Exhibit (a)(1)(a)
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NANOMETRICS INCORPORATED
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OFFER TO EXCHANGE
CERTAIN OUTSTANDING OPTIONS FOR
NEW OPTIONS
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This document constitutes part of a prospectus relating to the
Nanometrics Incorporated
2000 Employee Stock Option Plan and 2002 Nonstatutory Stock Option Plan
covering securities that have been registered under the
Securities Act of 1933
November 12, 2002
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NANOMETRICS INCORPORATED
Offer to Exchange Certain Outstanding Options for New Options
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This offer and withdrawal rights expire at 5:00 p.m., Pacific Time,
on December 13, 2002, unless we extend the offer.
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You may exchange your outstanding options to purchase shares of our common
stock, whether vested or unvested, granted under either our 1991 Stock Option
Plan or our 2000 Employee Stock Option Plan with exercise prices equal to or
greater than $10.00 per share for new stock options that we will grant under
either our 2000 Employee Stock Option Plan or our 2002 Nonstatutory Stock Option
Plan. The board of directors, in its sole discretion, will determine under which
of these two plans your new options will be granted. You are eligible to
participate in the exchange offer if you are an employee of Nanometrics on
November 12, 2002 and a resident of the United States. Non-employee directors
are ineligible to participate in the exchange offer.
Your new option will cover 0.9 of a share of our common stock for every 1
share covered by an option that you elect to exchange, rounded up to the nearest
whole share. The exercise price per share of the new options will be equal to
100% of the fair market value of our common stock on the date of grant.
We will grant the new options on the first business day that is 6 months
and 1 day after the date on which we cancel the options accepted for exchange.
We refer to this date as the new option grant date. We expect the new option
grant date to be June 17, 2003. Each new option will be subject to the following
vesting schedule: (i) for those new options granted in exchange for options that
were fully vested on the date of their cancellation, 100% of the new options
shall vest on the one-year anniversary of the new option grant date; and (ii)
for those new options granted in exchange for options that were not fully vested
on the date of their cancellation, 50% of the new options shall vest on the
one-year anniversary of the new option grant date and 50% of the new options
shall vest on the two-year anniversary of the new option grant date.
Our common stock is traded on the Nasdaq National Market under the symbol
"NANO." On November 8, 2002, the closing price of our common stock as reported
on the NASDAQ National Market was $4.63 per share. We recommend that you
evaluate current market quotes for our common stock, among other factors, before
deciding whether to elect to exchange your options.
See "Risks of Participating in the Offer" beginning on page 9 for a
discussion of risks that you should consider before tendering your eligible
options.
IMPORTANT
If you wish to exchange your options, you must complete and sign the
election form by following its instructions and fax (fax number: (000) 000-0000)
or, upon prior arrangement, hand deliver it to Xxxxx Xxxxxxxxx at Nanometrics
before 5:00 p.m., Pacific Time, on December 13, 2002.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this offer to exchange. Any representation to the
contrary is a criminal offense.
You should direct questions about the offer or requests for additional
copies of this offer to exchange and the other option exchange program documents
to Xxxx Xxxxx, Nanometrics Incorporated, 0000 Xxxxxxx Xxxxx, Xxxxxxxx, XX 00000,
telephone number (000) 000-0000.
Offer to Exchange dated November 12, 2002.
You should rely on the information contained in this offering circular. We
have not authorized anyone to provide you with different information. We are not
making an offer of the new options in any jurisdiction where the offer is not
permitted. However, we may, at our discretion, take any actions necessary for us
to make the offer to option holders in any of these jurisdictions. You should
not assume that the information provided in this offering circular is accurate
as of any date other than the date as of which it is shown, or if no date is
otherwise indicated, the date of this offering circular. This offering circular
summarizes various documents and other information. Those summaries are
qualified in their entirety by reference to the documents and information to
which they relate.
TABLE OF CONTENTS
Page
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SUMMARY TERM SHEET.....................................................................1
RISKS OF PARTICIPATING IN THE OFFER....................................................9
THE OFFER.............................................................................17
1. Eligibility.................................................................17
2. Number of options; expiration date..........................................17
3. Purpose of the offer........................................................18
4. Procedures for electing to exchange options.................................19
5. Withdrawal rights and change of election....................................20
6. Acceptance of options for exchange and issuance of new
options.....................................................................21
7. Conditions of the offer.....................................................21
8. Price range of shares underlying the options................................23
9. Source and amount of consideration; terms of new options....................24
10. Information concerning Nanometrics..........................................28
11. Interests of directors and officers; transactions and
arrangements concerning the options.........................................28
12. Status of options acquired by us in the offer; accounting
consequences of the offer...................................................29
13. Legal matters; regulatory approvals.........................................29
14. Material U.S. federal income tax consequences...............................30
15. Extension of offer; termination; amendment..................................30
16. Fees and expenses...........................................................31
17. Additional information......................................................31
18. Financial statements........................................................32
19. Miscellaneous...............................................................32
SCHEDULE A Information Concerning the Directors and Executive A-1
Officers of Nanometrics Incorporated
SCHEDULE B Financial Statements of Nanometrics Incorporated B-1
included in its Quarterly Report on Form 10-Q for
the Quarter Ended September 30, 2002
SCHEDULE C Financial Statements of Nanometrics Incorporated included C-1
in its Annual Report on Form 10-K for the Year Ended
December 31, 2001
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SUMMARY TERM SHEET
The following are answers to some of the questions that you may have about
the offer. You should carefully read this entire offer to exchange, the
accompanying letter from the Chairman of our Board, Xxxxxxx X. Xxxxxx, dated
November 12, 2002, the election form and the withdrawal form. The offer is made
subject to the terms and conditions of these documents as they may be amended.
The information in this summary is not complete. Additional important
information is contained in the remainder of this offer to exchange and the
other option exchange program documents. We have included in this summary
references to other sections in this offer to exchange to help you find a more
complete description of these topics.
Q1. What is the offer?
A1. The offer to exchange is a voluntary opportunity for eligible option
holders to exchange outstanding options granted by us with exercise
prices equal to or greater than $10.00 per share for new options
covering a smaller number of shares after a 6 month and 1 day waiting
period. We expect to make the new grants on June 17, 2003. The new
options will have an exercise price equal to the fair market value of
our common stock at that time. (Sections 1 and 9)
Q2. Why are we making the offer?
A2. We believe that granting stock options motivates our employees to
perform at high levels and provides an effective means of recognizing
employee contributions to our success. This offer enables us to offer
eligible employees a valuable incentive to stay with us. Some of our
outstanding options, whether or not they are currently exercisable,
have exercise prices that are significantly higher than the current
market price of our shares. These options are commonly referred to as
being "underwater." By making this offer to exchange eligible options
for new options that will have an exercise price equal to the market
value of the shares on the new option grant date, we intend to
provide eligible employees with the benefit of owning options that
over time may have a greater potential to increase in value. We
believe that this will create better performance incentives for
eligible employees and, as a result, maximize shareholder value.
(Section 3)
Q3. What securities are we offering to exchange?
A3. We are offering to exchange all outstanding, unexercised options to
purchase shares of our common stock held by eligible employees that
have been granted under either our 1991 Stock Option Plan or our 2000
Employee Stock Option Plan and that have an exercise price equal to
or greater than $10.00 per share. In exchange, we will grant new
options under either our 2000 Employee Stock Option Plan or our 2002
Nonstatutory Stock Option Plan. The board of directors, in its sole
discretion, will determine under which of these two plans your new
options will be granted. Options to purchase our common stock granted
under plans other than the 1991 Stock Option Plan and the 2000
Employee Stock Option Plan are not eligible for exchange in the
offer. If you elect to participate in the offer, then you must
exchange all options that we have granted to you since May 12, 2002,
even if those options would not otherwise be eligible for exchange.
(Section 2)
Q4. Who is eligible to participate?
A4. You are eligible to participate in the offer only if you are (i) an
employee of Nanometrics or one of our subsidiaries on November 12,
2002, (ii) a resident of the United States and (iii) remain an
employee through the cancellation date. However, non-employee members
of our board of directors are not eligible to participate. (Section
1)
In order to receive a new option, you must remain an employee of
Nanometrics or one of our subsidiaries through the date on which the
new options are granted, which will be the first business day that is
at least 6 months and 1 day after the cancellation date. We refer to
this date as the new option grant date. If we do not extend the
offer, the new option grant date will be June 17, 2003. (Section 1)
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Q5. Are employees who reside outside of the United States eligible to
participate?
A5. No. Only United States residents are eligible to participate.
(Section 2)
Q6. When does this offer end?
A6. This offer ends at 5:00 p.m., Pacific Time, on December 13, 2002. We
refer to this date and time as the expiration date, unless we extend
the period during which the offer will remain open. If we extend the
offer, the term expiration date will refer to the time and date at
which the extended offer expires. (Section 2)
Q7. How many new options will you receive in exchange for your options
that you elect to exchange?
A7. The new option that we will grant to you will cover 0.9 of a share of
our common stock for every share of our common stock covered by an
option that you elect to exchange, rounded up to the nearest whole
share. The number of new options that you receive will be subject to
adjustment for any stock splits, subdivisions, combinations, stock
dividends and similar events that occur after the cancellation date
but before the new option grant date. (Section 2)
Example 1
If the option you elect to exchange covers 60 shares of our common
stock, your new option will cover 54 shares of our common stock.
Example 2
If the option you elect to exchange covers 25 shares of our common
stock, your new option will cover 23 shares.
New options will be granted under either our 2000 Employee Stock
Option Plan or our 2002 Nonstatutory Stock Option Plan. The board of
directors, in its sole discretion, will determine under which of
these two plans your new options will be granted. All new options
will be subject to a new option agreement between you and us. You
must sign the new option agreement before receiving your new options.
(Section 2)
Q8. Why isn't the exchange ratio simply one-for-one?
A8. Our stock option program must balance the interests of both employees
and shareholders. The ratio of nine-tenths of a share subject to a
new option for every share subject to the option exchanged will
decrease the total number of options outstanding and will benefit
shareholders by decreasing potential shareholder dilution. (Section
3)
Q9. What are the conditions to the offer?
A9. Participation in the offer is completely voluntary. The completion of
the exchange offer is subject to a number of customary conditions
that are described in Section 7 of this offer to exchange. If any of
these conditions are not satisfied, we will not be obligated to
accept and exchange any properly tendered eligible options. Prior to
the expiration date of the exchange offer, we reserve the right to
amend the exchange offer for any or no reason. (Section 7)
Q10. Are there any eligibility requirements that you must satisfy after
the expiration date to receive the new options?
A10. To receive a grant of new options under the terms of the offer and
either the 2002 Nonstatutory Stock Option Plan or the 2000 Employee
Stock Option Plan, you must be employed by us through the new option
grant date. (Section 1)
As discussed below, we will grant new options to you on the first
business day that is at least 6 months and 1 day after the
cancellation date. We expect that the new option grant date will be
June 17, 2003. If, for any reason, you do not remain employed by us,
one of our subsidiaries or a successor entity through the new
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option grant date, you will not receive any new options or other
compensation in exchange for the eligible options that you tendered
and that we accepted for exchange and subsequently cancelled. Your
employment with us or one of our subsidiaries remains "at will" and
can be terminated by you or us or one of our subsidiaries at any
time, with or without cause or notice. (Section 1)
Q11. When will you receive your new options?
A11. We will send you a promise to grant stock option promptly after the
date on which we accept and cancel the options elected to be
exchanged. The promise to grant stock option represents our
commitment to grant you a new option on the new option grant date,
provided that you remain employed by us through the new option grant
date.
We will grant the new options on the new option grant date. The new
option grant date will be the first business day that is at least 6
months and 1 day after the date on which we cancel the options
accepted for exchange. Our board of directors has selected this date
as the actual grant date for the new options. We will not grant the
new options before the new option grant date. (Section 6)
Q12. When will the options you elect to exchange be cancelled?
A12. The options you elect to exchange will be cancelled on the first
business day following the expiration date of this offer. We refer to
this date as the cancellation date. If we do not extend the offer,
the cancellation date will be December 16, 2002. Therefore, if we do
not extend the offer the new options will be granted on June 17,
2003. (Section 6)
Q13. Why won't you receive your new options immediately after the
expiration date of the offer?
A13. Published rules of the Financial Accounting Standards Board generally
require the options granted within the 6 months prior to the
commencement of the offer and 6 months after the cancellation of the
options to be treated as a variable expense to earnings. This means
that we would be required to record the non-cash accounting impact of
increases in our stock price as a compensation expense if we issued
new options immediately. We would have to continue this variable
accounting for these new options until they were exercised, forfeited
or terminated. The higher the market value of our shares, the greater
the compensation expense we would have to record. By deferring the
grant of the new options for at least 6 months and 1 day, we believe
that we will not have to treat the new options as variable awards.
(Section 12)
Q14. If you elect to exchange options in the offer, will you be eligible
to receive other option grants before you receive your new options?
A14. No. If you accept the offer, you cannot receive any other option
grants before you receive your new options. We will not grant
additional options to you in order to avoid incurring compensation
expense against our earnings because of accounting rules that could
apply to these interim option grants as a result of the offer.
(Section 6)
Q15. Is this a repricing?
A15. No. The Financial Accounting Standards Board has adopted rules that
result in unfavorable accounting consequences for companies that
reprice options. If we repriced your options, our potential for
profitability in the future would be significantly reduced because we
would be required to record a charge against earnings with respect to
any future appreciation of the repriced options. (Section 12)
Q16. Why can't we just grant you additional options?
A16. Because of the large number of underwater options outstanding,
granting additional options covering the same aggregate number of
shares of common stock as the outstanding eligible options would be
dilutive and have a negative impact on our outstanding shares.
Additionally, we have a limited number of options that we may grant
without shareholder approval, and our current reserves must be
conserved for ongoing grants and new hires. (Section 3)
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Q17. Will you be required to give up all of your rights under the
cancelled options?
A17. Yes. Once we have accepted options that you tender for exchange, your
options will be cancelled and you will no longer have any rights
under those options. We intend to cancel all options accepted for
exchange on the cancellation date, which is the first business day
following the expiration of the offer. We expect the cancellation
date to be December 16, 2002. (Section 6)
Q18. What will the exercise price of the new options be?
A18. The exercise price per share of the new options will be 100% of the
fair market value of our common stock on the new option grant date,
which would be the closing price reported by the Nasdaq National
Market for our common stock on the new option grant date, which is
expected to be June 17, 2003. (Section 9)
We cannot predict the exercise price of the new options. Because we
will grant new options on the first business day that is at least 6
months and 1 day after the date on which we cancel the options
accepted for exchange, the new options may have a higher exercise
price than some or all of your current options. (Section 9)
Q19. When will the new options vest?
A19. Each new option will vest based on a new vesting schedule that will
begin on the new option grant date. The new vesting schedule will be
as follows:
o For options that were fully vested at the time of their
cancellation, 100% of the new options will vest on the one-year
anniversary of the new option grant date; and
o For options that were not fully vested at the time of their
cancellation, 50% of the new option will vest on the one-year
anniversary of the new option grant date, and the remaining 50%
will vest on the two-year anniversary of the date of grant;
so that each new option will be fully vested on or before the 2nd
anniversary of the new option grant date, subject to your continued
employment with us or one of our subsidiaries through each relevant
vesting date. (Section 9)
For example, a new option to purchase 900 shares of our common stock
granted on the scheduled new option grant date of June 17, 2003 in
exchange for a fully vested option to purchase 1,000 shares would
vest as follows:
o none of the shares subject to the new option will be vested on
June 17, 2003; and
o all 900 shares subject to the new option will vest on June 17,
2004.
In another example, a new option to purchase 3,600 shares of our
common stock granted on the scheduled new option grant date of June
17, 2003 in exchange for a partially vested option to purchase 4,000
shares would vest as follows:
o none of the shares subject to the new option will be vested on
June 17, 2003;
o 1,800 shares subject to the new option will vest on June 17, 2004;
and
o the remaining 1,800 shares subject to the new option will vest on
June 17, 2005. (Section 9)
Q20. What if another company acquires us in a merger or stock acquisition?
A20. Although we are not anticipating any such merger or acquisition, if
we merge or consolidate with or are acquired by another entity
between the expiration date and the new option grant date, then the
resulting entity will be obligated to grant the new options under the
same terms as provided in this offer. However, the type of security
and the number of shares covered by each new option would be adjusted
based on the
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consideration per share given to holders of options to acquire our
common stock that are outstanding at the time of the acquisition.
Such new option will have an exercise price equal to the fair market
value of the acquiror's stock on the new option grant date. As a
result of this adjustment, you may receive options for more or fewer
shares of the acquiror's stock than the number of shares subject to
the eligible options that you exchange or than the number you would
have received pursuant to a new option if no acquisition had
occurred.
Regardless of any such merger, consolidation or acquisition, the new
option grant date will be the first business day that is at least 6
months and 1 day after the cancellation date. Consequently, you may
not be able to exercise your new options until after the effective
date of the merger, consolidation or acquisition. If you submit your
options in the exchange and the merger, consolidation or acquisition
occurs after the expiration date but before the new option grant
date, you will not be able to exercise your option to purchase our
common stock before the effective date of the merger, consolidation
or acquisition. (Section 9)
You should be aware that these types of transactions could
significantly affect our stock price, including potentially
substantially increasing the price of our shares. Depending on the
timing and structure of a transaction of this type, you might lose
the benefit of any price appreciation in our common stock resulting
from a merger or acquisition. The exercise price of new options
granted to you after the announcement of a merger, consolidation or
acquisition of Nanometrics would reflect any appreciation in our
stock price resulting from the announcement, and could therefore
exceed the exercise price of your current options. This could result
in option holders who do not participate in this offer receiving a
greater financial benefit than option holders who do participate. In
addition, your new options may be exercisable for stock of the
acquiror, not Nanometrics common stock, while option holders who
decide not to participate in this offer could exercise their options
before the effective date of the merger or acquisition and sell their
Nanometrics common stock before the effective date. (Section 9)
Finally, if another company acquires us, that company may, as part of
the transaction or otherwise, decide to terminate some or all of our
employees before the grant of the new options under this option
exchange program. Termination of your employment for this or any
other reason before the new options are granted means that you will
receive neither new options, nor any other compensation for your
cancelled options. (Section 9)
Q21. Are there circumstances under which you would not be granted new
options?
A21. Yes. If, for any reason, you are no longer an employee of us or one
of our subsidiaries on the new option grant date, you will not
receive any new options. Your employment with us or one of our
subsidiaries will remain "at-will" regardless of your participation
in the offer and can be terminated by you or us or one of our
subsidiaries at any time, with or without cause or notice. (Section
1)
Moreover, even if we accept your options, we will not grant new
options to you if we are prohibited from doing so by applicable law.
