
amendment or termination.
CERTAIN FEDERAL TAX INFORMATION
An optionee who is granted an incentive stock option will not recognize
taxable income either at the time the option is granted or at the time it is
exercised, although exercise of the option may subject the optionee to the
alternative minimum tax. The Company will not be allowed a deduction for federal
income tax purposes as a result of the exercise of an incentive stock option
regardless of the applicability of the alternative minimum tax. Upon the sale or
exchange of the shares at least two years after grant of the option and one year
after exercise of the option, any gain will be treated as long-term capital
gain. If these holding periods are not satisfied at the time of sale, the
optionee will recognize ordinary income equal to the difference between the
exercise price and the lower of (i) the fair market value of the stock at the
date of the option exercise or (ii) the sale price of the stock, and the Company
will be entitled to a deduction in the same amount. (Different rules may apply
upon a premature disposition by an optionee who is an officer, director or 10%
shareholder of the Company.) Any additional gain or loss recognized on such a
premature disposition of the shares will be characterized as capital gain or
loss. If the Company grants an incentive stock option and as a result of the
grant the optionee has the right in any calendar year to exercise for the first
time one or more incentive stock options for shares having an aggregate fair
market value (under all plans of the Company and determined for each share as of
the date the option to purchase the share was granted) in excess of $100,000,
then the excess shares must be treated as non-statutory options.
An optionee who is granted a non-statutory stock option will also not
recognize any taxable income upon the grant of the option. However, upon
exercise of a non-statutory stock option, the optionee will recognize ordinary
income for tax purposes measured by the excess of the then fair market value of
the shares over the exercise price. Any taxable income recognized by an optionee
who is an employee of the Company will be subject to tax withholding by the
Company. Upon resale of the shares by the optionee, any difference between the
sales price and the fair market value at the time of exercise, to the extent not
recognized as ordinary income as described above, will be treated as capital
gain or loss. The Company will be allowed a deduction for federal income tax
purposes equal to the amount of ordinary income recognized by the optionee.
9
VOTE REQUIRED
Approval of the amendment to the Stock Plan requires the affirmative
vote of the Votes Cast. The effect of an abstention is the same as that of a
vote against the proposal.
MANAGEMENT RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE AMENDMENT
TO 1996 STOCK OPTION PLAN
PROPOSAL 3
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors of the Company has selected PricewaterhouseCoopers
LLP, as the Company's independent accountants, to audit the financial statements
of the Company for the current fiscal year ending May 31, 2002, and recommends
that Shareholders vote for ratification of such appointment. Representatives of
PricewaterhouseCoopers LLP are expected to be present at the meeting with the
opportunity to make a statement if they desire to do so, and are expected to be
available to respond to appropriate questions.
MANAGEMENT RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE RATIFICATION OF THE
APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP
COMPENSATION OF EXECUTIVE OFFICERS
The following table shows information concerning compensation awarded
to, earned by or paid for services to the Company in all capacities during the
fiscal years ended May 31, 2001, 2000 and 1999 by the Chief Executive Officer
and each of the four other most highly compensated executive officers with
annual compensation in excess of $100,000 for the fiscal year ended May 31,
2001.
