UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT
OF 1934 (AMENDMENT NO. __)
Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Confidential,for Use of the Commission Only(as permitted by Rule14a-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
NANOMETRICS INCORPORATED
----------------------------------------------------------
(Name of Registrant as Specified in its Charter)
----------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transactions applies:
(2) Aggregate number of securities to which transactions applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
NANOMETRICS INCORPORATED
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO THE SHAREHOLDERS OF NANOMETRICS INCORPORATED:
NOTICE IS HEREBY GIVEN that the annual meeting of shareholders of
Nanometrics Incorporated, a California corporation (the "Company"), will be held
on Friday, August 26, 2005 at 1:00 p.m., local time, at the Company's principal
offices located at 1550 Buckeye Drive, Milpitas, California 95035. At the annual
meeting, you will be asked to consider and vote upon the following:
1. A proposal to elect seven candidates nominated by the board of directors
to serve until the next annual meeting of shareholders at which their respective
successors are elected and qualified, or until the earlier of their death,
resignation or removal.
2. A proposal to approve the reincorporation of the Company under the laws
of the State of Delaware through a merger with Minor League Merger Corporation,
a wholly-owned subsidiary of the Company.
3. A proposal to approve the adoption of the Company's 2005 Equity
Incentive Plan (the "Plan") and the reservation of 1,200,000 shares of common
stock for issuance thereunder.
4. A proposal to ratify the appointment of BDO Seidman, LLP as the
Company's independent registered public accounting firm for the fiscal year
ending December 31, 2005.
5. Such other business as may properly come before the annual meeting or
any postponements or adjournments thereof.
The foregoing items of business are more fully described in the proxy
statement accompanying this notice of annual meeting of shareholders.
Only shareholders of record at the close of business on July 12, 2005 are
entitled to notice of and to vote at the annual meeting and any postponements or
adjournments thereof.
All shareholders are cordially invited to attend the annual meeting in
person. However, to ensure representation at the annual meeting, you are urged
to mark, sign, date and return the enclosed proxy card as promptly as possible
in the postage-prepaid envelope enclosed for that purpose. Any shareholder of
record attending the annual meeting may vote in person even if that shareholder
previously returned a proxy card for the annual meeting.
BY ORDER OF THE BOARD OF DIRECTORS,
-------------------
Vincent J. Coates
Chairman of the Board of Directors and Secretary
Milpitas, California
July__, 2005
2
NANOMETRICS INCORPORATED
PROXY STATEMENT
INFORMATION CONCERNING SOLICITATION AND VOTING
General
This proxy statement is being provided to the shareholders of Nanometrics
Incorporated (the "Company") as part of a solicitation of proxies by the board
of directors for use at the 2005 annual meeting of shareholders. This proxy
statement provides shareholders with information they need to know to be able to
vote or instruct their vote to be cast at the annual meeting.
Date, Time and Place
The annual meeting will be held on Friday, August 26, 2005 at 1:00 p.m.,
local time, at the Company's principal offices of located at 1550 Buckeye Drive,
Milpitas, California 95035.
Purpose; Other Matters
The annual meeting is being held to consider and vote upon the following:
1. A proposal to elect seven director nominees to the board of directors to
serve until the next annual meeting of shareholders at which their respective
successors are elected and qualified, or until the earlier of their death,
resignation or removal.
2. A proposal to approve the reincorporation of the Company under the laws
of the State of Delaware through a merger with Minor League Merger Corporation,
a wholly-owned subsidiary of the Company.
3. A proposal to approve the adoption of the Company's 2005 Equity
Incentive Plan (the "Plan") and the reservation of 1,200,000 shares of common
stock for issuance thereunder.
4. A proposal to ratify the appointment of BDO Seidman, LLP as the
Company's independent registered public accounting firm for the fiscal year
ending December 31, 2005.
Shareholders will also be asked to consider and vote upon any other
business as may properly come before the annual meeting or any adjournments or
postponements of the annual meeting. The Company does not expect that any matter
other than the proposals presented in this proxy statement will be brought
before the annual meeting. However, if other matters incident to the conduct of
the annual meeting are properly presented at the annual meeting or any
adjournment or postponement of the annual meeting, the persons named as proxies
will vote in accordance with their best judgment with respect to those matters.
If you vote "AGAINST" any of the proposals, the proxy holders will not be
authorized to vote for any adjournments or postponements of the annual meeting,
including for the purpose of soliciting additional proxies, unless you so
indicate by marking the appropriate box on the proxy card for the annual
meeting.
Recommendation of the Board of Directors
The board of directors unanimously recommends that you vote:
o "FOR" the proposal to elect seven candidates nominated by the board of
directors to serve until the next annual meeting of shareholders at
which their respective successors are elected and qualified, or until
the earlier of their death, resignation or removal.;
o "FOR" the proposal to approve the reincorporation of the Comapny under
the laws of the State of Delaware through a merger with Minor League
Merger Corporation, a wholly-owned subsidiary of the Company;
3
o "FOR" the proposal to approve the adoption of the Plan and the
reservation of 1,200,000 shares of common stock for issuance
thereunder; and
o "FOR" the proposal to ratify the appointment of BDO Seidman, LLP as
the Company's independent registered public accounting firm for the
fiscal year ending December 31, 2005.
Record Date; Outstanding Shares; Voting Rights
Only holders of record of common stock at the close of business on the
record date for the annual meeting, July 12, 2005, are entitled to notice of and
to vote at the annual meeting. As of the record date, there were 12,793,207
shares of common stock outstanding and entitled to vote at the annual meeting,
held by approximately 140 holders of record. Each record holder of common stock
on the record date is entitled to one vote for each share of common stock held
as of the record date with respect to all proposals except with respect to the
election of directors.
The candidates receiving the seven highest vote totals will be elected to
the board of directors. Every shareholder voting for the election of the board
of directors may (i) cumulate such shareholder's votes and give any one
candidate a number of votes equal to the number of directors to be elected
multiplied by the number of shares that such shareholders holds on the record
date for the annual meeting, or (ii) distribute such shareholder's votes on the
same principle among as many candidates as the shareholder may select, provided
that votes cannot be cast for more than seven candidates. However, no
shareholder will be entitled to cumulate votes for a candidate unless the
candidate's name has been placed in nomination prior to the voting and the
shareholder, or any other shareholder, has given notice at the annual meeting
prior to the voting of the intention to cumulate votes.
A list of shareholders will be available for review at the annual meeting
and at the Company's executive offices of during regular business hours for a
period of ten days before the annual meeting.
Admission to the Annual Meeting
Only shareholders, their designated proxies and guests of the Company may
attend the annual meeting. If you plan to attend the annual meeting and wish to
vote in person, you will be given a ballot at the annual meeting. Please note,
however, that if your shares are held in "street name," which means your shares
are held of record by a broker, bank or other nominee, and you wish to vote at
the annual meeting, you must bring to the annual meeting a "legal proxy" from
the record holder of your shares authorizing you to attend and vote at the
annual meeting.
Quorum and Vote Required
A quorum of shareholders is necessary to hold a valid annual meeting of
shareholders. In order to have a quorum for the transaction of business at the
annual meeting, a majority of shares of common stock issued and outstanding and
entitled to vote on the record date must be present in person or by proxy at the
annual meeting. Shares that are voted "FOR," "AGAINST," "ABSTAIN" or "WITHHOLD
AUTHORITY" a matter are treated as being present at the annual meeting for
purposes of establishing a quorum.
In addition, the vote required to approve each proposal is as follows:
Proposal 1
The candidates for the board of directors receiving the seven highest vote
totals will be elected to serve as directors of the Company.
Proposal 2
Approval of the reincorporation merger will require the affirmative vote of
the holders of a majority of the outstanding shares of common stock entitled to
vote on the record date.
4
Proposal 3
Approval of the Plan and the reservation of shares of common stock for
issuance thereunder will require the affirmative vote of the holders of a
majority of the shares of common stock represented in person or by proxy and
voting at the annual meeting.
Proposal 4
Approval by the shareholders of the selection of the independent registered
public accounting firm is not required, but the audit committee believes it is
desirable as a matter of good corporate governance to submit this matter to the
shareholders. If holders of a majority of the common stock represented and
voting at the annual meeting do not ratify the appointment of BDO Seidman, LLP
as the Company's independent registered public accounting firm for the fiscal
year ending December 31, 2005, the audit committee will consider whether it
should select another independent registered public accounting firm.
Voting
General
Shareholders of record as of the record date may vote their shares by
attending the annual meeting and voting their shares in person or by completing,
signing and dating their respective proxy cards for the annual meeting and
mailing them in the postage pre-paid envelope enclosed for that purpose.
Shareholders holding shares of common stock in "street name," which means that
their shares are held of record by a broker, bank, or other nominee, may vote by
mail by completing, signing and dating the voting instruction forms for the
annual meeting provided by their respective brokers, banks, or other nominees
and returning their respective voting instruction forms to the record holders of
their shares of common stock. Even if you plan to attend the annual meeting, the
Company recommends that you vote by proxy prior to the annual meeting. You can
always change your vote as described below.
Voting by Proxy
All properly executed proxies that are received prior to the annual meeting
and not revoked will be voted at the annual meeting according to the
instructions indicated on the proxies. If your proxy does not specify how you
wish the Company to vote your shares, your shares will be voted:
o "FOR" the proposal to elect seven candidates nominated by the board of
directors to serve until the next annual meeting of shareholders at
which their respective successors are elected and qualified, or until
the earlier of their death, resignation or removal.
o "FOR" the proposal to approve the reincorporation of the Company under
the laws of the State of Delaware through a merger with Minor League
Merger Corporation, a wholly-owned subsidiary of the Company;
o "FOR" the proposal to approve the adoption of the Plan and the
reservation of 1,200,000 shares of common stock for issuance
thereunder; and
o "FOR" the proposal to ratify the appointment of BDO Seidman, LLP as
the Company's independent registered public accounting firm for the
fiscal year ending December 31, 2005.
You may receive more than one proxy card depending on how you hold your
shares of common stock. Generally, you need to sign and return all of your proxy
cards to vote all of your shares. For example, if you hold shares through
someone else, such as a broker, you may get proxy material from that person.
Changing Your Vote
If you are the record holder of your shares of common stock, you can
change your vote at any time before your proxy is voted at the annual meeting
by:
o delivering to the Company's corporate secretary a signed notice of
revocation;
5
o granting the proxy holders a new, later-dated proxy, which must be
signed and delivered to the Company's corporate secretary in advance
of the vote at the annual meeting; or
o attending the annual meeting and voting in person.
Your attendance alone, however, will not revoke your previously granted
proxy. If you hold your shares in street name and you have provided voting
instructions to your broker, bank or other nominee for the annual meeting, you
must follow the instructions provided by your broker, bank or other nominee in
order to change your vote or revoke your proxy for the annual meeting.
Abstentions and Broker Non-Votes
An abstention occurs when a shareholder attends a meeting, either in person
or by proxy, but abstains from voting. While there is no definitive statutory or
case law authority in California as to the proper treatment of abstentions, the
Company believes that abstentions should be counted for purposes of determining
both (i) the presence or absence of a quorum for the transaction of business and
(ii) the total number of shares of common stock represented and voting with
respect to a proposal. In the absence of controlling authority to the contrary,
the Company intends to treat abstentions in this manner.
"Broker non-votes" are shares held by a broker or other nominee that are
represented at the annual meeting, but with respect to which the broker or
nominee is not instructed by the beneficial owner of the shares to vote on the
particular proposal and the broker does not have discretionary voting power on
the proposal. Broker non-votes will be counted for purposes of determining the
presence or absence of a quorum but will not be counted for purposes of
determining the number of shares represented and voting with respect to a
proposal.
For proposal 1, neither abstentions nor broker non-votes will have any
effect on the election of the seven directors.
For proposal 2, abstentions and broker non-votes will have the same effect
as voting against approval of the reincorporation merger.
For proposal 3, abstentions will have the same effect as voting against the
approval of the Plan and the reservation of shares of common stock for issuance
thereunder; broker non-votes will have no effect.
For proposal 4, abstentions will have the same effect as voting against
ratification of the appointment of BDO Seidman, LLP as the Company's independent
registered public accounting firm for the fiscal year ending December 31, 2005;
broker non-votes will have no effect.
Proxy Solicitation
The Company is soliciting proxies for the annual meeting from its
shareholders. The Company will bear the entire cost of soliciting proxies from
the shareholders. In addition to the solicitation of proxies by mail, the
Company will request that brokers, banks and other nominees send proxies and
proxy materials to the beneficial owners of common stock held by them and secure
their voting instructions, if necessary. The Company will reimburse those record
holders for their reasonable expenses. The Company also may use several of its
regular employees, who will not be specially compensated, to solicit proxies
from shareholders, either personally or by telephone, Internet, telegram,
facsimile or special delivery letter.
Assistance
If you need assistance in completing your proxy card or have questions
regarding the annual meeting, please contact Investor Relations at (408)
435-9600 or write to Nanometrics Incorporated, 1550 Buckeye Drive, Milpitas,
California 95035, Attn: Investor Relations.
6
Shareholder Proposals
The attached proxy card grants the proxy holders discretionary authority to
vote on any matter raised at the 2005 Annual Meeting. Shareholders are entitled
to present proposals for action at the 2006 Annual Meeting. For any proposal to
be considered for inclusion in the Company's proxy statement and form of proxy
for submission to the shareholders at the 2006 annual meeting, the proposal must
comply with the requirements of Rule 14a-8 under the Exchange Act and be
submitted in writing by notice delivered or mailed by first-class United States
mail, postage prepaid, to Nanometrics Incorporated, 1550 Buckeye Drive,
Milpitas, California 95035, Attention: Office of the Secretary, and must be
received no later than 120 calendar days before the date of the proxy statement
released to shareholders in connection with the 2005 annual meeting. The
submission of a shareholder proposal does not guarantee that it will be included
in the 2006 proxy statement. Additionally, shareholder proposals to be
considered at the 2006 annual meeting outside the processes of Rule 14a-8 (which
are not intended to be included in the proxy materials for the 2006 annual
meeting) must be delivered to or mailed and received at the Company's executive
offices at least 45 days before the date of the proxy statement is released to
shareholders in connection with the 2005 annual meeting.
Material Proceedings
To the best of management's knowledge, there are no material proceedings to
which any director or officer is a party and (i) is adverse to the Company or
any of its subsidiaries or (ii) has a material interest adverse to the Company
or any of its subsidiaries.
7
PROPOSAL 1
ELECTION OF NANOMETRICS' DIRECTORS
Nominees
At the 2005 annual meeting of shareholders, unless otherwise instructed,
the proxy holders will vote the proxies received by them for the seven nominees
named below, each of whom is presently a director of the Company. In the event
that any nominee is unable or declines to serve as a director at the time of the
annual meeting, the proxies will be voted for any nominee who shall be
designated by the present board of directors to fill the vacancy. The proxy
holders intend to vote all proxies received by them in such a manner and in
accordance with cumulative voting as will ensure the election of as many of the
nominees listed below as possible and, in such event, the specific nominees to
be voted for will be determined by the proxy holders. The Company is not aware
of any nominee who will be unable or will decline to serve as a director
The names of the seven nominees and certain information about them are set
forth below:
Name of Nominee Age Director Since
--------------- --- --------------
Vincent J. Coates 80 1975
John D. Heaton 45 1995
Edmond R. Ward 65 1999
William G. Oldham 66 2000
Stephen J Smith 58 2004
J. Thomas Bentley 55 2004
Norman V. Coates 55 2004
Vincent J. Coates has been Chairman of the Board since the Company was
founded in 1975. He has been the Company's Secretary since February 1989. He
also served as Chief Executive Officer through April 1998 and President from the
Company's founding through May 1996, except for the period of January 1986
through February 1987 when he served exclusively as Chief Executive Officer. Mr.