For example, we could become prohibited from granting new options as
a result of changes in Securities and Exchange Commission (SEC)
rules, regulations or policies, or Nasdaq listing requirements. We do
not anticipate any such prohibitions. (Section 13)
In addition, it is possible that proposed Nasdaq rules will require
us to obtain shareholder approval for the establishment of the 2002
Nonstatutory Stock Option Plan. If we are unable to obtain such
approval before the new option grant date, we may not be able to
grant you new options under the 2002 Nonstatutory Stock Option Plan
pursuant to the offer. In such event, we will grant your new options
exclusively out of the 2000 Employee Stock Option Plan. (Section 13)
Q22. If you elect to exchange an eligible option, do you have to elect to
exchange all of the shares covered by that option?
A22. Yes. We are not accepting partial tenders of options. However, you
may elect to exchange the remaining portion of any option that you
have partially exercised. Accordingly, you may elect to exchange one
or more of your option grants, but you must elect to exchange all of
the unexercised shares subject to each grant or none of the shares
for that particular grant. For example, and except as otherwise
described below, if you hold
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(1) an option to purchase 1,000 shares at $20.00 per share, 700 of
which you have already exercised, (2) an option to purchase 1,000
shares at an exercise price of $25.00 per share, and (3) an option to
purchase 2,000 shares at an exercise price of $30.00 per share, you
may elect to exchange:
o your first option covering 300 remaining unexercised shares;
o your second option covering 1,000 shares;
o your third option covering 2,000 shares;
o two of your three options;
o all three of your options; or
o none of your options.
These are your only choices in the above example. You may not elect,
for example, to exchange your first option with respect to only 150
shares (or any other partial amount) under that grant or less than
all of the shares under the second and third option grants. (Section
2)
If you elect to exchange any of your options, then you must elect to
exchange all of the options that we granted to you since May 12,
2002. For example, if you received an option grant in January 2001
and a grant in October 2002 and you want to exchange your January
2001 option grant, you also would be required to exchange your
October 2002 option grant regardless of the exercise price of such
option.
(Section 2)
Q23. What happens to options that you choose not to exchange or that are
not accepted for exchange?
A23. Options that you choose not to exchange or that we do not accept for
exchange will retain their current exercise price and current vesting
schedule and will remain outstanding until they are exercised in full
or expire by their terms. (Section 6)
Q24. Will you have to pay taxes if you exchange your options in the offer?
A24. If you exchange your current options for new options, you should not
be required under current law to recognize income for U.S. federal
income tax purposes at the time of the exchange. You will also not be
required under current law to recognize income for U.S. federal
income tax purposes on the new option grant date. (Section 14)
For all employees, we recommend that you consult with your own tax
advisor to determine the personal tax consequences to you of
participating in the exchange offer. If you are a resident of, or
subject to the tax laws in the United States, but are also subject to
the tax laws in another country, you should be aware that there might
be other tax and social insurance consequences that may apply to you.
Q25. Will your new options be incentive stock options or non-qualified
stock options?
A25. Your new options will be non-qualified stock options. We recommend
that you read the tax discussion in this offer to exchange and
discuss the personal tax consequences of non-qualified stock options
with your financial advisor. (Sections 9 and 14)
Q26. When will your new options expire?
A26. Your new options will expire 7 years from the date of grant, or
earlier if your employment with us or one of our subsidiaries
terminates. (Section 9)
Q27. Can the offer be extended, and if so, how will we notify you if the
offer is extended?
A27. The offer expires at 5:00 p.m., Pacific Time, on December 13, 2002,
unless we extend it. We may, in our discretion, extend the offer at
any time, but we do not currently expect to do so. If we extend the
offer, we
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will issue a press release or other public announcement disclosing
the extension no later than 6:00 a.m., Pacific Time, on the next
business day following the previously scheduled expiration date of
the offer. (Section 2)
Q28. How do you elect to exchange your options?
A28. If you elect to exchange your options, you must deliver, before 5:00
p.m., Pacific Time, on December 13, 2002, or such later date and time
as we may extend the expiration of the offer, a properly completed
and executed election form via facsimile (fax number: (000) 000-0000)
or, upon prior arrangement, by hand to Xxxxx Xxxxxxxxx at
Nanometrics. This is a one-time offer, and we will strictly enforce
the election period. We reserve the right to reject any or all
options tendered for exchange that we determine are not in
appropriate form or that we determine are unlawful to accept. Subject
to the terms and conditions described in the stock option exchange
program documents, we will accept all properly tendered options
promptly after the expiration of the offer. (Section 4)
Q29. During what period of time may you withdraw options that you
previously elected to exchange?
A29. You may withdraw any options that you previously elected to exchange
at any time before the offer expires at 5:00 p.m., Pacific Time, on
December 13, 2002. If we extend the offer beyond that time, you may
withdraw any options that you previously elected to exchange at any
time before the extended expiration of the offer. To withdraw some or
all of your options, you must deliver to Xxxxx Xxxxxxxxx via
facsimile (fax number: (000) 000-0000) or, upon prior arrangement, by
hand a signed withdrawal form, with the required information
completed, before the expiration date. If you withdraw options, you
may re-elect to exchange them only by delivering a new election form.
The new election form must list all the options you want to exchange.
Although we intend to accept all options validly elected to be
exchanged promptly after the expiration of this offer, if we have not
accepted your options by 9:00 p.m., Pacific Time, on January 8, 2003,
you may withdraw your options. (Section 5)
Q30. Can you change your election regarding options you have elected to
exchange?
A30. Yes, you may change your election to exchange any particular options
at any time before the offer expires at 5:00 p.m., Pacific Time, on
December 13, 2002. If we extend the offer beyond that time, you may
change your election to exchange options at any time until the
extended offer expires. In order to change your election to include
options that you had not previously tendered, you must deliver to
Xxxxx Xxxxxxxxx a new election form via fax (fax number: (408)
232-5910) or, upon prior arrangement, by hand. Your new election form
must include the required information regarding all of the options
you want to exchange and must be signed and clearly dated after the
date of your original election form. In order to withdraw from the
exchange offer some or all of the options you previously tendered,
you must deliver to us a signed and dated withdrawal form, with the
required information, before the offer expires. For more information
on withdrawing your options, please see Q&A 29 above. (Section 5)
Q31. Why do you have to cancel options granted after May 12, 2002, if you
choose to participate?
A31. Under current accounting rules, options that we granted during the
six-month period before this offer commenced and the six-month period
after cancellation of the tendered options could be viewed as
"replacement" options for the cancelled grants. As such, Financial
Accounting Standards Board rules would require unfavorable accounting
treatment for certain of these replacement option grants. (Section
12)
Q32. Are we making any recommendation as to whether you should exchange
your eligible options?
A32. No. We are not making any recommendation as to whether you should
accept the offer to exchange your options. You must make your own
decision as to whether or not to accept the offer. For questions
regarding personal tax implications or other investment-related
questions, you should talk to your own legal counsel, accountant
and/or financial advisor. (Section 3)
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Q33. Who can you talk to if you have questions about the offer, or if you
need additional copies of the offer documents?
A33. For additional information or assistance, you should contact:
Xxxx X. Xxxxx
Nanometrics Incorporated
0000 Xxxxxxx Xxxxx
Xxxxxxxx, Xxxxxxxxxx 00000
(000) 000-0000 (Section 10)
--------------------------------------------------------------------------------
8
RISKS OF PARTICIPATING IN THE OFFER
Participation in the offer involves a number of risks, including those
described below. This list and the risk factors under the heading titled "Risk
Factors" in our annual report on Form 10-K for the fiscal year ended December
31, 2001 filed with the Securities and Exchange Commission (SEC) highlight the
material risks of participating in this offer. You should carefully consider
these risks and are encouraged to speak with an investment and tax advisor as
necessary before deciding to participate in the offer. In addition, we strongly
urge you to read the sections in this offer to exchange discussing the tax
consequences in the United States, as well as the rest of this offer to exchange
for a more in-depth discussion of the risks that may apply to you before
deciding to participate in the exchange offer.
In addition, this offer to exchange and our SEC reports referred to above
include "forward-looking statements." When used in this offer to exchange, the
words "anticipate," "believe," "estimate," "expect," "intend" and "plan" as they
relate to us are intended to identify these forward-looking statements. All
statements by us regarding our expected future financial position and operating
results, our business strategy, our financing plans and expected capital
requirements, forecasted trends relating to our services or the markets in which
we operate and similar matters are forward-looking statements and are dependent
upon certain risks and uncertainties. The documents we file with the SEC,
including the reports referred to above, discuss some of the risks that could
cause our actual results to differ from those contained or implied in the
forward-looking statements.
The following discussion should be read in conjunction with the financial
statements and notes to the financial statements attached as Schedule B and
Schedule C, as well as the section titled "Management's Discussion and Analysis
of Financial Condition and Results of Operations" contained in our most recent
annual report on Form 10-K for the fiscal year ended December 31, 2001, and
quarterly reports on Form 10-Q for the fiscal quarters ended March 31, 2002,
June 30, 2002 and September 30, 2002. We caution you not to place undue reliance
on the forward-looking statements contained in this offer, which speak only as
of the date hereof. We disclaim any obligation to publicly update or revise any
such statements to reflect any change in expectations or in events, conditions,
or circumstances on which any such statements may be based, or that may affect
the likelihood that actual results will differ from those set forth in the
forward-looking statements.
Economic Risks
If the price of our common stock increases after the date on which your options
are cancelled, your cancelled options might have been worth more than the new
options that you have received in exchange.
For example, if you cancel options with an exercise price of $10.00 per
share, and the price of our common stock increases to $15.00 per share when the
new options are granted, your new option will have a higher exercise price than
the cancelled option.
If you participate in the offer, you will be ineligible to receive any
additional option grants until June 17, 2003, at the earliest.
Employees generally are eligible to receive option grants at any time that
we choose to make such grants. However, if you participate in the offer, you
will not be eligible to receive any additional option grants until June 17,
2003, at the earliest.
If we are acquired by or merge with another company, your cancelled options
might have been worth more than the new options that you receive in exchange for
them.
A transaction involving us, such as a merger or other acquisition, could
have a substantial effect on our stock price, including significantly increasing
the price of our common stock. Depending on the structure and terms of this type
of transaction, option holders who elect to participate in the offer might be
deprived of the benefit of the appreciation in the price of our common stock
resulting from the merger or acquisition. This could result in a greater
financial benefit for those option holders who did not participate in this offer
and retained their original options.
9
If your employment terminates before we grant the new options, including as the
result of a reduction-in-force or as a part of the integration with another
company should another company acquire us, you will neither receive a new option
nor have any of your cancelled options returned to you.
Once we cancel the options that you elect to exchange, all of your rights
under the options terminate. Accordingly, if your employment with us terminates
for any reason, including as the result of a reduction-in-force or another
company acquiring Nanometrics, before the grant of the new options, you will
have the benefit of neither the cancelled option nor any new option.
Our revenues depend on the health of the economy and the growth of our
customers and potential customers. If the economic conditions in the United
States remain stagnant or worsen or if a wider or global economic slowdown
occurs, we may experience a material adverse impact on our business, operating
results, and financial condition and may undertake various measures to reduce
our expenses including, but not limited to, a reduction-in-force. Should your
employment be terminated as part of any such reduction-in-force, you will have
the benefit of neither the cancelled option nor any new option.
If another company acquires us, that company may, as part of the
transaction or otherwise, decide to terminate some or all of our employees
before the new option grant date. If your employment terminates for this or any
other reason before the new option grant date you will not receive a new option,
nor will you receive any other compensation for your options that were
cancelled.
Tax-Related Risks
Tax-related risks for tax residents in non-U.S. countries.
If you are eligible to participate in this offer because you are an
employee of Nanometrics or one of our subsidiaries on November 12, 2002 and a
resident of the United States, but are also subject to the tax laws in another
country, you should be aware that there may be other tax and social insurance
consequences that may apply to you. You should be certain to consult your own
tax advisor to discuss these consequences.
Business-Related Risks
Cyclicality in the semiconductor, flat panel display and magnetic recording head
industries has led to substantial decreases in demand for our systems and may
from time to time continue to do so.
Our operating results have varied significantly due to the cyclical nature
of the semiconductor, flat panel display and magnetic recording head industries.
The majority of our business depends upon the capital expenditures of
semiconductor device and capital equipment manufacturers. These manufacturers'
capital expenditures, in turn, depend upon the current and anticipated market
demand for semiconductors and products using semiconductors. The semiconductor
industry is cyclical and has historically experienced periodic downturns. These
downturns have often resulted in substantial decreases in the demand for capital
equipment, including metrology systems. We have found that the resulting
decrease in capital expenditures has typically been more pronounced than the
downturn in semiconductor device industry revenues. We expect the cyclical
nature of the semiconductor industry, and therefore, our business, to continue.
The semiconductor industry has been experiencing and continues to experience a
significant downturn. Should this downturn continue, our business and results of
operations will suffer.
We are highly dependent on international sales and operations, which exposes us
to foreign political and economic risks.
Sales to customers in foreign countries accounted for approximately 60.6%
and 64.8% of our total net revenues in 2000 and 2001, respectively. As of
September 30, 2002, such sales represented a comparable percentage of our total
net revenues in the current year. We maintain facilities in Japan and Korea. We
anticipate that international sales will continue to account for a significant
portion of our revenues.
Our reliance on international sales and operations exposes us to foreign
political and economic risks, including:
10
o political, social and economic instability;
o trade restrictions and changes in tariffs;
o import and export license requirements and restrictions;
o difficulties in staffing and managing international operations;
o disruptions in international transport or delivery;
o fluctuations in currency exchange rates;
o difficulties in collecting receivables; and
o potentially adverse tax consequences.
If any of these risks materialize, our international sales could decrease
and our foreign operations could suffer.
Because we derive a significant portion of our revenues from sales in Asia, our
sales and results of operations could be adversely affected by the instability
of Asian economies.
Our sales to customers in Asian markets represented approximately 55.0% and
52.8% of our total net revenues in 2000 and 2001, respectively. As of September
30, 2002, such sales represented a comparable percentage of our total net
revenues in the current year. Countries in the Asia Pacific region, including
Japan, Korea and Taiwan, each of which accounted for a significant portion of
our business in that region, have experienced general economic weaknesses over
the past year which has adversely affected our sales to semiconductor
manufacturers located in these regions and could harm our sales in future
periods. In addition, Korea and Taiwan have faced in the past and continue to
face the potential for armed conflict with North Korea and China, respectively.
If armed conflict were to result, the economies of Korea and Taiwan would very
likely suffer as would our sales in these regions.
Our largest customers account for a significant portion of our revenues, and our
revenues would significantly decline if one or more of these customers were to
purchase significantly fewer of our systems or if they delayed or cancelled a
large order.
Historically, a significant portion of our revenues in each quarter and
year has been derived from sales to relatively few customers, and we expect this
trend to continue. If any of our key customers were to purchase significantly
fewer systems, or if a large order were delayed or cancelled, our revenues would
significantly decline. In 2001, sales to Applied Materials accounted for 17.6%
of our total net revenues. In 2000, sales to Applied Materials, Hyundai and TSMC
accounted for 20.5%, 11.8% and 10.0% of our total net revenues. There are only a
limited number of large companies operating in the semiconductor, flat panel
display and magnetic recording head industries. Accordingly, we expect that we
will continue to depend on a small number of large customers for a significant
portion of our revenues for at least the next several years. In addition, as
large semiconductor, flat panel display and magnetic recording head
manufacturers and suppliers seek to establish closer relationships with their
respective suppliers, we expect that our customer base will become even more
concentrated.
The success of our product development efforts depends on our ability to
anticipate market trends and the price, performance and functionality
requirements of semiconductor device manufacturers. In order to anticipate these
trends and ensure that critical development projects proceed in a coordinated
manner, we must continue to collaborate closely with our customers. Our
relationships with our customers provide us with access to valuable information
regarding industry trends, which enables us to better plan our product
development activities. If our current relationships with our large customers
are impaired, or if we are unable to develop similar collaborative relationships
with important customers in the future, our long-term ability to produce
commercially successful systems will be impaired.
11
We depend on Applied Materials for sales of our integrated metrology systems,
and the loss of Applied Materials as a customer could harm our business.
We believe that sales of integrated metrology systems will be an important
source of future revenues. Sales of our integrated metrology systems depend upon
Applied Materials selling semiconductor equipment products that include our
metrology systems as components. If Applied Materials is unable to sell such
products, or if Applied Materials chooses to focus its attention on products
that do not integrate our systems, our business could suffer.
Additionally, we may be unable to retain Applied Materials as a customer.
If we lose Applied Materials as a customer for any reason, our ability to
realize sales from integrated metrology systems would be significantly
diminished, which would harm our business.
Our quarterly operating results have varied in the past and probably will
continue to vary significantly in the future, which will cause volatility in our
stock price.
Our quarterly operating results have varied significantly in the past and
are likely to vary in the future, which volatility could cause our stock price
to decline. Some of the factors that may influence our operating results and
subject our stock to extreme price and volume fluctuations include:
o changes in customer demand for our systems;
o economic conditions in the semiconductor, flat panel display and
magnetic recording head industries;
o the timing, cancellation or delay of customer orders and shipments;
o market acceptance of our products and our customers' products;
o competitive pressures on product prices and changes in pricing by our
customers or suppliers;
o the timing of new product announcements and product releases by us or
our competitors and our ability to design, introduce and manufacture
new products on a timely and cost-effective basis;
o the timing of our acquisitions of businesses, products or technologies;
o the levels of our fixed expenses, including research and development
costs associated with product development, relative to our revenue
levels; and
o fluctuations in foreign currency exchange rates, particularly the
Japanese yen.
Due to the foregoing factors and other factors described in the section
titled "Factors That May Affect Future Operating Results" in our Form 10-K for
the fiscal year ended December 31, 2001, we believe that period-to-period
comparisons of our operating results are not necessarily meaningful, and you
should not view these operating results as indicators of our future performance.
If our operating results in any period fall below the expectations of securities
analysts and investors, the market price of our common stock would likely
decline.
We obtain some of the components and subassemblies included in our systems from
a single source or a limited group of suppliers, and the partial or complete
loss of one of these suppliers could cause production delays and a substantial
loss of revenue.
We rely on outside vendors to manufacture many of our components and
subassemblies. Certain components, subassemblies and services necessary for the
manufacture of our systems are obtained from a sole supplier or limited group of
suppliers. We do not maintain any long-term supply agreements with any of our
suppliers. We have entered into arrangements with X.X. Xxxxxxx Company for the
purchase of the spectroscopic ellipsometer component and Newport for the
robotics incorporated in our advanced measurement systems. Our reliance on a
sole or a limited group of suppliers involves several risks, including the
following:
o we may be unable to obtain an adequate supply of required components;
12
o we have reduced control over pricing and the timely delivery of
components and subassemblies; and
o our suppliers may be unable to develop technologically advanced
products to support our growth and development of new systems.
Because the manufacturing of certain of these components and subassemblies
involves extremely complex processes and requires long lead times, we may
experience delays or shortages caused by suppliers. We believe that alternative
sources could be obtained and qualified, if necessary, for most sole and limited
source parts. However, if we were forced to seek alternative sources of supply
or to manufacture such components or subassemblies internally, we may be forced
to redesign our systems, which could prevent us from shipping our systems to
customers on a timely basis.
