<PAGE>
SCHEDULE 14A INFORMATION
------------------------
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
NANOMETRICS INCORPORATED
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
NANOMETRICS INCORPORATED
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies: N/A
---
(2) Aggregate number of securities to which transaction applies: N/A
---
(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): N/A
---
(4) Proposed maximum aggregate value of transaction: N/A
---
(5) Total fee paid: N/A
---
[_] 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: N/A
---
(2) Form, Schedule or Registration Statement No.: N/A
---
(3) Filing Party: N/A
---
(4) Date Filed: N/A
---
<PAGE>
NANOMETRICS INCORPORATED
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO THE SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of
Nanometrics Incorporated, a California corporation (the "Company"), will be held
on Thursday, May 15, 1997 at 1:30 p.m., local time, at the principal offices of
the Company located at 310 DeGuigne Drive, Sunnyvale, California 94086, for the
following purposes:
1. To elect six directors to serve for the ensuing year and until their
successors are elected.
2. To approve amendments to the Company's 1991 Stock Option Plan: (i) to
increase the number of shares of Common Stock available for options thereunder
from 1,500,000 shares to 3,000,000 shares; (ii) to allow participation under
the 1991 Stock Option Plan by non-employee directors; and (iii) to qualify
options issued under the 1991 Stock Option Plan as "performance-based
compensation" within the meaning of Section 162(m) of the Internal Revenue
Code of 1986, as amended.
3. To ratify the appointment of Deloitte & Touche LLP as independent auditors
of the Company for the fiscal year ending December 31, 1997.
4. To transact such other business as may properly come before the meeting or
any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only shareholders of record at the close of business on April 18, 1997 are
entitled to notice of and to vote at the meeting and any adjournment thereof.
All shareholders are cordially invited to attend the meeting in person.
However, to ensure your representation at the meeting, you are urged to mark,
sign, date and return the enclosed proxy card as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. Any shareholder attending
the meeting may vote in person even if such shareholder returned a proxy.
Sincerely,
Vincent J. Coates
Secretary
Sunnyvale, California
April 25, 1997
<PAGE>
NANOMETRICS INCORPORATED
PROXY STATEMENT
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of
Nanometrics Incorporated (the "Company"') for use at the Annual Meeting (the
"Annual Meeting") of Shareholders of the Company to be held on Thursday, May 15,
1997 at 1:30 p.m., local time, or at any adjournment thereof, for the purposes
set forth herein and in the accompanying Notice of Annual Meeting of
Shareholders. The Annual Meeting will be held at the principal offices of the
Company located at 310 DeGuigne Drive, Sunnyvale, California 94086. The
Company's telephone number at that address is (408) 746-1600.
These proxy solicitation materials were mailed on or about April 25, 1997
to all shareholders entitled to vote at the meeting. A copy of the Company's
1996 Annual Report to Shareholders accompanies this Proxy Statement.
RECORD DATE AND SHARES OUTSTANDING
Shareholders of record at the close of business on April 18, 1997 (the
"Record Date") are entitled to notice of and to vote at the meeting. At the
Record Date, 8,277,440 shares of the Company's Common Stock, no par value, were
issued and outstanding. For information concerning security ownership of
management and beneficial owners of more than 5% of the Company's Common Stock,
see "Security Ownership of Management and Certain Beneficial Owners" below.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Secretary of the
Company a written notice of revocation or a duly executed proxy bearing a later
date or by attending the meeting and voting in person.
VOTING AND SOLICITATION
Every shareholder voting for the election of directors may cumulate such
shareholder's votes and give one candidate a number of votes equal to the number
of directors to be elected multiplied by the number of votes to which the
shareholder's shares are entitled, or distribute the 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 six candidates. However, no shareholder
shall be entitled to cumulate votes unless the candidate's name has been placed
in nomination prior to the voting and the shareholder, or any other shareholder,
has given notice at the meeting prior to the voting of the intention to cumulate
the shareholder's votes. On all other matters, each share of Common Stock
outstanding has one vote.
The cost of this solicitation will be borne by the Company. In addition,
the Company may reimburse brokerage firms and other persons representing
beneficial owners of shares for their expenses in forwarding solicitation
material to such beneficial owners. Proxies may also be solicited by certain of
the Company's directors, officers and regular employees, without additional
compensation, personally or by telephone.
QUORUM; ABSTENTIONS: BROKER NON-VOTES
The required quorum for the transaction of business at the Annual Meeting
is a majority of the shares of Common Stock issued and outstanding on the Record
Date. Shares that are voted "FOR," "AGAINST" or "WITHHELD FROM" a matter are
treated as being present at the meeting for purposes of establishing a quorum
and are also treated as shares "represented and voting" at the Annual Meeting
(the "Votes Cast") with respect to such matter.
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<PAGE>
While there is no definitive statutory or case law authority in California
as to the proper treatment of abstentions, the Company believes that abstentions
should be counted for purposes of determining both (i) the presence or absence
of a quorum for the transaction of business and (ii) the total number of Votes
Cast with respect to a proposal. In the absence of controlling precedent to the
contrary, the Company intends to treat abstentions in this manner. Accordingly,
abstentions will have the same effect as a vote against a proposal.
Broker non-votes will be counted for purposes of determining the presence
or absence of a quorum for the transaction of business, but will not be counted
for purposes of determining the number of Votes Cast with respect to a proposal.
DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS
Proposals of shareholders of the Company which are intended to be presented
by such shareholders at the Company's Annual Meeting for fiscal 1997 must be
received by the Company no later than December 2, 1997 in order that they may be
included in the proxy statement and form of proxy relating to that meeting.