Coates has also served as Chairman of the Board of Nanometrics Japan Ltd., a
subsidiary of the Company, since its inception in November 1984. Prior to his
employment at the Company, Mr. Coates co-founded Coates and Welter Instrument
Corporation, a designer of electron microscopes, the assets of which were
subsequently acquired by the Company. Mr. Coates also spent over twenty years
working in engineering, sales and international operations for the Perkin-Elmer
Corporation, a manufacturer of analytical instruments. In 1995, he received an
award which recognized his contribution to the industry from Semiconductor and
Equipment and Materials International, an industry trade organization.
John D. Heaton has served as a director of the Company since July 1995.
Since April 1998, he has been Chief Executive Officer of the Company. From May
1996 to April 1998, he served as the Company's President and Chief Operating
Officer. Mr. Heaton has also served as President of Nanometrics Japan Ltd., a
subsidiary of the Company, since January 1998. Beginning in 1978, Mr. Heaton
served in various technical positions at National Semiconductor, a semiconductor
manufacturer, and prior to joining the Company in 1990.
Edmond R. Ward has served as a director of the Company since July 1999.
Beginning in January 2002, Mr. Ward has served as Chief Technical Officer of
Unity Semiconductor, a semiconductor design and manufacturing company. Since
April 1999, Mr. Ward has been a General Partner of Virtual Founders, a venture
capital firm. From April 1992 to June 1997, Mr. Ward was the Vice President of
Technology at Silicon Valley Group, Inc., a supplier of wafer processing
equipment.
William G. Oldham has served as a director of the Company since June 2000.
Since 1964, Mr. Oldham has been a faculty member at the University of
California, Berkeley, where he researches EUV and Maskless Lithography and,
since 1996, has been the Director of the DARPA/SRC Research Network for Advanced
Lithography. He has served as a consultant in various intellectual property
matters and serves on the board of directors of Cymer, Inc., a supplier of light
sources for deep ultraviolet (DUV) photolithography systems used in the
manufacturing of semiconductors.
8
Stephen J Smith has served as a director of the Company since April 2004.
Dr. Smith has been a professor in the Department of Molecular and Cellular
Physiology at the Stanford University School of Medicine since 1989, where he
researches brain development and function with special interests in the dynamic
and structural aspects of synapse and circuit formation and synaptic plasticity.
Dr. Smith is the author of numerous research articles in the fields of cellular
and molecular neuroscience.
J. Thomas Bentley has served as a director of the Company since April 2004.
Mr. Bentley is a co-founder of Alliant Partners, a leading merger and
acquisition firm for emerging and mid-market technology companies. For the past
10 years, Mr. Bentley has worked with some of Alliant's largest clients on their
strategic acquisitions and divestitures. His expertise is in financial, tax and
accounting structuring of merger transactions. Mr. Bentley holds a Master of
Science degree in Management from M.I.T. and currently serves as a senior
advisor to Alliant Partners.
Norman V. Coates served as a director of the Company from May 1988 through
June 2001. He was re-appointed to the board of directors on June 30, 2004. He
has operated Gem of the River Produce, a farming and produce packing operation
in Orleans, California, as a sole proprietor since 1978. He has also been
manager of the Boise Creek Farm operation since 1985 and a manager of Coates
Vineyards since 1997.
The candidates for the board of directors receiving the seven highest vote
totals will be elected to serve as directors of the Company. The directors
elected at the annual meeting will serve until the next annual meeting or until
such director's successor has been elected or qualified.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR"
THE SEVEN NOMINEES SET FORTH HEREIN.
9
Security Ownership of Management and Certain Beneficial Owners
The following table sets forth beneficial ownership of common stock of the
Company as of July 12, 2005, the record date, by each director or nominee, by
each of the Named Officers (as defined in the section of this proxy statement
entitled "Compensation of Executive Officers" beginning on page __), by all
directors and Named Officers as a group, and by all persons known to the Company
to be the beneficial owners of more than 5% of the Company's common stock.
Quentin Wright and Michael Weber are not listed on the table below because they
did not join the Company in their capacities as executive officers until after
January 1, 2005 and are not Named Officers. Unless otherwise indicated, all
persons named below can be reached at Nanometrics Incorporated, 1550 Buckeye
Drive, Milpitas, California 95035.
Number of Shares
of Common Stock
Beneficially
Name of Beneficial Owner Owned(1) Percent of Total
------------------------ -------- ----------------
Vincent J. Coates(2) 3,376,274 26.4%
Artemis Investment Management LLC(3) 881,800 6.9%
437 Madison Avenue
New York, New York 10022
Dimensional Fund Advisors Inc.(4) 913,148 7.1%
1299 Ocean Avenue
11th Floor
Santa Monica, CA 90401
John D. Heaton(5) 365,000 2.8%
Edmond R. Ward(6) 32,000 *
William G. Oldham(7) 30,000 *
Paul B. Nolan(8) 28,334 *
Roger Ingalls, Jr. (9) 22,667 *
Stephen J Smith (10) 3,333 *
J. Thomas Bentley (11) 3,333 *
Norman V. Coates (12) 3,333 *
All Named Officers and directors as a group (nine(9)persons) (13) 5,659,222 44.2%
* Represents less than 1% of outstanding shares of common stock.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. The number of shares beneficially owned
by a person includes shares of common stock subject to options held by that
person that are currently exercisable or exercisable within 60 days of July
12, 2005. Such shares issuable pursuant to such options are deemed
outstanding for computing the percentage ownership of the person holding
such options but are not deemed outstanding for the purposes of computing
the percentage ownership of each other person.
(2) Includes 3,376,154 shares of common stock held of record by the Vincent J.
Coates Separate Property Trust, U/D/T dated August 7, 1981, for which Mr.
Coates acts as trustee.
(3) According to a Schedule 13G filed on February 10, 2004, Artemis Investment
Management LLC may be deemed to be the beneficial owner of 881,800 shares
of common stock.
(4) According to a Schedule 13G/A filed on February 9, 2005, Dimensional Fund
Advisors Inc. may be deemed to be the beneficial owner of 913,148 shares of
common stock.
(5) Includes 365,000 shares of common stock issuable upon exercise of
outstanding options exercisable within 60 days of July 12, 2005.
(6) Includes 30,000 shares of common stock issuable upon exercise of
outstanding options exercisable within 60 days of July 12, 2005.
(7) Includes 30,000 shares of common stock issuable upon exercise of
outstanding options exercisable within 60 days of July 12, 2005.
(8) Includes 23,334 shares of common stock issuable upon exercise of
outstanding options exercisable within 60 days of July 12, 2005.
10
(9) Includes 22,667 shares of common stock issuable upon exercise of
outstanding options exercisable within 60 days of July 12, 2005.
(10) Includes 3,333 shares of common stock issuable upon exercise of outstanding
options exercisable within 60 days of July 12, 2005.
(11) Includes 3,333 shares of common stock issuable upon exercise of outstanding
options exercisable within 60 days of July 12, 2005.
(12) Includes 3,333 shares of common stock issuable upon exercise of outstanding
options exercisable within 60 days of July 12, 2005.
(13) Includes 481,000 shares of common stock issuable upon exercise of
outstanding options exercisable within 60 days of July 12, 2005.
Board Meetings and Committees
The board of directors met (or acted by written consent) a total of nine
(9) times during fiscal year ended January 1, 2005. During the fiscal year ended
January 1, 2005, all incumbent directors attended at least 75% of meetings of
the board of directors and meetings of committees, if any, upon which such
directors served. The standing committees of the board of directors include an
audit committee, a compensation/stock option committee and a
nominating/governance committee.
The board of directors has determined that all of its directors meet the
independence requirements of the Nasdaq National Market, with the exception of
Vincent J. Coates, Norman V. Coates and John D. Heaton.
It is the policy of the Company to require its directors to attend its
annual meetings absent a valid reason, such as a schedule conflict. All of the
directors who served on the board of directors for the entire fiscal year
attended the 2004 annual meeting of shareholders.
Audit Committee
The audit committee of the board of directors reviews and monitors the
Company's financial reporting as well as its internal and external audits,
including among other things, the Company's internal audit and control
functions, the results and scope of the annual audit and other services provided
by the Company's independent auditors, and the Company's compliance with legal
matters that may have a significant impact on the Company's financial reports.
In addition, the audit committee has the responsibility to consider and
recommend the employment of, and to review fee arrangements with, the Company's
independent auditors. The audit committee also monitors transactions between the
Company and its officers, directors and employees for any potential conflicts of
interest. The audit committee met (or acted by written consent) five (5) times
during the fiscal year ended January 1, 2005.
The members of the audit committee during the fiscal year ended January 1,
2005 were William Oldham, Nathaniel Brenner (through March 2004), Edmond R. Ward
and J. Thomas Bentley (beginning in April 2004). Mr. Brenner, the audit
committee's financial expert in the fiscal year ended January 3, 2004, resigned
his position as director as well as his committee assignments effective as of
March 2004. At the recommendation of the nominating/governance committee, the
board of directors appointed J. Thomas Bentley to the audit committee as of May
26, 2004. Mr. Bentley was appointed by the board of directors to serve as the
audit committee's financial expert and chairman.
Each member of the Company's audit committee is an "independent director"
as that term is defined under the applicable Nasdaq National Market listing
standards. The audit committee has adopted a written charter, which is available
on the Company's website at www.nanometrics.com.
Compensation/Stock Option Committee
The compensation/stock option committee reviews and makes recommendations
to the board of directors regarding the Company's compensation policy and all
forms of compensation to be provided to certain of the executive officers of the
Company, including the chief executive officer.
11
The compensation/stock option committee is responsible for approving the
grant of stock options to the Company's employees under the Company's 2000
Employee Stock Option Plan and 2002 Nonstatutory Stock Option Plan.
The members of the compensation/stock option committee serving in the
fiscal year ended January 1, 2005 were Edmond Ward, J. Thomas Bentley, Stephen J
Smith and Nathaniel Brenner. Mr. Ward was appointed as chairman of the
compensation/stock option committee by the board of directors. As indicated
above, Mr. Brenner resigned his position as director as well as his committee
assignments effective as of March 2004. The compensation/stock option committee
met (or acted by written consent) seven (7) times during fiscal 2004. The
compensation/stock option committee has adopted a written charter, which is
available on the Company's website at www.nanometrics.com.
Nominating/Corporate Governance Committee
The Company maintains a standing nominating/corporate governance committee
that assists the board of directors in identifying and qualifying candidates to
join the board of directors and addressing governance issues. All members of the
nominating committee are independent. The nominating committee utilizes a
variety of methods for identifying and evaluating nominees. Its general policy
is to assess the appropriate size of the board of directors and whether any
vacancies are expected due to retirement or otherwise. In the event those
vacancies are anticipated, or otherwise arise, the nominating committee will
consider recommending various potential candidates to fill such vacancies.
Candidates may come to the attention of the nominating committee through its
current members, shareholders or other persons. The board of directors may
consider properly submitted shareholder nominations for candidacy. Nominees may
be submitted by shareholders in accordance with the shareholder communication
policy described below.
The nominating/corporate governance committee has no specific, minimum
qualifications for director candidates. In general, however, persons considered
for board of directors positions must have demonstrated leadership capabilities,
be of sound mind and high moral character, have no personal or financial
interest that would conflict or appear to conflict with the interests of the
Company and be willing and able to commit the necessary time for board of
directors and committee service.
The nominating/corporate governance committee believes that board members
should represent a balance of diverse backgrounds and skills, including
marketing, finance, manufacturing, engineering, science, and international
experience. The nominating/corporate governance committee consists of William
Oldham and Stephen Smith. Mr. Oldham was appointed as chairman of the
nominating/corporate governance committee by the board of directors. The
nominating/corporate governance committee met once in the fiscal year ended
January 1, 2005 and has adopted a written charter, which is available on the
Company's website at www.nanometrics.com.
Shareholder Communication Policy
The board of directors has established a formal process for shareholders to
send communications to the board of directors or to individual directors. The
names of all directors are available to shareholders in this proxy statement. If
the Company receives any shareholder communication intended for the full board
of directors or any individual director, the Company will forward the
communication to the full board of directors or the individual director, unless
the communication is clearly of a marketing nature or is unduly hostile,
threatening, illegal or similarly inappropriate, in which case the Company has
the authority to discard the communications or take appropriate legal action
regarding the communication.
Compensation/Stock Option Committee Interlocks and Insider Participation
No member of the compensation/stock option committee of the Company's board
of directors serves as a member of the board of directors or compensation
committee of any entity that has one or more executive officers serving as a
member of the Company's board of directors or compensation/stock option
committee.
Compensation of Directors
Directors who are not also employees of the Company receive an annual
retainer fee of $5,000, plus $1,000 for each board and committee meeting
attended. Directors are also eligible to participate in the Company's Directors'
Stock Option Plan. Each audit committee member receives an additional $3,000
annual retainer and $500 for attending
12
quarterly earnings release conference calls. Additionally, the audit committee
chairman receives an incremental $2,000 retainer for serving in such capacity.
Compensation of Executive Officers
The following table sets forth the compensation paid by the Company during
the past three fiscal years to (i) the chief executive officer, (ii) each of the
four most highly compensated executive officers (or such lesser number of
executive officers as the Company may have) of the Company not serving as chief
executive officer and (iii) up to an additional two individuals that would have
been included under item (ii) but for the fact that the individuals were not
serving as executive officers as of January 1, 2005, all of whom are
collectively referred to as the "Named Officers". Quentin Wright and Michael
Weber are not listed on the table below because they did not join the Company in
their capacities as executive officers until after January 1, 2005.
Summary Compensation Table
Long Term
Compensation
Awards
---------------
Annual Compensation Securities
------------------------------------------ Underlying
Name Fiscal Year Salary Bonus Options (#)
---------- ------------- ------------- ------------ ----------------
John D. Heaton 2004 $ 341,800 $ 79,314 100,000
President and Chief Executive Officer 2003 342,800 -- 572,500
2002 343,800 -- 275,000
Vincent J. Coates 2004 $ 204,800 -- --
Chairman of the Board and Secretary 2003 204,800 -- --
2002 204,800 -- --
Roger Ingalls, Jr. 2004 $ 195,265 $ 29,658 5,000
Senior Vice President of Standalone Sales 2003 198,965 -- 31,500
2002 201,834 -- 25,000
Paul B. Nolan 2004 $ 183,055 $ 29,864 --
Vice President and Chief Financial Officer 2003 179,050 -- --
2002 162,234 -- 50,000
Stock Options Granted in the Fiscal Year Ended January 1, 2005
The following table sets forth information with respect to stock options
granted during the fiscal year ended January 1, 2005 to each of the Named
Officers. Quentin Wright and Michael Weber are not listed on the table below
because they did not join the Company in their capacities as executive officers
until after January 1, 2005. All options were granted under the Company's 2000
Stock Option Plan. The potential realizable value amounts in the last two
columns of the following chart represent hypothetical gains that could be
achieved for the respective options if exercised at the end of the option term.
The assumed 5% and 10% annual rates of stock price appreciation from the date of
grant to the end of the option term are provided in accordance with rules of the
Securities and Exchange Commission and do not represent the Company's estimate
or projection of the future common stock price. Actual gains, if any, on stock
option exercises are dependent on the future performance of the common stock,
overall market conditions and the option holder's continued employment through
the vesting period.
13
Option Grants in Last Fiscal Year
Individual Grants
----------------------------------------------------------------
Number of % of Total Potential Realized Value at
Securities Options Assumed Annual Rates of
Underlying Granted to Stock Price Appreciation for
Options Employees Option Term
Granted (#) in Fiscal Exercise Price Expiration -----------------------------
Name (1) Year (2) ($/Sh) Date 5%($) 10%($)
------- ---------- ---------- -------------- ---------- ------------- -------------
John D. Heaton 100,000 22% $ 12.02 5/26/11 $ 332,000 $ 734,000
Vincent J. Coates 0 0 -- -- --
Roger Ingalls, Jr. 5,000 1.1% 10.37 8/23/11 14,350 31,650
Paul B. Nolan 0 0 -- -- --
------------------------------
(1) All options granted to the Named Officers in fiscal 2004 were granted at
exercise prices equal to the fair market value of the Company's common
stock on the dates of grant. Historically, options granted become
exercisable at the rate of 33% on the first anniversary date of the option
grant and 33% of the total number of option shares each full year
thereafter, such that full vesting occurs three years after the date of
grant. Options (whether vested or unvested) expire after 7 years or 90 days
after termination of employment.