Additionally, some of our suppliers have relatively limited financial and
other resources. Any inability to obtain adequate deliveries, or any other
circumstance that would restrict our ability to ship our products, could damage
relationships with current and prospective customers and harm our business.
Our current and potential competitors have significantly greater resources than
we do, and increased competition could impair sales of our products.
We operate in the highly competitive semiconductor, flat panel display and
magnetic recording head industries and face competition from a number of
companies, many of whom have greater financial, engineering, manufacturing,
marketing and customer support resources than we do. As a result, our
competitors may be able to respond more quickly to new or emerging technologies
or market developments by devoting greater resources to the development,
promotion and sale of products, which could impair sales of our products.
Moreover, there has been significant merger and acquisition activity among our
competitors and potential competitors. These transactions by our competitors and
potential competitors may provide them with a competitive advantage over us
because many of our customers and potential customers in the semiconductor, flat
panel display and magnetic recording head industries are large companies that
require global support and service for their metrology systems. The transactions
described above may enable certain of competitors and potential competitors to
rapidly expand their product offerings and service capabilities to meet a
broader range of customer needs.
Variations in the amount of time it takes for us to sell our systems may cause
fluctuations in our operating results, which could cause our stock price to
decline.
Variations in the length of our sales cycles could cause our revenues to
fluctuate widely from period to period. Our customers generally take long
periods of time to evaluate our metrology systems. We expend significant
resources educating and providing information to our prospective customers
regarding the uses and benefits of our systems. The length of time that it takes
for us to complete a sale depends upon many factors, including:
o the efforts of our sales force and our independent sales
representatives and distributors;
o the complexity of the customer's metrology needs;
o the internal technical capabilities and sophistication of the customer;
o the customer's budgetary constraints; and
o the quality and sophistication of the customer's current processing
equipment.
Because of the number of factors influencing the sales process, the period
between our initial contact with a customer and the time when we recognize
revenue from that customer, if ever, varies widely. Our sales cycles, including
the time it takes for us to build a product to customer specifications after
receiving an order, typically range from three to six months. Sometimes our
sales cycles can be much longer, particularly with customers in Asia. During
these cycles, we commit substantial resources to our sales efforts in advance of
receiving any revenue, and we may never receive any revenue from a customer
despite our sales efforts.
13
If we do make a sale, our customers often purchase only one of our systems,
and then evaluate its performance for a lengthy period of time before purchasing
additional systems. The purchases are generally made by purchase orders and not
long-term contracts. The number of additional products that a customer
purchases, if any, depends on many factors, including a customer's capacity
requirements. The period between a customer's initial purchase and any
subsequent purchases can vary from three months to a year or longer, and
variations in the length of this period could cause fluctuations in our
operating results and stock price.
Relatively small fluctuations in our system costs may cause our operating
results to vary significantly each quarter.
During any quarter, a significant portion of our revenue is derived from
the sale of a relatively small number of systems. Our automated metrology
systems range in price from approximately $200,000 to $700,000 per system, our
integrated metrology systems range in price from approximately $80,000 to
$300,000 per system and our tabletop metrology systems range in price from
approximately $50,000 to $200,000 per system. Accordingly, a small change in the
number of systems we sell will cause significant changes in our operating
results.
We depend on orders that are received and shipped in the same quarter and
therefore our results of operations may be subject to significant variability
from quarter to quarter.
Our net sales in any given quarter depend upon a combination of orders
received in that quarter for shipment in that quarter and shipments from
backlog. Our backlog at the beginning of each quarter does not include all
systems sales needed to achieve expected revenues for that quarter.
Consequently, we are dependent on obtaining orders for systems to be shipped in
the same quarter that the order is received. Moreover, customers may reschedule
shipments, and production difficulties could delay shipments. Accordingly, we
have limited visibility of future product shipments, and our results of
operations may be subject to significant variability from quarter to quarter.
Because of the high cost of switching equipment vendors in our markets, it is
sometimes difficult for us to attract customers from our competitors even if our
metrology systems are superior to theirs.
We believe that once a semiconductor, flat panel display or magnetic
recording head customer has selected one vendor's metrology system, the customer
generally relies upon that system and, to the extent possible, subsequent
generations of the same vendor's system, for the life of the application. Once a
vendor's metrology system has been installed, a customer must often make
substantial technical modifications and may experience downtime in order to
switch to another vendor's metrology system. Accordingly, unless our systems
offer performance or cost advantages that outweigh a customer's expense of
switching to our systems, it will be difficult for us to achieve significant
sales to that customer once it has selected another vendor's system for an
application.
If we deliver systems with defects, our credibility will be harmed and the sales
and market acceptance of our systems will decrease.
Our systems are complex and sometimes have contained errors, defects and
bugs when introduced. If we deliver systems with errors, defects or bugs, our
credibility and the market acceptance and sales of our systems will be harmed.
Further, if our systems contain errors, defects or bugs, we may be required to
expend significant capital and resources to alleviate such problems. Defects
could also lead to product liability as a result of product liability lawsuits
against us or against our customers. We have agreed to indemnify our customers
in some circumstances against liability arising from defects in our systems. In
the event of a successful product liability claim, we could be obligated to pay
damages significantly in excess of our product liability insurance limits.
If we are not successful in developing new and enhanced metrology systems we
will likely lose market share to our competitors.
We operate in an industry that is subject to rapid technological changes,
changes in customer demands and the introduction of new, higher performance
systems with short product life cycles. To be competitive, we must continually
design, develop and introduce in a timely manner new metrology systems that meet
the performance and price demands of semiconductor, flat panel display and
magnetic recording head manufacturers and suppliers. We must also continue to
refine our current systems so that they remain competitive. We may experience
difficulties or delays in our development efforts with respect to new systems,
and we may not ultimately be successful in developing them. Any
14
significant delay in releasing new systems could adversely affect our
reputation, give a competitor a first-to-market advantage or cause a competitor
to achieve greater market share.
Successful infringement claims by third parties could result in substantial
damages, lost product sales and the loss of important intellectual property
rights by us.
Our commercial success depends in part on our ability to avoid infringing
or misappropriating patents or other proprietary rights owned by third parties.
There can be no assurance that our new products do not infringe any valid
intellectual property rights.
Our intellectual property may infringe or be infringed upon by third parties
despite our efforts to protect it, which could threaten our future success and
competitive position.
Our future success and competitive position depend in part upon our ability
to obtain and maintain proprietary technology for our principal product
families, and we rely, in part, on patent, trade secret and trademark law to
protect that technology. If we fail to adequately protect our intellectual
property, it will be easier for our competitors to sell competing products. We
own or have licensed a number of patents relating to our metrology systems, and
have filed applications for additional patents. Any of our pending patent
applications may be rejected, and we may not in the future be able to develop
additional proprietary technology that is patentable. In addition, the patents
we do own or that have been issued or licensed to us may not provide us with
competitive advantages and may be challenged by third parties. Third parties may
also design around these patents.
In addition to patent protection, we rely upon trade secret protection for
our confidential and proprietary information and technology. We routinely enter
into confidentiality agreements with our employees. However, in the event that
these agreements are breached, we may not have adequate remedies. Our
confidential and proprietary information and technology might also be
independently developed by or become otherwise known to third parties. We may be
required to initiate litigation in order to enforce any patents issued to or
licensed by us, or to determine the scope or validity of a third party's patent
or other proprietary rights. Any such litigation, regardless of outcome, could
be expensive and time consuming, and could subject us to significant liabilities
or require us to re-engineer our product or obtain expensive licenses from third
parties.
We must expend a significant amount of time and resources to develop new
products, and if these products do not achieve commercial acceptance, our
operating results may suffer.
We expect to spend a significant amount of time and resources to develop
new systems and refine existing systems. In light of the long product
development cycles inherent in our industry, these expenditures will be made
well in advance of the prospect of deriving revenue from the sale of new
systems. Our ability to commercially introduce and successfully market new
systems is subject to a wide variety of challenges during this development cycle
that could delay introduction of these systems. In addition, since our customers
are not obligated by long-term contracts to purchase our systems, our
anticipated product orders may not materialize, or orders that do materialize
may be cancelled. As a result, if we do not achieve market acceptance of new
products, our operating results may suffer.
We must attract and retain key personnel with relevant industry knowledge to
help support our future growth, and there is competition for such personnel in
our industry.
Our success depends to a significant degree upon the continued
contributions of our key management, engineering, sales and marketing, customer
support, finance and manufacturing personnel. We do not enter into employment
contracts with any of our key personnel. The loss of any of these key personnel,
who would be difficult to replace, could harm our business and operating
results. To support our future growth, we will need to attract and retain
additional qualified employees. Competition for such personnel within our
industry remains vigorous, and we may not be successful in attracting and
retaining qualified employees.
We manufacture all of our systems at a limited number of facilities, and any
prolonged disruption in the operations of those facilities could reduce our
revenues.
We produce all of our systems in our manufacturing facilities located in
Milpitas, California and through our subsidiaries in Japan and Korea. Our
manufacturing processes are highly complex and require sophisticated, costly
equipment and
15
specially designed facilities. As a result, any prolonged disruption in the
operations of our manufacturing facilities could seriously harm our ability to
satisfy our customer order deadlines.
If we choose to acquire new and complementary businesses, products or
technologies instead of developing them ourselves, we may be unable to complete
these acquisitions or may not be able to successfully integrate an acquired
business in a cost-effective and non-disruptive manner.
Our success depends on our ability to continually enhance and broaden our
product offerings in response to changing technologies, customer demands and
competitive pressures. To this end, we have from time to time acquired
complementary businesses, products, or technologies instead of developing them
ourselves and may choose to do so in the future. We do not know if we will be
able to complete any acquisitions, or whether we will be able to successfully
integrate any acquired business, operate it profitably or retain its key
employees. Integrating any business, product or technology we acquire could be
expensive and time consuming, disrupt our ongoing business and distract our
management. In addition, in order to finance any acquisitions, we might need to
raise additional funds through public or private equity or debt financings. In
such event, we could be forced to obtain financing on terms that are not
favorable to us and, in the case of an equity financing, that result in dilution
to our shareholders. If we are unable to integrate any acquired entities,
products or technologies effectively, our business will suffer. In addition, any
amortization of goodwill or other assets or charges resulting from the costs of
acquisitions could harm our business and operating results.
Our efforts to protect our intellectual property may be less effective in some
foreign countries where intellectual property rights are not as well protected
as in the United States.
In 2000 and 2001, 60.6% and 64.8%, respectively, of our total net revenues
were derived from sales to customers in foreign countries, including certain
countries in Asia, such as Taiwan, Korea and Japan. The laws of some foreign
countries do not protect our proprietary rights to as great an extent as do the
laws of the United States, and many U.S. companies have encountered substantial
problems in protecting their proprietary rights against infringement in such
countries. If we fail to adequately protect our intellectual property in these
countries, it will be easier for our competitors to sell competing products in
those countries.
16
THE OFFER
1. Eligibility
You are an "eligible employee" if you are an employee of Nanometrics on
November 12, 2002, you are a resident of the United States and you remain
employed by us or one of our subsidiaries through the date on which the options
elected to be exchanged are cancelled. In addition, non-employee members of our
board of directors are not eligible to participate in the offer. Our directors
and executive officers are listed on Schedule A to this offer to exchange.
In order to receive a new option, you must remain employed by us or one of
our subsidiaries through the new option grant date, which is the date on which
the new options are granted, and which will be the first business day that is at
least 6 months and 1 day after the cancellation date. If we do not extend the
offer, the new option grant date will be June 17, 2003. If, for any reason, you
do not remain an employee of Nanometrics, one of our subsidiaries or a successor
entity through the new option grant date, you will not receive any new options
or other compensation in exchange for your options that have been accepted for
exchange. This means that if you quit, with or without a good reason, or die or
we terminate your employment, with or without cause, before the new option grant
date, you will not receive anything for the options that you elected to exchange
and that we cancelled. Your employment with us will remain "at-will" and can be
terminated by you or us at any time, with or without cause or notice.
2. Number of options; expiration date
Subject to the terms and conditions of the offer, we will accept
outstanding, unexercised options granted under the 1991 Stock Option Plan and
the 2000 Employee Stock Option Plan with exercise prices equal to or greater
than $10.00 per share that are held by eligible employees and that are properly
elected to be exchanged, and are not validly withdrawn, before the expiration
date and exchange them for new options.
Each option grant that you elect to exchange must be for the entire portion
that is outstanding and unexercised. We are not accepting partial tenders of
options. However, you may elect to exchange the remaining portion of an option
that you have partially exercised. As a result, you may elect to exchange one or
more of your option grants, but you must elect to exchange all of the
unexercised shares subject to each grant or none of the shares for that
particular grant.
For example, and except as otherwise described below, if you hold (1) an
option to purchase 1,000 shares at $20.00 per share, 700 of which you have
already exercised, (2) an option to purchase 1,000 shares at an exercise price
of $25.00 per share, and (3) an option to purchase 2,000 shares at an exercise
price of $30.00 per share, you may elect to exchange:
o your first option covering 300 remaining unexercised shares;
o your second option covering 1,000 shares;
o your third option covering 2,000 shares;
o two of your three options;
o all three of your options; or
o none of your options.
These are your only choices in the above example. You may not, for example,
elect to exchange your first option with respect to only 150 shares, or any
other partial amount, under that grant or less than all of the shares under the
second and third option grants.
If you elect to exchange any of your options, then you must elect to
exchange all of your options that were granted to you since May 12, 2002. For
example, if you received an option grant in January 2001 and a grant in October
2002 and you want to exchange your January 2001 option grant, you also would be
required to exchange your October 2002 option grant. This includes all options
granted to you between the commencement of this offer on November 12, 2002 and
the expiration date.
17
Subject to the terms of this offer, upon our acceptance of your properly
tendered options, your options will be cancelled, and you will be entitled to
receive a new option to purchase 0.9 of a share of our common stock for every
share of our common stock covered by an option submitted by you for exchange.
Fractional shares will be rounded up to the nearest whole share. The number of
shares to be covered by your new option is subject to adjustment for any stock
splits, subdivisions, combinations, stock dividends and similar events that
occur after the cancellation date but before the new option grant date. All new
options will be subject to the terms of either the 2000 Employee Stock Option
Plan or the 2002 Nonstatutory Stock Option Plan, and to a new option agreement
between you and us. The six (6) board of directors, in its sole discretion, will
determine under which of these two plans your new options will be granted. You
must sign the new option agreement before receiving a new option. The forms of
option agreements under each of the two plans are attached as exhibits or
incorporated by reference to the Schedule TO with which this offer to exchange
has been filed.
The expiration date for the offer will be 5:00 p.m., Pacific Time, on
December 13, 2002, unless we extend the offer. We may, in our discretion, extend
the period of time during which the offer will remain open, in which event the
expiration date shall refer to the latest time and date at which the extended
offer expires. See Section 15 of this offer to exchange for a description of our
rights to extend, terminate and amend the offer.
3. Purpose of the offer
We issued the outstanding options under the 1991 Stock Option Plan and the
2000 Employee Stock Option Plan to:
o provide our eligible employees with additional performance incentives
and to promote the success of our business; and
o encourage our eligible employees to continue their employment with us.
The offer provides an opportunity for us to offer our eligible employees a
valuable incentive to stay with us and continue to work to promote the success
of our business. Many of our outstanding options, whether or not they are
currently exercisable, have exercise prices that are significantly higher than
the current market price of our shares, which options commonly are referred to
as being "underwater." By making this offer to exchange outstanding options for
new options that will have an exercise price equal to the market value of the
shares on the new option grant date, we intend to provide our eligible employees
with the benefit of owning options that over time may have a greater potential
to increase in value. We believe this will create better performance incentives
for employees and thereby maximize shareholder value. However, because we will
not grant new options until the first business day that is at least 6 months and
1 day after the date on which we cancel the options accepted for exchange, the
new options may have a higher exercise price than some or all of our current
outstanding options.
In addition, the exchange ratio used in this offer, 0.9 of a share covered
by a new option for every share covered by an exchanged option, will decrease
the total number of options outstanding and will benefit shareholders by
decreasing shareholder dilution.
We chose to make this offer instead of simply granting more options for a
number of reasons. Because of the large number of outstanding underwater
options, granting additional options covering the same number of shares of
common stock as the outstanding eligible options would have a negative impact on
our dilution and outstanding shares. Additionally, we have a limited number of
options that we may grant without shareholder approval, and therefore our
current reserves must be conserved for ongoing grants and new hires.
Subject to the above, and except as otherwise disclosed in this offer to
exchange or in our filings with the Securities and Exchange Commission, we
presently have no plans or proposals that relate to or would result in:
o any extraordinary transaction, such as a merger, reorganization or
liquidation involving us or any of our subsidiaries;
o any purchase, sale or transfer of a material amount of our assets or
any of our subsidiaries;
o any material change in our present dividend rate or policy, or our
indebtedness or capitalization;
18
o any change in our present board of directors or management, including a
change in the number or term of directors or to fill any existing board
vacancies or to change any executive officer's material terms of
employment;
o any other material change in our corporate structure or business;
o our common stock being delisted from the Nasdaq National Market or not
being authorized for quotation in an automated quotation system
operated by a national securities association;
o our common stock becoming eligible for termination of registration
pursuant to Section 12(g)(4) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act");
o the suspension of our obligation to file reports pursuant to Section
15(d) of the Exchange Act;
o the acquisition by any person of an amount of our securities or the
disposition of an amount of any of our securities; or
o any change in our charter or bylaws, or any actions which may impede
the acquisition of control of us by any person.
Neither we nor our board of directors makes any recommendation as to
whether you should accept this offer and elect to exchange your options, nor
have we authorized any person to make any such recommendation. You are urged to
evaluate carefully all of the information in this offer to exchange and to
consult your own investment and tax advisors. You must make your own decision
whether or not to elect to exchange your options.
4. Procedures for electing to exchange options
Proper Election to Exchange Options
To validly elect to exchange your options through the offer, you must, in
accordance with the instructions of the election form, properly complete,
execute and deliver the election form to us via facsimile (fax number: (408)
000-0000) or, upon special arrangement, by hand to Xxxxx Xxxxxxxxx at
Nanometrics Incorporated, 0000 Xxxxxxx Xxxxx, Xxxxxxxx, XX, 00000, along with
any other required documents. Xxxxx Xxxxxxxxx must receive the properly
completed election forms before the expiration date. The expiration date will be
5:00 p.m., Pacific Time, on December 13, 2002, unless we decide to extend the
offer.
If you elect to exchange any options through this offer, you must also
elect to exchange all options that we granted to you since May 12, 2002, even if
those options have exercise prices less than $10.00 per share and would not
otherwise be eligible for exchange. Even if you submit an election form but fail
to list the options that are required to be elected to be exchanged, they
automatically will be tendered for exchange under this offer.
If you submit an election form, and then decide that you would like to
elect to exchange additional options, you must submit a new election form to
Xxxxx Xxxxxxxxx by the expiration date. This new election form must be signed
and dated after your original election form and must be properly completed. This
new election form must also list all of the options that you wish to tender for
exchange, because your original election form will no longer be valid.
