UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE
ACT OF 1934 (AMENDMENT NO. __)
Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
NANOMETRICS INCORPORATED
----------------------------------------------------------
(Name of Registrant as Specified in its Charter)
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(Name of Person(s) Filing Proxy Statement if other than the Registrant)
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computed pursuant to Exchange Act Rule 0-11 (Set forth the
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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:
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NANOMETRICS INCORPORATED
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO THE SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of
Nanometrics Incorporated, a California corporation (the "Company"), will be
held on Wednesday, May 26, 2004 at 1:30 p.m., local time, at the principal
offices of the Company located at 1550 Buckeye Drive, Milpitas, California
95035, for the following purposes:
1. To elect seven directors to serve until the next Annual Meeting of
Shareholders or until their successors are elected.
2. To ratify the appointment of Deloitte & Touche LLP as independent
auditors of the Company for the fiscal year ending January 1, 2005.
3. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only shareholders of record at the close of business on April 5, 2004 are
entitled to notice of and to vote at the meeting and any adjournment thereof.
All shareholders are cordially invited to attend the meeting in person.
However, to ensure your representation at the meeting, you are urged to mark,
sign, date and return the enclosed proxy card as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. Any shareholder attending
the meeting may vote in person even if such shareholder returned a proxy.
Sincerely,
Vincent J. Coates
Secretary
Milpitas, California
April 23, 2004
NANOMETRICS INCORPORATED
PROXY STATEMENT
INFORMATION CONCERNING SOLICITATION AND VOTING
General
The enclosed proxy is solicited on behalf of the Board of Directors of
Nanometrics Incorporated (the "Company") for use at the Annual Meeting of
Shareholders of the Company (the "Annual Meeting") to be held on Wednesday, May
26, 2004 at 1:30 p.m., local time, or at any adjournment thereof, for the
purposes set forth herein and in the accompanying Notice of Annual Meeting of
Shareholders. The Annual Meeting will be held at the principal offices of the
Company located at 1550 Buckeye Drive, Milpitas, California 95035. The
Company's telephone number at that address is (408) 435-9600.
These proxy solicitation materials were mailed on or about April 23, 2004
to all shareholders entitled to vote at the meeting. A copy of the Company's
2003 Annual Report on Form 10-K accompanies this Proxy Statement. The Company's
2003 Annual Report on Form 10-K is also available on the Security and Exchange
Commission's website at www.sec.gov.
Record Date and Shares Outstanding
Shareholders of record at the close of business on April 5, 2004 (the
"Record Date") are entitled to notice of and to vote at the meeting. At the
Record Date, 12,207,277 shares of common stock of the Company, no par value
(the "Common Stock"), were issued and outstanding. For information concerning
security ownership of management and beneficial owners of more than 5% of the
outstanding Common Stock, see "Security Ownership of Management and Certain
Beneficial Owners" below.
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 (i) delivering to the Secretary of the
Company a written notice of revocation or a duly executed proxy bearing a later
date or (ii) attending the meeting and voting in person.
Voting and Solicitation
The candidates receiving the seven highest vote totals will be elected to
serve as directors. Every shareholder voting for the election of directors may
(i) cumulate such shareholder's votes and give one candidate a number of votes
equal to the number of directors to be elected multiplied by the number of
shares that such shareholder holds or (ii) distribute such shareholder's votes
on the same principle among as many candidates as the shareholder may select,
provided that votes cannot be cast for more than seven candidates. However, no
shareholder shall be entitled to cumulate votes for a candidate unless the
candidate's name has been 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
of Common Stock outstanding has one vote.
The cost of this solicitation will be borne by the Company. In addition,
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.
1
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" at the Annual
Meeting ("Votes Cast") 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. 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 a
proposal.
Broker non-votes will be counted for purposes of determining the presence
or absence of a quorum for the transaction of business, but will not be counted
for purposes of determining the number of Votes Cast with respect to a
proposal.
Deadline for Receipt of Shareholder Proposals
The attached proxy card grants the proxy holders discretionary authority
to vote on any matter raised at the 2004 Annual Meeting. Shareholders are
entitled to present proposals for action at the 2005 Annual Meeting if such
proposals comply with the requirements of the proxy rules. Proposals of
shareholders of the Company which are intended to be presented by such
shareholders at the Company's 2005 Annual Meeting must be received by the
Company no later than December 18, 2004 in order that they may be included in
the proxy statement and form of proxy relating to that meeting.
If a shareholder intends to submit a proposal at the 2005 Annual Meeting
that is not intended to be included in the proxy statement and proxy, the
shareholder must do so no later than March 3, 2005. The proxy holders will not
be allowed to use their discretionary authority to vote on any proposals
received after this date when such proposals are raised at the 2005 Annual
Meeting.
Matters Not Required to be Submitted to Security Holders
The Company is submitting to the shareholders the proposal to approve the
appointment of Deloitte & Touche LLP as independent auditors of the Company for
the fiscal year ending January 1, 2005. Although the Company is not required to
submit such proposal to a vote of the shareholders, the Company has done so in
order to obtain shareholder ratification of the proposal. If the shareholders
do not vote in favor of the appointment of Deloitte & Touche LLP, the Company
will consider the selection of other auditors.
Material Proceedings
To the best of management's knowledge, there are no material proceedings
to which any director or officer is a party and (i) is adverse to the Company
or any of its subsidiaries or (ii) has a material interest adverse to the
Company or any of its subsidiaries.