PROPOSAL NO. 1 -- ELECTION OF DIRECTORS
NOMINEES
A board of six directors is to be elected at the Annual Meeting. Unless
otherwise instructed, the proxy holders will vote the proxies received by them
for the Company's six nominees named below, all of whom are presently directors
of the Company. In the event that any nominee of the Company is unable or
declines to serve as a director at the time of the Annual Meeting, the proxies
will be voted for any nominee who shall be designated by the present Board of
Directors to fill the vacancy. It is not expected that any nominee will be
unable or will decline to serve as a director. In the event that additional
persons are nominated for election as directors, the proxy holders intend to
vote all proxies received by them in such a manner and in accordance with
cumulative voting as will ensure the election of as many of the nominees listed
below as possible and, in such event, the specific nominees to be voted for will
be determined by the proxy holders. The Company is not aware of any nominee who
will be unable or will decline to serve as a director. The term of office of
each person elected as a director will continue until the next Annual Meeting of
Shareholders or until such director's successor has been elected and qualified.
The names of the nominees and certain information about them are set forth
below:
<TABLE>
<CAPTION>
DIRECTOR
NAME OF NOMINEE AGE SINCE
--------------- --- --------
<S> <C> <C>
Vincent J. Coates..... 72 1975
Nathaniel Brenner..... 70 1986
Norman V. Coates...... 47 1988
John D. Heaton........ 37 1995
Clifford F. Smedley... 61 1996
Kanegi Nagai.......... 65 1996
</TABLE>
Mr. Vincent J. Coates has been Chairman of the Board and Chief Executive
Officer since the Company was founded. He was elected Secretary in February
1989.
Mr. Nathaniel Brenner has served as a director of the Company since August
1986. He joined Beckman Instruments, Inc. in 1976 where he held the positions
of Program Manager, Marketing Manager (Instruments) and General Manager
(Spectroscopy). In 1993, Mr. Brenner retired from Beckman Instruments, Inc.
-2-
<PAGE>
Mr. Norman V. Coates has served as a director of the Company since May
1988. 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 1984.
Mr. John D. Heaton has served as a director of the Company since July 1995.
Mr. Heaton served as Vice President and General Manager of the Company from
April 1994 through May 1996, prior to which time Mr. Heaton was employed as an
engineering manager from July 1992 to April 1994. He has served as President
and Chief Operating Officer since May 1996.
Mr. Clifford F. Smedley has served as a director of the Company since
January 1996. From August 1993 through July 1995, Mr. Smedley was the Chief
Operating Officer of System Chemistry, Inc. From January 1988 through August
1993, Mr. Smedley served in several management capacities with Genus, Inc., most
recently as Vice President, New Product Development.
Mr. Kanegi Nagai has served as a director of the Company since May 1996.
Mr. Nagai is also a consultant to the Company and has acted as such since August
1995. From January 1990 to March 1995, Mr. Nagai was the President and Chief
Executive Officer of Cybeq Systems, a semiconductor equipment supplier.
By virtue of Vincent J. Coates' position in the Company and beneficial
ownership of the Company's Common Stock, he may be deemed a "control person" of
the Company as that term is defined under the Securities Act of 1933, as
amended. See "Security Ownership of Management and Certain Beneficial Owners."
Mr. Vincent J. Coates is the father of Mr. Norman V. Coates. There is no
other family relationship between any of the foregoing nominees or between any
such nominees and any of the executive officers of the Company.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE
"FOR" THE NOMINEES LISTED ABOVE.
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth beneficial ownership of Common Stock of the
Company as of April 1, 1997, by each director or nominee, by each of the Named
Officers (as defined below)," by all directors and officers as a group, and by
all persons known to the Company to be the beneficial owners of more than 5% of
the Company's Common Stock. Unless otherwise indicated the address of each
beneficial owner of 5% of the Company's Common Stock is 310 DeGuigne Avenue,
Sunnyvale, California 94086.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK PERCENT
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED (1) OF TOTAL
- ------------------------ ----------------------- --------
<S> <C> <C>
Vincent J. Coates................ 5,401,774 65.4%
ZPR Investment Management Inc.... 425,100(2) 5.1%
1642 North Volusia Avenue
Orange City, FL 32763
Nathaniel Brenner................ 31,000(3) *
Norman V. Coates................. 21,299(4) *
John D. Heaton................... 58,325(5) *
Clifford F. Smedley.............. 3,333(6) *
Kanegi Nagai..................... 3,333(7) *
Paul B. Nolan.................... 57,132(8) *
All officers and directors as
a group (7 persons)........... 5,576,196(9) 66.5%
</TABLE>
_________________
* Represents less than 1% of outstanding shares of Common Stock.
(1) Represents sole voting and investment power, except as otherwise noted
below.
-3-
<PAGE>
(2) According to a Schedule 13G filed with the Securities Exchange Commission
on or about January 10, 1997, ZPR Investment Management, Inc. ("ZPR") may
be deemed to be the beneficial owner of 425,100 shares of Common Stock.
ZPR is identified as an investment advisor on its Schedule 13G.
(3) Includes 12,667 shares of Common Stock held of record by the N&J Brenner
Living Trust, for which Mr. Brenner and his spouse act as trustees, for the
benefit of members of Mr. Brenner's immediate family, and 18,333 shares of
Common Stock issuable upon exercise of outstanding options exercisable
within 60 days of April 1, 1997.
(4) Includes 10,000 shares of Common Stock issuable upon exercise of
outstanding options exercisable within 60 days of April 1, 1997.
(5) Includes 58,325 shares of Common Stock issuable upon exercise of
outstanding options exercisable within 60 days of April 1, 1997.
(6) Includes 3,333 shares of Common Stock issuable upon exercise of outstanding
options exercisable within 60 days of April 1, 1997.