The delivery of all documents, including election forms, is at your risk.
It is your responsibility to ensure that your election form has been received by
us. You should be sure to keep any confirmations or receipts that you obtain
when you send in your election form, such as a fax confirmation sheet.
However, our receipt of your election form is not by itself an acceptance
of the options for exchange. For purposes of the offer, we will be deemed to
have accepted options for exchange that are validly elected to be exchanged and
are not properly withdrawn as of the time when we give oral or written notice to
the option holders generally of our acceptance of options for exchange. We may
issue this notice by press release or e-mail. Options accepted for exchange will
be cancelled on the cancellation date, which we presently expect to be December
16, 2002.
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Determination of Validity; Rejection of Options; Waiver of Defects; No
Obligation to Give Notice of Defects
We will determine, in our discretion, all questions as to the form of
documents and the validity, form, eligibility, including time of receipt, and
acceptance of any options. Our determination of these matters will be final and
binding on all parties. We reserve the right to reject any election form or any
options elected to be exchanged that we determine are not in appropriate form or
that we determine are unlawful to accept. Otherwise, we will accept all properly
tendered options that are not validly withdrawn. We also reserve the right to
waive any of the conditions of the offer or any defect or irregularity in any
tender of any particular options or for any particular option holder, provided
that if we grant any such waiver, it will be granted with respect to all option
holders and tendered options. No tender of options will be deemed to have been
properly made until all defects or irregularities have been cured by the
tendering option holder or waived by us. Neither we nor any other person is
obligated to give notice of any defects or irregularities in tenders, nor will
anyone incur any liability for failure to give any notice. This is a one-time
offer, and we will strictly enforce the election period, subject only to an
extension that we may grant in our sole discretion.
Our Acceptance Constitutes an Agreement
Your election to exchange options through the procedures described above
constitutes your acceptance of the terms and conditions of the offer. Our
acceptance of your options elected to be exchanged by you through the offer will
constitute a binding agreement between us and you upon the terms and subject to
the conditions of the offer.
5. Withdrawal rights and change of election
You may withdraw any options that you previously elected to exchange only
in accordance with the provisions of this section.
You may withdraw your options that you previously elected to exchange at
any time before 5:00 p.m., Pacific Time, on December 13, 2002. If we extend the
offer beyond that time, you may withdraw your options at any time until the
extended expiration of the offer.
In addition, although we intend to accept all validly tendered options
promptly after the expiration of this offer, if we have not accepted your
options by 9:00 p.m., Pacific Time, on January 8, 2003, you may withdraw your
options at any time thereafter.
To validly withdraw some or all of the options that you previously elected
to exchange, you must deliver to Xxxxx Xxxxxxxxx via facsimile (fax number:
(000) 000-0000) or, upon prior arrangement, by hand, in accordance with the
procedures listed in Section 4 above, a signed and dated withdrawal form with
the required information, while you still have the right to withdraw the
options.
You may not rescind any withdrawal, and any options that you withdraw will
be deemed not properly tendered for purposes of the offer, unless you properly
re-elect to exchange those options before the expiration date. To re-elect to
exchange some or all of your withdrawn options, you must submit a new election
form to Xxxxx Xxxxxxxxx before the expiration date by following the procedures
described in Section 4 of this offer to exchange. This new election form must be
signed and dated after your original election form and after your withdrawal
form. It must be properly completed and it must list all of the options you wish
to tender for exchange.
If you do not wish to withdraw any options from the offer, but would like
to elect to tender additional options for exchange, you must submit a new
election form to Xxxxx Xxxxxxxxx before the expiration date by following the
procedures described in Section 4 of this offer to exchange. This new election
form must be signed and dated after your original election form. It must be
properly completed and it must list all of the options you wish to tender for
exchange.
Neither we nor any other person is obligated to give you notice of any
defects or irregularities in any withdrawal form or any new election form, nor
will anyone incur any liability for failure to give any notice. We will
determine, in our discretion, all questions as to the form and validity,
including time of receipt, of withdrawal forms and new election forms. Our
determination of these matters will be final and binding.
20
The delivery of all documents, including any withdrawal forms, any new
election forms and any other required documents, is at your risk. It is your
responsibility to ensure that we have received your withdrawal forms or any
other documents you have submitted. You should be sure to keep any confirmations
or receipts that you obtain when you send in your withdrawal form or your new
election form, such as a fax confirmation sheet.
6. Acceptance of options for exchange and issuance of new options
Upon the terms and conditions of the offer and promptly following the
expiration date, we will accept for exchange and cancel eligible options
properly elected for exchange and not validly withdrawn before the expiration
date. Once the options are cancelled, you no longer will have any rights with
respect to those options. Subject to the terms and conditions of this offer, if
your options are properly tendered by you for exchange and accepted by us, these
options will be cancelled as of the date of our acceptance, which we anticipate
to be December 16, 2002. For purposes of the offer, we will be deemed to have
accepted options for exchange that are validly tendered and are not properly
withdrawn as of the time when we give oral or written notice to the option
holders generally of our acceptance for exchange of the options. This notice may
be made by press release. Subject to our rights to terminate the offer,
discussed in Section 15 of this offer to exchange, we currently expect that we
will accept promptly after the expiration date all properly tendered options
that are not validly withdrawn.
You will be granted a new option on the first business day that is at least
6 months and 1 day after the date on which we cancel the options accepted for
exchange. Our board of directors has selected this date as the actual grant date
for the new options. All new options will be non-qualified stock options.
Therefore, subject to the terms and conditions of this offer, if your
options are properly elected to be exchanged by December 13, 2002, the scheduled
expiration date of the offer, and are accepted for exchange by us and cancelled
on December 16, 2002, you will be granted a new option on June 17, 2003. If we
accept and cancel options properly tendered for exchange after December 16,
2002, the date on which the new options will be granted will be similarly
delayed. Promptly after we accept and cancel options tendered for exchange, we
will issue to you a promise to grant stock option. The promise to grant stock
option will evidence our binding commitment to grant a stock option to you on a
date no earlier than June 17, 2003 covering the number of shares you would be
entitled to under this offer, provided that you remain an employee of
Nanometrics or one of our subsidiaries through the date on which the grant is to
be made.
Subject to the terms of this offer, upon our acceptance of your properly
tendered options, you will be entitled to receive a new option to purchase 0.9
of a share of our common stock for every share of our common stock covered by an
option submitted by you for exchange. Fractional shares shall be rounded up to
the nearest whole share. The number of shares covered by your new option is
subject to adjustments for any stock splits, subdivisions, combinations, stock
dividends and similar events that occur between the cancellation date and the
new option grant date.
If, for any reason, you are not an employee of Nanometrics, one of our
subsidiaries or a successor entity through the new option grant date, you will
not receive any new options or other compensation in exchange for your options
that have been cancelled pursuant to this offer.
If we accept options you elect to exchange in the offer, we will defer
granting to you any other options for which you otherwise may be eligible before
the new option grant date. Consequently, we will not grant you any new options
until at least 6 months and 1 day after any of your options have been cancelled.
We will defer granting you these other options in order to avoid incurring
compensation expense against our earnings as a result of accounting rules that
could apply to these interim option grants as a result of the offer.
Options that you choose not to elect to exchange or that we do not accept
for exchange will retain their current exercise price and current vesting
schedule and will remain outstanding until they are exercised in full or expire
by their terms.
7. Conditions of the offer
Notwithstanding any other provision of the offer, we will not be required
to accept any options tendered for exchange, and we may terminate the offer, or
postpone our acceptance and cancellation of any options tendered for
21
exchange, in each case, subject to Rule 13e-4(f)(5) under the Exchange Act, if
at any time on or after the date this offer begins, and before the expiration
date, any of the following events has occurred, or has been determined by us to
have occurred:
o there shall have been threatened or instituted or be pending any
action, proceeding or litigation seeking to enjoin, make illegal or
delay completion of the offer or otherwise relating in any manner, to
the offer;
o any order, stay, judgment or decree is issued by any court, government,
governmental authority or other regulatory or administrative authority
and is in effect, or any statute, rule, regulation, governmental order
or injunction shall have been proposed, enacted, enforced or deemed
applicable to the offer, any of which might restrain, prohibit or delay
completion of the offer or impair the contemplated benefits of the
offer to us;
o there shall have occurred:
-- any general suspension of trading in, or limitation on prices for,
securities on any national securities exchange or in the
over-the-counter market in the United States;
-- the declaration of a banking moratorium or any suspension of
payments in respect of banks in the United States;
-- any limitation, whether or not mandatory, by any governmental,
regulatory or administrative agency or authority on, or any event
that, in our reasonable judgment, might affect the extension of
credit to us by banks or other lending institutions in the United
States;
-- in our reasonable judgment, any extraordinary or material adverse
change in U.S. financial markets generally, including, without
limitation, a decline of at least 10% in either the Dow Xxxxx
Industrial Average, the Nasdaq Index or the Standard & Poor's 500
Index from the date of commencement of the exchange offer;
-- the commencement of a war or other national or international
calamity directly or indirectly involving the United States, which
would reasonably be expected to affect materially or adversely, or
to delay materially, the completion of the exchange offer; or
-- if any of the situations described above existed at the time of
commencement of the exchange offer and that situation, in our
reasonable judgment, deteriorates materially after commencement of
the exchange offer;
o as the term "group" is used in Section 13(d)(3) of the Exchange Act:
-- any person, entity or group acquires more than 5% of our
outstanding shares of common stock, other than a person, entity or
group which had publicly disclosed such ownership with the SEC
prior to the date of commencement of the exchange offer;
-- any such person, entity or group which had publicly disclosed such
ownership prior to such date shall acquire additional common stock
constituting more than 2% of our outstanding shares; or
-- any new group shall have been formed that beneficially owns more
than 5% of our outstanding shares of common stock that in our
judgment in any such case, and regardless of the circumstances,
makes it inadvisable to proceed with the exchange offer or with
such acceptance for exchange of eligible options;
o there shall have occurred any change, development, clarification or
position taken in generally accepted accounting standards that could or
would require us to record for financial reporting purposes
compensation expense against our earnings in connection with the offer;
o a tender or exchange offer, other than this exchange offer by us, for
some or all of our shares of outstanding common stock, or a merger,
acquisition or other business combination proposal involving us, shall
have been proposed, announced or made by another person or entity or
shall have been publicly disclosed;
22
o any event or events occur that have resulted or may result, in our
reasonable judgment, in an actual or threatened material adverse change
in our business, financial condition, assets, income, operations,
prospects or stock ownership; or
o any event or events occur that have resulted or may result, in our
reasonable judgment, in a material impairment of the contemplated
benefits of the offer to us.
If any of the above events occur, we may:
o terminate the exchange offer and promptly return all tendered eligible
options to tendering holders;
o complete and/or extend the exchange offer and, subject to your
withdrawal rights, retain all tendered eligible options until the
extended exchange offer expires;
o amend the terms of the exchange offer; or
o waive any unsatisfied condition and, subject to any requirement to
extend the period of time during which the exchange offer is open,
complete the exchange offer.
The conditions to the offer are for our benefit. We may assert them in our
discretion regardless of the circumstances giving rise to them before the
expiration date. We may waive any condition, in whole or in part, at any time
and from time to time before the expiration date, in our discretion, whether or
not we waive any other condition to the offer. Our failure at any time to
exercise any of these rights will not be deemed a waiver of any such rights. The
waiver of any of these rights with respect to particular facts and circumstances
will not be deemed a waiver with respect to any other facts and circumstances.
Any determination we make concerning the events described in this Section 7 will
be final and binding upon all persons.
8. Price range of shares underlying the options
The shares underlying your options currently are traded on the Nasdaq
National Market under the symbol "NANO." The following table shows, for the
periods indicated, the high and low sales prices per share of our common stock
as reported by the Nasdaq National Market.
High Low
------ ------
Fiscal Year 2002
Quarter ended September 30, 2002 $16.33 $ 2.60
Quarter ended June 30, 2002 20.35 13.16
Quarter ended March 31, 2002 23.10 14.90
Fiscal Year 2001
Quarter ended December 31, 2001 27.65 14.71
Quarter ended September 30, 2001 36.66 13.00
Quarter ended June 30, 2001 32.95 13.50
Quarter ended March 31, 2001 22.31 12.38
Fiscal Year 2000
Quarter ended December 31, 2000 54.50 10.63
Quarter ended September 30, 2000 63.88 28.88
Quarter ended June 30, 2000 49.75 19.75
Quarter ended March 31, 2000 52.13 18.13
On November 8, 2002, the last reported sale price during regular trading
hours of our common stock, as reported by the Nasdaq National Market, was $4.63
per share.
We recommend that you evaluate current market quotes for our common stock,
among other factors, before deciding whether or not to accept the offer.
23
9. Source and amount of consideration; terms of new options
Consideration
We will issue new options to purchase shares of our common stock under our
2000 Employee Stock Option Plan and our 2002 Nonstatutory Stock Option Plan in
exchange for the eligible outstanding options properly elected to be exchanged
by you and accepted by us that will be cancelled. Our board of directors, in its
sole discretion, will decide under which of these two plans each new option will
be granted. Subject to any adjustments for stock splits, subdivisions,
combinations, stock dividends and similar events that occur after the
cancellation date but before the new option grant date and subject to the other
terms and conditions of the offer, upon our acceptance of your properly tendered
options, you will be entitled to receive a new option to purchase 0.9 of a share
of our common stock for every share of our common stock covered by an option
submitted by you for exchange. Fractional shares shall be rounded up to the
nearest whole share. If we receive and accept tenders from eligible employees of
all options eligible to be tendered, subject to the terms and conditions of this
offer, new options to purchase a total of approximately 1,765,818 shares of our
common stock, or approximately 14.7% of the total shares of our common stock
outstanding as of November 4, 2002.
Terms of New Options
The new options will be non-qualified stock options granted under either
our 2000 Employee Stock Option Plan or our 2002 Nonstatutory Stock Option Plan.
Our board of directors, in its sole discretion, will decide under which of these
two plans each new option will be granted. For every new option granted, a new
option agreement will be entered into between us and each option holder who has
elected to participate in the offer. The terms and conditions of the new options
may vary from the terms and conditions of the options that you tendered for
exchange, but, except as described, such changes generally will not
substantially and adversely affect your rights. However, you should note that
the vesting schedule of your new option may differ from the vesting schedule of
your old option, and that vesting of your new option will begin on the new
option grant date.
Also, you should note that new options granted under the 2002 Nonstatutory
Stock Option Plan will not provide for any acceleration upon a change of control
unless the acquiring company refuses to assume or substitute the options. This
differs from both our 1991 Stock Option Plan and our 2000 Employee Stock Option
Plan.
Under the provisions of our 1991 Stock Option Plan, if there is a change in
control of Nanometrics (as such term is defined in the 1991 Stock Option Plan)
the board of directors has the discretion to accelerate the vesting and
exercisability of all options granted thereunder. The board of directors also
has the discretion to provide that such options will be cashed out at the change
in control price (as determined by the board of directors within the parameters
set out in the 1991 Stock Option Plan), minus the option exercise price. The
2000 Employee Stock Option Plan provides that if there is a change of control of
Nanometrics (as such term is defined in the 2000 Employee Stock Option Plan),
the vesting of options granted under thereunder will automatically accelerate
and the options will become fully vested and exercisable if any of the following
occur: (1) the option is terminated or cancelled, except by mutual consent of
Nanometrics and the optionee, or any successor fails to assume the options; (2)
the optionee does not or will not receive upon exercise of the options the
identical consideration received by all other shareholders in any merger,
consolidation sale or similar event occurring upon or after the change of
control; (3) the optionee's service is terminated as a result of an involuntary
termination (as such term is defined in the 2000 Employee Stock Option Plan); or
(4) on the date that is 12 months following the change of control if, as of the
time of the change of control, the optionee has been designated as an executive
officer by the board of directors; provided that the optionee has not
voluntarily terminated employment with Nanometrics prior to the end of the
12-month period.
In addition, you should note that because we will not grant new options
until the first business day that is at least 6 months and 1 day after the date
on which we cancel the options accepted for exchange, your new option may have a
higher exercise price than some or all of the options that you elect to
exchange.
The following description summarizes the material terms of our 2000
Employee Stock Option Plan and our 2002 Nonstatutory Stock Option Plan. Unless
we need to distinguish between each of these plans, we will refer to each as a
plan and together, as the plans. Our statements in this offer to exchange
concerning our 2000 Employee Stock Option Plan and our 2002 Nonstatutory Stock
Option Plan and the new options are merely summaries and do not purport to be
24
complete. The statements are subject to, and are qualified in their entirety by
reference to, all provisions of our 2000 Employee Stock Option Plan and our 2002
Nonstatutory Stock Option Plan, and the forms of option agreement under the
plans. Please contact us at Nanometrics Incorporated, 0000 Xxxxxxx Xxxxx,
Xxxxxxxx, Xxxxxxxxxx 00000, Attention: Xxxxx Xxxxxxxxx (telephone: (408)
000-0000), to receive a copy of either our 2000 Employee Stock Option Plan or
our 2002 Nonstatutory Stock Option Plan, and the forms of option agreements
accompanying those plans. We will promptly furnish you copies of these documents
at our expense.
2000 Employee Stock Option Plan
The maximum number of shares available for issuance through the exercise of
options granted under our 2000 Employee Stock Option Plan is 2,450,000 shares.
The 2000 Employee Stock Option Plan permits the granting of incentive stock
options, non-qualified stock options and stock purchase rights . All new options
granted under the 2000 Employee Stock Option Plan pursuant to this offer will be
non-qualified stock options. As of November 4, 2002, there were 667,559 shares
available for issuance under our 2000 Employee Stock Option Plan.
2002 Nonstatutory Stock Option Plan
The maximum number of shares available for issuance through the exercise of
options granted under our 2002 Nonstatutory Stock Option Plan is 1,200,000
shares. The 2002 Nonstatutory Stock Option Plan permits the granting of
non-qualified stock options, but not incentive stock options. As of November 4,
2002, there were 1,200,000 shares available for issuance under our 2002
Nonstatutory Stock Option Plan.
General Terms of the 2000 Employee Stock Option Plan and the 2002
Nonstatutory Stock Option Plan
The 2000 Employee Stock Option Plan and the 2002 Nonstatutory Stock Option
Plan are administered by the board of directors or a committee appointed by the
board of directors, which we refer to as the administrator. Subject to the other
provisions of the 2000 Employee Stock Option Plan and the 2002 Nonstatutory
Stock Option Plan the administrator has the power to determine the terms and
conditions of the options granted, including the exercise price, the number of
shares subject to the option and the exercisability of the options.
Term
Options generally have a term of 10 years. All new options to be granted
through this offer will be non-qualified stock options and will have a term of 7
years.
Termination of Employment Before the New Option Grant Date
If, for any reason, you are not an employee of us, one of our subsidiaries
or a successor entity from the date on which you elect to exchange your options
through the date on which we grant the new options, you will not receive any new
options or any other compensation in exchange for your options that have been
accepted for exchange. This means that if you quit, with or without good reason,
or die, or we terminate your employment, with or without cause, before the date
on which we grant the new options, you will not receive anything for the options
that you tendered and which we cancelled.