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION SECURITIES
FISCAL -------------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS ($) COMPENSATION ($)
--------------------------- ---- ---------- --------- ------------ ----------------
Rhea J. Posedel ............................... 2001 $220,613 $ 55,755 $ 7,183 $ 3,341(1)
Chief Executive Officer and ................ 2000 $199,912 -- $ 1,896 $ 1,879(2)
Chairman of the Board of ................ 1999 $174,464 -- $ 1,813 $ 2,647(3)
Directors
Carl J. Meurell ............................... 2001 $197,067 $ 58,488 $ 7,183 $ 2,755(1)
President and Chief Operating .............. 2000 $176,032 $ 52,539(4) $ 1,896 $ 8,089(2)
Officer ................................. 1999 $ 25,771 $ 50,000 -- $ 1,216(3)
Gary L. Larson ................................ 2001 $166,176 $ 33,709 $ 6,576 $ 3,380(1)
Vice President of Finance and .............. 2000 $149,827 -- $ 1,776 $ 2,673(2)
Chief Financial Officer ................. 1999 $131,404 -- $ 1,732 $ 3,125(3)
Carl N. Buck .................................. 2001 $164,520 $ 31,395 $ 6,753 $ 2,189(1)
Vice President of Marketing ................ 2000 $142,697 -- $ 1,691 $ 1,385(2)
1999 $117,867 -- $ 1,475 $ 1,596(3)
Richard F. Sette .............................. 2001 $139,146 $ 28,704 $ 5,308 $ 2,658(1)
Vice President of Operations ............... 2000 $128,038 -- $ 1,518 $ 1,502(2)
1999 $116,131 -- $ 1,529 $ 1,961(3)
10
<FN>
---------------------
(1) Consists of health and life insurance premiums paid by the Company during the year ended May 31, 2001.
(2) Consists of health and life insurance premiums paid by the Company during the year ended May 31, 2000.
(3) Consists of health and life insurance premiums paid by the Company during the year ended May 31, 1999.
(4) Represents commissions earned by Mr. Meurell in the position of Vice President of Worldwide Sales during
the year ended May 31, 2000.
</FN>
STOCK OPTION GRANTS AND EXERCISES
The following table sets forth the number and terms of options granted to
the persons named in the Summary Compensation Table during the fiscal year ended
May 31, 2001.
OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
------------------------------------------------------------------------------------------ ANNUAL RATES OF
NUMBER OF % OF TOTAL STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(4)
OPTIONS EMPLOYEES IN PRICE EXPIRATION --------------------
NAME GRANTED(1) FISCAL YEAR(2) ($/SHARE)(3) DATE 5% ($) 10% ($)
---- ---------- -------------- ------------ ---------- -------- --------
Rhea J. Posedel 50,000 8.6% (5) (5) $ 56,299 $159,789
Carl J. Meurell 100,000 17.2% $6.00 6/01/05 $165,769 $366,306
Gary L. Larson 28,000 4.8% (6) (6) $46,181 $103,620
Carl N. Buck 19,000 3.3% (7) (7) $31,379 $70,125
Richard F. Sette 25,000 4.3% (8) (8) $41,296 $92,236
<FN>
(1) The options were granted under the 1996 Stock Option Plan with the
exception of 19,564 shares, which exceeded the number of available shares
in the Stock Option Plan at the time of grant. These 19,564 underlying
shares shall likewise fall under the Stock Option Plan if Proposal 2
herein is approved by the Shareholders. If Shareholders do not vote in
favor of Proposal 2, such 19,564 shares shall be deemed to be granted
outside of the Stock Option Plan. All options granted shall vest over four
years.
(2) Based on an aggregate of 582,625 options granted by the Company in the
year ended May 31, 2001 to employees and consultants to the Company,
including the named executive officers.
(3) The exercise price per share of each option was equal to the fair market
value of the Common Stock on the date of grant as determined by the Board
of Directors, except the exercise price of the options granted to Mr.
Posedel was equal to 110% of the fair market value of the Common Stock on
the date of the grant.
(4) This column sets forth hypothetical gains or "option spreads" for the
options at the end of their respective five-year terms, as calculated in
accordance with the rules of the SEC. Each gain is based on an arbitrarily
assumed annualized rate of compound appreciation of the market price at
the date of grant of 5% and 10% from the date the option was granted to
the end of the option term. The 5% and 10% rates of appreciation are
specified by the rules of the SEC and do not represent the Company's
estimate or projection of future Common Stock prices. The Company does not
necessarily agree that this method properly values an option. Actual
gains, if any, on option exercises are dependent on the future performance
of the Company's Common Stock and overall market conditions and the timing
of option exercises, if any.
(5) 30,000 options with an exercise price of $6.60 will expire on June 1, 2005
and 20,000 options with an exercise price of $4.40 will expire on May 22,
2008.
11
(6) 20,000 options with an exercise price of $6.00 will expire on June 1, 2005
and 8,000 options with an exercise price of $4.00 will expire on May 22,
2008.