(2) Based on 453,550 options granted during the fiscal year ended January 1,
2005.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following table sets forth the number of shares covered by both
exercisable and unexercisable stock options held by each of the Named Officers
at January 1, 2005. Quentin Wright and Michael Weber are not listed on the table
below because they did not join the Company in their capacities as executive
officers until after January 1, 2005. As indicated below, two (2) Named
Officers, John D. Heaton and Paul B. Nolan, exercised stock options during the
fiscal year ended January 1, 2005.
Number of Securities
Underlying Value of Unexercised In-the-
Unexercised Options at Money Options at
Shares Value Fiscal Year-End (#) Fiscal Year-End ($)(2)
Acquired on Realized($) ----------------------------- ----------------------------
Name Exercise(#) (1) Exercisable Unexercisable Exercisable Unexercisable
-------------- ----------- ---------- ----------- ------------- ----------- -------------
John D. Heaton 100,000 $ 674,000 219,583 402,917 $ 2,243,722 $ 3,477,728
Vincent J. Coates -- -- -- -- -- --
Roger Ingalls, Jr. -- -- 15,750 20,750 164,115 192,865
Paul B. Nolan 26,666 213,594 16,666 16,668 9,132 135,107
------------------------------
(1) The value realized upon exercise is (i) the fair market value of the
Company's common stock on the date of exercise, less the option exercise
price per share, multiplied by (ii) the number of shares underlying the
options exercised.
(2) The value of unexercised options is (i) the fair market value of the
Company's common stock on December 31, 2004 ($16.12 per share), less the
option exercise price of in-the-money options, multiplied by (ii) the
number of shares underlying such options.
Employment Contracts and Termination of Employment and Change-in-Control
Arrangements
Pursuant to the terms of an agreement between the Company and Vincent J.
Coates, the Chairman of the Board of the Company, dated May 1, 1985, as amended
and restated in August 1996 and April 1998, the Company is obligated to continue
to pay Mr. Coates his salary and benefits for five years from the date of his
resignation in the event Mr. Coates is required to resign as Chairman of the
Board under certain circumstances, including a change of control.
14
In April 1998, the Company entered into an agreement with John D. Heaton
pursuant to which the Company agreed to pay Mr. Heaton his annual salary
(excluding bonuses) for a period of one year from the date that he is required
or requested for any reason not involving good cause, including a change of
control, to involuntarily relinquish his positions with the Company as
President, Chief Executive Officer and director. If Mr. Heaton leaves the
Company voluntarily, or if he is asked to leave under certain circumstances, no
such severance payment is required.
In March 1995, the Company entered into an agreement with Roger Ingalls,
Jr. pursuant to which the Company agreed to pay Mr. Ingalls his annual salary
(excluding bonuses) for a period of one hundred twenty (120) days from the date
he is terminated without cause.
Equity Compensation Plan Information
All of the Company's equity compensation plans except the 2002 Non
Statutory Stock Option Plan were approved by the Company's shareholders. The
following table sets forth, for all of the Company's existing equity
compensation plans, the number of outstanding option grants and the number of
shares remaining available for issuance as of the fiscal year ended January 1,
2005.
Number of
Securities
Number of Remaining
Securities to be Weighted Available for
Issued Upon Average Future Issuance
Exercise of Exercise Price Under Equity
Outstanding of Outstanding Compensation
Options Options Plans (1)
--------------- ---------------- ---------------
Equity Compensation Plans Approved by Security Holders 1,555,629 $ 11.94 483,444
Equity Compensation Plans Not Approved by Security Holders 1,076,646 $ 8.13 35,359
------------------------------
(1) Excludes securities to be issued upon exercise of outstanding options.
Certain Relationships
Vincent J. Coates is the father of Norman V. Coates. There are no other
family relationships between any of the foregoing nominees or between any such
nominees and any of the executive officers of the Company.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company's executive officers
and directors, and persons who own more than ten percent of a registered class
of the Company's equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission and the Nasdaq National
Market. Executive officers, directors and greater than ten percent shareholders
are required by Securities and Exchange Commission regulations to furnish the
Company with copies of all Section 16(a) forms that they file. Based solely on
its review of the copies of such forms received by it or written representations
from certain reporting persons, the Company believes that, with the exception of
Roger Ingalls, Jr., during the fiscal year ended January 1, 2005, its executive
officers, directors and greater than ten percent shareholders complied with all
applicable filing requirements. Mr. Ingalls failed to timely report an option
grant on Form 4.
15
Report of the Audit Committee of the Board of Directors
The following is the report of the audit committee of the board of
directors describing its review of materials and determinations with respect to
its auditors and financial statements for the fiscal year ended January 1, 2005.
The information contained in this report shall not be deemed to be "soliciting
material" or to be "filed" with the Securities and Exchange Commission, nor
shall such information be incorporated by reference into any future filing under
the Securities Act or Exchange Act, except to the extent that the Company
specifically incorporates it by reference into such filing.
In accordance with its written charter adopted by the board of directors,
the audit committee assists the board of directors in fulfilling its
responsibility for oversight of the quality and integrity of the accounting,
auditing and financial reporting practices of the Company. During the fiscal
year ended January 1, 2005, the audit committee met (or acted by written
consent) five (5) times, and the audit committee chairman, as representative of
the committee, discussed the interim financial information contained in
quarterly earnings announcements with the chief financial officer and
independent auditors prior to public release.
The audit committee received from the Company's independent auditors a
formal written statement, consistent with Independence Standards Board Standard
No. 1, "Independence Discussions with Audit Committees," which describes all
relationships between the auditors and the Company that, in the auditors'
professional opinion, might reasonably be thought to bear on the auditors'
independence. The audit committee discussed with the auditors these
relationships and satisfied itself as to the auditors' independence.
The audit committee also discussed and reviewed with the independent
auditors all communications required by the Public Company Accounting Oversight
Board (the "PCAOB") standards, including those described in Statement on
Auditing Standards No. 61, as amended, "Communication with Audit Committees"
and, with and without management present, discussed and reviewed the results of
the independent auditors' Audit of the Company's financial statements.
Additionally, the audit committee reviewed and discussed the audited
financial statements of the Company as of and for the fiscal year ended January
1, 2005 with management and the independent auditors. Management has the
responsibility for the preparation of the Company's financial statements and the
independent auditors have the responsibility for the Audit of those statements.
Based on the foregoing review and discussions with management and the
independent auditors, the audit committee recommended to the board of directors
that the Company's audited financial statements as of and for the year ended
January 1, 2005 be included in its Annual Report on Form 10-K for the fiscal
year ended January 1, 2005 for filing with the Securities and Exchange
Commission. The audit committee also recommended the appointment, subject to
shareholder approval, of the independent auditors and the board of directors
concurred in such recommendation.
Members of the Audit Committee
J. Thomas Bentley, Chairman
Edmond R. Ward
William G. Oldham
16
Report of the Compensation/Stock Option Committee of the Board of Directors
The following is the report of the compensation/stock option committee of
the board of directors describing compensation policies and rationales
applicable to certain of its executive officers with respect to the compensation
paid to such executive officers for the fiscal year ended January 1, 2005. The
information contained in such report shall not be deemed to be "soliciting
material" or to be "filed" with the Securities and Exchange Commission, nor
shall such information be incorporated by reference into any future filing under
the Securities Act or Exchange Act, except to the extent that the Company
specifically incorporates it by reference into such filing.
General. The compensation/stock option committee is responsible for making
recommendations to the board of directors with respect to cash compensation
levels for certain of the Company's executive officers. During fiscal year ended
January 1, 2005, the compensation/stock option committee also was responsible
for determining levels of equity-based compensation for the Company's employees.
Compensation Philosophy. The compensation/stock option committee makes
recommendations as to the salaries of certain of the executive officers by
considering (i) the salaries of executive officers in similar positions at
comparably-sized peer companies, (ii) the Company's financial performance over
the past year based upon revenues and operating results and (iii) the
achievement of individual performance goals related to each executive officer's
duties and areas of responsibility. The compensation/stock option committee
makes recommendations as to the levels of cash bonuses awarded to certain of the
Company's executive officers and views such bonuses as being an integral part of
its performance based compensation program. Such bonuses are based on the
Company's profits and are determined as a percentage of the officer's salaries.
Equity-Based Compensation. The compensation/stock option committee views
stock options as an important part of its long-term, performance-based
compensation program. The compensation/stock option committee grants stock
options to all employees of the Company under its 2000 Stock Option Plan and
2002 Nonstatutory Stock Option Plan based upon the committee's estimation of
each employee's contribution to the long-term growth and profitability of the
Company. The 2000 Stock Option Plan is intended to provide additional incentives
to the executive officers to maximize shareholder value. Options are granted
under the 2000 Stock Option Plan and the 2002 Nonstatutory Stock Option Plan at
the then-current market price and are generally subject to three-year vesting
periods to encourage key employees to remain with the Company.
Compensation of the Chief Executive Officer. The compensation/stock option
committee has reviewed all components of the chief executive officer's
compensation, including salary, bonus, equity, stock options, and the
obligations under the Company's change of control severance agreement with Mr.
Heaton.
Based on this review, the compensation/stock option committee found Mr.
Heaton's total compensation (and, in the case of the change of control severance
agreement, potential payout) in the aggregate to be reasonable and not
excessive. Furthermore, although Mr. Heaton made valuable contributions to the
Company during fiscal year ended January 3, 2004, in light of economic
conditions, the compensation/stock option committee determined that an increase
to the base salary of the chief executive officer would not be appropriate. It
should be noted that when the compensation/stock option committee considers any
component of the chief executive officer's total compensation, the aggregate
amounts and mix of all the components, including accumulated (realized and
unrealized) option gains are taken into consideration in the compensation/stock
option committee's decisions.
Section 162(m). The Company intends that awards granted under the Company's
2000 Stock Option Plan and 2002 Nonstatutory Stock Option Plan be deductible by
the Company under Section 162(m) of the Internal Revenue Code of 1986, as
amended.
Members of the Compensation/Stock Option Committee
Edmond Ward, Chairman
J. Thomas Bentley
Stephen J Smith
17
Stock Performance Graph
The following graph compares the cumulative total return to shareholders of
the Company's common stock from December 31, 1999 through December 31, 2004 to
the cumulative total return over such period of (i) the Nasdaq Stock Market
(U.S.) Index and (ii) the RDG Technology Composite Index. The results shown
assume that $100 was invested on December 31, 1999 in the Company's common stock
and in each of the other two indices with any dividends reinvested. Information
about RDG Technology Composite Index may be obtained at the Research Data Group,
Inc. website address www.researchdatagroup.com/ComponentsTech.htm or by calling
Research Data Group at (415) 643-6000.
The information contained in the performance graph shall not be deemed to
be "soliciting material" or to be "filed" with the Securities and Exchange
Commission, nor shall such information be incorporated by reference into any
future filing under the Securities Act or Exchange Act, except to the extent
that the Company specifically incorporates it by reference into such filing.
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN AMONG NANOMETRICS
INCORPORATED, THE NASDAQ STOCK MARKET (U.S.) INDEX AND THE RDG TECHNOLOGY
COMPOSITE INDEX
[GRAPHIC OMITTED][GRAPHIC OMITTED]
(Performance Graph)
18
"Householding" of Proxy Materials
The Securities and Exchange Commission has adopted rules that permit
companies and intermediaries such as brokers to satisfy delivery requirements
for proxy statements with respect to two or more shareholders sharing the same
address by delivering a single proxy statement addressed to those shareholders.
This process, which is commonly referred to as "householding," potentially
provides extra convenience for shareholders and cost savings for companies. The
Company and some brokers household proxy materials, delivering a single proxy
statement to multiple shareholders sharing an address unless contrary
instructions have been received from the affected shareholders. Once you have
received notice from your broker or the Company that the broker or the Company
will be householding materials to your address, householding will continue until
you are notified otherwise or until you revoke your consent. Upon written or
oral request to the Investor Relations department of the Company, by mail at
1550 Buckeye Drive, Milpitas, California, 95035 or by telephone at (408)
435-9600, the Company will promptly deliver a copy of its proxy statement to a
shareholder if that shareholder shares an address with another shareholder to
which a single copy of the proxy statement was delivered. A shareholder may
notify the Company as described above if the shareholder wishes to receive a
separate copy of the proxy statement in the future or, alternatively, if the
shareholder wishes to receive a single copy of the materials instead of multiple
copies.
19
PROPOSAL 2
REINCORPORATION FROM CALIFORNIA INTO DELAWARE
(THE REINCORPORATION MERGER)
General
The board of directors, by a unanimous vote at a special meeting of the
board of directors, adopted a resolution approving a change in the state of its
incorporation from California to Delaware. If approved by the requisite vote of
the Company's shareholders, this reincorporation shall be effected through a
merger of the Company with its wholly owned subsidiary, Minor League Merger
Corporation, a Delaware corporation.
Proposal
The Company is proposing to merge with and into Minor League Merger
Corporation. This merger is referred to herein as the reincorporation merger.
Minor League Merger Corporation will succeed to all of the rights, properties,
assets and liabilities of the Company. Upon completion of the reincorporation
merger, the Company will cease to exist and Minor League Merger Corporation will
continue to operate the business of the Company under the name "Nanometrics
Incorporated" as a Delaware corporation. For convenience, Nanometrics
Incorporated, after the reincorporation merger, is sometimes referred to as the
Delaware company. Each outstanding share of the Company's common stock, no par
value per share, will be automatically converted into one share of common stock
of the Delaware company, $0.001 par value per share, upon the effective date of
the reincorporation merger. It will not be necessary for shareholders of the
Company to exchange their existing stock certificates for stock certificates of
the Delaware company. Upon completion of the reincorporation merger,
certificates which immediately prior to the reincorporation merger represented
shares of common stock of the Company will be deemed for all purposes to
represent the same number of shares of the Delaware company's common stock.
Nevertheless, shareholders may exchange their certificates if they so choose.
The Company's common stock is listed for trading on the Nasdaq National Market
and, after the reincorporation merger, the Delaware company's common stock will
continue to be traded on the Nasdaq National Market without interruption, under
the same symbol, NANO, as the shares of the Company's common stock are currently
traded.
The reincorporation merger has been approved by the Company's board of
directors, by a unanimous vote at a special meeting. If approved by the
requisite vote of the Company's shareholders, it is anticipated that the
reincorporation merger will become effective as soon as practicable following
the annual meeting of shareholders. The Company's shareholders will have no
appraisal rights with respect to the reincorporation merger.
Immediately following the completion of the reincorporation merger, the
composition of the board of directors of Minor League Merger Corporation will be
the same as the composition of the board of directors of the Company immediately
prior to the reincorporation merger.
After the reincorporation merger, the rights of the Company's stockholders
and the Company's corporate affairs will be governed by the Delaware General
Corporation Law, and the certificate of incorporation and bylaws of the Delaware
company, or the Delaware charter documents, rather than by the California
General Corporation Law, and the current articles of incorporation and bylaws of
the Company, or the California charter documents.
The summary and discussion of the proposed reincorporation merger set forth
in this proxy statement is qualified in its entirety by reference to the
California General Corporation Law, the Delaware General Corporation Law, the
California charter documents and the Delaware charter documents. Copies of the
California charter documents and the Delaware charter documents are available
for inspection at the Company's executive offices. Additionally, the Company
will send such documents to you upon request. We urge you to read each of these
documents carefully for a complete understanding of your rights.