2
PROPOSAL NO. 1
ELECTION OF DIRECTORS
Nominees
A board of seven directors is to be elected at the Annual Meeting. Unless
otherwise instructed, the proxy holders will vote the proxies received by them
for the Company's seven nominees named below, each of whom is presently a
director of the Company. In the event that any nominee of the Company is unable
or declines to serve as a director at the time of the Annual Meeting, the
proxies will be voted for any nominee who shall be designated by the present
Board of Directors to fill the vacancy. The proxy holders intend to vote all
proxies received by them in such a manner and in accordance with cumulative
voting as will ensure the election of as many of the nominees listed below as
possible and, in such event, the specific nominees to be voted for will be
determined by the proxy holders. The Company is not aware of any nominee who
will be unable or will decline to serve as a director. The term of office of
each person elected as a director will continue until the next Annual Meeting
of Shareholders or until such director's successor has been elected and
qualified.
The names of the nominees and certain information about them are set forth
below:
Name of Nominee Age Director Since
----------------------------------- ----- ---------------
Vincent J. Coates ................. 79 1975
John D. Heaton .................... 44 1995
Edmond R. Ward .................... 64 1999
William G. Oldham ................. 65 2000
Stephen J Smith ................... 57 April 2004
Mircea V. Dusa .................... 55 April 2004
J. Thomas Bentley ................. 54 April 2004
Vincent J. Coates has been Chairman of the Board since the Company was
founded in 1975. He has been the Company's Secretary since February 1989. He
also served as Chief Executive Officer through April 1998 and President from
the Company's founding through May 1996, except for the period January 1986
through February 1987 when he served exclusively as Chief Executive Officer.
Mr. Coates has also served as Chairman of the Board of Nanometrics Japan Ltd.,
a subsidiary of the Company, since its inception in November 1984. Prior to his
employment at Nanometrics, Mr. Coates co-founded Coates and Welter Instrument
Corporation, a designer of electron microscopes, the assets of which were
subsequently acquired by Nanometrics. Mr. Coates also spent over twenty years
working in engineering, sales and international operations for the Perkin-Elmer
Corporation, a manufacturer of analytical instruments. In 1995, he received an
award which recognized his contribution to the industry from Semiconductor and
Equipment and Materials International, an industry trade organization.
John D. Heaton has served as a director of the Company since July 1995.
Since April 1998, he has been Chief Executive Officer of the Company. From May
1996 to April 1998, he served as the Company's President and Chief Operating
Officer. Mr. Heaton has also served as President of Nanometrics Japan Ltd., a
subsidiary of the Company, since January 1998. Beginning in 1978, Mr. Heaton
served in various technical positions at National Semiconductor, a
semiconductor manufacturer, prior to joining the Company in 1990.
Edmond R. Ward has served as a director of the Company since July 1999.
Beginning in January 2002, Mr. Ward has served as Chief Technical Officer of
Unity Semiconductor, a semiconductor design and manufacturing company. Since
April 1999, Mr. Ward has been a General Partner of Virtual Founders, a venture
capital firm. From April 1992 to June 1997, Mr. Ward was the Vice President of
Technology at Silicon Valley Group, Inc., a supplier of wafer processing
equipment.
3
William G. Oldham has served as a director of the Company since June 2000.
Since 1964, Mr. Oldham has been a faculty member at the University of
California, Berkeley, where he researches EUV and Maskless Lithography and,
since 1996, has been the Director of the DARPA/SRC Research Network for Advanced
Lithography. He has served as a consultant in various intellectual property
matters and serves on the board of directors of Cymer, Inc., a supplier of light
sources for deep ultraviolet (DUV) photolithography systems used in the
manufacturing of semiconductors.
Stephen J Smith is a Professor in the Department of Molecular and Cellular
Physiology at the Stanford University School of Medicine. Dr. Smith's research
addresses brain development and function with special interests in the dynamic
and structural aspects of synapse and circuit formation and synaptic plasticity.
Dr. Smith is the author of numerous research articles in the fields of cellular
and molecular neuroscience. Dr. Smith was appointed to the Board of Directors to
fill a vacancy on April 14, 2004.
Mircea V. Dusa is an Executive Staff Scientist and a founding member of the
ASML Technology Development Center for exploratory research and development
where he has been an ASML Fellow since 2003. From 1995 to 1999, he served as a
member of the technical staff and was manager of the Advanced Lithography Group
at National Semiconductor. Prior to 1995, Dr. Dusa served in various technical
positions in lithography and metrology both in the United States and Europe. He
is the author of over 100 technical articles and papers and holds a Ph.D. in
Applied Optics from the University of Bucharest. Dr. Dusa was appointed to the
Board to fill a vacancy on April 14, 2004.
J. Thomas Bentley was a co-founder of Alliant Partners, a leading merger
and acquisition firm for emerging and mid-market technology firms. For the past
10 years, Mr. Bentley has worked with some of Alliant's largest clients on their
strategic acquisitions and divestitures. His expertise is in financial, tax and
accounting structuring of merger transactions. Mr. Bentley holds a Master of
Science degree in Management from M.I.T. and currently serves as a senior
advisor to Alliant Partners. Mr. Bentley was appointed to the Board of Directors
to fill a vacancy on the Board on April 14, 2004.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE
"FOR" THE NOMINEES SET FORTH HEREIN.
4
Security Ownership of Management and Certain Beneficial Owners
The following table sets forth beneficial ownership of Common Stock of the
Company as of April 5, 2004, by each director or nominee, by each of the Named
Officers (as defined below), by all directors and Named Officers as a group,
and by all persons known to the Company to be the beneficial owners of more
than 5% of the Company's Common Stock. Unless otherwise indicated, the address
of each beneficial owner of 5% of the Company's Common Stock is 1550 Buckeye
Drive, Milpitas, California 95035.