(7) Includes 3,333 shares of Common Stock issuable upon exercise of outstanding
options exercisable within 60 days of April 1, 1997.
(8) Includes 28,332 shares of Common Stock issuable upon exercise of
outstanding options exercisable within 60 days of April 1, 1997.
(9) Includes 121,656 shares of Common Stock issuable upon exercise of
outstanding options exercisable within 60 days of April 1, 1997.
BOARD MEETINGS AND COMMITTEES
The Board of Directors held a total of four meetings during fiscal 1996.
The Board of Directors has three committees--the Stock Option Committee,
the Audit Committee and the Compensation Committee. The Stock Option Committee,
which consists of Norman V. Coates and Nathaniel Brenner, held no separate
meetings during fiscal 1996, but acted by written consent on ten occasions. The
Stock Option Committee is responsible for approving the grant of stock options
to the Company's employees under the Company's 1991 Stock Option Plan. The
Audit Committee of the Board of Directors, which consists of Vincent J. Coates,
Nathaniel Brenner and Kanegi Nagai, met once in fiscal 1996. The Audit
Committee is responsible for matters concerning the practices and procedures of
the independent auditors. The Compensation Committee of the Board of Directors
met once in fiscal 1996. The Compensation Committee consisted of Nathaniel
Brenner, Norman V. Coates and Clifford Smedley. The Compensation Committee is
responsible for determining compensation of the Company's executive officers.
During fiscal 1996, all incumbent directors attended all meetings of the
Board of Directors and all incumbent directors attended all meetings of
committees, if any, upon which such directors served.
BOARD COMPENSATION
Directors who are not also employees of the Company received an annual
retainer fee of $1,500 plus $500 per Board of Directors and committee meeting
attended and are eligible to participate in the Company's 1991 Director Option
Plan. In addition, the Company is a party to a consulting agreement with Kanegi
Nagai, a director of the Company. See "Certain Transactions."
-4-
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the compensation paid by the Company to the
Chief Executive Officer and each of the executive officers (collectively, the
"Named Officers") of the Company during the past three fiscal years:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------
LONG TERM COMPENSATION
----------------------
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY($) BONUS($) OPTION GRANTS (# OF SHARES)
- --------------------------- ----------- --------- -------- ---------------------------
<S> <C> <C> <C> <C>
Vincent J. Coates......... 1996 $151,484 $ 36,106 __
Chief Executive Officer 1995 150,685 19,036 __
1994 150,244 2,888 __
John D. Heaton............ 1996 149,511 34,712 40,000
President and Chief 1995 116,858 15,199 25,000
Operating Officer 1994 80,786 1,540 100,000
Paul B. Nolan............. 1996 95,194 23,192 20,000
Chief Financial Officer 1995 82,313 11,130 30,000
and Vice President 1994 73,097 1,290 15,000
</TABLE>
_______________________
For a discussion of the Company's obligation to make severance payments to
Vincent J. Coates, see "Certain Transactions."
The Company is the beneficiary of an insurance policy on the life of
Vincent J. Coates in a face amount of $8,000,000. Annual premiums, which are
paid by the Company, totaled $200,000 for fiscal 1996 and in subsequent years
are fixed at $200,000. Mr. Coates and the Company have entered into an
agreement providing that in the event of Mr. Coates' death, his estate has the
option to cause the Company to use the proceeds of the policy to purchase shares
of the Company's Common Stock owned by the estate at their then fair market
value. The estate is not obligated under the terms of the agreement to exercise
the option. If the option is not exercised, the Company would retain the
proceeds of the insurance. The purpose of this agreement is to provide Mr.
Coates' estate, at its option, the opportunity to obtain cash to pay estate
taxes without having to raise all of such money from sales in the open market.
-5-
<PAGE>
STOCK OPTION GRANTS
The following table sets forth information regarding individual grants of
options during fiscal 1996 to each of the Named Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------------------------ VALUE AT ASSUMED
ANNUAL RATES OF
NUMBER OF PERCENT OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERMS(3)
OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION ----------------------
NAME GRANTED(#)(1) FISCAL 1996(2) ($/SH) DATE 5%($) 10%($)
- ---- ------------- ------------- -------------- ---------- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
Vincent J. Coates -- -- -- -- -- --
John D. Heaton 40,000 13.0% $4.875 10/07/01 $53,800 $119,000
Paul B. Nolan 20,000 6.5% 4.875 10/07/01 26,900 59,500
</TABLE>
- ---------------------------
(1) Represent stock options granted under the Company's 1991 Stock Option Plan.
Stock options are granted with an exercise price equal to the fair market
value of the Company's common stock on the date of grant. Options
generally become exercisable 33% after the first year and 33% each full
year thereafter and are fully exercisable after 3 years. Options lapse
after 5 years or, if earlier, 90 days after termination of employment.
(2) Based on 308,500 options granted during fiscal 1996.
(3) Potential realizable values are net of exercise price, but before taxes
associated with exercise. These amounts represent certain assumed rates
of appreciation only, based on rules of the Securities and Exchange
Commission. Actual realizable values, if any, on stock option exercises
are dependent on the future performance of the Common Stock, overall
market conditions and the option holder's continued employment through the
vesting period.