Principal Reasons for the Reincorporation Merger
As the Company plans for the future, the board of directors and management
believe that it is essential to be able to draw upon well-established principles
of corporate governance in making legal and business decisions. The prominence
and predictability of Delaware corporate law provide a reliable foundation on
which the Company's
20
corporate governance decisions can be based, and the Company believes that its
shareholders will benefit from the responsiveness of Delaware corporate law to
their needs and to those of the corporation they own.
Prominence, Predictability and Flexibility of Delaware Law
For many years, Delaware has followed a policy of encouraging incorporation
in that state and, in furtherance of that policy, has been a leader in adopting,
construing and implementing comprehensive, flexible corporate laws responsive to
the legal and business needs of corporations organized under its laws. Many
corporations have chosen Delaware initially as a state of incorporation or have
subsequently changed their corporate domicile to Delaware. Because of Delaware's
prominence as the state of incorporation for many major corporations, both the
legislature and courts in Delaware have demonstrated an ability and a
willingness to act quickly and effectively to meet changing business needs. The
Delaware courts have developed considerable expertise in dealing with corporate
issues, and a substantial body of case law has developed construing Delaware
law, resulting in greater predictability with respect to corporate legal
affairs.
Increased Ability to Attract and Retain Qualified Directors
Both California and Delaware law permit a corporation to include a
provision in its charter which reduces or limits the monetary liability of
directors for breaches of fiduciary duty in certain circumstances. The
increasing frequency of claims and litigation directed against directors and
officers has expanded the risks facing directors and officers of corporations in
exercising their respective duties. The amount of time and money required to
respond to such claims and to defend such litigation can be substantial. The
Company desires to reduce these risks to its directors and officers and to limit
situations in which monetary damages can be recovered against its directors so
that it may continue to attract and retain qualified directors who otherwise
might be unwilling to serve because of the risks involved. The Company believes
that, in general, Delaware law provides greater protection to directors than
California law and that Delaware law regarding a corporation's ability to limit
director liability is more developed and provides more guidance than California
law.
Well Established Principles of Corporate Governance
There is substantial judicial precedent in the Delaware courts as to the
legal principles applicable to measures that may be taken by a corporation and
as to the conduct of the board of directors, such as the business judgment rule
and other standards. This tends to assure a significant measure of certainty to
legal aspects of the conduct of business and a sound basis for planning.
Therefore, the Company believes that its shareholders will benefit from the
well-established principles of corporate governance that Delaware law affords.
No Change in Board Members, Business, Management, Employee Benefit Plans or
Location of Principal Facilities
The reincorporation merger will effect a change in the legal domicile of
the Company and certain other changes of a legal nature which are described in
this proxy statement. Except as contemplated in connection with the
reincorporation merger, the reincorporation merger will NOT result in any change
in the Company's business, management, assets or liabilities or the location of
its principal facilities. Under United States generally accepted accounting
principles, the proposed reincorporation will not result in any gain or loss to
the Company. The consolidated financial statements and results of operations of
the Delaware company immediately following the reincorporation merger will be
identical to that of the Company immediately prior to the reincorporation
merger. The directors of the Company immediately prior to the reincorporation
merger will become the directors of the Delaware company immediately following
the reincorporation merger. All employee benefit, stock option and employee
stock purchase plans of the Company will be assumed and continued by the
Delaware company, and each option or right issued pursuant to such plans will
automatically be converted into an option or right to purchase the same number
of shares common stock of the Delaware company, at the same price per share,
upon the same terms, and subject to the same conditions. Shareholders should
note that approval of this proposal 2 will also constitute approval of the
assumption of these plans by the Delaware company. Other employee benefit
arrangements of the Company will also be continued by the Delaware company upon
the terms and subject to the conditions currently in effect. As noted above,
after the reincorporation merger, the shares of common stock of the Delaware
company will continue to be traded, without interruption, in the same principal
market (the Nasdaq National Market) and under the same symbol, NANO, as the
shares of common stock of the Company are currently traded. The Company believes
that the proposed reincorporation will not affect any of its material contracts
with any third parties and that the Company's rights and obligations under such
material contractual arrangements will continue and be assumed by the Delaware
company.
21
Material United States Federal Income Tax Consequences of the Reincorporation
Merger
This section of the proxy statement summarizes the material United States
federal income tax considerations of the reincorporation merger to the Company's
shareholders. The summary is based on the Internal Revenue Code of 1986, as
amended, applicable United States Treasury regulations under the Internal
Revenue Code, administrative rulings and judicial authority, all as of the date
of this proxy statement. All of the foregoing authorities are subject to change,
with or without retroactive effect, and any change could affect the continuing
validity of this summary. A ruling from the Internal Revenue Service in
connection with the reincorporation merger will not be requested, and we cannot
assure you that the Internal Revenue Service will conclude that the
reorganization merger qualifies as a reorganization under Section 368(a) of the
Internal Revenue Code.
The summary assumes that the Company's shareholders hold their shares as
capital assets. The summary does not address the tax consequences that may be
applicable to particular shareholders in light of their individual circumstances
or to shareholders who are subject to special tax rules, such as non-United
States persons, dealers in securities, shareholders who acquired shares of
common stock through the exercise of options or otherwise as compensation or
through a qualified retirement plan, and shareholders who hold their common
stock as part of a straddle, hedge, or conversion transaction. In addition, this
summary does not address the tax consequences of the reincorporation merger to
holders of options or warrants to acquire capital stock of or the tax
consequences of transactions effectuated prior or subsequent to, or concurrently
with, the reincorporation merger, whether or not any such transactions are
undertaken in connection with the reincorporation merger. This summary also does
not address any consequences arising under the tax laws of any state, local, or
foreign jurisdiction.
The reincorporation merger will qualify as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code, which will result in the
following federal income tax consequences to the Company's shareholders:
o shareholders will not recognize any gain or loss upon the receipt of
common stock in the reincorporation merger;
o the aggregate tax basis of the common stock received by shareholders
in the reincorporation merger will be the same as the aggregate tax
basis of the common stock surrendered in exchange therefor;
o the holding period of the common stock received by each shareholder in
the reincorporation merger will include the period for which common
stock surrendered in exchange therefor was considered to be held; and
o the Company will not recognize gain or loss solely as a result of the
reincorporation merger.
SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE
SPECIFIC TAX CONSEQUENCES OF THE PROPOSED REINCORPORATION TO THEM, INCLUDING THE
APPLICATION AND EFFECT OF UNITED STATES FEDERAL, STATE, LOCAL AND FOREIGN INCOME
AND OTHER TAX LAWS.
Vote Required
The affirmative vote of the holders of a majority of the outstanding shares
of common stock entitled to vote on the record date is required to approve its
reincorporation from a California corporation to a Delaware corporation. Unless
otherwise instructed, the proxies will vote "FOR" this proposal 2.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" PROPOSAL
2.
22
PROPOSAL 3
APPROVAL OF THE
2005 EQUITY INCENTIVE PLAN
We are asking stockholders to approve the Company's adoption of the 2005
Equity Incentive Plan (the "2005 Plan") so that we can use the 2005 Plan to
achieve the Company's goals and also receive a federal income tax deduction for
certain compensation paid under the 2005 Plan. The board of directors and the
Company's compensation committee have approved the 2005 Plan, subject to
stockholder approval at the annual meeting. Our named executive officers and
directors have an interest in this proposal by virtue of their being eligible to
receive equity awards under the 2005 Plan. The full text of the 2005 Plan is
attached hereto as Appendix A.
A total of 1,200,000 shares of common stock have initially been reserved
for issuance under the 2005 Plan, plus an annual increase to be added on the
first day of the Company's fiscal year for three years (beginning in 2006 and
ending after the 2008 increase), equal to the least of (i) 3% of the Company's
outstanding common stock on that date or (ii) an amount determined by the board
of directors.
We strongly believe that the approval of the 2005 Plan is essential to our
continued success. The board of directors and management believe that equity
awards motivate high levels of performance, align the interests of employees and
stockholders by giving employees the perspective of an owner with an equity
stake in the Company, and provide an effective means of recognizing employee
contributions to the success of the Company. The board of directors and
management believe that equity awards are of great value in recruiting and
retaining personnel who help the Company meet its goals, as well as rewarding
and encouraging current employees. The board of directors and management believe
that the ability to grant equity awards will be important to the future success
of the Company.
The Company's 2000 Stock Option Plan had only 518,803 shares remaining
available for issuance as of January 1, 2005. As a result, if the stockholders
do not approve this proposal, the Company will be limited in its ability to make
discretionary option or other equity award grants under an equity incentive plan
to assist in recruiting and retaining personnel.
Summary of the Plan
The following paragraphs provide a summary of the principal features of the
2005 Plan and its operation. The Plan is set forth in its entirety as Appendix A
to this proxy statement. The following summary is qualified in its entirety by
reference to the 2005 Plan.
Background and Purpose of the 2005 Plan
The 2005 Plan permits the grant of stock options, stock appreciation
rights, restricted stock, restricted stock units and performance shares (each
individually, an "Award"). The 2005 Plan is intended to attract and retain the
best available personnel for positions of substantial responsibility, including
(1) employees of the Company and any parent or subsidiary, (2) consultants who
provide services to the Company and any parent or subsidiary, and (3) directors
of the Company. The 2005 Plan also is designed to provide additional incentive
to these services providers, to promote the success of the Company's business
and to permit the payment of compensation that qualifies as performance-based
compensation under Section 162(m) of the Internal Revenue Code of 1986, as
amended ("Section 162(m)").
Administration of the 2005 Plan
A committee (the "Committee") of the board of directors will administer the
2005 Plan. The Committee generally will be the compensation/stock option
committee, which will consist of two or more directors who qualify as
"non-employee directors" under Rule 16b-3 of the Securities Exchange Act of
1934, and as "outside directors" under Section 162(m) (so that the Company is
entitled to a federal tax deduction for certain compensation paid under the 2005
Plan). Notwithstanding the foregoing, the Board may itself administer the 2005
Plan or appoint one or more committees to administer the 2005 Plan with respect
to different groups of service providers. The Board, the compensation committee
or other committee administering the 2005 Plan is referred to herein as the
"Administrator."
Subject to the terms of the 2005 Plan, the Administrator has the sole
discretion to select the employees, consultants, and directors who will receive
Awards, determine the terms and conditions of Awards (for example, the
23
exercise price and vesting schedule), and interpret the provisions of the 2005
Plan and outstanding Awards. The Administrator may not, however, reprice Awards
or exchange Awards for other Awards, cash or a combination thereof, without the
approval of the stockholders.
If an Award is settled is cancelled, expires, or is forfeited or
repurchased by the Company for any reason without having been fully exercised or
vested, the unvested, cancelled, forfeited or repurchased number of shares of
Company common stock ("Shares") generally will be returned to the available pool
of Shares reserved for issuance under the 2005 Plan. Any Shares subject to
options or stock appreciation rights generally will be counted against the
available pool as one Share for every Share subject to the option or stock
appreciation rights. Any Shares of restricted stock or Shares subject to
performance shares or restricted stock units with a per share or unit purchase
price lower than 100% of Fair Market Value on the date of grant generally will
be counted against the available pool as two Shares for every one Share subject
thereto. Shares actually issued under the 2005 Plan or withheld to pay the
exercise price of an Award or to satisfy tax withholding obligations with
respect to an Award will not be returned to the 2005 Plan and will not be
available for future issuance under the plan. Also, if the Company experiences
any dividend or other distribution (whether in the form of cash, Shares, other
securities, or other property), recapitalization, stock split, reverse stock
split, reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase, or exchange of Shares or other securities of the Company, or other
change in the corporate structure of the Company affecting the Shares, a
proportional adjustment will be made to the number of Shares available for
issuance under the 2005 Plan, the number and price of Shares subject to
outstanding Awards and the per-person limits on Awards, as appropriate to
reflect the stock dividend or other change, should the Administrator determine
that such an adjustment is appropriate in order to prevent dilution or
enlargement of the benefits or potential benefits intended to be made available
under the 2005 Plan.
Eligibility to Receive Awards
The Administrator selects the employees, consultants, and directors who
will be granted Awards under the 2005 Plan. The actual number of individuals who
will receive Awards cannot be determined in advance because the Administrator
has the discretion to select the participants.
Stock Options
A stock option is the right to acquire Shares at a fixed exercise price for
a fixed period of time. Under the 2005 Plan, the Administrator may grant
nonstatutory stock options and/or incentive stock options (which entitle
employees, but not the Company, to more favorable tax treatment). The
Administrator will determine the number of Shares covered by each option, but
during any fiscal year of the Company, no participant may be granted options and
stock appreciation rights together covering more than 500,000 Shares.
The exercise price of the Shares subject to each option is set by the
Administrator but cannot be less than 100% of the fair market value (on the date
of grant) of the Shares covered by the option. In addition, the exercise price
of an incentive stock option must be at least 110% of fair market value if (on
the grant date) the participant owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or any of its
subsidiaries. The aggregate fair market value of the Shares (determined on the
grant date) covered by incentive stock options which first become exercisable by
any participant during any calendar year also may not exceed $100,000.
Options issued under the 2005 Plan become exercisable at the times and on
the terms established by the Administrator. The Administrator also establishes
the time at which options expire, but the expiration of an incentive stock
option may not be later than ten years after the grant date (such term to be
limited to 5 years in the case of an incentive stock option granted to a
participant who owns stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company or any of parent or subsidiary of
the Company).
The exercise price of each option must be paid in full at the time of
exercise. The exercise price may be paid in any form as determined by the
Administrator, including, but not limited to, cash, check, surrender of Shares
that have a fair market value on the date of surrender equal to the aggregate
exercise price of the shares as to which the option is being exercise,
consideration received pursuant to a cashless exercise program, promissory note,
through a reduction in the amount of Company liability to the participant, or
other legal methods of consideration.
24
If a participant's service relationship with us terminates for any reason
(excluding death or disability), then the participant may exercise the option
within a period of time as determined by the Administrator and specified in the
Award agreement to the extent that the Award is vested on the date of
termination (but in no event later than the expiration of the term of such
Award). In the absence of a specified time set forth in the Award agreement, the
option will remain exercisable for three months following the termination of the
participant's service relationship. If a participant's service relationship
terminates due to the participant's disability or death, the participant (or his
or her estate or beneficiary) may exercise the option within a period of time as
determined by the Administrator and specified in the Award agreement to the
extent the Award was vested on the date of termination of the service
relationship (but in no event later than the expiration of the term of such
Award). In the absence of a specified time in the Award agreement, the option
will remain exercisable for the twelve months following the termination of the
participant's service due to disability or death.
Stock Appreciation Rights
Stock appreciation rights are Awards that grant the participant the right
to receive an amount equal to (1) the number of Shares exercised, times (2) the
amount by which the Company's stock price exceeds the exercise price. The
Administrator set the exercise price. An individual will be able to profit from
a stock appreciation right only if the fair market value of the stock increases
above the exercise price. The Company's obligation arising upon the exercise of
a stock appreciation right may be paid in Shares or in cash, or any combination
thereof, as the Administrator may determine.
Awards of stock appreciation rights may be granted in connection with all
or any part of an option or may be granted independently of options. No
participant may be granted stock appreciation rights and options together
covering more than 500,000 shares in any fiscal year of the Company.
The Administrator determines the terms of stock appreciation rights. A
stock appreciation right will be exercisable, in whole or in part, at such time
as the Administrator will specify in the Award agreement, but will expire no
later than ten (10) years after the date of grant.
If a participant's service relationship with us terminates for any reason
(excluding death or disability), then the participant may exercise the stock
appreciation right within a period of time as determined by the Administrator
and specified in the Award agreement to the extent that the Award is vested on
the date of termination (but in no event later than the expiration of the term
of such Award). In the absence of a specified time set forth in the Award
agreement, the stock appreciation right will remain exercisable for three months
following the termination of the participant's service relationship. If a
participant's service relationship terminates due to the participant's
disability or death, the participant (or his or her estate or beneficiary) may
exercise the stock appreciation right within a period of time as determined by
the Administrator and specified in the Award agreement to the extent the Award
was vested on the date of termination of the service relationship (but in no
event later than the expiration of the term of such Award). In the absence of a
specified time in the Award agreement, the stock appreciation right will remain
exercisable for the twelve months following the termination of the participant's
service due to disability or death.