Number of Shares of
Common Stock Percent of
Name of Beneficial Owner Beneficially Owned(1) Total
--------------------------------------------------------------------- ----------------------- -----------
Vincent J. Coates(2) ................................................ 3,376,274 27.7%
Artemis Investment Management LLC(3) ................................ 881,800 7.2%
437 Madison Avenue
New York, NY 10022
Capital Group International, Inc.(4) ................................ 858,040 7.0%
11100 Santa Monica Blvd
Los Angeles, CA 90025
Wasatch Advisors, Inc.(5) ........................................... 702,270 5.8%
150 Social Hall Avenue
Salt Lake City, UT 84111
Dimensional Fund Advisors Inc.(6) ................................... 660,012 5.4%
1299 Ocean Avenue
11th Floor
Santa Monica, CA 90401
John D. Heaton(7) ................................................... 93,335 *
Edmond R. Ward(8) ................................................... 55,400 *
William Oldham(9) ................................................... 51,000 *
Paul B. Nolan(10) ................................................... 31,666 *
Roger Ingalls, Jr. .................................................. 9,000 *
Stephen J Smith ..................................................... -- *
J. Thomas Bentley ................................................... -- *
Mircea V. Dusa ...................................................... -- *
All Named Officers and directors as a group (9 persons)(11) ......... 3,616,675 29.2%
------------
* Represents less than 1% of outstanding shares of Common Stock.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission (the "SEC"). The number of shares
beneficially owned by a person includes shares of common stock subject to
options held by that person that are currently exercisable or exercisable
within 60 days of April 5, 2004. Such shares issuable pursuant to such
options are deemed outstanding for computing the percentage ownership of
the person holding such options but are not deemed outstanding for the
purposes of computing the percentage ownership of each other person.
(2) Includes 3,376,154 shares of common stock held of record by the Vincent J.
Coates Separate Property Trust, U/D/T dated August 7, 1981, for which Mr.
Coates acts as trustee.
(3) According to a Schedule 13G filed on February 10, 2004, Artemis Investment
Management LLC may be deemed to be the beneficial owner of 881,800 shares
of common stock.
(4) According to a Schedule 13G/A filed on February 10, 2004, Capital Group
International, Inc. may be deemed to be the beneficial owner of 858,040
shares of common stock.
(5) According to a Schedule 13G/A filed with the SEC on February 17, 2004,
Wasatch Advisors, Inc. may be deemed to be the beneficial owner of 702,270
shares of common stock.
(6) According to a Schedule 13G filed on February 6, 2004, Dimensional Fund
Advisors Inc. may be deemed to be the beneficial owner of 660,012 shares
of common stock.
5
(7) Includes 50,000 shares of common stock issuable upon exercise of
outstanding options exercisable within 60 days of April 5, 2004.
(8) Includes 53,400 shares of common stock issuable upon exercise of
outstanding options exercisable within 60 days of April 5, 2004.
(9) Includes 50,000 shares of common stock issuable upon exercise of
outstanding options exercisable within 60 days of April 5, 2004.
(10) Includes 26,666 shares of common stock issuable upon exercise of
outstanding options exercisable within 60 days of April 5, 2004.
(11) Includes 180,066 shares of common stock issuable upon exercise of
outstanding options exercisable within 60 days of April 5, 2004.
Board Meetings and Committees
The Board of Directors held meetings (or acted by written consent) a total
of four times during fiscal 2003. During fiscal 2003, no incumbent directors
attended less than 75% of the aggregate of (i) the total number of meetings of
the Board of Directors and (ii) the total number of meetings of committees, if
any, upon which such directors served. The Company maintains standing
committees overseeing audits, nominations, compensation and stock option
grants.
Audit Committee. The Audit Committee of the Board of Directors reviews and
monitors the corporate financial reporting as well as the internal and external
audits of the Company, including among other things, the Company's internal
audit and control functions, the results and scope of the annual audit and
other services provided by the Company's independent auditors, and the
Company's compliance with legal matters that may have a significant impact on
the Company's financial reports. In addition, the Audit Committee has the
responsibility to consider and recommend the employment of, and to review fee
arrangements with, the Company's independent auditors. The Audit Committee also
monitors transactions between the Company and its officers, directors and
employees for any potential conflicts of interest. The Audit Committee met (or
acted by written consent) eight times during fiscal 2003.
The members of the Audit Committee during fiscal 2003 were William Oldham,
Nathaniel Brenner and Edmond R. Ward. Mr. Brenner, the Audit Committee's
financial expert in fiscal 2003, resigned his position as director as well as
his committee assignments effective as of March 2004. The Board expects to
appoint J. Thomas Bentley to the Audit Committee at its next regularly
scheduled meeting. Mr. Bentley is also expected to serve as the Audit
Committee's financial expert.
Currently, Mr. Ward is the Chairman of the Audit Committee. Each member of
the Company's Audit Committee is an "independent director" as that term is
defined under the applicable National Association of Securities Dealers'
("NASD") listing standards. The Audit Committee has adopted a written charter
which is attached hereto.
Compensation/Stock Option Committee. The Compensation/Stock Option
Committee, reviews and makes recommendations to the Board of Directors
regarding the Company's compensation policy and all forms of compensation to be
provided to certain of the executive officers of the Company, including the
Chief Executive Officer.
The Compensation/Stock Option Committee is responsible for approving the
grant of stock options to the Company's employees under the Company's 2000
Employee Stock Option Plan and 2002 Nonstatutory Stock Option Plan.
The members of the Compensation/Stock Option Committee serving in fiscal
2003 were Nathaniel Brenner and Edmond Ward. Mr. Brenner resigned his position
as director as well as his committee assignments effective as of March 2004.
The Compensation/Stock Option Committee met (or acted by written consent) eight
times during fiscal 2003. The Compensation/Stock Option Committee has not yet
adopted a written charter.
6
Nominating Committee. The Company maintains a standing Nominating
Committee that assists the Board of Directors in identifying and qualifying
candidates to join the Board. The Nominating Committee utilizes a variety of
methods for identifying and evaluating nominees. Its general policy is to
assess the appropriate size of the Board of Directors and whether any vacancies
are expected due to retirement or otherwise. In the event that vacancies are
anticipated, or otherwise arise, the Nominating Committee will consider
recommending various potential candidates to fill such vacancies. Candidates
may come to the attention of the Nominating Committee through its current
members, shareholders or other persons. The Board of Directors may consider
properly submitted shareholder nominations for candidacy. Nominees may be
submitted by shareholders in accordance with our Stockholder Communication
Policy described below.