(7) 15,000 options with an exercise price of $6.00 will expire on June 1, 2005
and 4,000 options with an exercise price of $4.00 will expire on May 22,
2008.
(8) 20,000 options with an exercise price of $6.00 will expire on June 1, 2005
and 5,000 options with an exercise price of $4.00 will expire on May 22,
2008.
</FN>
The following table provides information concerning option exercises by
the persons named in the Summary Compensation Table during the fiscal year ended
May 31, 2001 and the value of unexercised options at such date.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES FISCAL YEAR-END(#)(1) FISCAL YEAR-END($)(2)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ ------------ ----------- ------------- ----------- -------------
Rhea J. Posedel ............ 50,000 $115,938 (3) 38,332 61,668 -- --
Carl J. Meurell ............ -- -- 77,082 122,918 -- --
Gary L. Larson ............. 25,000 $53,125 (4) 28,748 39,252 $ 1,497 $ 1,628
Carl N. Buck ............... 41,000 $91,358 (5) 18,539 25,461 $ 898 $ 977
Richard F. Sette ........... 35,000 $35,000 (6) 33,644 36,356 $ 1,498 $ 1,628
<FN>
----------------------------
(1) The Company has not granted any stock appreciation rights and its stock
plans do not provide for the granting of such rights.
(2) Calculated by determining the difference between the fair market value of
the securities underlying the options at year end ($4.00 per share as of
May 31, 2001) and the exercise price of the options.
(3) Total includes two exercises of options. The total is based on the fair
market value of the Company's Common Stock on July 17, 2000 ($7.50) and
October 26, 2000 ($5.9375) as reported by the Nasdaq National Market
System.
(4) Total includes three exercises of options. The total is based on the fair
market value of the Company's Common Stock on July 26, 2000 ($7.875),
October 6, 2000 ($7.00), and October 26, 2000 ($5.9375) as reported by the
Nasdaq National Market System.
(5) Total includes eight exercises of options. The total is based on the fair
market value of the Company's Common Stock on July 13, 2000 ($7.6875),
October 25, 2000 ($5.9375), October 26, 2000 ($5.9375), April 10, 2001
($4.47), April 12, 2001 ($4.47), April 18, 2000 ($4.50), April 19, 2001
($4.50), and April 24, 2001 ($4.60) as reported by the Nasdaq National
Market System.
(6) Total includes one exercise of an option. The total is based on the fair
market value of the Company's Common Stock on January 2, 2001 ($5.00) as
reported by the Nasdaq National Market System.
</FN>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
GENERAL
In its ordinary course of business, the Company enters into transactions
with certain of its directors and officers. The Company believes that each such
transaction has been on terms no less favorable for the Company than could have
been obtained in a transaction with an independent third party.
12
LEGAL COUNSEL
During fiscal 2001, Mario M. Rosati, a member of the Board of Directors of
the Company, was also a member of the law firm of Wilson Sonsini Goodrich &
Rosati ("WSGR"). The Company retained WSGR as its legal counsel during the
fiscal year. The Company plans to retain WSGR as its legal counsel again during
fiscal 2002.
INDEBTEDNESS OF MANAGEMENT
On October 25, 2000, the Company received a promissory note signed by Mr.
Carl N. Buck, the Vice President of Marketing, for the principal sum of $72,000.
This note bears interest at the rate of 6.75% per annum and is due in full on
February 15, 2002, unless repaid on an earlier date. The funds were used by Mr.