Restricted Stock
Awards of restricted stock are Shares that vest in accordance with the
terms and conditions established by the Administrator. The Administrator may set
vesting criteria based upon the achievement of Company-wide, departmental,
business unit or individual goals, which may include continued employment or
service, applicable federal or state securities or any other basis determined by
the Committee. If the Administrator desires that the Award qualify as
performance-based compensation under Section 162(m), any restrictions will be
based on a specified list of performance goals (see "Performance Goals" below
for more information). The Administrator will determine the number of Shares of
restricted stock granted to any employee, consultant or director, but during any
fiscal year of the Company, no participant may be granted more than 250,000
Shares in the aggregate of restricted stock, performance shares or restricted
stock units.
25
Unless the Administrator determines otherwise, Shares of restricted stock
will be held by the Company as escrow agent until any restrictions on the Shares
have lapsed. The Administrator may accelerate the time at which any restriction
may lapse or be removed.
On the date set forth in the Award agreement, all unvested restricted stock
will be forfeited to the Company.
Restricted Stock Units
Awards of restricted stock units are Shares that vest in accordance with
terms and conditions established by the Administrator. The Administrator
determines the number of restricted stock units granted to any employee,
consultant or director, but during any fiscal year of the Company, no
participant may be granted more than 250,000 Shares in the aggregate subject to
restricted stock units, performance shares or restricted stock.
In determining whether an Award of restricted stock units should be made,
and/or the vesting schedule for any such Award, the Administrator may impose
whatever conditions to vesting it determines to be appropriate. The number of
restricted stock units paid out to the participant will depending on the extent
to which the vesting criteria are met. The Administrator may set vesting
criteria based upon the achievement of Company-wide, departmental, business unit
or individual goals, which may include continued employment or service,
applicable federal or state securities or any other basis determined by the
Committee. Notwithstanding the foregoing, if the Administrator desires that the
Award qualify as performance-based compensation under Section 162(m), any
restrictions will be based on a specified list of performance goals (see
"Performance Goals" below for more information).
Upon satisfying the applicable vesting criteria, the participant shall be
entitled to the payout specified in the Award agreement. Notwithstanding the
foregoing, at any time after the grant of restricted stock units, the
Administrator may reduce or waive any vesting criteria that must be met to
receive a payout. The Administrator, in its sole discretion, may pay earned
restricted stock units in cash, Shares, or a combination thereof. Shares
represented by restricted stock units that are fully paid in cash will again be
available for grant under the Plan. On the date set forth in the Award
agreement, all unearned restricted stock units will be forfeited to the Company.
Performance Shares
Performance shares are Awards that will result in a payment to a
participant only if performance objectives established by the Administrator are
achieved or the Awards otherwise vest. The Administrator may set vesting
criteria based upon the achievement of Company-wide, departmental, business unit
or individual goals, which may include continued employment or service,
applicable federal or state securities or any other basis determined by the
Committee. Notwithstanding the foregoing, if the Administrator desires that the
Award qualify as performance-based compensation under Section 162(m), any
restrictions will be based on a specified list of performance goals (see
"Performance Goals" below for more information).
Performance shares have an initial value equal to the fair market value of
a share on the date of grant. Performance shares may be granted to employees,
consultants or directors at any time as shall be determined by the Administrator
in its sole discretion. Subject to the terms of the 2005 Plan, the Administrator
will have complete discretion to determine the number of shares subject to a
performance share award and the conditions that must be satisfied, which
typically will be based principally or solely on achievement of performance
milestones but may include a service based component, upon which is conditioned
on the grant or vesting of performance shares. Subject to the terms of the Plan,
the Administrator will determined the number of performance shares granted to a
service provider, during any fiscal year of the Company, no participant may be
granted more than 250,000 Shares in the aggregate subject to performance shares,
restricted stock units, or restricted stock.
On the date set forth in the Award agreement, all unearned or unvested
performance shares will be forfeited to the Company
26
Performance Goals
Under Section 162(m) of the Code, the annual compensation paid to our Chief
Executive Officer and to each of our other four most highly compensated
executive officers may not be deductible to the extent it exceeds $1 million.
However, we are able to preserve the deductibility of compensation in excess of
$1 million if the conditions of Section 162(m) are met. These conditions include
stockholder approval of the 2005 Plan, setting limits on the number of awards
that any individual may receive and for awards other than options, establishing
performance criteria that must be met before the award actually will vest or be
paid.
We have designed the Plan so that it permits us to pay compensation that
qualifies as performance-based under Section 162(m). Thus, the Administrator (in
its discretion) may make performance goals applicable to a participant with
respect to an award. At the Administrator's discretion, one or more of the
following performance goals may apply (all of which are defined in the Plan):
annual revenue, cash position, earnings per share, net income, individual
performance objectives, marketing and sales expenses as a percentage of sales,
net income as a percentage of sales, net income, operating cash flow, operating
income, return on assets, return on equity, return on sales, and total
stockholder return. The Performance Goals may differ from Participant to
Participant and from Award to Award.
Any criteria used may be measured, as applicable (1) in absolute terms, (2)
in relative terms (including, but not limited to, passage of time and/or against
another company or companies), (3) on a per-share basis, (4) against the
performance of the Company as a whole or a business unit of the Company, and/or
(5) on a pre-tax or after-tax basis. The Administrator also will adjust any
evaluation of performance under a performance goal to exclude (i) any
extraordinary non-recurring items, or (ii) the effect of any changes in
accounting principles affecting the Company's or a business units' reported
results.
Merger or Change in Control
In the event of a merger "change in control" of the Company, the successor
corporation will either assume or provide a substitute award for each
outstanding Award. In the event the successor corporation refuses to assume or
provide a substitute award, the Award will immediately vest and become
exercisable as to all of the Shares subject to such Award, or, if applicable,
the Award will be deemed fully earned and will be paid out prior to the merger
or change in control. In addition, if an option, stock appreciation right or
right to purchase restricted stock has become fully vested and exercisable in
lieu of assumption or substitution, the Committee will provide at least 15 days'
notice that the option, stock appreciation right or right to purchase restricted
stock will immediately vest and become exercisable as to all of the Shares
subject to such Award and all outstanding options, stock appreciation rights and
rights to purchase restricted stock will terminate upon the expiration of such
notice period.
Awards to be Granted to Certain Individuals and Groups
The number of Awards (if any) that an employee, consultant, or director may
receive under the 2005 Plan is in the discretion of the Administrator and
therefore cannot be determined in advance. Our executive officers and directors
have an interest in this proposal because they are eligible to receive Awards
under the 2005 Plan. To date, stock options have been granted under existing
Company equity plans. The following table sets forth for each of the Company's
executive officers and directors (a) the total number of Shares subject to
options granted during the last fiscal year and (b) the average per Share
exercise price of such options. Quentin Wright and Michael Weber are not listed
on the table below because they did not join the Company in their capacities as
executive officers until after January 1, 2005.
Number of Average Per Share
Name of Individual or Group Options Granted Exercise Price
-------------------------- --------------- ---------------
Vincent J. Coates -- $
John D. Heaton 100,000 $12.02
Edmond R. Ward -- $
William G. Oldham -- $
Paul B. Nolan -- $
Roger Ingalls, Jr. 5,000 $10.37
Stephen J Smith, Jr. 10,000 $16.71
J. Thomas Bentley 10,000 $16.71
Norman V. Coates 10,000 $11.39
All executive officers, 105,000 $11.94
as a group (4 persons)
All directors who are not 30,000 $14.94
executive officers, as a
group (5 persons)
All employees who are not 308,550 $12.64
executive officers, as a group
27
Limited Transferability of Awards
Awards granted under the 2005 Plan generally may not be sold, transferred,
pledged, assigned, or otherwise alienated or hypothecated, other than by will or
by the applicable laws of descent and distribution and may be exercised during
the lifetime of the participant, only by the participant. Notwithstanding the
foregoing, the Administrator may permit an individual to transfer an Award. Any
transfer shall be made in accordance with procedures established by the
Administrator.
Federal Tax Aspects
The following paragraphs are a summary of the general federal income tax
consequences to U.S. taxpayers and the Company of Awards granted under the 2005
Plan. Tax consequences for any particular individual may be different.
Nonstatutory stock options
No taxable income is recognized when a nonqualified stock option is granted
to a participant. Upon exercise, the participant will recognize ordinary income
in an amount equal to the excess of the fair market value of the Shares on the
exercise date over the exercise price. Any additional gain or loss recognized
upon later disposition of the Shares is capital gain or loss.
Incentive Stock Options
No taxable income is recognized when an incentive stock option is granted
or exercised (except for purposes of the alternative minimum tax, in which case
taxation is the same as for nonstatutory stock options). If the participant
exercises the option and then later sells or otherwise disposes of the Shares
more than two years after the grant date and more than one year after the
exercise date, the difference between the sale price and the exercise price will
be taxed as capital gain or loss. If the participant exercises the option and
then later sells or otherwise disposes of the Shares before the end of the two-
or one-year holding periods described above, he or she generally will have
ordinary income at the time of the sale equal to the fair market value of the
Shares on the exercise date (or the sale price, if less) minus the exercise
price of the option. Any additional gain or loss will be capital gain or loss.
Stock Appreciation Rights
No taxable income is reportable when a stock appreciation right is granted
to a participant. Upon exercise, the participant generally will recognize
ordinary income in an amount equal to the amount of cash received and the fair
market value of any Shares received. Any additional gain or loss recognized upon
any later disposition of the Shares would be capital gain or loss.
Restricted Stock, Restricted Stock Units and Performance Shares
A participant will not have taxable income upon grant unless he or she
elects to be taxed at that time. Instead, he or she generally will recognize
ordinary income at the time of vesting equal to the fair market value (on the
vesting date) of the Shares or cash received minus any amount paid for the
Shares.
Tax Effect for the Company
The Company generally will be entitled to a tax deduction in connection
with an Award under the 2005 Plan in an amount equal to the ordinary income
realized by a participant and at the time the participant recognizes such income
(for example, the exercise of a nonqualified stock option). As discussed above,
special rules limit the deductibility of compensation paid to our Chief
Executive Officer and to each of our four most highly compensated executive
officers.
28
However, the 2005 Plan has been designed to permit the Administrator to grant
Awards that qualify as performance-based compensation under Section 162(m),
thereby permitting the Company to receive a federal income tax deduction in
connection with such Awards.
Amendment and Termination of the Plan
The Board generally may amend, alter, suspend or terminate the 2005 Plan at
any time and for any reason. However, no amendment, alter, suspension, or
termination may impair the rights of any participant in the 2005 Plan without
his or her consent. Amendments will be contingent on stockholder approval if
required by applicable law. Unless terminated earlier by the Board, the 2005
Plan will continue in effect until ten (10) years following the date of the
Board of Director's adoption of the 2005 Plan.
Summary
We believe strongly that the approval of the 2005 Plan is essential to our
continued success. Awards such as those provided under the 2005 Plan constitute
an important incentive and help us to attract and retain people whose skills and
performance are critical to our success. Our employees and directors are our
most important asset. The Company's 2000 Stock Option Plan has only 518,803
shares remaining available for issuance. As a result, if the stockholders do not
approve the 2005 Plan, the Company will be severely limited in its ability to
make any discretionary option or other equity award grants under an equity
incentive plan to assist in recruiting and retaining personnel. The board of
directors believes that the 2005 Plan is vital to our ability to attract and
retain outstanding and highly skilled individuals to work for the Company and
serve on our board of directors.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE
"FOR" PROPOSAL 3.
29
PROPOSAL 4
RATIFICATION OF APPOINTMENT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The audit committee of the board of directors has appointed BDO Seidman,
LLP, independent registered public accounting firm, to audit the consolidated
financial statements of the Company for the fiscal year ending December 31,
2005.
Deloitte & Touche LLP previously audited the Company's financial statements
from fiscal 1991 through the fiscal year ended January 3, 2004. Deloitte &
Touche LLP resigned effective as of August 23, 2004. BDO Seidman, LLP was
selected by the audit committee to serve as the Company's independent registered
public accounting firm effective as of September 3, 2004.
The reports of Deloitte & Touche LLP on the Company's financial statements
for the fiscal years ended December 28, 2002 and January 3, 2004 do not contain
an adverse opinion or a disclaimer of opinion, and are not qualified or modified
as to uncertainty, audit scope or accounting principles, except that such
reports include an explanatory paragraph relating to a change in method of
accounting for goodwill and other intangible assets.
During the fiscal years ended December 28, 2002 and January 3, 2004, and
through August 23, 2004, there were no disagreements between the Company and
Deloitte & Touche LLP on any matter of accounting principles or practices,
financial statements disclosure, or auditing scope or procedure which
disagreements, if not resolved to the satisfaction of Deloitte & Touche LLP,
would have caused Deloitte & Touche LLP to make reference thereto in the firm's
reports on the Company's financial statements for such periods. In addition, no
reportable events, as defined in Item 304 (a)(1)(v) of Regulation S-K, occurred
during the Company's two most recent fiscal years.
Representatives of BDO Seidman, LLP are expected to be present at the
Company's annual meeting with the opportunity to make a statement if they desire
to do so, and are also expected to be available to respond to appropriate
questions.
Audit Fees
The following table summarizes the aggregate fees that the Company expects
to pay BDO Seidman, LLP for fiscal 2004 and fees billed to the Company by
Deloitte & Touche LLP for fiscal 2003 and 2002.
Type of fees Fiscal 2004(5) Fiscal 2003 Fiscal 2002
---------- -------------- ----------- -----------
Audit Fees(1) $ 221,335 $ 263,680 $ 264,239
Audit-Related Fees(2) 4,400 -- --
Tax Fees(3) -- 127,690 222,255
All Other Fees(4) -- 7,500 --
-------------- ----------- -----------
Total Fees $ 225,735 $ 398,870 $ 486,494
============== =========== ===========
------------------------------
(1) Fees for audit services consist of:
o Audit of the Company's annual financial statements
o Reviews of the Company's quarterly financial statements
o Statutory and regulatory audits, consents and other services related
to Securities and Exchange Commission filings
(2) Fees for audit-related services billed in fiscal 2004 consisted of
consultations on Securities and Exchange Commission comment letters
(3) Fees for tax services billed in fiscal 2003 consisted of tax compliance
assistance, transfer pricing documentation and assistance with tax return
filings in certain foreign jurisdictions
(4) All other fees consisted of training on the requirements of Section 404 of
the Sarbanes-Oxley Act of 2002
(5) In fiscal 2004, Deloitte & Touche LLP billed the Company $74,036, $57,330,
$13,913 and $0 for audit, audit-related, tax and all other fees,
respectively.
30
In considering the nature of the services provided by the independent
registered public accountants, the audit committee determined that such services
are compatible with the provision of independent audit services. The audit
committee discussed these services with the independent registered public
accountants and the Company's management to determine that they are permitted
under the rules and regulations concerning auditors' independence promulgated by
the Securities and Exchange Commission to implement the Sarbanes-Oxley Act of
2002, as well as the American Institute of Certified Public Accountants.
Audit Committee Pre-Approval Policy
Pursuant to the audit committee charter, the audit committee must
pre-approve all audit and non-audit services, and the related fees, provided to
the Company by its independent auditors, or subsequently approve non-audit
services in those circumstances where a subsequent approval is necessary and
permissible under the Exchange Act or the rules of the Securities and Exchange
Commission. Accordingly, the audit committee pre-approved all services and fees
provided by Deloitte & Touche LLP and BDO Seidman, LLP during the year ended
January 1, 2005 and has concluded that the provision of these services is
compatible with the accountants' independence.