Termination of Employment After the New Option Grant Date
In the event that either you or we terminate your employment after
receiving a new option grant for any reason other than death, permanent and
total disability or misconduct, you may exercise your option within the time
specified in your option agreement, or if no time is specified, you may
generally exercise your option within 3 months after termination, but only to
the extent that you are entitled to exercise it at termination. If your
employment terminates because of your permanent and total disability or death,
you or your personal representatives, heirs or legatees generally may exercise
any option held by you on the date of your termination, to the extent that it
was exercisable immediately before termination, within the time frame specified
in your option agreement, or if no time is specified, for 12 months following
termination.
25
Exercise Price
Generally, the administrator determines the exercise price at the time the
option is granted. For all eligible employees, the exercise price per share of
the new options will be 100% of the fair market value of our common stock on the
date of grant, as determined by the closing price reported by the Nasdaq
National Market on the date of grant. Accordingly, we cannot predict the market
price of the new options. Your new options may have a higher exercise price than
some or all of your current options.
Vesting and Exercise
Each stock option agreement specifies the term of the option and the date
on which the option becomes exercisable. The administrator determines the terms
of vesting. Each new option will vest based on a new vesting schedule that will
begin on the new option grant date. The vesting schedule for each new option
will be as follows:
o For options that were fully vested at the time of their cancellation,
100% of the new options will vest on the one-year anniversary of the
new option grant date; and
o For options that were not fully vested at the time of their
cancellation, 50% of the new option will vest on the one-year
anniversary of the new option grant date, and the remaining 50% will
vest on the two-year anniversary of the new option grant date;
so that each new option will be fully vested on or before the 2nd anniversary of
the new option grant date, subject to your continued employment with us or one
of our subsidiaries through each relevant vesting date.
For example, a new option to purchase 900 shares of our common stock
granted on the scheduled new option grant date of June 17, 2003 in exchange for
a fully vested option to purchase 1,000 shares would vest as follows:
o none of the shares subject to the new option will be vested on June 17,
2003; and
o all 900 shares subject to the new option will vest on June 17, 2004.
In another example, a new option to purchase 3,600 shares of our common
stock granted on the scheduled new option grant date of June 17, 2003 in
exchange for a partially vested option to purchase 4,000 shares would vest as
follows:
o none of the shares subject to the new option will be vested on June 17,
2003;
o 1,800 shares subject to the new option will vest on June 17, 2004; and
o the remaining 1,800 shares subject to the new option will vest on June
17, 2005.
Adjustments Upon Certain Events
Events Occurring before the New Option Grant Date. If we merge or
consolidate with or are acquired by another entity between the expiration date
and the new option grant date, then the resulting entity will be obligated to
grant the new options under the same terms as provided in this offer. However,
the type of security and the number of shares covered by each new option would
be adjusted based on the consideration per share given to holders of options to
acquire our common stock that are outstanding at the time of the acquisition. As
a result, you may receive options for more or fewer shares of the acquiror's
common stock than the number of shares subject to the eligible options that you
exchange or than the number you would have received pursuant to a new option if
no acquisition had occurred.
The new options for the purchase of an acquiror's stock will have an
exercise price equal to the fair market value of the acquiror's stock on the new
option grant date. If the acquiror's stock was not traded on a public market,
the fair market value of the acquiror's stock may be determined in good faith by
the acquiror's board of directors, and the exercise price of the new options
would reflect that determination. If we merge or consolidate with or are
acquired by another entity, options that are not tendered for exchange may
receive a lower or higher exercise price, depending on the terms of the
transaction, than those options that are tendered for exchange.
26
Regardless of any such merger or acquisition, the new option grant date
will be the first business day that is at least 6 months and 1 day after the
cancellation date. Consequently, you may not be able to exercise your new
options until after the effective date of the merger, consolidation or
acquisition. If you submit your options in the exchange and the merger,
consolidation or acquisition occurs after the expiration date but prior to the
new option grant date, you will not be able to exercise your option to purchase
Nanometrics common stock prior to the effective date of the merger or
acquisition.
You should be aware that these types of transactions could significantly
affect our stock price, including potentially substantially increasing the price
of our shares. Depending on the timing and structure of a transaction of this
type, you might lose the benefit of any price appreciation in our common stock
resulting from a merger, consolidation or acquisition. The exercise price of new
options granted to you after the announcement of a merger, consolidation or
acquisition of Nanometrics would reflect any appreciation in our stock price
resulting from the announcement, and could therefore exceed the exercise price
of your current options. This could result in option holders who do not
participate in this offer receiving a greater financial benefit than option
holders who do participate. In addition, your new options may be exercisable for
stock of the acquiror, not Nanometrics common stock, while option holders who
decide not to participate in this offer could exercise their options before the
effective date of the merger, consolidation or acquisition and sell their
Nanometrics common stock before the effective date.
If a change in our capitalization, such as a stock split, subdivision,
combination, stock dividend or other similar event, occurs after the
cancellation date but before the new option grant date, an appropriate
adjustment will be made to the number of shares subject to each option, without
any change in the aggregate purchase price.
Events Occurring after the New Option Grant Date. If a change in our
capitalization, such as a stock split, subdivision, combination, stock dividend
or other similar event, occurs after the new option grant date, an appropriate
adjustment will be made to the number of shares subject to each option, without
any change in the aggregate purchase price.
If we liquidate or dissolve, your outstanding options will terminate
immediately before the consummation of the liquidation or dissolution. The
administrator may, however, provide for the acceleration of the exercisability
of any option.
The 2000 Employee Stock Option Plan and the 2002 Nonstatutory Stock Option
Plan provide that if we merge with another corporation, or if we sell
substantially all of our assets (and if, in the case of the 2000 Employee Stock
Option Plan, these events do not constitute a change of control of Nanometrics,
as such term is defined in the 2000 Employee Stock Option Plan), each option may
be assumed by the successor corporation or an equivalent option right may be
substituted for the option by our board of directors or the successor
corporation as appropriate. If an option is not so assumed or substituted for,
the vesting of the option will accelerate, the option will become fully vested
and exercisable, and the administrator will provide notice of such acceleration.
You will have 15 days following the date of notice of acceleration to exercise
their options, at the end of which period the options will terminate.
Additionally, the 2000 Employee Stock Option Plan provides that if there is
a change of control of Nanometrics (as such term is defined in the 2000 Employee
Stock Option Plan), the vesting of your options granted under this plan will
accelerate and the option will become fully vested and exercisable if any of the
following occur: (1) the option is terminated or cancelled, except by mutual
consent, or any successor fails to assume the options; (2) you do not or will
not receive upon exercise of the options the identical consideration received by
all other shareholders in any merger, consolidation sale or similar event
occurring upon or after the change of control; (3) your service is terminated as
a result of an involuntary termination (as such term is defined in the 2000
Employee Stock Option Plan); or (4) on the date that is 12 months following the
change of control if, as of the time of the change of control, you have been
designated as an executive officer by the board of directors; provided that you
have not voluntarily terminated employment with Nanometrics prior to the end of
the 12-month period.
Transferability of Options
New options may not be transferred, other than by will or the laws of
descent and distribution, unless the administrator indicates otherwise in your
option agreement. In the event of your death, issued options may be exercised by
any person who acquires the right to exercise the option by bequest or
inheritance.
27
Registration of Option Shares
All of the shares of common stock issuable under the 2000 Employee Stock
Option Plan and the 2002 Nonstatutory Stock Option Plan have been or will be
registered under the Securities Act of 1933, as amended (the "Securities Act")
on registration statements on Form S-8 filed with the SEC. All the shares
issuable upon exercise of all new options to be granted before the offer will be
registered under the Securities Act. Unless you are one of our affiliates, you
will be able to sell the shares issuable upon exercise of your new options free
of any transfer restrictions under applicable U.S. securities laws.
U.S. Federal Income Tax Consequences
You should refer to Section 14 of this offer to exchange for a discussion
of the U.S. federal income tax consequences of the new options and the options
tendered for exchange, as well as the consequences of accepting or rejecting the
new options under this offer to exchange. If you are a resident of, but are also
subject to the tax laws of another country, you should be aware that there may
be other tax and social insurance consequences which may apply to you. We
strongly recommend that you consult with your own advisors to discuss the
consequences to you of this transaction.
10. Information concerning Nanometrics
Our principal executive offices are located at 0000 Xxxxxxx Xxxxx,
Xxxxxxxx, Xxxxxxxxxx 00000, and our telephone number is (000) 000-0000.
Questions regarding this option exchange should be directed to Xxxx Xxxxx at
Nanometrics at the above address.
We design, manufacture, market and support thin film, critical dimension
and overlay metrology systems for the semiconductor, flat panel display and
magnetic recording head industries. Our systems precisely measure a wide range
of film types deposited on substrates during manufacturing in order to control
manufacturing processes and increase production yields. Our non-contact,
non-destructive metrology systems use a broad spectrum of wavelengths,
high-sensitivity optics, proprietary software and patented technology to measure
the thickness, critical dimensions, optical constants and uniformity of films
and structures deposited on silicon and other substrates. In addition, we have
microscope and software-based technology for measuring the relative alignment of
adjacent thin film layers.
We had a book value per share of $10.65 at September 30, 2002.
11. Interests of directors and officers; transactions and arrangements
concerning the options
A list of our directors and executive officers is attached to this offer to
exchange as Schedule A. Non-employee directors may not participate in the offer.
As of November 4, 2002, our executive officers and directors (8 persons) as a
group beneficially owned options outstanding under our 1991 Stock Option Plan to
purchase a total of 419,000 of our shares, which represented approximately 40.9%
of the shares subject to all options outstanding under the 1991 Stock Option
Plan as of that date. As of the same date, our executive officers and directors
beneficially owned options outstanding under our 2000 Employee Stock Option Plan
to purchase a total of 370,000 of our shares, which represented approximately
20.8 % of the shares subject to all options outstanding under the 2000 Employee
Stock Option Plan. Executive officers and directors as a group beneficially
owned options outstanding under both of the above-referenced stock plans to
purchase a total of 789,000 of our shares, which represented approximately 28.1%
of the shares subject to all options outstanding under these plans as of that
date. Officers and directors are not eligible to receive options under 2002
Nonstatutory Stock Option Plan. The options to purchase our shares owned by
non-employee directors are not eligible to be tendered in the offer.
The following table below sets forth the beneficial ownership of each of
our executive officers and directors of options outstanding under our 1991 Stock
Option Plan and our 2000 Employee Stock Option Plan as of November 4, 2002. The
percentages in the table below are based on a total of outstanding options under
our 1991 Stock Option Plan and our 2000 Employee Stock Option Plan to purchase
2,806,448 shares of our common stock as of November 4, 2002.
28
Number of Shares
Covered by Percentage of
Outstanding Options Total Outstanding
Granted Under the Options Under
Name Position Eligible Plans the Eligible Plans
------------------------------- ---------------------------------------- -------------------- ------------------
Xxxxxxx X. Xxxxxx Chairman of the Board, Secretary 0 0%
Xxxx X. Xxxxxx President, Chief Executive Officer and 675,000 24.1
Director
Xxxx X. Xxxxx Vice President and Chief Financial 60,000 2.1
Officer
Xxxxx Xxxxxxx, Xx. Vice President and Director of Sales 54,000 1.9
Xxxxxxxxx Xxxxxxx* Director 0 0
Xxxxxxx Xxxxxx* Director 0 0
Xxxxxx X. Der Xxxxxxxxx* Director 0 0
Xxxxxx X. Xxxx* Director 0 0
--------------------------------------------
*Non-employee directors who are not eligible to participate in this option
exchange program. Non-employee directors receive option grants out of a separate
Director Stock Option Plan.
Except as described below, neither we, nor, to the best of our knowledge,
any of our directors or executive officers, nor any affiliates of ours, engaged
in transactions involving options to purchase our common stock under our 1991
Stock Option Plan or our 2000 Employee Stock Option Plan, or in transactions
involving our common stock during the past 60 days before and including November
8, 2002:
o On September 19, 2002, Xxxxxx X. Xxxx purchased 2,000 shares of our
common stock at a price of $3.50 per share in the open market.
12. Status of options acquired by us in the offer; accounting consequences
of the offer
Options that we acquire through the offer that were granted under the 1991
Stock Option Plan or the 2000 Employee Stock Option Plan will be cancelled and
the shares subject to those options granted under the 2000 Employee Stock Option
Plan will be returned to the pool of shares available for grants of new awards
under such plan. Shares subject to those options granted under the 1991 Stock
Option Plan will remain authorized but unissued shares. To the extent that
shares returning to the 2000 Employee Stock Option Plan are not fully reserved
for issuance upon exercise of the new options to be granted in connection with
the offer, the shares will be available for future awards to employees and other
eligible 2000 Employee Stock Option Plan participants without further
shareholder action, except as required by applicable law or the rules of Nasdaq
or any other securities quotation system or any stock exchange on which our
shares are then quoted or listed.
If we were to grant the new options under a traditional stock option
repricing, in which an employee's current options would be immediately repriced,
or on any date that is earlier than 6 months and 1 day after the date on which
we cancel the options accepted for exchange, we would be required for financial
reporting purposes to treat the new options as variable awards. This means that
we would be required to record the non-cash accounting impact of increases in
our stock price as a compensation expense for the new options issued under this
offer. We would have to continue this variable accounting for these new options
until they were exercised, forfeited or terminated. The higher the market value
of our shares, the greater the compensation expense we would have to record. By
deferring the grant of the new options for at least 6 months and 1 day, we
believe that we will not have to treat the new options as variable awards and
will avoid these accounting charges. As a result, we believe that we will not
incur any compensation expense solely as a result of the transactions
contemplated by the offer.
13. Legal matters; regulatory approvals
We are not aware of any license or regulatory permit that appears to be
material to our business that might be adversely affected by our exchange of
options and issuance of new options as contemplated by the offer, or of any
29
approval or other action by any government or governmental, administrative or
regulatory authority or agency, domestic or foreign, or any Nasdaq listing
requirements that would be required for the acquisition or ownership of our
options as contemplated herein. Should any additional approval or other action
be required, we presently contemplate that we will seek such approval or take
such other action. We cannot assure you that any such approval or other action,
if needed, could be obtained or what the conditions imposed in connection with
such approvals would entail or whether the failure to obtain any such approval
or other action would result in adverse consequences to our business. Our
obligation under the offer to accept tendered options for exchange and to issue
new options for tendered options is subject to the conditions described in
Section 7 of this offer to exchange.
If we are prohibited by applicable laws or regulations from granting new
options on the new option grant date, which is expected to be June 17, 2003, we
will not grant any new options. Except as described below, we are unaware of any
such prohibition at this time, and we will use reasonable efforts to effect the
grant, but if the grant is prohibited on the new option grant date we will not
grant any new options and you will not receive any other compensation for the
options you tendered.
If proposed Nasdaq rules require us to obtain shareholder approval for the
establishment of the 2002 Nonstatutory Stock Option Plan and we are unable to
obtain such approval before the new option grant date, we may not be able to
grant you new options under the 2002 Nonstatutory Stock Option Plan pursuant to
the offer. In such event, we will grant your new options exclusively out of the
2000 Employee Stock Option Plan.
14. Material U.S. federal income tax consequences
The following is a general summary of the material U.S. federal income tax
consequences of the exchange of options pursuant to the offer. This discussion
is based on the Internal Revenue Code, its legislative history, treasury
regulations thereunder and administrative and judicial interpretations as of the
date of the offer, all of which are subject to change, possibly on a retroactive
basis. This summary does not discuss all of the tax consequences that may be
relevant to you in light of your particular circumstances, nor is it intended to
be applicable in all respects to all categories of option holders. If you are a
resident of, or subject to the tax laws in the United States, but are also
subject to the tax laws in another country, you should be aware that there might
be other tax and social insurance consequences that may apply to you.
Option holders who exchange outstanding options for new options should not
be required to recognize income for federal income tax purposes at the time of
the exchange. We believe that the exchange will be treated as a non-taxable
exchange. We advise all option holders considering exchanging their options to
meet with their own tax advisors with respect to the federal, state, and local
tax consequences of participating in the offer.
All new options will be granted as non-qualified stock options. Under
current law, an option holder will not realize taxable income upon the grant of
a non-qualified stock option. However, when an option holder exercises the
option, the difference between the exercise price of the option, and the fair
market value of the shares subject to the option on the date of exercise will be
compensation income taxable to the option holder.
We will be entitled to a deduction equal to the amount of compensation
income taxable to the option holder if we comply with eligible reporting
requirements.
We recommend that you consult your own tax advisor with respect to the
federal, state and local tax consequences of participating in the offer.
15. Extension of offer; termination; amendment
We expressly reserve the right, in our discretion, at any time and
regardless of whether or not any event listed in Section 7 of this offer to
exchange has occurred or is deemed by us to have occurred, to extend the period
of time during which the offer is open and delay the acceptance for exchange of
any options. If we elect to extend the period of time during which the exchange
offer is open, we will give you oral or written notice of the extension and
delay, as described below. If we extend the expiration date, we will also extend
your right to withdraw tenders of eligible options until such extended
expiration date. In the case of an extension, we will issue a press release or
other public announcement no later than 6:00 a.m., Pacific Time, on the next
business day after the previously scheduled expiration date.
30
We also expressly reserve the right, in our reasonable judgment, before the
expiration date to terminate or amend the offer and to postpone our acceptance
and cancellation of any options elected to be exchanged if any of the events
listed in Section 7 of this offer to exchange occurs, by giving oral or written
notice of the termination or postponement to you or by making a public
announcement of the termination. Our reservation of the right to delay our
acceptance and cancellation of options elected to be exchanged is limited by
Rule 13e-4(f)(5) under the Exchange Act which requires that we must pay the
consideration offered or return the options promptly after termination or
withdrawal of a tender offer.
Subject to compliance with applicable law, we further reserve the right, in
our discretion, and regardless of whether any event listed in Section 7 of this
offer to exchange has occurred or is deemed by us to have occurred, to amend the
offer in any respect, including, without limitation, by decreasing or increasing
the consideration offered in the offer to option holders or by decreasing or
increasing the number of options being sought in the offer.
The minimum period during which the offer will remain open following
material changes in the terms of the offer or in the information concerning the
offer, other than a change in the consideration being offered by us or a change
in amount of existing options sought, will depend on the facts and circumstances
of such change, including the relative materiality of the terms or information
changes. If we modify the number of eligible options being sought in the offer
or the consideration being offered by us for the eligible options in the offer,
the offer will remain open for at least ten (10) business days from the date of
notice of such modification. If any term of the offer is amended in a manner
that we determine constitutes a material change adversely affecting any holder
of eligible options, we will promptly disclose the amendments in a manner
reasonably calculated to inform holders of eligible options of such amendment,
and we will extend the offer's period so that at least five business days, or
such longer period as may be required by the tender offer rules, remain after
such change.