The Nominating Committee has no specific, minimum qualifications for
director candidates. In general, however, persons considered for Board
positions must have demonstrated leadership capabilities, be of sound mind and
high moral character, have no personal or financial interest that would
conflict or appear to conflict with the interests of the company and be willing
and able to commit the necessary time for Board and committee service.
The Nominating Committee believes that Board members should represent a
balance of diverse backgrounds and skills, including for example, marketing,
finance, manufacturing, engineering, science, and international experience. The
Nominating Committee presently consists of Edmond Ward and William Oldham. The
Nominating Committee did not meet in fiscal 2003 and has not yet adopted a
written charter.
The Company does not maintain a Corporate Governance Committee at this
time, but the Board may consider forming such a Committee at its next regularly
scheduled meeting of the Board of Directors.
Shareholder Communication Policy
The Company's Board of Directors has not established a formal process for
shareholders to send communications to the Board of Directors or to individual
Directors. However, the names of all Directors are available to shareholders in
this proxy statement. If the Company receives any shareholder communication
intended for the full Board of Directors or any individual Director, the
Company will forward the communication to the full Board of Directors or the
individual Director, unless the communication is clearly of a marketing nature
or is unduly hostile, threatening, illegal or similarly inappropriate, in which
case the Company has the authority to discard the communications or take
appropriate legal action regarding the communication.
Compensation/Stock Option Committee Interlocks and Insider Participation
No member of the Compensation/Stock Option Committee of the Company's
Board of Directors serves as a member of the board of directors or compensation
committee of any entity that has one or more executive officers serving as a
member of the Company's Board of Directors or Compensation/Stock Option
Committee.
Board Compensation
Directors who are not also employees of the Company receive an annual
retainer fee of $5,000 plus $1,000 for each Board of Directors and committee
meeting attended (unless the Board of Directors and committee meetings take
place on the same day, in which case such directors receive a $1,000 fee) and
also $500 for attending quarterly earnings release conference calls. Directors
are also eligible to participate in the Company's 2000 Directors' Stock Option
Plan. Each Audit Committee member also receives an additional $3,000 annual
retainer, and the Audit Committee chairman receives an incremental $2,000
retainer for serving in such capacity.
7
Compensation of Executive Officers
The following table sets forth the compensation paid by the Company during
the past three fiscal years to (i) the Chief Executive Officer of the Company
during the last fiscal year, (ii) each of the four most highly compensated
executive officers (or such lesser number of executive officers as the Company
may have) of the Company not serving as Chief Executive Officer and (iii) up to
an additional two individuals that would have been included under item (ii) but
for the fact that the individuals were not serving as executive officers at the
end of the last completed fiscal year (collectively, the "Named Officers"):
Summary Compensation Table
Long Term
Compensation
Annual Compensation Awards
---------------------------------------- -------------
Securities
Underlying
Name Fiscal Year Salary Bonus Options (#)
------------------------------------------- ------------- ------------ --------- -------------
John D. Heaton ............................ 2003 $ 342,800 $ -- 572,500
President and Chief Executive Officer 2002 343,800 -- 275,000
2001 344,299 46,551 --
Vincent J. Coates ......................... 2003 $ 204,800 $ -- --
Chairman of the Board and Secretary 2002 204,800 -- --
2001 204,800 -- --
Roger Ingalls Jr. ......................... 2003 $ 198,965 $ -- 31,500
Vice President of Sales 2002 201,834 -- 25,000
2001 234,089 19,802 --
Paul B. Nolan ............................. 2003 $ 179,050 $ -- --
Vice President and Chief Financial Officer 2002 162,234 -- 50,000
2001 152,561 18,480 --
Stock Options Granted in the Fiscal Year Ended January 3, 2004
The following table sets forth information with respect to stock options
granted during the fiscal year ended January 3, 2004 to each of the Named
Officers. All options were granted under the Company's 2000 Stock Option Plan.
The potential realizable value amounts in the last two columns of the
following chart represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. The assumed 5%
and 10% annual rates of stock price appreciation from the date of grant to the
end of the option term are provided in accordance with rules of the SEC and do
not represent the Company's estimate or projection of the future common stock
price. Actual gains, if any, on stock option exercises are dependent on the
future performance of the common stock, overall market conditions and the
option holder's continued employment through the vesting period.
8
Option Grants in Last Fiscal Year
Individual Grants
-------------------------------------------------------
Number of % of Total Potential Realized Value at
Securities Options Assumed Annual Rates of
Underlying Granted to Stock Price Appreciation for
Options Employees Exercise Option Term
Granted in Fiscal Price Expiration -----------------------------
Name (#)(1) Year(2) ($/Sh) Date 5% ($) 10% ($)
--------------------------- ------------ ------------ ---------- ------------ ------------ --------------
John D. Heaton ............ 472,500 23.3% $ 5.70 6/17/10 $ 744,095 $ 1,644,256
John D. Heaton ............ 100,000 4.9 7.03 8/19/10 194,226 429,189
Vincent J. Coates ......... -- -- -- -- -- --
Roger Ingalls Jr. ......... 31,500 1.6 5.70 6/17/10 49,606 109,617
Paul B. Nolan ............. -- -- -- -- -- --
------------
(1) All options granted to the Named Officers in fiscal 2003 were granted at
exercise prices equal to the fair market value of the Company's common
stock on the dates of grant. Historically, options granted become
exercisable at the rate of 33% on the first anniversary date of the option
grant and 33% of the option shares become exercisable each full year
thereafter, such that full vesting occurs three years after the date of
grant. Options lapse after 7 years or 90 days after termination of
employment.