Buck to exercise options for 27,000 shares of common stock of the Company. This
transaction was reported on a Form 4 to the Securities and Exchange Commission
in fiscal 2001. This promissory note was subsequently settled. On October 26,
2000, the Company received a promissory note signed by Mr. Gary L. Larson, the
Chief Financial Officer and Vice President of Finance, for the principal sum of
$84,000. This note bears interest at the rate of 6.75% per annum and is due in
full on February 15, 2002, unless repaid on an earlier date. The funds were used
by Mr. Larson to exercise options for 21,000 shares of common stock of the
Company. This transaction was reported on a Form 4 to the Securities and
Exchange Commission in fiscal 2001. On January 2, 2001, the Company received a
promissory note signed by Mr. Richard F. Sette, the Vice President of
Operations, for the principal sum of $144,000. This note bears interest at the
rate of 6.75% per annum and is due in full on February 15, 2002, unless repaid
on an earlier date. The funds were used by Mr. Sette to exercise options for
35,000 shares of common stock of the Company. This transaction was reported on a
Form 4 to the Securities and Exchange Commission in fiscal 2001. This promissory
note was subsequently settled.
CHANGE OF CONTROL SEVERANCE AGREEMENT
On January 24, 2001, the Company has entered into Change of Control
Severance Agreements with Mr. Carl N. Buck, Mr. David S. Hendrickson, Mr. Gary
L. Larson, Mr. Carl J. Meurell and Mr. Rhea J. Posedel pursuant to which those
executives would be entitled to a payment in the event of a termination of
employment for specified reasons following a change of control of the Company.
For this purpose, a change of control of the Company means a merger or
consolidation of the Company, a sale by the Company of all or substantially all
of its assets, the acquisition of beneficial ownership of a majority of the
outstanding voting securities of the Company by any person or a change in the
composition of the Board as a result of which fewer than a majority of the
directors are incumbent directors. Termination of employment for purposes of
these agreements means a discharge of the executive by the Company, other than
for specified causes including dishonesty, conviction of a felony, misconduct or
wrongful acts. Termination also includes resignation following the occurrence of
an adverse change in the executive's position, duties, compensation or work
conditions. The amounts payable under the agreements will change from year to
year based on the executive's compensation. In the event of a termination in
fiscal 2002 following a change of control, the amounts payable to Messrs. Buck,
Hendrickson, Larson, Meurell and Posedel would be approximately $72,000,
$89,000, $125,000, $145,000 and $213,000, respectively.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consists of Messrs. Elder and Rosati. No
interlocking relationship exists between the Company's Board of Directors and
Compensation Committee and the board of directors or compensation committee of
any other company.
13
REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Exchange Act of 1933, as amended, or the
Securities Act of 1934, as amended, that might incorporate future filings,
including this Proxy Statement, in whole or in part, the following report and
the Performance Graph shall not be incorporated by reference into any such
filings.
GENERAL
The objectives of the overall executive compensation program are to attract,
retain, motivate and reward Company executives while aligning their compensation
with the achievements of key business objectives, maximization of shareholder
value and optimal satisfaction of customers.
The Compensation Committee is responsible for:
1. Determining the specific executive compensation methods to be used by
the Company and the participants in each of those specific programs;
2. Determining the evaluation criteria and timeliness to be used in those
programs;
3. Determining the processes that will be followed in the ongoing
administration of the programs; and
4. Determining their role in the administration of the programs.
All of the actions take the form of recommendations to the full Board of
Directors where final approval, rejection or redirection will occur. The
Compensation Committee is responsible for administering the compensation
programs for all Company officers. The Compensation Committee has delegated the
responsibility of administering the compensation programs for all other Company
employees to the Company's officers.
COMPENSATION VEHICLES
Currently, the Company uses the following executive compensation vehicles:
o Cash-based programs: Base salary, Annual Incentive Bonus Plan, Annual
Profit Sharing Plan, and a Sales Incentive Commission Plan; and
o Equity-based programs: 1996 Incentive Stock Option Plan, the 1997
Employee Stock Purchase Plan and the Employee Stock Bonus Plan.
These programs apply to the Chief Executive Officer and all executive
level positions, except for the Sales Incentive Commission Plan, which only
includes executives directly responsible for sales activities. Periodically, but
at least once near the close of each fiscal year, the Compensation Committee
reviews the existing plans and recommends those that should be used for the
subsequent year.