-6-
<PAGE>
STOCK OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table sets forth, for each Named Officer, each exercise of
stock options during fiscal 1996 and the year-end value of unexercised options.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF UNEXERCISED
UNDERLYING OPTIONS IN-THE-MONEY
SHARES VALUE AT YEAR-END: OPTIONS AT YEAR-END:
ACQUIRED REALIZED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) ($)(1) UNEXERCISABLE (#) UNEXERCISABLE($)(2)
- ---- -------------- ------------------ -------------------- --------------------
<S> <C> <C> <C> <C>
Vincent J. Coates..... __ __ __ __
John D. Heaton........ 41,667 $291,669 58,333/106,667 $201,562/$201,562
8,333 59,893
Paul B. Nolan......... 17,000 57,375 28,332/36,668 86,707/43,356
</TABLE>
_________________
(1) 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) Value of unexercised options is (i) the fair market value of the Company's
Common Stock at fiscal 1996 year end ($4.75 per share), less the option
exercise price of in-the-money options, multiplied by (ii) the number of
shares underlying such options.
CERTAIN TRANSACTIONS
Pursuant to the terms of an agreement dated May 1, 1985 between the Company
and Vincent J. Coates, the Company is obligated, in the event Mr. Coates is
required to resign as Chief Executive Officer of the Company for any reason, to
continue to pay Mr. Coates his salary for five years from the date of such
resignation. The agreement was amended and restated in 1996.
The Company is a party to a consulting agreement with Kanegi Nagai, a
director of the Company . Under the consulting agreement, the Company pays to
Mr. Nagai a fee at a rate of $400 per day, plus reasonable expenses, for
consulting services with respect to matters involving the Company's business and
operations in Japan. The term of the consulting agreement expires in August
1997, unless sooner terminated by the parties thereto.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's 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 on Form 3 and changes in ownership on Form 4 and Form 5 with the SEC.
Such officers, and ten percent shareholders are also required by the SEC rules
to furnish the Company with copies of all Section 16(a) forms they file. Based
solely on its review of the copies of such forms received by it, the Company
believes that, during fiscal 1996, all Section 16(a) filing requirements
applicable to the officers, directors and ten percent shareholders were complied
with.
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<PAGE>
PROPOSAL NO. 2 -- APPROVAL OF AMENDMENTS TO THE 1991 STOCK OPTION PLAN
At the Annual Meeting, the shareholders are being asked to ratify the
following amendments to the 1991 Stock Option Plan (the "1991 Plan"): (i) to
increase the number of shares of Common Stock available for option under the
1991 Plan from 1,500,000 shares to 3,000,000 shares; (ii) to allow participation
under the 1991 Plan by non-employee directors; and (iii) to qualify options
issued under the 1991 Plan as "performance-based compensation" within the
meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code").
The foregoing amendments were approved by the Board of Directors in April
1997. The adoption of the 1991 Plan, the successor to the Company's 1981
Incentive Stock Option Plan, was approved by the Board of Directors in February
1991 and by the shareholders in August 1991. As of the Record Date, options to
purchase an aggregate of 1,036,777 shares were outstanding and 9,740 shares
(exclusive of an increase of 1,500,000 shares subject to shareholder
ratification at the Annual Meeting) were available for future grant. In
addition, 453,483 shares had been purchased pursuant to the exercise of stock
options granted under the 1991 Plan. The 1991 Plan authorizes the Board of
Directors to grant incentive and nonstatutory stock options and stock purchase
rights to eligible employees, directors and consultants of the Company. The
1991 Plan is structured to allow the Board of Directors broad discretion in
creating equity incentives in order to assist the Company in attracting,
retaining and motivating the best available personnel for the successful conduct
of the Company's business.
During fiscal 1996, the Board of Directors granted options to purchase
258,500 shares of Common Stock pursuant to the 1991 Plan. The Board of
Directors believes that equity incentives in the form of stock options or stock
purchase rights are an integral part of the Company's overall compensation
program and an effective way to incentivize employees. The Company's standard
vesting program provides that options become exercisable at a rate of
33 1/3% after the first full year and 33 1/3% each full year thereafter and are
fully exercisable after three years. Options lapse after five years or, if
earlier, 90 days after termination of employment. This results in incentives for
the employees which benefits the Company because the employees' stock options
are earned over a three-year period.
In 1993, Section 162(m) was added to the Code. Section 162(m) may limit
the Company's ability to deduct for federal income tax purposes compensation in
excess of $1,000,000 paid to the Company's Chief Executive Officer and its four
other highest paid executive officers in any one fiscal year. Grants under the
1991 Plan will not be subject to the deduction limitation if the shareholders
approve the amendments to the 1991 Plan, including the option grant limitations
described below.
VOTE REQUIRED AND BOARD OF DIRECTORS RECOMMENDATION
The affirmative vote of a majority of the Votes Cast will be required under
California law to ratify the amendment of the 1991 Plan
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE AMENDMENTS
TO THE 1991 PLAN.
SUMMARY OF THE 1991 PLAN
The essential features of the 1991 Plan are outlined below:
PURPOSES
The purposes of the 1991 Plan are to attract and retain the best available
personnel for positions of substantial responsibility, to provide incentives to
employees and consultants of the Company and its subsidiaries, and to promote
the success of the Company's business.
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<PAGE>
ADMINISTRATION
With respect to the grant of options or stock purchase rights the 1991 Plan
is administered (i) by the Board of Directors of the Company or by (ii) by a
committee designated by the Board to administer the Plan, provided that the
committee is constituted in such a manner as to permit the Plan to comply with
applicable laws.
The administrators of the 1991 Plan have full power to select, from among
the directors, officers, employees and consultants of the Company eligible for
awards, the individuals to whom awards will be granted, to make any combination
of awards to any participant and to determine the specific terms of each grant,
subject to the provisions of the 1991 Plan. The interpretation and construction
of any provisions of the 1991 Plan by the administrators shall be final and
conclusive. Members of the Board of Directors will receive no additional
compensation for their services in connection with the administration of the
1991 Plan. Subject to applicable laws and the specific terms of the 1991 Plan,
the administrators may accelerate any option or right or waive any condition or
restriction pertaining to such award or option at any time. The administrators
may also substitute new stock options for previously granted stock options,
including previously granted stock options having higher option prices and may
reduce the exercise price of any option to the then current fair market value if
the fair market value of the Common Stock covered by such option shall have
declined since the date the option was granted.