(2) Based on 2,030,495 options granted during the fiscal year ended January 3,
2004.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following table sets forth the number of shares covered by both
exercisable and unexercisable stock options held by each of the Named Officers
at December 31, 2003. Roger Ingalls Jr. was the only Named Officer who
exercised stock options during fiscal 2003.
Number of Securities
Underlying Unexercisable Value of Unexercised In-
Options at Fiscal the-Money Options at
Shares Value Year-End (#) Fiscal Year-End ($)(2)
Acquired on Realized ------------------------------ -----------------------------
Name Exercise (#) ($)(1) Exercisable Unexercisable Exercisable Unexercisable
--------------------------- -------------- ---------- ------------- --------------- ------------- --------------
John D. Heaton ............ 0 $ -- 0 0 $ 50,000 $ 572,500
Vincent J. Coates ......... -- -- -- -- -- --
Roger Ingalls Jr. ......... 19,000 156,887 0 0 0 31,500
Paul B. Nolan ............. 0 -- 13,333 6,667 13,333 26,667
------------
(1) The value realized upon exercise is (i) the fair market value of the
Company's common stock on the date of exercise, less the option exercise
price per share, multiplied by (ii) the number of shares underlying the
options exercised.
(2) The value of unexercised options is (i) the fair market value of the
Company's common stock on December 31, 2003 ($14.71 per share), less the
option exercise price of in-the-money options, multiplied by (ii) the
number of shares underlying such options.
9
Certain Transactions
Pursuant to the terms of an agreement dated May 1, 1985 between the
Company and Vincent J. Coates, the Chairman of the Board of the Company, the
terms of which were then amended and restated in August 1996 and again
effective April 1998, the Company is obligated, in the event Mr. Coates is
required to resign as Chairman of the Board under certain circumstances,
including a change of control, to continue to pay Mr. Coates his salary and
benefits for five years from the date of such resignation.
In April 1998, the Company entered into an agreement with John D. Heaton
under which the Company agreed to pay Mr. Heaton his usual annual salary
(excluding bonuses) for a period of one year from the date that he is required
or requested for any reason not involving good cause, including a change of
control, to involuntarily relinquish his positions with the Company as Chief
Executive Officer, President and Director. If Mr. Heaton leaves the Company
voluntarily or if he is asked to leave under certain circumstances, no such
severance payment is required.
On October 1, 2001, Mr. Heaton issued a promissory note to the Company in
the principal amount of approximately $301,000 in a transaction designed to
provide Mr. Heaton with funds to meet personal needs. The note bears interest
at a rate of 6% and shall become due and payable upon the earlier of (i) 90
days after the termination of Mr. Heaton's employment with the Company or (ii)
October 1, 2004.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's executive officers and directors, and persons who own more than
ten percent of a registered class of the Company's equity securities, to file
reports of ownership and changes in ownership with the SEC and the NASDAQ
National Market. Executive officers, directors and greater than ten percent
shareholders are required by SEC regulations to furnish the Company with copies
of all Section 16(a) forms that they file. Based solely on its review of the
copies of such forms received by it or written representations from certain
reporting persons, the Company believes that during fiscal 2003, its executive
officers, directors and greater than ten percent shareholders complied with all
applicable filing requirements.
Shareholders Sharing an Address
Shareholder sharing an address with another shareholder may receive only
one set of proxy materials to that address unless they have provided contrary
instructions. Any such shareholder who wishes to receive a separate set of
proxy material now or in the future may write or call the Company to request a
separate set of these materials. Similarly, shareholders sharing an address
with another shareholder who have received multiple copies of the Company's
proxy material may write or call the Company to request delivery of a single
copy of the materials.
10
Report of the Audit Committee of the Board of Directors
The following is the report of the Audit Committee of the Board of
Directors describing its review of materials and determinations with respect to
the Company's auditors and financial statements for the fiscal year ended
January 3, 2004. The information contained in this report shall not be deemed
to be "soliciting material" or to be "filed" with the Securities and Exchange
Commission, nor shall such information be incorporated by reference into any
future filing under the Securities Act or Exchange Act, except to the extent
that the Company specifically incorporates it by reference into such filing.
In accordance with its written charter adopted by the Board of Directors,
the Audit Committee assists the Board of Directors in fulfilling its
responsibility for oversight of the quality and integrity of the accounting,
auditing and financial reporting practices of the Company. During 2003, the
Audit Committee met (or acted by written consent) eight times, and the Audit
Committee chairman, as representative of the committee, discussed the interim
financial information contained in quarterly earnings announcements with the
Chief Financial Officer and independent auditors prior to public release.
The Audit Committee received from the Company's independent auditors a
formal written statement, consistent with Independence Standards Board Standard
No. 1, "Independence Discussions with Audit Committees," which describes all
relationships between the auditors and the Company that, in the auditors'
professional opinion, might reasonably be thought to bear on the auditors'
independence. The Audit Committee discussed with the auditors these
relationships and satisfied itself as to the auditors' independence.
The Audit Committee also discussed and reviewed with the independent
auditors all communications required by generally accepted auditing standards,
including those described in Statement on Auditing Standards No. 61, as
amended, "Communication with Audit Committees" and, with and without management
present, discussed and reviewed the results of the independent auditors'
examination of the Company's financial statements.
Additionally, the Audit Committee reviewed the audited financial
statements of the Company as of and for the fiscal year ended January 3, 2004
with management and the independent auditors. Management has the responsibility
for the preparation of the Company's financial statements and the independent
auditors have the responsibility for the examination of those statements.
Based on the foregoing review and discussions with management and the
independent auditors, the Audit Committee recommended to the Board that the
Company's audited financial statements be included in its Annual Report on Form
10-K for the fiscal year ended January 3, 2004 for filing with the Securities
and Exchange Commission. The Audit Committee also recommended the
reappointment, subject to shareholder approval, of the independent auditors and
the Board concurred in such recommendation.