Matters Not Required to be Submitted to Security Holders
Approval by the shareholders of the selection of the independent registered
public accounting firm is not required, but the audit committee believes it is
desirable as a matter of good corporate governance to submit this matter to the
shareholders. If holders of a majority of the common stock represented and
voting at the annual meeting do not ratify the appointment of BDO Seidman, LLP
as the Company's independent registered public accounting firm for the fiscal
year ending December 31, 2005, the audit committee will consider whether it
should select another independent registered public accounting firm.
Vote Required
As a matter of good corporate governance, the Company is seeking the
affirmative vote of the holders of a majority of the shares of common stock
represented and voting at the annual meeting to approve this proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE "FOR"
THE RATIFICATION OF THE APPOINTMENT OF BDO SEIDMAN, LLP AS THE COMPANY'S
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING
DECEMBER 31, 2005.
31
OTHER MATTERS
The Company knows of no other matters to be submitted to the annual
meeting. If any other matters properly come before the annual meeting, it is the
intention of the persons named in the enclosed proxy card to vote the shares
they represent as the board of directors may recommend.
THE BOARD OF DIRECTORS
Dated: July __, 2005
32
NANOMETRICS INCORPORATED
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
2005 ANNUAL MEETING OF SHAREHOLDERS
August 26, 2005
The undersigned shareholder(s) of Nanometrics Incorporated, a California
corporation, hereby acknowledges receipt of the Notice of Annual Meeting of
Shareholders and Proxy Statement, each dated July __, 2005, and hereby appoints
Vincent J. Coates and Paul B. Nolan, and each of them, Proxies and
Attorneys-in-Fact, with full power to each of substitution, on behalf and in the
name of the undersigned, to represent the undersigned at the 2005 Annual Meeting
of Shareholders of Nanometrics Incorporated to be held on Friday, August 26,
2005 at 1:00 p.m., local time, at the principal offices of the Company located
at 1550 Buckeye Drive, Milpitas, California, 95035 and at any adjournments
thereof, and to vote all shares of common stock which the undersigned is
entitled to vote on the matters set forth below:
ITEM 1. Election of Directors:
( ) FOR all nominees listed below (except as indicated)
( ) WITHHOLD AUTHORITY to vote for all nominees listed below
IF YOU WISH TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE A
LINE THROUGH THAT NOMINEE'S NAME IN THE LIST BELOW:
Vincent J. Coates J. Thomas Bentley John D. Heaton
Stephen J Smith Edmond R. Ward William G. Oldham Norman V. Coates
ITEM 2. Proposal to approve the reincorporation of the Company under the laws
of the State of Delaware through a merger with Minor League Merger
Corporation, a wholly-owned subsidiary of the Company.
( ) FOR ( ) AGAINST ( ) ABSTAIN
ITEM 3. Proposal to approve the adoption of the Company's 2005 Employee Stock
Option Plan and the reservation of _________ shares of common stock
for issuance thereunder.
( ) FOR ( ) AGAINST ( ) ABSTAIN
ITEM 4. Proposal to ratify the appointment of BDO Seidman, LLP as the Company's
independent registered public accounting firm for the fiscal year
ending December 31, 2005:
( ) FOR ( ) AGAINST ( ) ABSTAIN
(Continued and to be signed, on reverse side)
(Continued from other side)
In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
THIS BALLOT WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS
INDICATED, WILL BE VOTED "FOR" THE ELECTION OF DIRECTORS NAMED HEREIN, "FOR" THE
PROPOSALS LISTED, AND AS SAID PROXIES DEEM ADVISABLE ON SUCH OTHER MATTERS AS
MAY COME BEFORE THE MEETING.
_____________________________________________________________
Typed or Printed Name(s)
_____________________________________________________________
Signature
_____________________________________________________________
Signature
_____________________________________________________________
Title, if applicable
_______________________________
Type and Number of Shares owned
Dated:___________________, 2005
THIS PROXY SHOULD BE MARKED, DATED, SIGNED BY THE SHAREHOLDER(S) EXACTLY AS HIS
OR HER NAME APPEARS HEREON AND RETURNED PROMPTLY IN THE ENCLOSED ENVELOPE.
PERSONS SIGNING IN A FIDUCIARY CAPACITY SHOULD SO INDICATE. IF SHARES ARE HELD
BY JOINT TENANTS OR AS COMMUNITY PROPERTY, BOTH SHOULD SIGN.
APPENDIX A
NANOMETRICS INCORPORATED
2005 EQUITY INCENTIVE PLAN
1. Purposes of the Plan. The purposes of this Plan are:
o to attract and retain the best available personnel for positions of
substantial responsibility,
o to provide additional incentive to Service Providers, and
o to promote the success of the Company's business.
Awards granted under the Plan may be Incentive Stock Options,
Nonstatutory Stock Options, Restricted Stock, Stock Appreciation Rights,
Performance Shares and Restricted Stock Units, as determined by the
Administrator at the time of grant.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of its Committees as shall
be administering the Plan, in accordance with Section 4 of the Plan.
(b) "Annual Revenue" means the Company's or a business unit's net sales
for the Fiscal Year, determined in accordance with generally accepted accounting
principles.
(c) "Applicable Laws" means the requirements relating to the
administration of equity compensation plans under U.S. state corporate laws,
U.S. federal and state securities laws, the Code, any stock exchange or
quotation system on which the Common Stock is listed or quoted and the
applicable laws of any other country or jurisdiction where Awards are, or will
be, granted under the Plan.
(d) "Award" means, individually or collectively, a grant under the Plan
of Options, Restricted Stock, Stock Appreciation Rights, Performance Shares or
Restricted Stock Units.
(e) "Award Agreement" means the written or electronic agreement setting
forth the terms and provisions applicable to each Award granted under the Plan.
The Award Agreement is subject to the terms and conditions of the Plan.
(f) "Awarded Stock" means the Common Stock subject to an Award.
(g) "Board" means the Board of Directors of the Company.
(h) "Cash Position" means the Company's level of cash and cash
equivalents.
(i) "Change in Control" means the occurrence of any of the following
events, in one or a series of related transactions:
(i) any "person," as such term is used in Sections 13(d) and 14(d)
of the Exchange Act, other than the Company, a subsidiary of the Company or a
Company employee benefit plan, including any trustee of such plan acting as
trustee, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of the Company
representing fifty percent (50%) or more of the combined voting power of the
Company's then outstanding securities entitled to vote generally in the election
of directors; or
(ii) the consummation of a merger or consolidation of the Company
or any direct or indirect subsidiary of the Company with any other corporation,
other than a merger or consolidation which would result in the voting securities
of the Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting securities of
the surviving entity) at least fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation; or
(iii) the sale or disposition by the Company of all or
substantially all the Company's assets; or
(iv) a change in the composition of the Board, as a result of which
fewer than a majority of the directors are Incumbent Directors. "Incumbent
Directors" shall mean directors who either (A) are Directors as of the date this
Plan is approved by the Board, or (B) are elected, or nominated for election, to
the Board with the affirmative votes of at least a majority of the Incumbent
Directors and whose election or nomination was not in connection with any
transaction described in (i) or (ii) above or in connection with an actual or
threatened proxy contest relating to the election of directors of the Company.
(j) "Code" means the Internal Revenue Code of 1986, as amended.
(k) "Committee" means a committee of Directors appointed by the Board
in accordance with Section 4 of the Plan.
(l) "Common Stock" means the common stock of the Company.
(m) "Company" means Nanometrics Incorporated, a California corporation.
(n) "Consultant" means any person, including an advisor, engaged by the
Company or a Parent or Subsidiary to render services and who is compensated for
such services.
-2-
(o) "Continuous Status as a Service Provider" means the absence of any
interruption or termination of the employment or service relationship with the
Company or any Subsidiary. Continuous Status as a Service Provider shall not be
considered interrupted in the case of (i) medical leave, military leave, family
leave, or any other leave of absence approved by the Administrator, provided, in
each case, that such leave does not result in termination of the employment and
service relationship with the Company or any Subsidiary, as the case may be,
under the terms of the respective Company policy for such leave; however,
vesting may be tolled while a Service Provider is on an approved leave of
absence under the terms of the respective Company policy for such leave; or (ii)
in the case of transfers between locations of the Company or between the
Company, its Parent or any Subsidiary, or any successor. For purposes of
Incentive Stock Options, no such leave may exceed ninety days, unless
reemployment upon expiration of such leave is guaranteed by statute or contract.
If reemployment upon expiration of a leave of absence approved by the Company is
not so guaranteed, then three (3) months following the 91st day of such leave
any Incentive Stock Option held by the Participant shall cease to be treated as
an Incentive Stock Option and shall be treated for tax purposes as a
Nonstatutory Stock Option.
(p) "Director" means a member of the Board.
(q) "Disability" means total and permanent disability as defined in
Section 22(e)(3) of the Code.
(r) "Dividend Equivalent" means a credit, payable in cash, made at the
discretion of the Administrator, to the account of a Participant in an amount
equal to the cash dividends paid on one Share for each Share represented by an
Award held by such Participant.
(s) "Earnings Per Share" means as to any Performance Period, the
Company's or a business unit's Net Income, divided by a weighted average number
of common shares outstanding and dilutive common equivalent shares deemed
outstanding, determined in accordance with generally accepted accounting
principles.
(t) "Employee" means any person, including Officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. Neither
service as a Chairman nor as a Director nor payment of a director's fee by the
Company shall be sufficient to constitute "employment" by the Company.
(u) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(v) "Exchange Program" means a program under which (i) outstanding
Awards are surrendered or cancelled in exchange for Awards of the same type
(which may have lower exercise prices and different terms), Awards of a
different type, and/or cash, and/or (ii) the exercise price of an outstanding
Award is reduced. The terms and conditions of any Exchange Program will be
determined by the Administrator in its sole discretion.
-3-
(w) "Fair Market Value" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock exchange
or a national market system, including without limitation the Nasdaq National
Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market
Value shall be the closing sales price for such stock (or the closing bid, if no
sales were reported) as quoted on such exchange or system, on the last market
trading day prior to the date of determination, as reported in The Wall Street
Journal or such other source as the Administrator deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the last market trading day prior to the date of
determination; or
(iii) In the absence of an established market for the Common Stock,
the Fair Market Value shall be determined in good faith by the Administrator.
(x) "Fiscal Year" means a fiscal year of the Company.
(y) "Individual Performance Objective" means as to a Participant, the
objective and measurable goals set by a "management by objectives" process and
approved by the Committee (in its discretion).
(z) "Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder and is expressly designated by the
Administrator at the time of grant as an incentive stock option.
(aa) "Marketing and Sales Expenses as a Percentage of Sales" means as
to any Performance Period, the Company's or a business unit's marketing and
sales expenses stated as a percentage of sales, determined in accordance with
generally accepted accounting principles.
(bb) "Net Income as a Percentage of Sales" means as to any Performance
Period, the Company's or a business unit's Net Income stated as a percentage of
sales, determined in accordance with generally accepted accounting principles.
(cc) "Net Income" means as to any Performance Period, the income after
taxes of the Company or a business unit determined in accordance with generally
accepted accounting principles, provided that prior to the beginning of the
Performance Period, the Committee shall determine whether any significant
item(s) shall be included or excluded from the calculation of Net Income with
respect to one or more Participants.
(dd) "Nonstatutory Stock Option" means an Option that by its terms does
not qualify or is not intended to qualify as an Incentive Stock Option.
(ee) "Officer" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
-4-
(ff) "Operating Cash Flow" means the Company's or a business unit's sum
of Net Income plus depreciation and amortization less capital expenditures plus
changes in working capital comprised of accounts receivable, inventories, other
current assets, trade accounts payable, accrued expenses, product warranty,
advance payments from customers and long-term accrued expenses, determined in
accordance with generally acceptable accounting principles.
(gg) "Operating Income" means the Company's or a business unit's income
from operations determined in accordance with generally accepted accounting
principles.
(hh) "Outside Director" means a Director who is not an Employee.
(ii) "Option" means a stock option granted pursuant to the Plan.
(jj) "Participant" means the holder of an outstanding Award granted
under the Plan.
(kk) "Parent" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(ll) "Performance Goals" means the goal(s) (or combined goal(s))
determined by the Committee (in its discretion) to be applicable to a
Participant with respect to an Award. As determined by the Committee, the
Performance Goals applicable to an Award may provide for a targeted level or
levels of achievement using one or more of the following measures: (a) Annual
Revenue, (b) Cash Position, (c) Earnings Per Share, (d) Individual Performance
Objectives, (e) Marketing and Sales Expenses as a Percentage of Sales, (f) Net
Income as a Percentage of Sales, (g) Net Income, (h) Operating Cash Flow, (i)
Operating Income, (j) Return on Assets, (k) Return on Equity, (l) Return on
Sales, and (m) Total Shareholder Return. The Performance Goals may differ from
Participant to Participant and from Award to Award. The Committee shall
appropriately adjust any evaluation of performance under a Performance Goal to
exclude (i) any extraordinary non-recurring items as described in Accounting
Principles Board Opinion No. 30 and/or in management's discussion and analysis
of financial conditions and results of operations appearing in the Company's
annual report to shareholders for the applicable year, or (ii) the effect of any
changes in accounting principles affecting the Company's or a business units'
reported results. Any criteria used may be measured, as applicable, (i) in
absolute terms, (ii) in relative terms (including, but not limited to, passage
of time and/or against another company or companies), (iii) on a per-share
basis, (iv) against the performance of the Company as a whole or of a business
unit of the Company, and/or (v) to the extent not otherwise specified by the
definition of the Performance Goal, on a pre-tax or after-tax basis.
(mm) "Performance Period" means the time period of any Fiscal Year or
such longer period as determined by the Committee in its sole discretion during
which the performance objectives must be met.
(nn) "Performance Share" means a performance share Award granted to a
Participant pursuant to Section 14.
-5-
(oo) "Period of Restriction" means the period during which the transfer
of Shares of Restricted Stock are subject to restrictions and therefore, the
Shares are subject to a substantial risk of forfeiture. Such restrictions may be
based on the passage of time (including the continuation of employment or
service), the achievement of target levels of performance, or the occurrence of
other events as determined by the Administrator.
(pp) "Plan" means this 2005 Equity Incentive Plan.
(qq) "Restricted Stock" means shares of Common Stock granted pursuant
to Section 12 of the Plan, as evidenced by an Award Agreement.
(rr) "Restricted Stock Unit" means a bookkeeping entry representing an
amount equal to the Fair Market Value of one Share, granted pursuant to Section
13. Each Restricted Stock Unit represents an unfunded and unsecured obligation
of the Company.
(ss) "Return on Assets" means the percentage equal to the Company's or
a business unit's Operating Income before incentive compensation, divided by
average net Company or business unit, as applicable, assets, determined in
accordance with generally accepted accounting principles.
(tt) "Return on Equity" means the percentage equal to the Company's Net
Income divided by average shareholder's equity, determined in accordance with
generally accepted accounting principles.
(uu) "Return on Sales" means the percentage equal to the Company's or a
business unit's Operating Income before incentive compensation, divided by the
Company's or the business unit's, as applicable, revenue, determined in
accordance with generally accepted accounting principles.
(vv) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any successor
to Rule 16b-3, as in effect when discretion is being exercised with respect to
the Plan.
(ww) "Section 16(b)" means Section 16(b) of the Exchange Act.
(xx) "Service Provider" means an Employee, Director or Consultant.
(yy) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 17 of the Plan.
(zz) "Stock Appreciation Right" or "SAR" means a stock appreciation
right granted pursuant to Section 10 below.
(aaa) "Subsidiary" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Code.
-6-
(bbb) "Total Shareholder Return" means the total return (change in
share price plus reinvestment of any dividends) of a share of the Company's
common stock.
3. Stock Subject to the Plan. Subject to the provisions of Section 17 of
the Plan, the maximum aggregate number of Shares which may issued under the Plan
is 1,200,000 Shares, plus an annual increase to be added on the first day of the
Company's Fiscal Year for three years beginning in 2006 and ending after the
2008 annual increase equal to the least of (i) 3% of the outstanding Shares on
such date or (ii) an amount determined by the Board. The Shares may be
authorized, but unissued, or reacquired Common Stock.