ELIGIBILITY
The 1991 Plan provides that nonstatutory stock options and stock purchase
rights may be granted to employees, directors and consultants of the Company.
Incentive Stock Options may be granted only to employees.
Section 162(m) of the Code places limits on the deductibility for federal
income tax purposes of compensation paid to certain executive officers of the
Company. In order to preserve the Company's ability to deduct the compensation
income associated with options and stock purchase rights granted to such
persons, the 1991 Plan provides that no employee, director or consultant may be
granted, in any fiscal year of the Company, options and stock purchase rights to
purchase more than 1,000,000 shares of Common Stock. Notwithstanding this limit,
however, in connection with an employee's, director's or consultant's initial
employment, he or she may be granted options or stock purchase rights to
purchase up to an additional 1,000,000 shares of Common Stock.
RESERVED SHARES
The total number of shares of Common Stock reserved and available for
distribution under the 1991 Plan may be increased from 1,500,000 shares to
3,000,000 shares by a vote of the shareholders.
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 shares under the 1991 Plan, shall
relieve the Company of any liability in respect of the non-issuance of such
shares as to which such requisite authority shall not have been obtained.
STOCK OPTIONS
The 1991 Plan permits the granting of incentive stock options under
Section 422 of the Code ("Incentive Stock Options" or "ISOs") and nonstatutory
stock options ("Nonstatutory Stock Options" or "NSOs").
The term of each option will be fixed by the administrators but may not
exceed ten years from the date of grant in the case of ISOs or five years from
the date of grant in the case of ISOs granted to the owner of Common Stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company or any subsidiary. When the fair market value of shares
subject to ISOs which first become exercisable in any one calendar year is
greater than $100,000, the excess options shall be treated as NSOs. For these
purposes, fair market value is determined on the date of the grant, and all ISOs
granted by the Company or its subsidiaries to an individual are aggregated.
-9-
<PAGE>
The administrators will determine the time or times each option may be
exercised. The current form of Notice of Grant generally provides that options
may be exercised over a three-year vesting period, but the exercisability of
options may be accelerated by the administrators.
Option Price. The option exercise price for each share covered by an ISO
will not be less than 100% of the fair market value of a share of Common Stock
on the date of grant of such option. In the case of ISOs granted to the owner
of Common Stock possessing more than 10% of the total combined voting power of
all classes of stock of the Company or any subsidiary, the option exercise price
for each share covered by such option will not be less than 110 % of the fair
market value of a share of Common Stock on the date of grant of such option. The
exercise price of an NSO will not be less than 50% of the fair market value of
the Common Stock on the date of grant of such option; provided, however, that
the exercise price of an NSO intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code may not be less
than 100% of the fair market value of the Common Stock on the date of grant.
Fair Market Value. The fair market value of a share of Common Stock, as
determined by the administrators of the 1991 Plan, shall be the closing sales
price for such stock (or the closing bid, if no sales were reported) as quoted
on the National Market System of the National Association of Securities Dealers,
Inc. Automated Quotation System (or the exchange with the greatest volume of
trading in Common Stock should the Company's stock be listed on an established
stock exchange) on the last market trading day prior to the day of
determination, as reported in the Wall Street Journal or such other source as
the administrators deem reliable. Should the Common Stock of the Company be
quoted on the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") System ( but not on the National Market System thereof)
regularly quoted by a recognized securities dealer but selling prices are not
reported, the fair market value of a share of Common Stock of the Company shall
be the mean between the high and the low asked prices for the Common Stock 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 administrators deem
reliable. In the absence of an established market for the Common Stock, the
fair market value thereof shall be determined in good faith by the
administrators.
Consideration. The consideration to be paid for shares issued upon
exercise of options granted under the 1991 Plan, including the method of
payment, shall be determined by the administrators (and, in the case of ISOs,
determined at the time of grant) and may consist entirely of (1) cash, (2)
check, (3) promissory note, (4) shares of Common Stock which, in the case of
shares acquired upon exercise of an option, have been beneficially owned for at
least six months or which were not acquired directly or indirectly from the
Company, with a fair market value on the exercise date equal to the aggregate
exercise price of the shares being purchased, (5) the delivery of a properly
executed notice and irrevocable instructions to a broker to promptly deliver to
the Company the amount of sale or loan proceeds required to pay the exercise
price, (6) any combination of the foregoing methods or (7) such other
consideration and method permitted by applicable laws.
Miscellaneous Provisions. Under the 1991 Plan, in the event of an
optionee's termination of employment or consulting relationship or directorship
for any reason other than death or total and permanent disability, an option may
thereafter be exercised, to the extent it was exercisable at the date of such
termination, for such period of time as the administrator shall determine at the
time of grant (not to exceed ninety (90) days in the case of Incentive Stock
Options). If an optionee's employment or consulting relationship or
directorship is terminated as a result of the optionee's permanent and total
disability, the option will be exercisable for twelve (12) months following such
termination, but only to the extent it was exercisable at the date of
termination and to the extent that the term of the option has not expired. If
an optionee's employment or consulting relationship or directorship is
terminated by reason of the optionee's death, the option will be exercisable by
the optionee's estate or successor for twelve (12) months following death, but
only to the extent it was exercisable at the date of death and to the extent
that the option has not expired.