For purposes of the offer, a "business day" means any day other than a
Saturday, Sunday or a U.S. federal holiday and consists of the time period from
12:01 a.m. through 12:00 midnight, Pacific Time.
16. Fees and expenses
We will not pay any fees or commissions to any broker, dealer or other
person for soliciting options to be exchanged through this offer.
17. Additional information
This offer to exchange is part of a Tender Offer Statement on Schedule TO
that we have filed with the SEC. This offer to exchange does not contain all of
the information contained in the Schedule TO and the exhibits to the Schedule
TO. We recommend that you review the Schedule TO, including its exhibits, and
the following materials that we have filed with the SEC before making a decision
on whether to elect to exchange your options:
1. Our quarterly report on Form 10-Q for our fiscal quarter ended
September 30, 2002, filed with the SEC on November 8, 2002,
2. Our quarterly report on Form 10-Q for our fiscal quarter ended June
30, 2002, filed with the SEC on August 13, 2002,
3. Our quarterly report on Form 10-Q for our fiscal quarter ended March
31, 2002, filed with the SEC on May 7, 2002,
4. Our definitive proxy statement on Schedule 14A for our 2002 annual
meeting of shareholders, filed with the SEC on April 17, 2002,
5. Our annual report on Form 10-K for our fiscal year ended December
31, 2001, filed with the SEC on March 21, 2002, and
6. The description of our shares contained in our registration
statement on Form 8-A, filed with the SEC pursuant to Section 12 of the
Exchange Act on April 29, 1985.
31
These filings, our other annual, quarterly and current reports, our proxy
statements and our other SEC filings may be examined, and copies may be
obtained, at the SEC's public reference room at 000 Xxxxx Xxxxxx, X.X., Xxxx
0000, Xxxxxxxxxx, X.X. 00000. You may obtain information on the operation of the
public reference room by calling the SEC at 0-000-XXX-0000. Our SEC filings are
also available to the public on the SEC's Internet site at xxxx://xxx.xxx.xxx.
Each person to whom a copy of this offer to exchange is delivered may
obtain a copy of any or all of the documents to which we have referred you,
other than exhibits to such documents, unless such exhibits are specifically
incorporated by reference into such documents, at no cost, by writing to us at
Nanometrics Incorporated 0000 Xxxxxxx Xxxxx, Xxxxxxxx, Xxxxxxxxxx 00000,
Attention: Xxxxx Xxxxxxxxx, or telephoning Xxxxx Xxxxxxxxx at (000) 000-0000.
As you read the documents listed above, you may find some inconsistencies
in information from one document to another. If you find inconsistencies between
the documents, or between a document and this offer to exchange, you should rely
on the statements made in the most recent document.
The information contained in this offer to exchange about us should be read
together with the information contained in the documents to which we have
referred you, in making your decision as to whether or not to participate in
this offer.
18. Financial statements
Attached as Schedule B and Schedule C, respectively, to this offer to
exchange are our financial statements that are included in our quarterly report
on Form 10-Q for our fiscal quarter ended September 30, 2002, filed with the SEC
on November 8, 2002, and in our annual report on Form 10-K for our fiscal year
ended December 31, 2001, filed with the SEC on March 21, 2002. More complete
financial information may be obtained by accessing our public filings with the
SEC by following the instructions in Section 17 of this offer to exchange.
19. Miscellaneous
We are not aware of any jurisdiction where the making of the offer is not
in compliance with applicable law. If we become aware of any jurisdiction where
the making of the offer is not in compliance with any valid applicable law, we
will make a good faith effort to comply with such law. If, after such good faith
effort, we cannot comply with such law, the offer will not be made to, nor will
options be accepted from the option holders residing in such jurisdiction.
We have not authorized any person to make any recommendation on our behalf
as to whether you should elect to exchange your options through the offer. You
should rely only on the information in this document or documents to which we
have referred you. We have not authorized anyone to give you any information or
to make any representations in connection with the offer other than the
information and representations contained in this offer to exchange and in the
related option exchange program documents. If anyone makes any recommendation or
representation to you or gives you any information, you must not rely upon that
recommendation, representation or information as having been authorized by us.
NANOMETRICS INCORPORATED
November 12, 2002
32
SCHEDULE A
INFORMATION CONCERNING THE EXECUTIVE OFFICERS
AND DIRECTORS OF NANOMETRICS INCORPORATED
The executive officers and directors of Nanometrics Incorporated and their
positions and offices as of November 8, 2002, are set forth in the following
table:
Name Position and Offices Held
------------------------------- -----------------------------------------------
Xxxxxxx X. Xxxxxx Chairman of the Board, Secretary
Xxxx X. Xxxxxx President, Chief Executive Officer and Director
Xxxx X. Xxxxx Vice President and Chief Financial Officer
Xxxxx Xxxxxxx, Xx. Vice President and Director of Sales
Xxxxxxxxx Xxxxxxx* Director
Xxxxxxx Xxxxxx* Director
Xxxxxx X. Der Xxxxxxxxx* Director
Xxxxxx X. Xxxx* Director
The address of each executive officer and director is: c/o Nanometrics
Incorporated, 0000 Xxxxxxx Xxxxx, Xxxxxxxx, Xxxxxxxxxx 00000.
--------------------------------------------
(*) Non-employee directors who are not eligible to participate in this
option exchange program.
A-1
SCHEDULE B
FINANCIAL STATEMENTS
OF NANOMETRICS INCORPORATED
INCLUDED IN ITS QUARTERLY REPORT
ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2002
B-1
NANOMETRICS INCORPORATED
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share amounts)
(Unaudited)
September 30, December 31,
2002 2001
--------- ---------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 35,428 $ 47,227
Short-term investments 1,989 --
Accounts receivable, net of
allowances of $565 and $562 8,936 9,131
Inventories 27,200 26,311
Deferred income taxes 7,053 3,974
Prepaid expenses and other 2,369 2,474
--------- ---------
Total current assets 82,975 89,117
PROPERTY, PLANT AND EQUIPMENT, Net 50,376 48,412
DEFERRED INCOME TAXES 9 225
GOODWILL 1,077 1,077
OTHER ASSETS 3,357 3,524
--------- ---------
TOTAL ASSETS $ 137,794 $ 142,355
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,112 $ 2,906
Accrued payroll and related expenses 1,465 1,148
Deferred revenue 2,261 2,261
Other current liabilities 1,401 1,981
Income taxes payable 146 272
Current portion of debt obligations 404 378
--------- ---------
Total current liabilities 7,789 8,946
OTHER LONG-TERM OBLIGATIONS -- 250
DEBT OBLIGATIONS 3,237 3,314
--------- ---------
Total liabilities 11,026 12,510
--------- ---------
SHAREHOLDERS' EQUITY:
Common stock, no par value; 50,000,000 shares
authorized; 11,901,235 and 11,787,033 outstanding 99,671 98,531
Retained earnings 27,676 32,743
Accumulated other comprehensive loss (579) (1,429)
--------- ---------
Total shareholders' equity 126,768 129,845
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 137,794 $ 142,355
========= =========
See Notes to Consolidated Financial Statements
NANOMETRICS INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
-------- -------- -------- --------
NET REVENUES:
Product sales $ 6,637 $ 9,080 $ 20,634 $ 35,550
Service 1,932 1,019 4,352 3,767
-------- -------- -------- --------
Total net revenues 8,569 10,099 24,986 39,317
-------- -------- -------- --------
COSTS AND EXPENSES:
Cost of product sales 3,063 3,676 8,884 14,628
Cost of service 1,666 1,133 4,377 3,944
Research and development 3,688 2,676 10,127 7,995
Selling 2,718 2,675 7,636 6,893
General and administrative 1,349 1,105 3,512 3,109
-------- -------- -------- --------
Total costs and expenses 12,484 11,265 34,536 36,569
-------- -------- -------- --------
INCOME (LOSS) FROM OPERATIONS (3,915) (1,166) (9,550) 2,748
-------- -------- -------- --------
OTHER INCOME (EXPENSE):
Interest income 125 582 433 2,279
Interest expense (25) (17) (72) (57)
Other, net (61) 16 57 (394)
-------- -------- -------- --------
Total other income, net 39 581 418 1,828
-------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES (3,876) (585) (9,132) 4,576
PROVISION (BENEFIT) FOR INCOME TAXES (2,060) (135) (4,067) 1,866
-------- -------- -------- --------
NET INCOME (LOSS) $ (1,816) $ (450) $ (5,065) $ 2,710
======== ======== ======== ========
NET INCOME (LOSS) PER SHARE:
Basic $ (0.15) $ (0.04) $ (0.43) $ 0.23
======== ======== ======== ========
Diluted $ (0.15) $ (0.04) $ (0.43) $ 0.22
======== ======== ======== ========
SHARES USED IN PER SHARE
COMPUTATION:
Basic 11,886 11,707 11,838 11,660
======== ======== ======== ========
Diluted 11,886 11,707 11,838 12,142
======== ======== ======== ========
See Notes to Consolidated Financial Statements
NANOMETRICS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
Nine Months Ended
September 30,
2002 2001
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (5,065) $ 2,710
Reconciliation of net income (loss) to net cash
used in operating activities:
Depreciation and amortization 1,725 996
Deferred income taxes (2,841) (1,144)
Changes in assets and liabilities
Accounts receivable 504 2,250
Inventories (487) (9,040)
Prepaid expenses and other current assets (6) 1,158
Accounts payable accrued and other current liabilities (1,175) 701
Income taxes payable 126 839
--------- ---------
Net cash used in operating activities (7,219) (1,530)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term investments (36,989) (120,546)
Sales/maturities of short-term investments 35,000 129,719
Purchases of property, plant and equipment (2,710) (9,883)
Other assets -- (2,289)
--------- ---------
Net cash used in investing activities (4,699) (2,999)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt (611) (768)
Issuance of common stock 894 876
--------- ---------
Net cash provided by financing activities 283 108
--------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (164) 113
--------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS (11,799) (4,308)
CASH AND CASH EQUIVALENTS, beginning of period 47,227 16,933
--------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 35,428 $ 12,625
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest $ 76 $ 157
========= =========
Cash paid for income taxes $ 6 $ 2,682
========= =========
See Notes to Consolidated Financial Statements
NANOMETRICS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Consolidated Financial Statements
The consolidated financial statements include the accounts of Nanometrics
Incorporated and its wholly owned subsidiaries. All significant inter-company
accounts and transactions have been eliminated.
While the quarterly financial statements are unaudited, the financial
statements included in this report reflect all adjustments (consisting only of
normal recurring adjustments) which the Company considers necessary for a fair
presentation of the results of operations for the interim periods covered and of
the financial condition of the Company at the date of the interim balance sheet.
The operating results for interim periods are not necessarily indicative of the
operating results that may be expected for the entire year. The information
included in this report should be read in conjunction with the information
included in Nanometrics' 2001 Annual Report on Form 10-K filed with the
Securities and Exchange Commission.
Note 2. Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market
and consist of the following (in thousands):
September 30, December 31,
2002 2001
------- -------
Raw materials and subassemblies $13,886 $18,279
Work in process 8,114 2,387
Finished goods 5,200 5,645
------- -------
Total inventories $27,200 $26,311
======= =======
Note 3. Other Current Liabilities
Other current liabilities consist of the following (in thousands):
September 30, December 31,
2002 2001
------ ------
Commissions payable $ 63 $ 288
Accrued warranty 261 435
Accrued professional services 118 210
Other 959 1,048
------ ------
Total other current liabilities $1,401 $1,981
====== ======
Note 4. Shareholders' Equity
Net Income (Loss) Per Share - The reconciliation of the share denominator used
in the basic and diluted net income (loss) per share computations are as follows
(in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
------ ------ ------ ------
Weighted average common shares
outstanding-shares used in basic
net income (loss) per share computation 11,886 11,707 11,838 11,660
Dilutive effect of common stock equivalents,
using the treasury stock method -- -- -- 482
------ ------ ------ ------
Shares used in dilutive net income (loss)
per share computation 11,886 11,707 11,838 12,142
====== ====== ====== ======
During the three month periods ended September 30, 2002 and September 30,
2001, respectively, diluted net loss per share excludes common equivalent shares
outstanding, as their effect is antidilutive. During the nine month period ended
Spetember 30, 2001, Nanometrics had common equivalent shares outstanding which
could potentially dilute basic net income per share in the future, but were
excluded from the computation of diluted net income per share as the common
stock options' exercise prices were greater than the average market price of the
common shares for the period. During the three and nine month periods ended
September 30, 2002, diluted net loss per share excludes common equivalent shares
outstanding, as their effect is antidilutive.
Note 5. Comprehensive Income (Loss)
Comprehensive income (loss), which consisted of net income (loss) for the
periods and changes in accumulated other comprehensive income, was a loss of
$2,182,000 and $212,000 for the three months ended September 30, 2002 and 2001,
respectively. For the nine months ended September 30, 2002, the comprehensive
loss was $4,215,000 compared to comprehensive income of $2,532,000 for the nine
months ended September 30, 2001.
Note 6. Equity
During the three months period ended September 30, 2002, Nanometrics issued
the remaining shares available under the 1986 Employee Stock Purchase Plan (the
"1986 Plan"). Nanometrics intends to cancel the 1986 Plan and does not expect to
issue further shares under the plan.
Note 7. New Accounting Pronouncement
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 141, Business
Combinations and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No.
141 requires that all business combinations initiated after June 30, 2001 be
accounted for under the purchase method and addresses the initial recognition
and measurement of goodwill and other intangible assets acquired in a business
combination. SFAS No. 142 addresses the initial recognition and measurement of
intangible assets acquired outside of a business combination and the accounting
for goodwill and other intangible assets subsequent to their acquisition. SFAS
No. 142 provides that intangible assets with finite useful lives be amortized
and that goodwill and intangible assets with indefinite lives will not be
amortized, but will rather be tested at least annually for impairment. Effective
January 1, 2002, Nanometrics adopted SFAS No. 142. Nanometrics ceased amortizing
goodwill with a net carrying value of $1,077,000 and annual amortization of
$204,000 that resulted from business combinations completed prior to the
adoption of SFAS No. 141. The adoption of the non-amortization provisions of
SFAS No. 142 was not material for the nine months ended September 30, 2002.
Nanometrics completed its transitional impairment test and determined that no
impairment was indicated.
In June 2002, the FASB issued SFAS 146, Accounting for Costs Associated
with Exit or Disposal Activities, which addresses accounting for restructuring
and similar costs. SFAS 146 supersedes previous accounting guidance, principally
Emerging Issues Task Force Issue No. 94-3. Nanometrics will adopt the provisions
of SFAS 146 for restructuring activities initiated after December 31, 2002. SFAS
146 requires that the liability for costs associated with an exit or disposal
activity be recognized when the liability is incurred. Under Issue 94-3, a
liability for an exit cost was recognized at the date of the Company's
commitment to an exit plan. SFAS 146 also establishes that the liability should
initially be measured and recorded at fair value. Accordingly, SFAS 146 may
affect the timing of recognizing future restructuring costs as well as the
amounts recognized.
SCHEDULE C
FINANCIAL STATEMENTS
OF NANOMETRICS INCORPORATED
INCLUDED IN ITS ANNUAL REPORT
ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2001
C-1
NANOMETRICS INCORPORATED
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
December 31,
------------
ASSETS 2000 2001
-------- --------
Current assets:
Cash and cash equivalents ...................................................... $ 16,934 $ 47,227
Short-term investments.......................................................... 52,854 -
Accounts receivable, net of allowances of $418 and $562 in 2000 and 2001,
respectively.................................................................... 14,319 9,131
Inventories .................................................................... 15,753 26,311
Deferred income taxes .......................................................... 2,760 3,974
Prepaid expenses and other ..................................................... 3,351 2,474
-------- --------
Total current assets............................................................ 105,971 89,117
Property, plant and equipment, net.............................................. 37,223 48,412
Deferred income taxes........................................................... 227 225
Other assets.................................................................... 1,375 4,601
-------- --------
Total assets.................................................................... $144,796 $142,355
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................................ $ 4,625 $ 2,906
Accrued payroll and related expenses............................................ 1,610 1,148
Deferred revenue............................................................... 3,015 2,261
Other current liabilities....................................................... 3,049 1,981
Income taxes payable............................................................ 331 272
Current portion of debt obligations............................................. 921 378
-------- --------
Total current liabilities....................................................... 13,551 8,946
Other long=term liabilities..................................................... - 250
Debt obligations................................................................ 4,236 3,314
-------- --------
Total liabilities............................................................... 17,787 12,510
-------- --------
Commitments and contingencies (Note 6)
Shareholders' equity:
Common stock, no par value; 25,000,000 shares authorized;
11,607,839 and 11,787,033 outstanding in 2000 and 2001, respectively............ 95,929 98,531
Retained earnings............................................................... 31,783 32,743
Accumulated other comprehensive loss............................................ (703) (1,429)
-------- --------
Total shareholders' equity...................................................... 127,009 129,845
-------- --------
Total liabilities and shareholders' equity...................................... $144,796 $142,355
======== ========
See notes to consolidated financial statements.
NANOMETRICS INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Years Ended December 31,
----------------------------
1999 2000 2001
------ ------ ------
Net revenues:
Product sales................................................................. $ 32,162 $ 63,468 $ 42,653
Service....................................................................... 4,246 6,023 4,931
------ ------ ------
Total net revenues.................................................... 36,408 69,491 47,584
------ ------ ------
Costs and expenses:
Cost of product sales......................................................... 14,606 25,082 17,949
Cost of service............................................................... 4,560 6,022 5,406
Research and development...................................................... 4,658 9,238 10,760
Selling....................................................................... 5,871 10,313 9,523
General and administrative.................................................... 2,973 4,258 4,177
------ ------ ------
Total costs and expenses............................................... 32,668 54,913 47,815
------ ------ ------
Income (loss) from operations................................................... 3,740 14,578 (231)
------ ------ ------
Other income (expense):
Interest income............................................................... 662 4,129 2,576
Interest expense.............................................................. (180) (76) (86)
Other, net.................................................................... 94 (150) (517)
------ ------ ------
Total other income, net............................................... 576 3,903 1,973
------ ------ ------
Income before income taxes...................................................... 4,316 18,481 1,742
Provision for income taxes...................................................... 1,682 5,942 782
------ ------ ------
Income before cumulative effect of change in accounting principle............... 2,634 12,539 960
Cumulative effect of change in revenue recognition principle (SAB 101).......... - (1,364) -
------ ------ ------
Net income...................................................................... $ 2,634 $ 11,175 $ 960
====== ====== ======
Basic net income (loss) per share:
Income before cumulative effect of change in accounting principle $ 0.30 $ 1.14 $ 0.08
Cumulative effect of change in revenue recognition principle (SAB 101)........ - (0.12) -
------ ------ ------
Net income.................................................................... $ 0.30 $ 1.02 $ 0.08
====== ====== ======
Diluted net income (loss) per share:
Income before cumulative effect of change in accounting principle............. $ 0.28 $ 1.06 $ 0.08
Cumulative effect of change in revenue recognition principle (SAB 101)........ - (0.12) -
------ ------ ------
Net income.................................................................... $ 0.28 $ 0.94 $ 0.08
====== ====== ======
Shares used in per share computation:
Basic......................................................................... 8,829 10,986 11,691
====== ====== ======
Diluted....................................................................... 9,393 11,845 12,161
====== ====== ======
See notes to consolidated financial statements.