The criteria for determining the appropriate salary level, bonus and stock
option grants for the Chief Executive Officer and each of the executive officers
include (a) Company performance as a whole, (b) business unit performance (where
appropriate) and (c) individual performance objectives. Company performance and
business unit performance are measured against both strategic and financial
goals. Examples of these goals are to obtain: operating profit, revenue growth,
timely new product introduction, and shareholder value (usually measured by the
Company stock price). Individual performance is measured to specific objectives
relevant to the individual's position and a specific time frame.
These criteria are usually related to a fiscal year time period, but may,
in some cases, be measured over a shorter or longer time frame.
14
The processes used by the Compensation Committee include the following
steps:
1. The Compensation Committee periodically receives information comparing
the Company's pay levels to other companies in similar industries,
other leading companies (regardless of industry) and competitors.
Primarily national and regional compensation surveys are used.
2. At or near the start of each evaluation cycle, the Compensation
Committee meets with the Chief Executive Officer to review, revise as
needed, and agree on the performance objectives set for the other
executives reporting to the Chief Executive Officer. The Chief
Executive Officer and Compensation Committee jointly set the Company
objectives to be used. The business unit and individual objectives are
formulated jointly by the Chief Executive Officer and the specific
individual. The Compensation Committee also, with the Chief Executive
Officer, jointly establishes and agrees on their respective performance
objectives.
3. Throughout the performance cycle review, feedback is provided by the
Chief Executive Officer, the Compensation Committee and full Board, as
appropriate.
4. At the end of the performance cycle, the Chief Executive Officer
evaluates each executive's relative success in meeting the performance
goals. The Chief Executive Officer makes recommendations on salary,
bonus and stock options, utilizing the comparative results as a factor.
Also included in the decision criteria are subjective factors such as
teamwork, leadership contributions and ongoing changes in the business
climate. The Chief Executive Officer reviews the recommendations and
obtains Compensation Committee approval. The Compensation Committee
also determines the level of salary and bonus and the terms of stock
option grants for the Chief Executive Officer.
5. The final evaluations and compensation decisions are discussed with
each executive by the Chief Executive Officer or Compensation
Committee, as appropriate.
POLICY ON DEDUCTIBILITY OF COMPENSATION
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code") limits the tax deduction to $1 million for compensation paid to its five
most highly compensated executive officers, unless certain requirements are met.
One requirement is that the Compensation Committee consists entirely of outside
directors as defined in the Code, and the Company's Compensation Committee meets
this requirement. Another requirement is that compensation over $1 million must
be based upon Company attainment of pre-established, objective performance
goals. The Company believes that all compensation paid to its five most highly
compensated executive officers in fiscal 2001 is fully deductible. The
Committee's present intention is to comply with the requirements of Section
162(m) unless and until the Committee determines that compliance would not be in
the best interest of the Company and its shareholders.
The Compensation Committee feels that the compensation vehicles used by
the company, generally administered through the process as outlined above,
provide a fair and balanced executive compensation program related to the proper
business issues. In addition, it should be noted that compensation vehicles will
be reviewed and, as appropriate, revised in order to attract and retain new
executives in addition to rewarding performance on the job.
COMPENSATION COMMITTEE
William W. R. Elder
Mario M. Rosati
15
COMPANY PERFORMANCE
The following graph shows a comparison of total shareholder return for
holders of the Company's Common Stock from August 15, 1997, the date of the
Company's initial public offering, through May 31, 2001 compared with The Nasdaq
Stock Market (U.S.) Index and the JP Morgan H & Q Semiconductor Index. The graph
assumes that $100 was invested in the Company's Common Stock, in the Nasdaq
Stock Market (U.S.) Index and the JP Morgan H & Q Semiconductor Index on August
15, 1997, and that all dividends were reinvested. The Company believes that
while total shareholder return can be an important indicator of corporate
performance, the stock prices of semiconductor equipment companies like Aehr
Test Systems are subject to a number of market-related factors other than
company performance, such as competitive announcements, mergers and acquisitions
in the industry, the general state of the economy, and the performance of other
semiconductor equipment company stocks.