All options granted under the 1991 Plan shall be evidenced by a Stock
Option Agreement and Notice of Grant between the Company and the optionee to
whom such option is granted.
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<PAGE>
STOCK PURCHASE RIGHTS
The 1991 Plan permits the Company to grant stock purchase rights to
purchase Common Stock of the Company ("Stock Purchase Rights") either alone, in
addition to, or in tandem with other awards under the 1991 Plan and/or cash
awards made outside the Plan. Upon the granting of a Stock Purchase Right under
the 1991 Plan, the offeree shall be advised in writing, by means of a Notice of
Grant, of the terms, conditions and restrictions related to the offer, including
the number of shares of Common Stock that the offeree shall be entitled to
purchase, the price to be paid (which price shall not be less than 50% of the
fair market value of the shares as of the date of the offer) and the time within
which the offeree must accept such offer (which shall in no event succeed six
(6) months from the date upon which the administrators made the determination to
grant the Stock Purchase Right). The offer shall be accepted by execution of a
restricted stock purchase agreement between the Company and the offeree.
Unless the administrators of the 1991 Plan determine otherwise, the
restricted stock purchase agreement shall grant the Company a repurchase option
exercisable upon the voluntary or involuntary termination of the purchaser's
employment or consulting relationship or directorship with the Company for any
reason (including death or permanent and total disability). The purchase price
for shares repurchased pursuant to the restricted stock purchase agreement shall
be the original price paid by the purchaser and may be paid by cancellation of
any indebtedness of the purchaser to the Company. The repurchase option shall
lapse at such rate as the administrators may determine.
Upon exercise of a Stock Purchase Right, the purchaser shall have all
rights of a shareholder of the Company.
NONTRANSFERABILITY OF OPTION AND STOCK PURCHASE RIGHTS
Options and Stock Purchase Rights granted pursuant to the 1991 Plan are
nontransferable by the participant, other than by will or by the laws of descent
and distribution and may be exercised, during the lifetime of the participant,
only by the participant.
ACCELERATION OF OPTIONS AND STOCK PURCHASE RIGHTS
Subject to the change in control provisions described below, in the event
of a proposed sale of all or substantially all of the assets of the Company or
the merger of the Company with or into another corporation, each outstanding
option and Stock Purchase Right shall be substituted by such successor
corporation or a parent or subsidiary of such successor corporation, unless the
Board determines, in the exercise of its sole discretion and in lieu of such
assumption or substitution, that the participant shall have the right to
exercise the option or Stock Purchase Right as to all shares subject to such
option or Stock Purchase Right, including shares as to which the option or Stock
Purchase Right would not otherwise be exercisable. If the Board determines that
the options or Stock Purchase Rights shall be fully exercisable in lieu of
assumption or substitution, the Company shall notify the participant that the
option or Stock Purchase Right shall be fully exercisable for a period of
fifteen (15) days from the date of such notice and the option or Stock Purchase
Right will terminate upon the expiration of such period.
CHANGE IN CONTROL PROVISIONS
The 1991 Plan provides that in the event of a "Change of Control" of the
Company (as defined below) any or all or none of the following acceleration and
valuation provisions shall apply, as determined by the Board in its discretion
prior to the Change of Control: (i) all stock options and Stock Purchase Rights
granted under the 1991 Plan outstanding as of the date such Change of Control
that are not yet exercisable and vested on such date will become immediately
vested and fully exercisable; (ii) to the extent exercisable and vested, the
value of all outstanding options and Stock Purchase Rights will be cashed out at
the "Change of Control Price" (as defined below) reduced by the exercise price
applicable to such options or Stock Purchase Rights. A "Change of Control"
means the occurrence of (i) the acquisition by a person or entity (other than
the Company, one of its subsidiaries or a Company employee benefit plan or
trustee thereof or Mr. Vincent Coates who owned more than 50%
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<PAGE>
of the combined voting power of the Company as of the date of the adoption of
the Plan) of securities representing 50% or more of the combined voting power of
the Company or (ii) a transaction requiring the approval of the shareholders and
involving the sale of all or substantially all of the assets of the Company or a
merger of the Company with or into another corporation. The "Change of Control
Price" shall be, as determined by the Board, (i) the highest closing sale price
of a share of Common Stock as reported by the NASDAQ System and as appearing in
the Wall Street Journal (or, in the event the Common Stock is listed on a stock
exchange, the highest closing price on such exchange as reported on the
Composite Transaction Reporting System) at any time within the 60 day period
immediately preceding the date of determination of the Change of Control Price
by the Board, (ii) the highest price paid or offered, as determined by the
Board, in any bona fide transaction or bona fide offer related to the Change of
Control of the Company at any time within such 60 day period, or (iii) some
lower price, as the Board, in its discretion, determines to be a reasonable
estimate of the fair market value of a share of Common Stock.
ADJUSTMENT UPON CHANGES IN CAPITALIZATION
In the event any change, such as a stock split or dividend, is made in the
Company's capitalization which results in an increase or decrease in the number
of outstanding shares of Common Stock without receipt of consideration by the
Company, an appropriate adjustment shall be made in the number of shares which
have been reserved for issuance under the 1991 Plan and the price per share
covered by each outstanding option or Stock Purchase Right. In the event of the
proposed dissolution or liquidation of the Company, all outstanding options and
Stock Purchase Rights will terminate immediately prior to the consummation of
such proposed action, unless otherwise provided by the Board. The Board may, in
its discretion, make provision for accelerating the exercisability of shares
subject to options or Stock Purchase Rights under the 1991 Plan in such event.
AMENDMENT AND TERMINATION
The Board may amend, alter, suspend or discontinue the 1991 Plan at any
time, but such amendment, alteration, suspension or discontinuation shall not
adversely affect any stock option or Stock Purchase Right then outstanding under
the 1991 Plan, without the consent of the participant. In any event, the 1991
Plan will terminate in 2001.