Edmond R. Ward and William G. Oldham, on behalf of the Committee
11
Report of the Compensation/Stock Option Committee of the Board of Directors
The following is the report of the Compensation/Stock Option Committee of
the Board of Directors describing compensation policies and rationales
applicable to certain of the Company's executive officers with respect to the
compensation paid to such executive officers for the fiscal year ended January
3, 2004. The information contained in such report shall not be deemed to be
"soliciting material" or to be "filed" with the Securities and Exchange
Commission, nor shall such information be incorporated by reference into any
future filing under the Securities Act or Exchange Act, except to the extent
that the Company specifically incorporates it by reference into such filing.
General. The Compensation/Stock Option Committee is responsible for
making recommendations to the Board of Directors with respect to cash
compensation levels for certain of the Company's executive officers. During
2003, the Compensation/Stock Option Committee also was responsible for
determining levels of equity-based compensation for the Company's employees.
Compensation Philosophy. The Compensation/Stock Option Committee makes
recommendations as to the salaries of certain of the executive officers by
considering (i) the salaries of executive officers in similar positions at
comparably-sized peer companies, (ii) the Company's financial performance over
the past year based upon revenues and operating results and (iii) the
achievement of individual performance goals related to each executive officer's
duties and areas of responsibility. The Compensation/Stock Option Committee
makes recommendations as to the levels of cash bonuses awarded to certain of
the Company's executive officers and views such bonuses as being an integral
part of its performance based compensation program. Such bonuses are based on
Company profits and are determined as a percentage of the officer's salaries.
Equity-Based Compensation. The Compensation/Stock Option Committee views
stock options as an important part of its long-term, performance-based
compensation program. The Compensation/Stock Option Committee grants stock
options to all employees of the Company under the Company's 2000 Stock Option
Plan and 2002 Nonstatutory Stock Option Plan based upon the committee's
estimation of each employee's contribution to the long-term growth and
profitability of the Company. The 2000 Stock Option Plan is intended to provide
additional incentives to the executive officers to maximize shareholder value.
Options are granted under the 2000 Stock Option Plan and the 2002 Nonstatutory
Stock Option Plan at the then-current market price and are generally subject to
three-year vesting periods to encourage key employees to remain with the
Company.
Compensation of the President and Chief Executive Officer. The
compensation of the Company's President and Chief Executive Officer was based
upon the same criteria described above. Due to economic conditions, the
Compensation/Stock Option Committee felt that an increase to the base salary of
the President and CEO would not be appropriate. Additionally, no management
bonuses, which are based on profits, were paid in 2003.
Edmond R. Ward, on behalf of the Committee
12
Performance Graph
Set forth below is a total return line graph comparing the annual
percentage change in the cumulative return to the shareholders of the Company's
Common Stock with the cumulative return of the NASDAQ Stock Market Index and
the RDG Technology Composite Index for the period commencing on January 1, 1999
and ending on December 31, 2003. The results are shown based on a $100
investment in the stock or index with any dividends reinvested.
The information contained in the performance graph shall not be deemed to
be "soliciting material" or to be "filed" with the Securities and Exchange
Commission, nor shall such information be incorporated by reference into any
future filing under the Securities Act or Exchange Act, except to the extent
that the Company specifically incorporates it by reference into such filing.
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN*
AMONG NANOMETRICS INCORPORATED, NASDAQ STOCK MARKET (U.S.) INDEX
AND THE RDG TECHNOLOGY COMPOSITE INDEX
[The following descriptive data is supplied in accordance with Rule 304(d) of
Regulation S-T]
* $100 invested on 12/31/98 in stock or index-including reinvestment of
dividends.
Cumulative Total Return
--------------------------------------------------------------------------------
12/98 12/99 12/00 12/01 12/02 12/03
----------- ----------- ----------- ----------- ---------- -----------
NANOMETRICS INCORPORATED ........... 100.00 257.60 176.81 248.32 53.63 188.29
NASDAQ STOCK MARKET (U.S.) ......... 100.00 192.96 128.98 67.61 62.17 87.61
RDG TECHNOLOGY COMPOSITE ........... 100.00 157.96 117.38 104.39 76.77 104.01
13
PROPOSAL NO. 2
RATIFICATION OF APPOINTMENT OF
INDEPENDENT AUDITORS
The Board has appointed Deloitte & Touche LLP, independent auditors, to
audit the consolidated financial statements of the Company for the fiscal year
ending January 1, 2005. Deloitte & Touche LLP has audited the Company's
financial statements since fiscal 1991.
Representatives of Deloitte & Touche LLP are expected to be present at the
Annual Meeting with the opportunity to make a statement if they desire to do
so, and are also expected to be available to respond to appropriate questions.
Audit Fees
The aggregate audit fees billed by Deloitte & Touche LLP, the member firms
of Deloitte Touche Tohmatsu, and their respective affiliates (collectively,
"Deloitte & Touche") were $263,680 and $264,239 for the fiscal years ended
January 3, 2004 and December 28, 2002, respectively. Fees for audit services
consisted of audits of the Company's annual consolidated financial statements,
reviews of the Company's quarterly financial statements, statutory audits and
consents related to Securities and Exchange Commission filings.
Audit-Related Fees
No audit related services were provided during the fiscal years ended
January 3, 2004 and December 28, 2002.
Tax Fees
The aggregate tax fees billed by Deloitte & Touche were $127,690 and
$222,255 for the fiscal years ended January 3, 2004 and December 28, 2002,
respectively. Fees for tax services consisted of Federal and state income tax
return assistance, assistance with tax return filings in certain foreign
jurisdictions, and transfer pricing documentation.