NANOMETRICS INCORPORATED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
(In thousands, except share amounts)
Accumulated
Common Stock Other Total Compre-
------------------- Retained Comprehensive Shareholders' hensive
Shares Amount Earnings Income (Loss) Equity Income
---------- -------- -------- -------------- ------------ -------
Balances, January 1, 1999........................ 8,690,643 $ 14,170 $ 17,974 $ (134) $ 32,010
Comprehensive income:
Net income..................................... - - 2,634 - 2,634 $ 2,634
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments..... - - - 422 422 422
Unrealized loss on investments............... - - - (18) (18) (18)
-------
Comprehensive income.................. - - - - - $ 3,038
=======
Issuance of common stock under employee stock
purchase plan.................................. 28,937 148 - - 148
Issuance of common stock under stock option plan. 444,418 1,936 - - 1,936
Tax benefit of employee stock transactions....... - 1,023 - - 1,023
---------- -------- -------- -------- --------
Balances, December 31, 1999...................... 9,163,998 17,277 20,608 270 38,155
Comprehensive income:
Net income..................................... - - 11,175 - 11,175 $11,175
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments..... - - - (981) (981) (981)
Unrealized gain on investments............... - - - 8 8 8
-------
Comprehensive income.................. - - - - - $10,202
=======
Proceeds from common stock issuances, net of $700
of issuance costs.............................. 2,012,500 72,367 - - 72,367
Issuance of common stock under employee stock
purchase plan.................................. 16,507 261 - - 261
Issuance of common stock under stock option plan. 414,834 2,158 - - 2,158
Tax benefit of employee stock transactions....... - 3,866 - - 3,866
---------- -------- -------- -------- --------
Balances, December 31, 2000...................... 11,607,839 95,929 31,783 (703) 127,009
Comprehensive income:
Net income..................................... - - 960 - 960 $ 960
Other comprehensive loss, net of tax:
Foreign currency translation adjustments..... - - - (698) (698) (698)
Unrealized gain on investments............... - - - (28) (28) (28)
-------
Comprehensive income.................. - - - - - $ 234
=======
Other stock issued............................... 12,813 214 - - 214
Issuance of common stock under employee stock
purchase plan.................................. 33,845 453 - - 453
Issuance of common stock under stock option plan. 132,536 914 - - 914
Tax benefit of employee stock transactions....... - 1,021 - - 1,021
---------- -------- -------- -------- --------
Balances, December 31, 2001...................... 11,787,033 $ 98,531 $ 32,743 $ (1,429) $ 129,845
========== ======== ======== ======== ========
See notes to consolidated financial statements.
NANOMETRICS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
December 31,
--------------------------------
1999 2000 2001
---- ---- ----
Cash flows from operating activities:
Net income .......................................................... $ 2,634 $ 11,175 $ 960
Reconciliation of net income to net cash provided by (used in)
operating activities:
Depreciation and amortization...................................... 359 727 1,681
Allowance for doubtful accounts.................................... 5 - 150
Deferred rent...................................................... (8) (35) -
Loss on sale/disposal of property.................................. - 54 7
Deferred income taxes.............................................. 174 (1,130) (1,212)
Changes in assets and liabilities, net of effects of product
line acquisition:
Accounts receivable.............................................. (2,501) (3,372) 4,480
Inventories...................................................... 2,449 (6,913) (11,259)
Prepaid income taxes............................................. 1,325 (221) 1,939
Prepaid expenses and other....................................... (178) (2,078) (797)
Accounts payable, accrueds and other current liabilities......... 1,022 4,675 (3,335)
Deferred revenue................................................. 319 3,544 (717)
Income taxes payable............................................. 1,462 3,115 986
------- -------- --------
Net cash provided by (used in) operating activities......... 7,062 9,541 (7,117)
------- -------- --------
Cash flows from investing activities:
Purchases of short-term investments.................................. (22,575) (114,046) (112,146)
Sales/maturities of short-term investments........................... 17,760 75,898 165,000
Purchases of property, plant and equipment........................... (511) (35,284) (13,178)
Other assets......................................................... (536) (2) (3,373)
------- -------- --------
Net cash provided by (used in) investing activities......... (5,862) (73,434) 36,303
------- -------- --------
Cash flows from financing activities:
Net proceeds from common stock issuance.............................. - 72,367 -
Proceeds from issuance of debt obligations........................... 90 3,187 -
Repayments of debt obligations....................................... (1,358) (457) (866)
Sale of shares under employee stock purchase and
stock option plans................................................. 2,084 2,419 1,367
------- -------- --------
Net cash provided by financing activities................... 816 77,516 501
------- -------- --------
Effect of exchange rate changes on cash................................ (92) (131) 606
------- -------- --------
Net change in cash and cash equivalents................................ 1,924 13,492 30,293
Cash and cash equivalents, beginning of year........................... 1,518 3,442 16,934
------- -------- --------
Cash and cash equivalents, end of year................................. $ 3,442 $ 16,934 $ 47,227
======= ======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest............................................... $ 72 $ 78 $ 103
======= ======== ========
Cash paid for income taxes........................................... $ 82 $ 3,497 $ 2,402
======= ======== ========
See notes to consolidated financial statements.
NANOMETRICS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1999, 2000 and 2001
1. Significant Accounting Policies
Description of Business - Nanometrics Incorporated and its wholly-owned
subsidiaries sell, design, manufacture, market and support thin film and
overlay dimension metrology systems for customers in the semiconductor, flat
panel display and magnetic recording head industries. These metrology systems
precisely measure a wide range of film types deposited on substrates during
manufacturing in order to control manufacturing processes and increase
production yields in the fabrication of integrated circuits, flat panel
displays and magnetic recording heads. The thin film metrology systems use a
broad spectrum of wavelengths, high-sensitivity optics, proprietary software
and patented technology to measure the thickness and uniformity of films
deposited on silicon and other substrates as well as their chemical
composition. The overlay metrology systems are used to measure the overlay
accuracy of successive layers of semiconductor patterns on wafers in the
photolithography process.
Basis of Presentation - The consolidated financial statements include
Nanometrics Incorporated and its wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Fiscal Year - Nanometrics uses a 52/53 week fiscal year ending on the
Saturday nearest to December 31. Accordingly, fiscal years 1999, 2000 and
2001 all consisted of 52 weeks and ended on January 1, 2000, December 30,
2000 and December 29, 2001, respectively. For convenience in the accompanying
consolidated financial statements, the year end is denoted as December 31.
Cash and Cash Equivalents - Cash and cash equivalents include cash and highly
liquid debt instruments with original maturities of three months or less when
purchased.
Short-Term Investments - Short-term investments consist of United States
Treasury bills and are stated at fair value based on quoted market prices.
Short-term investments are classified as available-for-sale based on
Nanometrics' intended use. The difference between amortized cost and fair
value representing unrealized holding gains or losses are recorded as a
component of shareholders' equity as accumulated other comprehensive income
(loss). Gains and losses on sales of investments are determined on a specific
identification basis.
Fair Value of Financial Instruments - Financial instruments include cash
equivalents, short-term investments and debt obligations. Cash equivalents
and short-term investments are stated at fair market value based on quoted
market prices. The recorded carrying amount of Nanometrics' debt obligations
approximates fair market value.
Inventories - Inventories are stated at the lower of cost (first-in,
first-out) or market.
Property, Plant and Equipment - Property, plant and equipment are stated at
cost. Depreciation is computed using straight line and accelerated methods
over the following estimated useful lives of the assets:
Building and improvements 15 - 40 years
Machinery and equipment 3 - 10 years
Furniture and fixtures 5 - 10 years
Leasehold improvements are amortized over the shorter of the estimated useful
lives of the improvements or the lease term.
Goodwill and Intangible Assets - Nanometrics amortizes goodwill and acquired
intangible assets (included in other assets) using the straight-line method
over an estimated useful life of five years.
Long-Lived Assets - Nanometrics evaluates long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. When the sum of the undiscounted future
net cash flows expected to result from the use of the asset and its eventual
disposition is less than its carrying amount, an impairment loss would be
measured based on the discounted cash flows compared to the carrying amount.
No impairment charge has been recorded in any of the periods presented.
Income Taxes - Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes and
operating loss and tax credit carryforwards measured by applying currently
enacted tax laws. A valuation allowance is provided when necessary to reduce
deferred tax assets to an amount that is more likely than not to be realized.
Comprehensive Income (Loss) - Accumulated other comprehensive income (loss)
consists of the following (in thousands):
December 31,
-------------------
2000 2001
---- ----
Accumulated unrealized gains on
available-for-sale securities, net.......... $ 28 $ -
Accumulated translation adjustments, net...... (731) (1,429)
Accumulated other comprehensive loss.......... $ (703) $(1,429)
Revenue Recognition - Revenues are recognized when persuasive evidence of an
arrangement exists, delivery has occurred or services have been rendered, the
price is fixed and determinable and collectibility is reasonably assured. For
product sales, this generally occurs at the time of shipment, and for
revenues from service work, this generally occurs when the work is performed.
Revenues from service contracts are recognized ratably over the period under
contract. Nanometrics sells the majority of its product with a one-year
repair or replacement warranty and records a provision for estimated claims
at the time of sale. In certain geographical regions where risk of loss and
title transfers upon customer acceptance, payments received are recorded as
deferred revenue and recognized as revenue upon customer acceptance.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB 101), Revenue Recognition in Financial Statements,
which summarizes certain views of the SEC staff in applying generally
accepted accounting principles to revenue recognition in the financial
statements. SAB 101 clarified delivery criteria, which affected Nanometrics'
revenue recognition policy. Nanometrics applied the provisions of SAB 101 in
the quarter ended December 31, 2000, retroactive as of the beginning of the
fiscal year. Accordingly, the accompanying consolidated statements of income
for the year ended December 31, 2000 and 2001, is reflected in accordance
with SAB 101. Had Nanometrics applied the provisions of SAB 101 at the
beginning of 1999, unaudited pro forma results of operations for 1999 would
have been as follows (in thousands, except per share amounts):
Net income as reported.................................. $ 2,634
Pro forma adjustment for the change in
accounting principle applied retroactively.............. (509)
-------
Pro forma net income.................................... $ 2,125
=======
Basic net income per share as reported.................. $ 0.30
Pro forma effect of change per share.................... (0.06)
-------
Pro forma basic net income per share.................... $ 0.24
=======
Diluted net income per share as reported................ $ 0.28
Pro forma effect of change per share.................... (0.05)
-------
Pro forma diluted net income per share.................. $ 0.23
=======
The impact of adoption of SAB 101 in fiscal 2000 resulted in $7.8 million of
revenue being deferred to future periods. In addition, the impact of adoption
of SAB 101 resulted in a cumulative effect of $1.4 million resulting from the
recognition of certain historical 1999 revenues in 2000.
Stock-Based Compensation - Nanometrics accounts for stock-based awards to
employees using the intrinsic value method in accordance with Accounting
Principles Board Opinion (APB) No. 25, Accounting for Stock Issued to
Employees.
Foreign Currency - The functional currencies of Nanometrics' foreign
subsidiaries are the local currencies. Accordingly, translation adjustments
for the subsidiaries have been included in shareholders' equity. Gains and
losses from transactions denominated in currencies other than the functional
currencies of Nanometrics or its subsidiaries are included in other income
(expense) and consist of a gain of $91,000 for 1999, a loss of $30,000 for
2000 and a loss of $614,000 for 2001.
Net Income Per Share - Basic net income per share excludes dilution and is
computed by dividing net income by the number of weighted average common
shares outstanding for the period. Diluted net income per share reflects the
potential dilution from outstanding dilutive stock options (using the
treasury stock method) and shares issuable under the employee stock purchase
plan.
Reclassifications - Certain reclassifications have been made to the prior
years' financial statement presentations to conform to the current year
presentation. Such reclassifications had no impact on consolidated net income
or retained earnings.
Recently Issued Accounting Standards - In June 1998, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards
(SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities.
This statement establishes accounting and reporting standards requiring that
every derivative instrument, including derivative instruments embedded in
other contracts, be recorded in the balance sheet as either an asset or
liability measured at its fair value. Nanometrics adopted SFAS No. 133
effective January 1, 2001. Adoption of SFAS No. 133 did not have a
significant impact on the consolidated financial position, results of
operations or cash flows of Nanometrics.
On June 29, 2001, SFAS No. 141, "Business Combinations" was approved by the
FASB. SFAS No. 141 requires that the purchase method of accounting be used
for all business combinations initiated after June 30, 2001. Goodwill and
certain intangible assets will remain on the balance sheet and not be
amortized. On an annual basis, and when there is reason to believe that their
values may have been diminished or impaired, these assets must be tested for
impairment, and write-downs may be necessary. Nanometrics will adopt SFAS No.
141 for business combinations initiated after June 30, 2001.
On June 29, 2001, SFAS No. 142, "Goodwill and Other Intangible Assets" was
approved by the FASB. SFAS No. 142 changes the accounting for goodwill from
an amortization method to an impairment-only approach. Amortization of
goodwill, including goodwill recorded in past business combinations, will
cease upon adoption of this statement. Nanometrics is required to implement
SFAS No. 142 on January 1, 2002 and expects to complete its initial
assessment of the impairment using the requirements of SFAS No. 142 by the
end of the first quarter of fiscal year 2002. However, management does not
believe that a material adjustment will be necessary upon completion of this
initial assessment. Nanometrics will stop the amortization of goodwill with
an expected net carrying value of $1,181,000 at the date of adoption and
annual amortization of $288,000 that resulted from business combinations
completed prior to the adoption of SFAS No. 141. Xxxxxxxx acquired subsequent
to June 30, 2001 will not be amortized.
In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets. This statement retains a majority of the
requirements of SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of, and addresses certain
implementation issues. Although Nanometrics has not fully assessed the
implications of SFAS No. 144, Nanometrics does not believe the adoption of
this statement will have a significant impact on the consolidated financial
position, results of operations or cash flows.
Certain Significant Risks and Uncertainties - Financial instruments which
potentially subject Nanometrics to concentration of credit risk consist of
cash and cash equivalents, short-term investments and accounts receivable.
Cash and cash equivalents and short-term investments are held primarily with
two financial institutions and consist primarily of cash in bank accounts and
United States Treasury bills. Nanometrics sells its products primarily to end
users in the United States and Asia, and generally does not require its
customers to provide collateral or other security to support accounts
receivable. Management performs ongoing credit evaluations of its customers'
financial condition. Nanometrics maintains allowances for estimated potential
bad debt losses.
Nanometrics participates in a dynamic high technology industry and believes
that changes in any of the following areas could have a material adverse
effect on Nanometrics' future financial position, results of operations or
cash flows: advances and trends in new technologies and industry standards;
competitive pressures in the form of new products or price reductions on
current products; changes in product mix; changes in the overall demand for
products offered by Nanometrics; changes in third-party manufacturers;
changes in key suppliers; changes in certain strategic relationships or
customer relationships; litigation or claims against Nanometrics based on
intellectual property, patent, product, regulatory or other factors;
fluctuations in foreign currency exchange rates; risk associated with changes
in domestic and international economic and/or political regulations;
availability of necessary components or subassemblies; disruption of
manufacturing facilities; and Nanometrics' ability to attract and retain
employees necessary to support its growth.
Nanometrics' customer base is highly concentrated. A relatively small number
of customers have accounted for a significant portion of Nanometrics'
revenues. In 2001, aggregate revenue from Nanometrics' top ten largest
customers consisted of 45% of Nanometrics' total net revenues.
Certain components and subassemblies used in Nanometrics' products are
purchased from a sole supplier or a limited group of suppliers. In
particular, Nanometrics currently purchases its spectroscopic ellipsometer,
Fourier transform infrared reflectometry spectrometer and robotics used in
its advanced measurement systems from a sole supplier or a limited group of
suppliers. Any shortage or interruption in the supply of any of the
components or subassemblies used in Nanometrics' products or the inability of
Nanometrics to procure these components or subassemblies from alternate
sources on acceptable terms, could have a material adverse effect on
Nanometrics' business, financial condition and results of operations.
Related Party Transactions - During 2001, Nanometrics extended a long-term
note to an officer in the amount of $301,000. The note, which bears interest
at 6% per annum, is due October 2004 and is classified as other assets on the
balance sheet.
2. Inventories
Inventories consist of the following (in thousands):
December 31,
---------------------
2000 2001
---- ----
Raw materials and subassemblies....... $ 8,126 $18,279
Work in process....................... 1,434 2,387
Finished goods........................ 6,193 5,645
------- -------
Total inventories..................... $15,753 $26,311
======= =======
3. Property, Plant and Equipment
Property, plant and equipment consists of the following (in thousands):
December 31,
---------------------
2000 2001
---- ----
Land .................................... $16,462 $16,597
Building and improvements ............... 17,700 29,299
Machinery and equipment ................. 1,712 4,418
Furniture and fixtures .................. 849 1,631
Construction in progress ................ 3,397 126
Leasehold improvements .................. 12 13
------- -------
40,132 52,084
Accumulated depreciation and amortization (2,909) (3,672)
------- -------
Total property, plant and equipment, net. $37,223 $48,412
======= =======
4. Other Current Liabilities
Other current liabilities consist of the following (in thousands):
December 31,
---------------------
2000 2001
---- ----
Commissions payable................... $1,249 $ 288
Accrued warranty...................... 809 435
Accrued professional services......... 203 210
Other ................................ 788 1,048
------- -------
Total other current liabilities....... $3,049 $1,981
======= =======
5. Debt Obligations
Debt obligations consist of the following (in thousands):
December 31,
---------------------
2000 2001
---- ----
1995 working capital bank loan ........ $1,575 $1,068
1996 working capital bank loan ........ 470 336
2000 working capital bank loan ........ 2,625 2,288
Other debt obligations ................ 487 --
------ ------
Total ................................. 5,157 3,692
Current portion of debt obligations ... (921) (378)
------ ------
Debt obligations ...................... $4,236 $3,314
====== ======
The 1995 working capital bank loan was obtained by Nanometrics' Japanese
subsidiary. The loan is collateralized by receivables of the Japanese
subsidiary and is guaranteed by the parent, Nanometrics Incorporated. The
loan is denominated in Japanese yen ((Y)140,000,000 at December 31, 2001) and
bears interest at 3.3% per annum. The loan is payable in quarterly
installments with unpaid principal and interest due in May 2005.
The 1996 working capital bank loan was obtained by Nanometrics' Japanese
subsidiary and is collateralized by land and building. The loan is
denominated in Japanese yen ((Y)44,000,000 at December 31, 2001) and bears
interest at 3.4% per annum. The loan is payable in quarterly installments
with unpaid principal and interest due in May 2006.