Any Shares subject to Options or SARs shall be counted against the
numerical limits of this Section 3 as one Share for every Share subject thereto.
Any Shares of Restricted Stock or Shares subject to Performance Shares or
Restricted Stock Units with a per share or unit purchase price lower than 100%
of Fair Market Value on the date of grant shall be counted against the numerical
limits of this Section 3 as two Shares for every one Share subject thereto. To
the extent that a Share that was subject to an Award that counted as two Shares
against the Plan reserve pursuant to the preceding sentence is recycled back
into the Plan under the next paragraph of this Section 3, the Plan shall be
credited with two Shares.
If an Award expires or becomes unexercisable without having been exercised
in full or is surrendered pursuant to an Exchange Program, or, with respect to
Options, Restricted Stock, Performance Shares or Restricted Stock Units, is
forfeited to or repurchased by the Company, the unpurchased Shares (or for
Awards other than Options and SARs, the forfeited or repurchased shares) which
were subject thereto shall become available for future grant or sale under the
Plan (unless the Plan has terminated). With respect to SARs, Shares actually
issued pursuant to an SAR as well as the Shares withheld to pay the exercise
price shall cease to be available under the Plan. Shares that have actually been
issued under the Plan under any Award shall not be returned to the Plan and
shall not become available for future distribution under the Plan; provided,
however, that if Shares of Restricted Stock, Performance Shares or Restricted
Stock Units are repurchased by the Company at their original purchase price or
are forfeited to the Company, such Shares shall become available for future
grant under the Plan. Shares used to pay the exercise price of an Option or the
purchase price of Restricted Stock shall not become available for future grant
or sale under the Plan. Shares used to satisfy tax withholding obligations shall
not become available for future grant or sale under the Plan. To the extent an
Award under the Plan is paid out in cash rather than stock, such cash payment
shall not reduce the number of Shares available for issuance under the Plan. Any
payout of Dividend Equivalents, because they are payable only in cash, shall not
reduce the number of Shares available for issuance under the Plan. Conversely,
any forfeiture of Dividend Equivalents shall not increase the number of Shares
available for issuance under the Plan.
4. Administration of the Plan.
(a) Procedure.
(i) Multiple Administrative Bodies. The Board or different
Committees with respect to different groups of Service Providers may administer
the Plan.
-7-
(ii) Section 162(m). To the extent that the Administrator
determines it to be desirable to qualify Awards granted hereunder as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.
(iii) Rule 16b-3. To the extent desirable to qualify transactions
hereunder as exempt under Rule 16b-3, the transactions contemplated hereunder
shall be structured to satisfy the requirements for exemption under Rule 16b-3.
(iv) Other Administration. Other than as provided above, the Plan
shall be administered by (a) the Board or (b) a Committee, which committee shall
be constituted to satisfy Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the Plan,
and in the case of a Committee, subject to the specific duties delegated by the
Board to such Committee, the Administrator shall have the authority, in its
discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Awards may be granted
hereunder;
(iii) to determine the number of shares of Common Stock or
equivalent units to be covered by each Award granted hereunder;
(iv) to approve forms of Award Agreement for use under the Plan;
(v) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any Award granted hereunder. Such terms and conditions
include, but are not limited to, the exercise price, the date of grant, the time
or times when Awards may be exercised (or are earned) (which may be based on
performance criteria), any vesting acceleration or waiver of forfeiture
restrictions, and any restriction or limitation regarding any Award or the
Shares relating thereto, based in each case on such factors as the
Administrator, in its sole discretion, shall determine;
(vi) to institute an Exchange Program; however, the Administrator
may not institute an Exchange Program without shareholder approval.
(vii) to construe and interpret the terms of the Plan and Awards
granted pursuant to the Plan;
(viii) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of satisfying applicable foreign laws and/or
qualifying for preferred tax treatment under foreign tax laws;
-8-
(ix) to modify or amend each Award (subject to Section 19(c) of the
Plan), including the discretionary authority to extend the post-termination
exercisability period of Options and SARs longer than is otherwise provided for
in the Plan;
(x) to allow Participants to satisfy withholding tax obligations by
electing to have the Company withhold from the Shares or cash to be issued upon
exercise of an Option, SAR or right to purchase Restricted Stock or upon vesting
or payout of another Award, that number of Shares or cash having a Fair Market
Value equal to the minimum amount required to be withheld. The Fair Market Value
of the Shares to be withheld shall be determined on the date that the amount of
tax to be withheld is to be determined. All elections by a Participant to have
Shares or cash withheld for this purpose shall be made in such form and under
such conditions as the Administrator may deem necessary or advisable;
(xi) to determine whether Awards will be adjusted for Dividend
Equivalents;
(xii) to authorize any person to execute on behalf of the Company
any instrument required to effect the grant of an Award previously granted by
the Administrator; and
(xiii) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) Effect of Administrator's Decision. The Administrator's decisions,
determinations and interpretations shall be final and binding on all
Participants and any other holders of Awards.
5. Eligibility. Awards may be granted to Service Providers; provided,
however, that Incentive Stock Options may be granted only to Employees.
6. No Employment Rights. Neither the Plan nor any Award shall confer upon a
Participant any right with respect to continuing the Participant's relationship
as an Employee or other Service Provider with the Company or its Subsidiaries,
nor shall they interfere in any way with the Participant's right or the
Company's or Subsidiary's right, as the case may be, to terminate such
relationship at any time, with or without cause.
7. Code Section 162(m) Provisions.
(a) Option and SAR Annual Share Limit. No Participant shall be granted,
in any Fiscal Year, Options and Stock Appreciation Rights to purchase more than
500,000 Shares; provided, however, that such limit shall be 250,000 Shares in
the Participant's first Fiscal Year of Company service.
(b) Restricted Stock, Performance Share and Restricted Stock Unit
Annual Limit. No Participant shall be granted, in any Fiscal Year, more than
250,000 Shares in the aggregate of the following: (i) Restricted Stock, (ii)
Performance Shares, or (iii) Restricted Stock Units; provided, however, that
such limit shall be 125,000 Shares in the Participant's first Fiscal Year of
Company service.
-9-
(c) Section 162(m) Performance Restrictions. For purposes of qualifying
grants of Restricted Stock, Performance Shares or Restricted Stock Units as
"performance-based compensation" under Section 162(m) of the Code, the
Administrator, in its discretion, may set restrictions based upon the
achievement of Performance Goals. The Performance Goals shall be set by the
Administrator on or before the latest date permissible to enable the Restricted
Stock, Performance Shares or Restricted Stock Units to qualify as
"performance-based compensation" under Section 162(m) of the Code. In granting
Restricted Stock, Performance Shares or Restricted Stock Units which are
intended to qualify under Section 162(m) of the Code, the Administrator shall
follow any procedures determined by it from time to time to be necessary or
appropriate to ensure qualification of the Award under Section 162(m) of the
Code (e.g., in determining the Performance Goals).
(d) Changes in Capitalization. The numerical limitations in Sections
7(a) and (b) shall be adjusted proportionately in connection with any change in
the Company's capitalization as described in Section 17(a).
(e) If an Award is cancelled in the same Fiscal Year in which it was
granted (other than in connection with a transaction described in Section 17 of
the Plan), the cancelled Award will be counted against the limits set forth in
subsections (a) and (b) above. For this purpose, if the exercise price of an
Option is reduced, the transaction will be treated as a cancellation of the
Option and the grant of a new Option.
8. Term of Plan. Subject to Section 23 of the Plan, the Plan will become
effective upon its adoption by the Board. It will continue in effect for a term
of ten (10) years unless terminated earlier under Section 19 of the Plan.
9. Stock Options.
(a) Type of Option. Each Option shall be designated in the Award
Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option.
However, not withstanding such designation, to the extent that the aggregate
Fair Market Value of the Shares with respect to which Incentive Stock Options
are exercisable for the first time by the Participant during any calendar year
(under all plans of the Company and any Parent or Subsidiary) exceeds $100,000,
such Options shall be treated as Nonstatutory Stock Options. For purposes of
this Section 9(a), Incentive Stock Options shall be taken into account in the
order in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(b) Term. The term of each Option shall be stated in the Award
Agreement. In the case of an Incentive Stock Option, the term shall be ten (10)
years from the date of grant or such shorter term as may be provided in the
Award Agreement. Moreover, in the case of an Incentive Stock Option granted to a
Participant who, at the time the Incentive Stock Option is granted, owns stock
representing more than ten percent (10%) of the total combined voting power of
-10-
all classes of stock of the Company or any Parent or Subsidiary, the term of the
Incentive Stock Option shall be five (5) years from the date of grant or such
shorter term as may be provided in the Award Agreement.
(c) Option Exercise Price and Consideration.
(i) Exercise Price. The per Share exercise price for the Shares to
be issued pursuant to exercise of an Option will be determined by the
Administrator, subject to the following:
(1) In the case of an Incentive Stock Option granted to an
Employee who, at the time the Incentive Stock Option is granted, owns stock
representing more than ten percent (10%) of the voting power of all classes of
stock of the Company or any Parent or Subsidiary, the per Share exercise price
will be no less than 110% of the Fair Market Value per Share on the date of
grant.
(2) In the case of all other Options, the per Share exercise
price will be no less than 100% of the Fair Market Value per Share on the date
of grant.
(3) Notwithstanding the foregoing, Options may be granted
with a per Share exercise price of less than 100% of the Fair Market Value per
Share on the date of grant pursuant to a merger or other corporate transaction.
(ii) Waiting Period and Exercise Dates. At the time an Option is
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions which must be satisfied before the
Option may be exercised.
(iii) Form of Consideration. The Administrator shall determine the
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Subject to
Applicable Laws, such consideration may consist entirely of:
(1) cash;
(2) check;
(3) promissory note;
(4) other Shares which have a Fair Market Value on the date
of surrender equal to the aggregate exercise price of the Shares as to which
said Option shall be exercised and which meet the conditions established by the
Administrator to avoid adverse accounting consequences (as determined by the
Administrator);
-11-
(5) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan;
(6) a reduction in the amount of any Company liability to the
Participant, including any liability attributable to the Participant's
participation in any Company-sponsored deferred compensation program or
arrangement;
(7) any combination of the foregoing methods of payment;
(8) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws; or
(9) any combination of the foregoing methods of payment.
10. Stock Appreciation Rights.
(a) Grant of SARs. Subject to the terms and conditions of the Plan, a
SAR may be granted to Service Providers at any time and from time to time as
will be determined by the Administrator, in its sole discretion.
(b) Number of Shares. The Administrator will have complete discretion
to determine the number of SARs granted to any Service Provider, subject to the
limits set forth in Section 7.
(c) Exercise Price and Other Terms. The Administrator, subject to the
provisions of the Plan, will have complete discretion to determine the terms and
conditions of SARs granted under the Plan.
(d) Exercise of SARs. SARs will be exercisable on such terms and
conditions as the Administrator, in its sole discretion, will determine.
(e) SAR Agreement. Each SAR grant will be evidenced by an Award
Agreement that will specify the exercise price, the term of the SAR, the
conditions of exercise, and such other terms and conditions as the
Administrator, in its sole discretion, will determine.
(f) Expiration of SARs. An SAR granted under the Plan will expire upon
the date determined by the Administrator, in its sole discretion, and set forth
in the Award Agreement; provided, however, that no SAR will have a term of more
than ten (10) years fom the date of grant.
(g) Payment of SAR Amount. Upon exercise of an SAR, a Participant will
be entitled to receive payment from the Company in an amount determined by
multiplying:
(i) The difference between the Fair Market Value of a Share on the
date of exercise over the exercise price; times
(ii) The number of Shares with respect to which the SAR is
exercised.
-12-
(h) Form of Payment. The Company's obligation arising upon the exercise
of a SAR may be paid in Common Stock or in cash, or in any combination of Common
Stock and cash, as the Administrator, in its sole discretion, may determine.
Shares issued upon the exercise of a SAR shall be valued at their Fair Market
Value as of the date of exercise.
11. Exercise of Option or SAR.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option or SAR
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Award Agreement. An Option may not be exercised for a fraction of a
Share.
An Option or SAR shall be deemed exercised when the Company receives: (i)
written or electronic notice of exercise (in accordance with the terms of the
Option or SAR) from the person entitled to exercise the Option or SAR, and (ii)
full payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Award Agreement and the Plan. Shares issued
upon exercise of an Option or SAR shall be issued in the name of the Participant
or, if requested by the Participant, in the name of the Participant and his or
her spouse. Until the Shares are issued (as evidenced by the appropriate entry
on the books of the Company or of a duly authorized transfer agent of the
Company), no right to vote or receive dividends or any other rights as a
shareholder shall exist with respect to the Awarded Stock, notwithstanding the
exercise of the Option. The Company shall issue or cause to be issued (and which
issuance may be in electronic entry form) such Shares promptly after the Option
is exercised. No adjustment will be made for a dividend or other right for which
the record date is prior to the date the Shares are issued, except as provided
in Section 17 of the Plan.
Exercising an Option in any manner shall decrease the number of Shares
thereafter available, both for purposes of the Plan and for sale under the
Option, by the number of Shares as to which the Option is exercised. Exercise of
a SAR in any manner shall, to the extent the SAR is exercised, result in a
decrease in the number of Shares which thereafter shall be available for
purposes of the Plan, and the SAR shall cease to be exercisable to the extent it
has been exercised.
(b) Termination of Continuous Status as a Service Provider. Upon
termination of a Participant's Continuous Status as a Service Provider (other
than termination by reason of the Participant's death or Disability), the
Participant may exercise his or her Option or SAR within such period of time as
is specified in the Award Agreement to the extent that the Award is vested on
the date of termination (but in no event later than the expiration of the term
of such Award as set forth in the Award Agreement). In the absence of a
specified time in the Option Agreement, the Option shall remain exercisable for
three (3) months following the Participant's termination. If the Option or SAR
is not so exercised within the time specified herein, the Option or SAR shall
terminate, and the Shares covered by such Option or SAR shall revert to the
Plan. Unless otherwise provided by the Administrator, if on the date of
termination the Participant is not vested as to his or her entire Option or SAR,
the Shares covered by the unvested portion of the Option or SAR will revert to
the Plan on the date one (1) month following the Participant's termination.
Notwithstanding the foregoing, in no event shall an Option or SAR be exercisable
after the expiration of the term of the Award as provided in the Award
Agreement.
-13-
(c) Disability of Participant. If a Participant terminates his or her
Continuous Status as a Service Provider as a result of his or her Disability,
the Participant may exercise his or her Option or SAR within such period of time
as is specified in the Award Agreement to the extent the Option or SAR is vested
on the date of termination (but in no event later than the expiration of the
term of such Option or SAR as set forth in the Award Agreement). In the absence
of a specified time in the Award Agreement, the Option or SAR shall remain
exercisable for twelve (12) months following the Participant's termination. If,
after termination, the Participant does not exercise his or her Option or SAR
within the time specified herein, the Option or SAR shall terminate, and the
Shares covered by such Option or SAR shall revert to the Plan. Unless otherwise
provided by the Administrator, if on the date of termination the Participant is
not vested as to his or her entire Option or SAR, the Shares covered by the
unvested portion of the Option or SAR will revert to the Plan on the date one
(1) month following the Participant's termination. Notwithstanding the
foregoing, in no event shall an Option or SAR be exercisable after the
expiration of the term of the Award as provided in the Award Agreement.