To the extent necessary and desirable to comply with Section 422 of the
Code (or any other applicable law or regulation) the Company shall obtain
shareholder approval of any amendment to the 1991 Plan in such a manner and to
such a degree as required.
TAX INFORMATION
Options granted under the 1991 Plan may be either Incentive Stock Options
or Nonstatutory Stock Options.
If an option granted under the 1991 Plan is an Incentive Stock Option, the
optionee will recognize no income upon grant of the Incentive Stock Option and
incur no federal income tax liability due to the exercise unless the optionee is
subject to the alternative minimum tax. The Company will not be allowed a
deduction for federal income tax purposes as a result of the exercise of an
Incentive Stock Option regardless of the applicability of the alternative
minimum tax. Upon a sale or exchange of the shares more than two years after the
grant of the option and one year after its exercise, any gain or loss will be
treated as long-term capital gain or loss. If these holding periods are not
satisfied, the optionee will recognize ordinary income at the time of the sale
or exchange equal to the difference between the exercise price and the lower of
(i) the fair market value of the shares on the date of exercise or (ii) the sale
price of the shares.
Any gain or loss recognized on such a premature disposition of the shares
in excess of the amount treated as ordinary income will be characterized as
long-term or short-term capital gain or loss, depending on the holding period.
Generally, the Company will be entitled to a deduction in the same amount as the
ordinary income recognized by the optionee at the time of such disposition.
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<PAGE>
All other options which do not qualify as Incentive Stock Options are
referred to as Nonstatutory Stock Options. An optionee will not recognize
taxable income for the purposes of federal income tax liability at the time he
or she is granted a Nonstatutory Stock Option. However, upon its exercise, the
optionee will recognize ordinary income for tax purposes measured by the excess
of the then fair market value of the shares over the option price. In certain
circumstances, where the shares are subject to a substantial risk of forfeiture
when acquired or where the optionee is an officer, director, or 10% shareholder
of the Company, the date of taxation may be deferred unless the optionee files
an election with the Internal Revenue Service under Section 83(b) of the Code.
The income recognized by an optionee who is also an employee of the Company will
be subject to tax withholding by the Company by payment in cash or out of the
current earnings paid to the optionee. Upon resale of the shares by the
optionee, any difference between the sale price and the optionee's purchase
price, to the extent not recognized as ordinary income as described above, will
be treated as long-term or short-term capital gain or loss, depending on the
holding period.
Stock purchase rights will generally be taxed in the same manner as
nonstatutory stock options. However, restricted stock is generally purchased
upon the exercise of a stock purchase right. At the time of purchase,
restricted stock is subject to a "substantial risk of forfeiture" within the
meaning of Section 83 of the Code. As a result, the purchaser will not
recognize ordinary income at the time of purchase. Instead, the purchaser will
recognize ordinary income on the dates when a stock ceases to be subject to a
substantial risk of forfeiture. The stock will generally cease to be subject to
a substantial risk of forfeiture when it is no longer subject to the Company's
right to repurchase the stock upon the purchaser's termination of employment
with the Company. At such times, the purchaser will recognize ordinary income
measured as the difference between the purchase price and the fair market value
of the stock on the date the stock is no longer subject to a substantial risk of
forfeiture.
The purchaser may accelerate to the date of purchase his or her recognition
of ordinary income, if any, and the beginning of any capital gain holding period
by timely filing an election pursuant to Section 83(b) of the Code. In such
event, the ordinary income recognized, if any, is measured as the difference
between the purchase price and the fair market value of the stock on the date of
purchase, and the capital gain holding period commences on such date.
The foregoing is only a summary of the effect of federal income taxation
upon optionees, holders of stock purchase rights and the Company with respect to
the grant and exercise of options and stock purchase rights under the 1991 Plan.
It does not purport to be complete, and does not discuss the tax consequences of
the employee's, consultant's or director's death or the provisions of the income
tax laws of any municipality, state or foreign country in which an optionee may
reside.
REQUIRED VOTE
The affirmative vote of the holders of a majority of the Common Stock
present or represented at the meeting is required (i) to increase the number of
shares available for option under the 1991 Plan from 1,500,000 shares to
3,000,000 shares; (ii) to allow participation under the 1991 Plan by non-
employee directors; and (iii) to qualify options issued under the 1991 Plan as
"performance-based compensation" within the meaning of Section 162(m) of the
Internal Revenue Code of 1986, as amended.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING FOR THE RATIFICATION
OF THE AMENDMENTS (I) TO INCREASE THE NUMBER OF SHARES AVAILABLE FOR OPTION
UNDER THE 1991 STOCK OPTION PLAN FROM 1,500,000 SHARES TO 3,000,000 SHARES;
(II) TO ALLOW PARTICIPATION UNDER THE 1991 STOCK OPTION PLAN BY NON-EMPLOYEE
DIRECTORS; AND (III) TO QUALIFY OPTIONS ISSUED UNDER THE 1991 STOCK OPTION PLAN
AS "PERFORMANCE-BASED COMPENSATION" WITHIN THE MEANING OF SECTION 162(M) OF THE
CODE.
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<PAGE>
PROPOSAL NO. 3 -- RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board has appointed Deloitte & Touche LLP, independent auditors, to
audit the consolidated financial statements of the Company for the fiscal year
ending December 31, 1997. Deloitte & Touche LLP has audited the Company's
financial statements since fiscal 1991.