The 2000 working capital bank loan was obtained by Nanometrics' Japanese
subsidiary and is collateralized by land and building. The loan is
denominated in Japanese yen ((Y)300,000,000 at December 31, 2001) and bears
interest at 2.1% per annum. The loan is payable in quarterly installments
with unpaid principal and interest due in November 2010.
Other debt obligations represent short-term borrowings by Nanometrics'
Japanese subsidiary which are collateralized by the subsidiary's accounts
receivable. The borrowings are denominated in Japanese yen and bear interest
at 1.5% per annum.
At December 31, 2001, future annual maturities of debt obligations are as
follows (in thousands):
2002................................................. $ 378
2003................................................. 458
2004................................................. 696
2005................................................. 544
2006................................................. 360
Thereafter........................................... 1,256
------
Total................................................ $3,692
======
6. Commitments and Contingencies
Nanometrics leases manufacturing and administrative facilities and certain
equipment under noncancellable operating leases. Nanometrics' corporate
headquarters facility lease was terminated in November 2000 when corporate
headquarters moved into a newly purchased facility. Rent expense for 1999,
2000 and 2001 was approximately $867,000, $1,221,000 and $302,000,
respectively. Future minimum lease payments under Nanometrics' operating
leases for each of the years ending December 31 are as follows (in
thousands):
2002................................................... $133
2003................................................... 96
2004................................................... 45
2005................................................... 29
2006................................................... 2
Thereafter............................................. -
----
Total.................................................. $305
====
In September 1998, Nanometrics' Korean subsidiary entered into a lease
agreement for manufacturing facilities. The lease payments are based on a
percentage of net product sales, as defined. The lease was terminated in
February 2001, in conjunction with the completion of the new facility.
Pursuant to a 1985 agreement, as amended, if Nanometrics' Chairman of the
Board is involuntarily removed from his position, Nanometrics is required to
continue his salary and related benefits for a period of five years from such
date.
7. Shareholders' Equity
Common Stock
The authorized capital stock of Nanometrics consists of 25,000,000 common
shares, of which 22,500,000 shares have been designated "Common Stock" and
2,500,000 shares have been allocated to all other series of common shares,
collectively designated "Junior Common."
Net Income per Share
The reconciliation of the share denominator used in the basic and diluted net
income per share computations is as follows (in thousands):
Years Ended December 31,
-------------------------
1999 2000 2001
---- ---- ----
Weighted average shares outstanding - shares used in
basic net income per share computation.............. 8,829 10,986 11,691
Dilutive effect of common stock equivalents,
using the treasury stock method..................... 564 859 470
----- ------ ------
Shares used in diluted net income per share computation 9,393 11,845 12,161
===== ====== ======
During 1999, 2000 and 2001, Nanometrics had common stock options outstanding
which could potentially dilute basic net income per share in the future, but
were excluded from the computation of diluted net income per share as the
common stock options' exercise prices were greater than the average market
price of the common shares for the period. At December 31, 1999, 2000 and
2001, 51,000, 738,700 and 936,917, respectively, of Nanometrics' outstanding
common stock options with weighted average exercise prices of $19.59, $35.58
and $19.39, respectively, per share were excluded from the diluted net income
per share computation.
Stock Option Plans
Under the 1991 Stock Option Plan (the 1991 Option Plan), as amended,
Nanometrics may grant options to acquire up to 3,000,000 shares of common
stock to employees and consultants at prices not less than the fair market
value at date of grant for incentive stock options and not less than 50% of
fair market value for nonstatutory stock options. These options generally
expire five years from the date of grant and become exercisable as they vest,
generally 33.3% upon each anniversary of the grant, as set forth in the stock
option agreements. The 1991 Option Plan expired in July 2001.
Under the 1991 Directors' Stock Option Plan (the 1991 Directors' Plan),
nonemployee directors of Nanometrics are automatically granted options to
acquire 10,000 shares of common stock, at the fair market value at the date
of grant, each year that such person remains a director of Nanometrics.
Options granted under the Directors' Plan become exercisable as they vest
33.3% upon each anniversary of the grant and expire five years from the date
of grant. The total shares authorized under the 1991 Directors' Plan are
300,000. The 1991 Directors' Plan expired in July 2001.
Under the 2000 Stock Option Plan (the 2000 Option Plan), Nanometrics may
grant options to acquire up to 1,250,000 shares of common stock to employees
and consultants at prices not less than the fair market value at date of
grant for incentive and nonstatutory stock options. These options generally
expire ten years from the date of grant, or a shorter term as provided by the
stock option agreement and become exercisable as they vest, generally 33.3%
upon each anniversary of the grant, as set forth in the stock option
agreements. The 2000 Option Plan is the successor to the 1991 Option Plan,
and all options existing under the 1991 Option Plan will continue to be
governed by existing terms until exercise, cancellation or expiration.
Under the 2000 Directors' Stock Option Plan (the 2000 Directors' Plan),
nonemployee directors of Nanometrics are automatically granted options to
acquire 10,000 shares of common stock, at the fair market value at the date
of grant, each year that such person remains a director of Nanometrics.
Options granted under the Directors' Plan become exercisable as they vest
33.3% upon each anniversary of the grant and expire five years from the date
of grant. The total shares authorized under the 2000 Directors' Plan are
250,000. The 2000 Directors' Plan is the successor plan to the 1991
Directors' Plan, and all options existing under the 1991 Directors' Plan will
continue to be governed by existing terms until exercise, cancellation or
expiration.
Option activity under the plans is summarized as follows:
Outstanding Options
--------------------------------------
Weighted
Shares Number of Average
Available Shares Exercise Price
--------- ------ --------------
Balances, January 1, 1999 (745,171 exercisable
at a weighted average price of $4.57).............. 827,821 1,590,433 $ 5.25
Exercised............................................. - (444,418) 4.36
Granted (weighted average fair value of $6.67)........ (455,000) 455,000 12.06
Canceled.............................................. 106,351 (106,351) 6.65
--------- ---------
Balances, December 31, 1999 (665,688 exercisable
at a weighted average price of $5.21)............... 479,172 1,494,664 7.49
Additional shares added through 2000 Option Plan
and 2000 Directors' Plan............................ 1,500,000 - -
Exercised............................................. - (414,834) 5.20
Granted (weighted average fair value of $17.34)....... (886,700) 886,700 31.23
Canceled.............................................. 99,506 (99,506) 17.74
--------- ---------
Balances, December 31, 2000 (634,696 exercisable
at a weighted average price of $6.62)............... 1,191,978 1,867,024 18.73
Exercised............................................. - (132,536) 6.90
Expired............................................... (40,744) - -
Granted (weighted average fair value of $9.45)........ (780,250) 780,250 18.14
Canceled.............................................. 91,516 (91,516) 21.01
--------- ---------
Balances, December 31, 2001........................... 462,500 2,423,222 $ 19.11
========= =========
Additional information regarding options outstanding as of December 31, 2001
is as follows:
Options Outstanding Options Exercisable
------------------------------------------- --------------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life (Years) Price Exercisable Price
--------------- ----------- ------------ ----- ----------- -----
$ 5.13 - $ 7.25 518,065 3.01 $ 5.59 480,428 $ 5.47
7.81 - 9.00 182,571 7.21 8.12 162,437 8.08
12.86 - 17.63 785,669 6.08 15.91 126,279 15.35
20.13 - 30.88 574,751 5.63 25.51 127,167 26.32
34.69 - 47.63 362,166 4.19 40.77 120,722 40.77
--------- ---------
$ 5.13 - $47.63 2,423,222 5.12 $ 19.11 1,017,033 $13.91
========= =========
Employee Stock Purchase Plan
Under the 1986 Employee Stock Purchase Plan (the Purchase Plan), eligible
employees are allowed to have salary withholdings of up to 10% of their base
compensation to purchase shares of common stock at a price equal to 85% of
the lower of the market value of the stock at the beginning or end of each
six-month offering period, subject to an annual limitation. Shares issued
under the plan were 28,937, 16,507 and 33,845 in 1999, 2000 and 2001 at
weighted average prices of $5.10, $15.83 and $13.39, respectively. The
weighted average per share fair values of the 1999, 2000 and 2001 awards were
$2.89, $14.67 and $5.94, respectively. At December 31, 2001, 108,204 shares
were reserved for future issuances under the Purchase Plan.
Additional Stock Plan Information
As discussed in Note 1, Nanometrics accounts for its stock-based awards using
the intrinsic value method in accordance with APB No. 25, Accounting for
Stock Issued to Employees, and its related interpretations. Accordingly, no
compensation expense has been recognized in the accompanying consolidated
financial statements for employee stock arrangements.
SFAS No. 123, Accounting for Stock-Based Compensation, requires the
disclosure of pro forma net income (loss) and net income (loss) per share had
Nanometrics adopted the fair value method. Under SFAS No. 123, the fair value
of stock-based awards to employees is calculated through the use of option
pricing models, even though such models were developed to estimate the fair
value of freely tradable, fully transferable options without vesting
restrictions, which differ significantly from Nanometrics' stock option
awards. These models also require subjective assumptions, including future
stock price volatility and expected time to exercise, which greatly affect
the calculated values. Nanometrics' fair value calculations on stock-based
awards under the 1991 and 2001 Option Plans and the 1991 and 2001 Directors'
Plans were made using the Black-Scholes option pricing model with the
following weighted average assumptions: expected life, three years from the
date of grant in 1999, 2000 and 2001; stock volatility, 80% in 1999, 2000 and
2001; risk free interest rate, 5.9% in 1999, 6.4% in 2000 and 4.2% in 2001;
and no dividends during the expected term. Nanometrics' calculations are
based on a single option valuation approach and forfeitures are recognized at
a historical rate of 24% for 1999, 26% for 2000 and 24% for 2001.
Nanometrics' fair value calculations on stock-based awards under the Purchase
Plan were also made using the Black-Scholes option pricing model with the
following weighted average assumptions: expected life, six months in 1999,
2000 and 2001; stock volatility, 80% in 1999, 2000 and 2001; risk free
interest rate, 5.3% in 1999, 6.1% in 2000 and 3.1% in 2001; and no dividends
during the expected term.
If the computed fair values of the stock-based awards had been amortized to
expense over the vesting period of the awards, pro forma net income (loss)
and net income (loss) per share, basic and diluted, would have been as
follows (in thousands, except per share amounts):
Years Ended December 31,
--------------------------
1999 2000 2001
---- ---- ----
Pro forma net income (loss).............. $1,729 $8,200 $(2,699)
Pro forma net income (loss) per share:
Basic.................................. $ 0.20 $ 0.75 (0.23)
Diluted................................ $ 0.18 $ 0.69 $ (0.23)
8. Income Taxes
Income (loss) before income taxes consists of the following (in thousands):
Years Ended December 31,
--------------------------
1999 2000 2001
---- ---- ----
Domestic............................... $3,928 $16,476 $(1,516)
Foreign................................ 388 2,005 3,258
------ ------- -------
Income before income taxes............. $4,316 $18,481 $ 1,742
====== ======= =======
The provision (benefit) for income taxes consists of the following (in
thousands):
Years Ended December 31,
-------------------------
1999 2000 2001
---- ---- ----
Current:
Federal................................ $1,127 $5,875 $1,136
State.................................. 186 807 439
Foreign................................ 195 390 419
------ ------ ------
1,508 7,072 1,994
------ ------ ------
Deferred:
Federal................................ 71 (536) (1,073)
State.................................. (128) (29) (437)
Foreign................................ 231 (565) 298
------ ------ ------
174 (1,130) (1,212)
------ ------ ------
Provision for income taxes............... $1,682 $5,942 $ 782
====== ====== ======
Significant components of Nanometrics' deferred tax assets are as follows (in
thousands):
December 31,
------------------
2000 2001
---- ----
Deferred tax assets - current:
Reserves and accruals not currently deductible. $2,282 $2,736
Capitalized inventory costs.................... 350 906
Tax credit carryforwards....................... 128 390
------ ------
Total gross deferred tax assets - current........ 2,760 4,032
Valuation allowance.............................. - (58)
------ ------
Total net deferred tax assets - current.......... $2,760 $3,974
====== ======
Deferred tax assets - noncurrent:
Reserves and accruals.......................... $ - $ 53
Net operating loss carryforwards............... - 232
Depreciation................................... (54) (252)
Goodwill and capitalized acquired technology... 320 341
Translation adjustments........................ (39) 136
------ ------
Total net deferred tax assets - noncurrent....... 227 510
Valuation allowance - (285)
------ ------
Total net deferred tax assets - noncurrent $ 227 $ 225
====== ======
As of December 31, 2001, Nanometrics had available for carryforward research
and experimental tax credits for federal income tax purposes of $271,000.
Federal research and experimentation carryforwards expire in 2020.
As of December 31, 2001, Nanometrics had available for carryforward a net
operating loss for Korean income tax purposes of $232,000. Net operating
losses expire in 2006.
Differences between income taxes computed by applying the statutory federal
income tax rate to income before income taxes and the provision for income
taxes consist of the following (in thousands):
Years Ended December 31,
-------------------------
1999 2000 2001
---- ---- ----
Income taxes computed at U.S. statutory rate.. $ 1,511 $ 6,468 $ 610
State income taxes............................ 58 820 1
Foreign tax provision (benefit) higher
than U.S. rates .............................. 59 (312) 134
Foreign sales corporation benefit............. (228) (471) -
Change in valuation allowance................. 231 (231) 342
Utilization of tax credits.................... - (385) (450)
Other, net.................................... 51 53 145
------- ------- -----
Provision for income taxes.................... $ 1,682 $ 5,942 $ 782
======= ======= =====
9. Profit-Sharing, Retirement and Bonus Plans
No contributions were made by Nanometrics in 1999, 2000 and 2001 to
Nanometrics' discretionary profit-sharing and retirement plan. Nanometrics
paid $92,000, $1,217,000 and $416,000 in 1999, 2000 and 2001, respectively,
under formal discretionary cash bonus plans which cover all eligible
employees.
10. Major Customers
In 1999, sales to two customers accounted for 12.8% and 10.5% of total net
revenues, respectively. In 2000, sales to the same two customers and one
other customer accounted for 20.5%, 11.8% and 10.0% of total revenues,
respectively. In 2001, sales to one customer accounted for 17.6% of total
revenues.
The customer accounting for 12.8% of total net revenues in 1999 also
accounted for 11.8% of accounts receivable at December 31, 1999. At December
31, 2000, the customer accounting for 10.0% of total net revenues also
accounted for 12.4% of accounts receivable. At December 31, 2001, no single
customer accounted for 10% or more of accounts receivable.
11. Product, Segment and Geographic Information
Nanometrics' operating divisions consist of its geographically based entities
in the United States, Japan, South Korea and Taiwan. All such operating
divisions have similar economic characteristics, as defined in SFAS No. 131,
Disclosures About Segments of an Enterprise and Related Information, and
accordingly, Nanometrics operates in one reportable segment: the sale,
design, manufacture, marketing and support of thin film and overlay dimension
metrology systems. For the years ended December 31, 1999, 2000 and 2001,
Nanometrics recorded revenue from customers throughout the United States,
Canada, Germany, the United Kingdom, Ireland, France, Italy, Sweden, Israel,
Japan, South Korea, China, Singapore, Hong Kong, Taiwan, Indonesia and
Malaysia. The following table summarizes total net revenues and long-lived
assets attributed to significant countries (in thousands):
Years Ended December 31,
-----------------------------
1999 2000 2001
---- ---- ----
Total net revenues:
United States...................... $14,225 $27,391 $16,752
Japan.............................. 11,594 13,028 13,712
Taiwan............................. 4,967 11,652 6,727
Korea.............................. 2,991 13,532 4,693
Germany............................ 2,340 1,491 2,018
All other.......................... 291 2,397 3,682
------- ------- -------
Total net revenues*.................. $36,408 $69,491 $47,584
======= ======= =======
December 31,
-------------------
2000 2001
---- ----
Long-lived assets:
United States...................... $32,599 $43,375
Japan.............................. 4,485 6,660
Korea.............................. 1,696 3,139
Taiwan............................. 45 64
------- -------
Total long-lived assets.............. $38,825 $53,238
======= =======
* Net revenues are attributed to countries based on the deployment and service
locations of systems.
Nanometrics' product lines differ primarily based on the environment the
systems will be used in. Automated systems are used primarily in high-volume
production environments. Integrated systems are installed inside wafer
processing equipment to provide near real-time measurements for improving
process control and increasing throughput. Tabletop systems are used
primarily in low-volume production environments and in engineering labs where
automated handling and high throughput are not required. Sales by product
type were as follows (in thousands):
Years Ended December 31,
-----------------------------
1999 2000 2001
---- ---- ----
Automated systems................... $20,885 $38,441 $27,416
Integrated systems.................. 3,953 13,680 7,527
Tabletop systems.................... 7,324 11,347 7,710
------- ------- -------
Total product sales................. $32,162 $63,468 $42,653
======= ======= =======
12. Selected Quarterly Financial Results (Unaudited)
As discussed in Note 1 to the consolidated financial statements, Nanometrics
adopted a change in accounting principle related to SAB No. 101, Revenue
Recognition in Financial Statements, in the quarter ended December 31, 2000,
retroactive to the beginning of fiscal year 2000. The retroactive application
of this change resulted in a cumulative effect of $1,364,000 in the first
quarter of 2000 as well as a change to the presentation of historical 2000
quarterly results of operations.
The following tables set forth selected quarterly results of operations for
the years ended December 31, 2000 and 2001 (in thousands, except per share
amounts):
Quarters Ended
-------------------------------------------
Mar. 31, Jun. 30, Sep. 30, Dec. 31,
2000 2000 2000 2000
---- ---- ---- ----
Total net revenues.................................... $16,316 $16,690 $19,300 $17,185
Gross profit.......................................... 8,487 9,185 11,377 9,338
Income from operations.............................. 3,383 3,409 5,412 2,374
Net income............................................ 901 2,950 4,024 3,300
Net income per share:
Basic............................................... $ 0.09 $ 0.26 $ 0.35 $ 0.29
Diluted............................................. $ 0.08 $ 0.24 $ 0.33 $ 0.28
Shares used in per share computation:
Basic............................................... 9,693 11,295 11,393 11,563
Diluted............................................. 10,880 12,415 12,100 11,986
Quarters Ended
-------------------------------------------
Mar. 31, Jun. 30, Sep. 30, Dec. 31,
2001 2001 2001 2001
---- ---- ---- ----
Total net revenues.................................... $14,425 $14,793 $10,099 $ 8,267
Gross profit.......................................... 7,668 7,787 5,290 3,484
Income (loss) from operations......................... 2,101 1,813 (1,166) (2,979)
Net income (loss)..................................... 1,623 1,537 (450) (1,750)
Net income (loss) per share:
Basic............................................... $ 0.14 $ 0.13 $ (0.04) $ (0.15)
Diluted............................................. $ 0.14 $ 0.13 $ (0.04) $ (0.15)
Shares used in per share computation:
Basic............................................... 11,616 11,658 11,707 11,783
Diluted............................................. 11,992 12,195 11,707 11,783
* * * * *