[The following descriptive data is supplied in accordance with Rule 304(d) of
Regulation S-T]
AEHR TEST SYSTEMS
Cumulative Total Return
------------------------------------------------
8/15/97 5/98 5/99 5/00 5/01
AEHR TEST SYSTEMS 100.00 50.52 33.33 48.05 33.33
NASDAQ STOCK MARKET (U.S.) 100.00 113.51 160.26 219.68 136.35
JP MORGAN H & Q SEMICONDUCTOR 100.00 68.70 112.24 327.00 188.47
16
COMPLIANCE WITH SECTION 16(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires that directors, certain
officers of the Company and ten percent Shareholders file reports of ownership
and changes in ownership with the SEC as to the Company's securities
beneficially owned by them. Such persons are also required by SEC rules to
furnish the Company with copies of all Section 16(a) forms they file.
Based solely on its review of copies of Forms 3 and 4 and amendments
thereto furnished to the Company pursuant to Rule 16a-3(e) and Forms 5 and
amendments thereto furnished to the Company with respect to its most recent
fiscal year, and any written representations referred to in Item 405(b)(2)(i) of
Regulation S-K stating that no Forms 5 were required, the Company believes that,
during the fiscal year 2001, all Section 16(a) filing requirements applicable to
the Company's officers, directors and ten percent shareholders were filed on a
timely basis.
FINANCIAL STATEMENTS
The Company's Annual Report to Shareholders for the last fiscal year is
being mailed with this proxy statement to Shareholders entitled to notice of the
meeting. The Annual Report includes the consolidated financial statements,
unaudited selected financial data and management's discussion and analysis of
financial condition and results of operations.
OTHER MATTERS
The Company knows of no other matters to be submitted to the meeting. If
any other matters properly come before the meeting, it is the intention of the
persons named in the enclosed Proxy to vote the shares they represent as the
Board of Directors may recommend.
By Order of the Board of Directors,
/s/ Rhea J. Posedel
-----------------------------------
RHEA J. POSEDEL
Chief Executive Officer and
Chairman of the Board of Directors
Dated: September 27, 2001
17
APPENDIX A
AEHR TEST SYSTEMS
AUDIT COMMITTEE CHARTER
PURPOSE
The primary purpose of the Audit Committee (the "Committee") is to assist the
Board of Directors (the "Board") in fulfilling its responsibility to oversee
management's conduct of the Company's financial reporting process, including by
overviewing the financial reports and other financial information provided by
the Company to any governmental or regulatory body, the public or other users
thereof, the Company's systems of internal accounting and financial controls,
and the annual independent audit of the Company's financial statements.
In discharging its oversight role, the Committee is empowered to investigate any
matter brought to its attention with full access to all books, records,
facilities and personnel of the Company and the power to retain outside counsel,
auditors or other experts for this purpose. The Board and the Committee are in
place to represent the Company's shareholders; accordingly, the outside auditor
is ultimately accountable to the Board and the Committee.
The Committee shall review the adequacy of this Charter on an annual basis.
MEMBERSHIP
The Committee shall be comprised of members of the Board, and the Committee's
composition will meet the requirements of the Audit Committee Policy of the
NASD.
Accordingly, all of the members will be directors:
1. Who have no relationship to the Company that may interfere with the
exercise of their independence from management and the Company; and
2. Who are financially literate or who become financially literate within a
reasonable period of time after appointment to the Committee. In addition,
at least one member of the Committee will have accounting or related
financial management expertise.
KEY RESPONSIBILITIES
The Committee's job is one of oversight and it recognizes that the Company's
management is responsible for preparing the Company's financial statements and
that the outside auditors are responsible for auditing those financial
statements.
Additionally, the Committee recognizes that financial management, as well as the
outside auditors, have more time, knowledge and more detailed information on the
Company than do Committee members; consequently, in carrying out its oversight
responsibilities, the Committee is not providing any expert or special assurance
as to the Company's financial statements or any professional certification as to
the outside auditor's work.
The following functions shall be the common recurring activities of the
Committee in carrying out its oversight function. These functions are set forth
as a guide with the understanding that the Committee may diverge from this guide
as appropriate given the circumstances.