All Other Fees
Fees for all other services billed during the fiscal year ended January 3,
2004 were $7,500 and consisted of training on the requirements of Section 404
of the Sarbanes-Oxley Act. No services other than those described above were
provided for the fiscal year ended December 28, 2002.
In considering the nature of the services provided by the independent
auditor, the Audit Committee determined that such services are compatible with
the provision of independent audit services. The Audit Committee discussed
these services with the independent auditor and Company management to determine
that they are permitted under the rules and regulations concerning auditor
independence promulgated by the U.S. Securities and Exchange Commission (the
"SEC") to implement the Sarbanes-Oxley Act of 2002, as well as the American
Institute of Certified Public Accountants.
Audit Committee Pre-Approval Policy
Pursuant to the Audit Committee Charter, the Audit Committee must
pre-approve all audit and non-audit services, and the related fees, provided to
the Company by our independent auditors, or subsequently approve non-audit
services in those circumstances where a subsequent approval is necessary and
permissible under the Securities Exchange Act of 1934 or the rules of the
Securities and Exchange Commission. Accordingly, the Audit Committee
pre-approved all services and fees provided by Deloitte & Touche during the
year ended January 3, 2004 and has concluded that the provision of these
services is compatible with the accountant's independence.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE "FOR"
THE RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS THE COMPANY'S
INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING JANUARY 1, 2005.
14
OTHER MATTERS
The Company knows of no other matters to be submitted to the Annual
Meeting. If any other matters properly come before the Annual Meeting, it is
the intention of the persons named in the enclosed proxy card to vote the
shares they represent as the Board of Directors may recommend.
THE BOARD OF DIRECTORS
Dated: April 23, 2004
15
Appendix
Audit Committee Charter
CHARTER FOR THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS
OF
NANOMETRICS INCORPORATED
(as approved by the Audit Committee on November 18, 2003)
PURPOSE
The purpose of the Audit Committee (the "Committee") of the Board of
Directors (the "Board") of Nanometrics Incorporated (the "Company") shall be to
oversee the Company's accounting practices, system of internal controls, audit
processes, and financial reporting processes.
The Committee has the authority to undertake the specific duties and
responsibilities listed below and will have the authority to undertake such
other specific duties as the Board from time to time prescribes.
MEMBERSHIP
The members of the Committee will be nominated by, will be appointed by,
and will serve at the discretion of, the Board. The Committee will consist of
at least three (3) members of the Board who meet the following criteria (in
each case to the extent that such requirements are effective from time to
time):
1. Each member will be an independent director in accordance with the
rules of the Nasdaq National Market ("Nasdaq") and the rules of the
Securities and Exchange Commission ("SEC");
2. Each member will be able to read and understand fundamental financial
statements, in accordance with the rules of Nasdaq;
3. At least one member will have past employment experience in finance or
accounting, requisite professional certification in accounting, or any
other comparable experience or background which results in the
individual's financial sophistication, including being or having been a
chief executive officer, chief financial officer or other senior
officer with financial oversight responsibilities, in accordance with
the rules of Nasdaq; and
4. At least one member will be a "financial expert" in accordance with the
rules of Nasdaq and the rules of the SEC.
The Board shall designate one member of the Committee as the Committee's
Chairperson.
RESPONSIBILITIES AND AUTHORITY
The responsibilities and authority of the Committee shall include:
Processes, Controls and Risk Management
1. Reviewing periodically the Company's financial reporting processes
and disclosure controls and processes, based on consultation with the
Company's management and independent auditors;
2. Reviewing periodically the adequacy and effectiveness of the
Company's internal control policies and procedures, including the
responsibilities, budget and staffing of the Company's internal audit
function, based on consultation with the Company's management and
independent auditors;
3. Reviewing the reports prepared by management, and attested to by the
Company's independent auditors, assessing the adequacy and effectiveness of
the Company's internal controls and procedures, prior to the inclusion of
such reports in the Company's periodic filings as required under the rules
of the SEC;
A-1
4. Discussing guidelines and policies governing the process by which
management and other persons responsible for risk management assess and
manage the Company's exposure to risk, as well as the Company's major
financial risk exposures and the steps management has taken to monitor and
control such exposures, based on consultation with the Company's management
and independent auditors;
Independent Auditors
5. Appointing, approving the compensation of and overseeing the work of
the Company's independent auditors; in this regard, the Committee shall
have the sole authority to approve the hiring and firing of the independent
auditors and the independent auditors shall report directly to the
Committee;
6. Pre-approving audit and permissible non-audit services provided to
the Company by the independent auditors (or subsequently approving
non-audit services in those circumstances where a subsequent approval is
permissible);
7. Discussing with the Company's independent auditors the independent
auditors' annual audit plan, including the scope of audit activities and
all critical accounting policies and practices to be used, and any other
matters required to be discussed by Statement on Accounting Standard No.