(d) Death of Participant. If a Participant dies while a Service
Provider, the Option or SAR may be exercised following the Participant's death
within such period of time as is specified in the Award Agreement (but in no
event may the option be exercised later than the expiration of the term of such
Option or SAR as set forth in the Award Agreement), by the Participant's
designated beneficiary, provided such beneficiary has been designated prior to
Participant's death in a form acceptable to the Administrator. If no such
beneficiary has been designated by the Participant, then such Option may be
exercised by the personal representative of the Participant's estate or by the
person(s) to whom the Option or SAR is transferred pursuant to the Participant's
will or in accordance with the laws of descent and distribution. In the absence
of a specified time in the Award Agreement, the Option or SAR shall remain
exercisable for twelve (12) months following Participant's death. If the Option
or SAR is not so exercised within the time specified herein, the Option or SAR
shall terminate, and the Shares covered by such Option or SAR shall revert to
the Plan. Unless otherwise provided by the Administrator, if on the date of
termination the Participant is not vested as to his or her entire Option or SAR,
the Shares covered by the unvested portion of the Option or SAR will revert to
the Plan on the date one (1) month following the Participant's termination.
Notwithstanding the foregoing, in no event shall an Option or SAR be exercisable
after the expiration of the term of the Award as provided in the Award
Agreement.
12. Restricted Stock.
(a) Grant of Restricted Stock. Subject to the terms and provisions of
the Plan (including the limits set forth in Section 7), the Administrator, at
any time and from time to time, may grant Shares of Restricted Stock to Service
Providers in such amounts as the Administrator, in its sole discretion, will
determine.
(b) Restricted Stock Agreement. Each Award of Restricted Stock will be
evidenced by an Award Agreement that will specify the Period of Restriction, the
number of Shares granted, and such other terms and conditions as the
-14-
Administrator, in its sole discretion, will determine. Unless the Administrator
determines otherwise, Shares of Restricted Stock will be held by the Company as
escrow agent until the restrictions on such Shares have lapsed.
(c) Transferability. Unless determined otherwise by the Administrator,
Shares of Restricted Stock may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution until the end of the applicable Period of Restriction.
(d) Other Restrictions. The Administrator, in its sole discretion, may
impose such other restrictions on Shares of Restricted Stock as it may deem
advisable or appropriate.
(i) General Restrictions. The Administrator may set restrictions
based upon the achievement of Company-wide, departmental, business unit, or
individual goals (including, but not limited to, continued employment or
service), applicable federal or state securities laws, or any other basis
determined by the Administrator in its discretion.
(ii) Section 162(m) Performance Restrictions. For purposes of
qualifying grants of Restricted Stock as "performance-based compensation" under
Section 162(m) of the Code, the Committee, in its discretion, may set
restrictions based upon the achievement of Performance Goals. The Performance
Goals shall be set by the Committee on or before the latest date permissible to
enable the Restricted Stock to qualify as "performance-based compensation" under
Section 162(m) of the Code. In granting Restricted Stock which is intended to
qualify under Section 162(m) of the Code, the Committee shall follow any
procedures determined by it from time to time to be necessary or appropriate to
ensure qualification of the Restricted Stock under Section 162(m) of the Code
(e.g., in determining the Performance Goals).
(e) Removal of Restrictions. Except as otherwise provided in this
Section 12, Shares of Restricted Stock covered by each Restricted Stock grant
made under the Plan will be released from escrow as soon as practicable after
the last day of the Period of Restriction. The Administrator, in its discretion,
may accelerate the time at which any restrictions will lapse or be removed.
(f) Voting Rights. During the Period of Restriction, Service Providers
holding Shares of Restricted Stock granted hereunder may exercise full voting
rights with respect to those Shares, unless the Administrator determines
otherwise.
(g) Dividends and Other Distributions. During the Period of
Restriction, Service Providers holding Shares of Restricted Stock will be
entitled to receive all dividends and other distributions paid with respect to
such Shares unless otherwise provided in the Award Agreement. If any such
dividends or distributions are paid in Shares, the Shares will be subject to the
same restrictions on transferability and forfeitability as the Shares of
Restricted Stock with respect to which they were paid.
-15-
(h) Return of Restricted Stock to Company. On the date set forth in the
Award Agreement, the Restricted Stock for which restrictions have not lapsed
will revert to the Company and again will become available for grant under the
Plan.
13. Restricted Stock Units.
(a) Grant. Restricted Stock Units may be granted at any time and from
time to time as determined by the Administrator. Each Restricted Stock Unit
grant shall be evidenced by an Award Agreement that shall specify such other
terms and conditions as the Administrator, in its sole discretion, shall
determine, including all terms, conditions, and restrictions related to the
grant, the number of Restricted Stock Units (subject to the limitations set
forth in Section 7) and the form of payout, which, subject to Section 13(d), may
be left to the discretion of the Administrator.
(b) Vesting Criteria and Other Terms. The Administrator shall set
vesting criteria in its discretion, which, depending on the extent to which the
criteria are met, will determine the number of Restricted Stock Units that will
be paid out to the Participant.
(i) General Restrictions. The Administrator may set vesting
criteria based upon the achievement of Company-wide, departmental, business
unit, or individual goals (including, but not limited to, continued employment
or service), applicable federal or state securities laws, or any other basis
determined by the Administrator in its discretion.
(ii) Section 162(m) Performance Restrictions. For purposes of
qualifying grants of Restricted Stock Units as "performance-based compensation"
under Section 162(m) of the Code, the Committee, in its discretion, may set
performance objectives based upon the achievement of Performance Goals. The
Performance Goals shall be set by the Committee on or before the latest date
permissible to enable the Restricted Stock Units to qualify as
"performance-based compensation" under Section 162(m) of the Code. In granting
Restricted Stock Units that are intended to qualify under Section 162(m) of the
Code, the Committee shall follow any procedures determined by it from time to
time to be necessary or appropriate to ensure qualification of the Restricted
Stock Units under Section 162(m) of the Code (e.g., in determining the
Performance Goals).
(c) Earning Restricted Stock Units. Upon meeting the applicable vesting
criteria, the Participant shall be entitled to receive a payout as specified in
the Award Agreement. Notwithstanding the foregoing, at any time after the grant
of Restricted Stock Units, the Administrator, in its sole discretion, may reduce
or waive any vesting criteria that must be met to receive a payout.
(d) Form and Timing of Payment. Payment of earned Restricted Stock
Units shall be made as soon as practicable after the date(s) set forth in the
Award Agreement. The Administrator, in its sole discretion, may pay earned
Restricted Stock Units in cash, Shares, or a combination thereof. Shares
represented by Restricted Stock Units that are fully paid in cash again shall be
available for grant under the Plan.
-16-
(e) Cancellation. On the date set forth in the Award Agreement, all
unearned Restricted Stock Units shall be forfeited to the Company.
14. Performance Shares.
(a) Grant of Performance Shares. Subject to the terms and conditions of
the Plan, Performance Shares may be granted to Service Providers at any time as
shall be determined by the Administrator, in its sole discretion. Subject to
Section 7 hereof, the Administrator shall have complete discretion to determine
the number of Shares subject to a Performance Share Award granted to any Service
Provider.
(b) Value of Performance Shares. Each Performance Share will have an
initial value equal to the Fair Market Value of a Share on the date of grant.
(c) Performance Objectives and Other Terms. The Administrator will set
performance objectives in its discretion which, depending on the extent to which
they are met, will determine the number or value of Performance Shares that will
be paid out to the Service Providers. Each Award of Performance Shares will be
evidenced by an Award Agreement that will specify the performance period during
which the applicable objectives must be met, and such other terms and conditions
as the Administrator, in its sole discretion, will determine.
(i) General Restrictions. The Administrator may set performance
objective based upon the achievement of Company-wide, departmental, business
unit, or individual goals (including, but not limited to, continued employment
or service), applicable federal or state securities laws, or any other basis
determined by the Administrator in its discretion.
(ii) Section 162(m) Performance Restrictions. For purposes of
qualifying grants of Performance Shares as "performance-based compensation"
under Section 162(m) of the Code, the Committee, in its discretion, may set
performance objectives based upon the achievement of Performance Goals. The
Performance Goals shall be set by the Committee on or before the latest date
permissible to enable the Performance Shares to qualify as "performance-based
compensation" under Section 162(m) of the Code. In granting Performance Shares
that are intended to qualify under Section 162(m) of the Code, the Committee
shall follow any procedures determined by it from time to time to be necessary
or appropriate to ensure qualification of the Performance Shares under Section
162(m) of the Code (e.g., in determining the Performance Goals).
(d) Earning of Performance Shares. After the applicable Performance
Period has ended, the holder of Performance Shares will be entitled to receive a
payout of the number of Performance Shares earned by the Participant over the
Performance Period, to be determined as a function of the extent to which the
corresponding performance objectives have been achieved. After the grant of a
Performance Share, the Administrator, in its sole discretion, may reduce or
waive any performance objectives for such Performance Share.
-17-
(e) Form and Timing of Payment of Performance Shares. Payment of earned
Performance Shares will be made as soon as practicable after the expiration of
the applicable Performance Period. The Administrator, in its sole discretion,
may pay earned Performance Shares in the form of cash, in Shares (which have an
aggregate Fair Market Value equal to the value of the earned Performance Shares
at the close of the applicable performance period) or in a combination thereof.
(f) Cancellation of Performance Shares. On the date set forth in the
Award Agreement, all unearned or unvested Performance Shares will be forfeited
to the Company, and again will be available for grant under the Plan.
15. Leaves of Absence. Unless the Administrator provides otherwise or
except as otherwise required by Applicable Laws, vesting of Awards granted
hereunder shall cease commencing on the first day of any unpaid leave of absence
and shall only recommence upon return to active service.
16. Transferability of Awards. Unless determined otherwise by the
Administrator or as otherwise provided in the Plan, an Award may not be sold,
pledged, assigned, hypothecated, transferred, or disposed of in any manner other
than by will or by the laws of descent or distribution, and may be exercised,
during the lifetime of the Participant, only by the Participant. If the
Administrator makes an Award transferable, such Award shall contain such
additional terms and conditions as the Administrator deems appropriate.
17. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
Change in Control.
(a) Changes in Capitalization. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Award and the number of shares of Common Stock which have been
authorized for issuance under the Plan but as to which no Awards have yet been
granted or which have been returned to the Plan upon cancellation or expiration
of an Award, as well as the price per share, if any, of Common Stock covered by
each such outstanding Award and the 162(m) fiscal year share issuance limits
under Sections 7(a) and (b) hereof shall, shall be proportionately adjusted for
any dividend or other distribution (whether in the form of cash, Shares, other
securities, or other property), recapitalization, stock split, reverse stock
split, reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase, or exchange of Shares or other securities of the Company, or other
change in the corporate structure of the Company affecting the Shares should the
Committee (in its sole discretion) determine such an adjustment to be
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan. Such adjustment
shall be made by the Board or the Committee, whose determination in that respect
shall be final, binding and conclusive. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to an Award.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, all outstanding Awards will terminate
-18-
immediately prior to the consummation of such proposed action, unless otherwise
provided by the Administrator. The Administrator in its discretion may provide
for a Participant to have the right to exercise his or her Option, SAR or right
to purchase Restricted Stock until ten (10) days prior to such transaction as to
all of the Awarded Stock covered thereby, including Shares as to which the Award
would not otherwise be exercisable. In addition, the Administrator may provide
that any Company repurchase option or forfeiture rights applicable to any Award
shall lapse 100%, and that any Award vesting shall accelerate 100%, provided the
proposed dissolution or liquidation takes place at the time and in the manner
contemplated. To the extent it has not been previously exercised (with respect
to Options, SARs and right to purchase Restricted Stock) or vested (with respect
to other Awards), an Award will terminate immediately prior to the consummation
of such proposed action.
(c) Merger or Change in Control. In the event of a merger or Change in
Control, each outstanding Award shall be assumed or an equivalent award
substituted by the successor corporation or a Parent or Subsidiary of the
successor corporation. In the event that the successor corporation refuses to
assume or substitute for the Award, the Participant shall (i) fully vest in and
have the right to exercise the Option, SAR or right to purchase Restricted Stock
as to all of the Awarded Stock, including Shares as to which it would not
otherwise be vested or exercisable, and (ii) fully earn and receive a payout
with respect to other Awards. If an Award is not assumed or substituted for in
the event of a merger or Change in Control, the Administrator shall notify the
Participant in writing or electronically that (i) the Option, SAR or right to
purchase Restricted Stock shall be fully vested and exercisable for a period of
fifteen (15) days from the date of such notice, and (ii) all outstanding
Options, SARs and rights to purchase Restricted Stock shall terminate upon the
expiration of such period and (iii) all other outstanding Awards shall be paid
out immediately prior to the merger or Change in Control. For the purposes of
this paragraph, the Award shall be considered assumed if, following the merger
or Change in Control, the assumed Award confers the right to purchase or
receive, for each Share of Awarded Stock subject to the Award immediately prior
to the merger or Change in Control, the consideration (whether stock, cash, or
other securities or property) received in the merger or Change in Control by
holders of Common Stock for each Share held on the effective date of the
transaction (and if holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the outstanding Shares);
provided, however, that if such consideration received in the merger or Change
in Control is not solely common stock of the successor corporation or its
Parent, the Administrator may, with the consent of the successor corporation,
provide for the consideration to be received upon the exercise (or payout or
vesting, as applicable) of the Award, for each Share of Awarded Stock subject to
the Award, to be solely common stock of the successor corporation or its Parent
equal in fair market value to the per share consideration received by holders of
Common Stock in the merger or Change in Control.
18. Date of Grant. The date of grant of an Award shall be, for all
purposes, the date on which the Administrator makes the determination granting
such Award, or such other later date as is determined by the Administrator.
Notice of the determination shall be provided to each Participant within a
reasonable time after the date of such grant.
19. Amendment and Termination of the Plan.
-19-
(a) Amendment and Termination. The Board may at any time amend, alter,
suspend or terminate the Plan.
(b) Shareholder Approval. The Plan will be subject to approval by the
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval will be obtained in the manner and to the
degree required under Applicable Laws. The Company shall obtain shareholder
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.
(c) Effect of Amendment or Termination. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any
Participant, unless mutually agreed otherwise between the Participant and the
Administrator, which agreement must be in writing (or electronic format) and
signed by the Participant and the Company. Termination of the Plan shall not
affect the Administrator's ability to exercise the powers granted to it
hereunder with respect to Awards granted under the Plan prior to the date of
such termination.
20. Conditions Upon Issuance of Shares.
(a) Legal Compliance. Shares shall not be issued pursuant to the
exercise or payout, as applicable, of an Award unless the exercise or payout, as
applicable, of such Award and the issuance and delivery of such Shares shall
comply with Applicable Laws and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
(b) Investment Representations. As a condition to the exercise or
payout, as applicable, of an Award, the Company may require the person
exercising such Option, SAR or right to purchase Restricted Stock, or in the
case of another Award, the person receiving the payout, to represent and warrant
at the time of any such exercise that the Shares are being purchased only for
investment and without any present intention to sell or distribute such Shares
if, in the opinion of counsel for the Company, such a representation is
required.
21. Inability to Obtain Authority. The inability of the Company to obtain
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
22. Severability. Notwithstanding any contrary provision of the Plan or an
Award to the contrary, if any one or more of the provisions (or any part
thereof) of this Plan or the Awards shall be held invalid, illegal or
unenforceable in any respect, such provision shall be modified so as to make it
valid, legal and enforceable, and the validity, legality and enforceability of
the remaining provisions (or any part thereof) of the Plan or Award, as
applicable, shall not in any way be affected or impaired thereby.
23. Shareholder Approval. Subject to Section 19 of the Plan, the Plan will
become effective upon its adoption by the Board. It will continue in effect for
-20-
a term of five (5) years from the date of approval by the shareholders of the
Company unless terminated earlier under Section 19 of the Plan.
24. Non-U.S. Employees. Notwithstanding anything in the Plan to the
contrary, with respect to any employee who is resident outside of the United
States, the Administrator may, in its sole discretion, amend the terms of the
Plan in order to conform such terms to the requirements of local law or to meet
the objectives of the Plan. The Administrator may, where appropriate, establish
one or more sub-plans for this purpose.
-21-