18
o The Committee shall review with management and the outside auditors the
audited financial statements to be included in the Company's Annual Report on
Form 10-K (or the Annual Report to Shareholders if distributed prior to the
filing of Form 10-K) and review and consider with the outside auditors the
matters required to be discussed by Statement of Auditing Standards ('SAS')
No. 61, as amended.
o As a whole, or through the Committee chair, the Committee shall review with
the outside auditors the Company's interim financial results to be included
in the Company's quarterly reports to be filed with Securities and Exchange
Commission and the matters required to be discussed by SAS No. 61; this
review will occur prior to the Company's filing of the Form 10-Q.
o The Committee shall:
o request from the outside auditors annually, a formal written statement
delineating all relationships between the auditor and the Company
consistent with Independence Standards Board Standard Number 1;
o discuss with the outside auditors any such disclosed relationships and
their impact on the outside auditor's independence; and
o recommend that the Board take appropriate action to oversee the
independence of the outside auditor.
o The Committee, subject to any action that may be taken by the full Board,
shall have the ultimate authority and responsibility to select (or nominate
for shareholder approval), evaluate and, where appropriate, replace the
outside auditor.
19
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
AEHR TEST SYSTEMS
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON OCTOBER 17, 2001
The undersigned Shareholder of Aehr Test Systems, a California
corporation, hereby acknowledges receipt of the Notice of Annual Meeting of
Shareholders and Proxy Statement and hereby appoints Rhea J. Posedel and Gary L.
Larson, or either of them, proxies and attorneys-in-fact, with full power to
each of substitution, on behalf and in the name of the undersigned, to represent
the undersigned at the Annual Meeting of Shareholders of Aehr Test Systems to be
held on October 17, 2001, at 4:00 p.m., local time, at 400 Kato Terrace,
Fremont, California 94539, and at any adjournments thereof and to vote all
shares of Common Stock which the undersigned would be entitled to vote if then
and there personally present, on the matters set forth below:
1. ELECTION OF DIRECTORS:
[ ] FOR all nominees listed below [ ] WITHHOLD authority to vote for
(except as indicated) all nominees listed below
IF YOU WISH TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE(S), STRIKE
A LINE THROUGH THAT NOMINEE'S NAME IN THE LIST BELOW:
Rhea J. Posedel Robert R. Anderson William W. R. Elder
Mukesh Patel Mario M. Rosati
2. PROPOSAL TO AMEND THE 1996 STOCK OPTION PLAN TO INCREASE BY 300,000 SHARES
THE NUMBER OF SHARES AUTHORIZED THEREUNDER TO PROVIDE FOR THE ISSUANCE OF
UP TO AN AGGREGATE OF 1,550,000 SHARES OF COMMON STOCK OF THE COMPANY TO
EMPLOYEES, DIRECTORS AND CONSULTANTS OF THE COMPANY.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. PROPOSAL TO RATIFY THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS
INDEPENDENT ACCOUNTANTS:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. IN THEIR DISCRETION, UPON SUCH OTHER MATTER OR MATTERS WHICH MAY PROPERLY
COME BEFORE THE MEETING AND ANY ADJOURNMENT(S) THEREOF.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS
INDICATED, WILL BE VOTED FOR THE ELECTION OF DIRECTORS, FOR AMENDMENT OF THE
1996 STOCK OPTION PLAN TO INCREASE THE NUMBER OF SHARES ISSUABLE THEREUNDER BY
300,000 SHARES, FOR RATIFICATION OF THE APPOINTMENT OF THE COMPANY'S INDEPENDENT
ACCOUNTANTS, AND AS SAID PROXIES DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY
COME BEFORE THE MEETING AND ANY ADJOURNMENT(S) THEREOF.
Dated: ____________________, 2001
_________________________________
Signature
_________________________________
[Signature]
(This Proxy should be marked,
dated, signed by the
Shareholder(s) exactly as his or
her name appears hereon, and
returned promptly in the enclosed
envelope. Persons signing in a
fiduciary capacity should so
indicate. If shares are held by
joint tenants or as community
property, both should sign.)
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