61, as it may be modified or supplemented;
8. Obtaining and reviewing at least annually a report by the Company's
independent auditors describing:
* The independent auditors' internal quality-control procedures;
* Any material issues raised by the most recent internal quality-control
review, or peer review, of the independent auditors, or by any inquiry or
investigation by any governmental or professional authority, within the
preceding five years, respecting one or more independent audits carried
out by the independent auditors, and any steps taken to deal with any such
issues; and
* A formal written statement delineating all relationships between the
auditor and the Company, consistent with Independent Standards Board
Standard No. 1, as it may be modified or supplemented, and reviewing and
discussing with the auditors any disclosed relationships or services that
may impact the objectivity and independence of the auditors; in this
regard, the Committee shall recommend that the Board take appropriate
action, if necessary, to ensure the independence of the auditors;
9. Reviewing periodically with management, the Company's independent
auditors and the internal auditors (or other persons responsible for the
Company's internal audit function):
* The results of the annual audit of the Company, including any significant
findings, comments or recommendations of the independent auditors and
internal auditors (or other persons responsible for the Company's internal
audit function) together with management's responses thereto; and
* Any significant changes in the Company's accounting principles or the
methods of applying the Company's accounting principles;
10. Reviewing periodically with the independent auditors any problems or
difficulties encountered by the independent auditors in the course of any
audit work, including management's response thereto, any restrictions on
the scope of the independent auditor's activities or on access to requested
information, and any significant disagreements with management;
SEC Reports and Other Disclosure
11. Reviewing with:
* Management and the Company's independent auditors, before release, the
audited financial statements and unaudited interim financial statements;
and
* Management, before release, the Company's earnings announcements or
financial releases and Management's Discussion and Analysis (MD&A) in the
Company's annual report on Form 10-K and quarterly reports on Form 10-Q;
A-2
12. Directing the Company's independent auditors to review, before
filing with the SEC, the Company's interim financial statements included in
quarterly reports on Form 10-Q, using professional standards and procedures
for conducting such reviews;
13. Overseeing compliance with the disclosure requirements of the SEC,
including disclosure of information regarding auditors' services and audit
committee members, member qualifications and activities;
Other Responsibilities and Authority
14. Establishing procedures for the receipt, retention and treatment of
complaints received by the Company regarding accounting, internal
accounting controls or auditing matters, and the confidential, anonymous
submission by employees of the Company of concerns regarding questionable
accounting or auditing matters;
15. Reviewing and approving all related party transactions in accordance
with the rules of Nasdaq;
16. Reviewing, approving and monitoring the Company's code of ethics for
senior financial officers;
17. Establishing hiring policies regarding employment of employees, or
former employees, of the Company's independent auditors;
18. Reviewing the Committee's own charter, structure, processes and
membership requirements; and
19. Performing such other duties as may be requested by the Board.
INVESTIGATIONS, STUDIES AND OUTSIDE ADVISORS
The Committee may conduct or authorize investigations into or studies of
matters within the Committee's scope of responsibility with full access to all
books, records, facilities and personnel of the Company.
As appropriate, the Committee will obtain advice and assistance from
outside legal, accounting or other advisors at the Company's expense.
MEETINGS
The Committee will establish its own schedule and will meet at least one
(1) time each fiscal quarter.
The Committee will meet separately with members of the Company's
management, internal auditors (or other persons responsible for the Company's
internal audit function) and the Company's independent auditors at such times
as the Committee deems appropriate.
The Committee may request that any directors, officers or employees of the
Company, or other persons whose advice and counsel are sought by the Committee,
attend any meeting of the Committee to provide such pertinent information as
the Committee requests.
MINUTES
The Committee will maintain written minutes of its meetings, which minutes
will be filed with the minutes of the meetings of the Board.
A-3
REPORTS
The Committee shall prepare all reports required to be included in the
Company's filings with the SEC, pursuant to and in accordance with applicable
rules of the SEC.
The Committee also shall report regularly to the full Board, including
with respect to any issues that arise with respect to the quality or integrity
of the Company's financial statements, the effectiveness of the Company's
internal controls or disclosure controls, the performance and independence of
the Company's independent auditors, or any other issue that the Committee
believes should be brought to the attention of the full Board. Such reports may
be made orally or in writing.
COMPENSATION
Members of the Committee shall receive such fees, if any, for their
service as Committee members as may be determined by the Board. Such fees may
include retainers or per meeting fees and shall be paid in such form of
consideration as is determined by the Board.
Members of the Committee may not receive any compensation from the Company
except the fees that they receive for service as a member of the Board or any
committee thereof.
DELEGATION OF AUTHORITY
The Committee may, to the extent permitted under applicable law, the rules
of Nasdaq and the SEC, and the Company's Articles of Incorporation and Bylaws,
delegate to one or more designated members of the Committee the authority to
pre-approve audit and permissible non-audit services, provided that such
pre-approval decision is presented to the full Committee at a scheduled
meeting.
A-4
NANOMETRICS INCORPORATED
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
2004 ANNUAL MEETING OF SHAREHOLDERS
May 26, 2004
The undersigned shareholder(s) of Nanometrics Incorporated, a California
corporation, hereby acknowledges receipt of the Notice of Annual Meeting of
Shareholders and Proxy Statement, each dated April 23, 2004, and hereby appoints
Vincent J. Coates and Paul B. Nolan, and each 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 2004 Annual Meeting
of Shareholders of Nanometrics Incorporated to be held on Wednesday, May 26,
2004 at 1:30 p.m., local time, at the principal offices of the Company located
at 1550 Buckeye Drive, Milpitas, California, 95035 and at any adjournments
thereof, and to vote all shares of Common Stock which the undersigned is
entitled to vote on the matters set forth below:
ITEM 1. Election of Directors:
( ) FOR all nominees listed below (except as indicated)
( ) WITHHOLD AUTHORITY to vote for all nominees listed below
IF YOU WISH TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE A
LINE THROUGH THAT NOMINEE'S NAME IN THE LIST BELOW:
Vincent J. Coates J. Thomas Bentley John D. Heaton
Stephen J Smith Edmond R. Ward William G. Oldham Mircea V. Dusa
ITEM 2. Proposal to Ratify the Appointment of Deloitte & Touche LLP as
Independent Auditors of the Company for the 2004 Fiscal Year:
( ) FOR ( ) AGAINST ( ) ABSTAIN
(Continued and to be signed, on reverse side)
(Continued from other side)
In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
THIS BALLOT WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS
INDICATED, WILL BE VOTED "FOR" THE ELECTION OF DIRECTORS NAMED HEREIN, "FOR" THE
PROPOSAL LISTED, AND AS SAID PROXIES DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY
COME BEFORE THE MEETING.
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Typed or Printed Name(s)
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Signature
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Signature
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Title, if applicable
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Type and Number of Shares owned
Dated: , 2004
---------------------------------
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.