Representatives of Deloitte & Touche LLP are expected to be present at the
meeting with the opportunity to make a statement if they desire to do so, and
are expected to be available to respond to appropriate questions.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMEND THAT SHAREHOLDERS VOTE "FOR"
APPROVAL AND RATIFICATION OF THE SELECTION OF DELOITTE & TOUCHE LLP AS THE
COMPANY'S INDEPENDENT AUDITORS.
OTHER MATTERS
The Company knows of no other matters to be submitted to the meeting. If
any other matters properly come before the meeting, it is the intention of the
persons named in the enclosed proxy card to vote the shares they represent as
the Board of Directors may recommend.
THE BOARD OF DIRECTORS
Dated: April 25, 1997
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<PAGE>
APPENDIX A
1991 STOCK OPTION PLAN
<PAGE>
NANOMETRICS INCORPORATED
1991 STOCK OPTION PLAN
(AS AMENDED EFFECTIVE MAY 15, 1997)
1. Purposes of the Plan. The purposes of this Stock Option Plan are:
--------------------
. to attract and retain the best available personnel for positions of
substantial responsibility,
. to provide additional incentive to Employees, Directors and
Consultants, and
. to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or Nonstatutory
Stock Options, as determined by the Administrator at the time of grant. Stock
Purchase Rights may also be granted under the Plan.
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) "Applicable Laws" means the legal requirements relating to the
---------------
administration of stock option plans under state corporate and securities laws
and the Code.
(c) "Board" means the Board of Directors of the Company.
-----
(d) "Code" means the Internal Revenue Code of 1986, as amended.
----
(e) "Committee" means a Committee appointed by the Board in
---------
accordance with Section 4 of the Plan.
(f) "Common Stock" means the Common Stock of the Company.
------------
(g) "Company" means Nanometrics Incorporated, a California
-------
corporation.
(h) "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.
(i) "Continuous Status as an Employee or Consultant" means the
----------------------------------------------
employment or consulting relationship is not interrupted or terminated by the
Company, any Parent or Subsidiary.
<PAGE>
Continuous Status as an Employee or Consultant shall not be considered
interrupted in the case of: (i) any leave of absence approved by the Board,
including sick leave, military leave, or any other personal leave; provided,
however, that for purposes of Incentive Stock Options, any such leave may not
exceed ninety (90) days, unless reemployment upon the expiration of such leave
is guaranteed by contract (including certain Company policies) or statute; or
(ii) transfers between locations of the Company or between the Company, its
Parent, its Subsidiaries or its successor. If reemployment upon expiration of a
leave of absence approved by the Company is not so guaranteed, on the 181st day
of such leave any Incentive Stock Option held by the Optionee shall cease to be
treated as an Incentive Stock Option and shall be treated for tax purposes as a
Nonstatutory Stock Option.
(j) "Director" means a member of the Board.
--------
(k) "Disability" means total and permanent disability as defined in
----------
Section 22(e)(3) of the Code.
(l) "Employee" means any person, including Officers and Directors,
--------
employed by the Company or any Parent or Subsidiary of the Company. Neither
service as a Director nor payment of a director's fee by the Company shall be
sufficient to constitute "employment" by the Company.
(m) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(n) "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 National
Market System of the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") System, the Fair Market Value of a Share of Common Stock
shall be the closing sales price for such stock (or the closing bid, if no sales
were reported) as quoted on such system or exchange (or the exchange with the
greatest volume of trading in Common Stock) on the last market trading day prior
to the day of determination, as reported in the Wall Street Journal or such
other source as the Administrator deems reliable;
(ii) If the Common Stock is quoted on the NASDAQ System (but not
on the National Market System thereof) or 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 day of
determination, as reported in the Wall Street Journal or such other source as
the Administrator deems reliable;
(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.
(o) "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.
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(p) "Nonstatutory Stock Option" means an Option not intended to
-------------------------
qualify as an Incentive Stock Option.
(q) "Notice of Grant" means a written notice evidencing certain terms
---------------
and conditions of an individual Option or Stock Purchase Right grant. The
Notice of Grant is part of the Option Agreement.
(r) "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.
(s) "Option" means a stock option granted pursuant to the Plan.
------
(t) "Option Agreement" means a written agreement between the Company
----------------
and an Optionee evidencing the terms and conditions of an individual Option
grant. The Option Agreement is subject to the terms and conditions of the Plan.
(u) "Optioned Stock" means the Common Stock subject to an Option or
--------------
Stock Purchase Right.
(v) "Optionee" means an Employee, Director or Consultant who holds an
--------
outstanding Option or Stock Purchase Right.
(w) "Parent" means a "parent corporation", whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(x) "Plan" means this 1991 Stock Option Plan.
----
(y) "Restricted Stock" means shares of Common Stock acquired pursuant
----------------
to a grant of Stock Purchase Rights under Section 11 below.
(z) "Restricted Stock Purchase Agreement" means a written agreement
-----------------------------------
between the Company and the Optionee evidencing the terms and restrictions
applying to stock purchased under a Stock Purchase Right. The Restricted Stock
Purchase Agreement is subject to the terms and conditions of the Plan and the
Notice of Grant.
(aa) "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.
(bb) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 13 of the Plan.
(cc) "Stock Purchase Right" means the right to purchase Common Stock
--------------------
pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.
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<PAGE>
(dd) "Subsidiary" means a "subsidiary corporation", whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 13 of
-------------------------
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 3,000,000 Shares of Common Stock. The Shares may be
authorized, but unissued, or reacquired Common Stock. However, should the
Company reacquire Shares which were issued pursuant to the exercise of an Option
or Stock Purchase Right, such Shares shall not become available for future grant
under the Plan.
If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, the unpurchased Shares which were subject
thereto shall become available for future grant under the Plan (unless the Plan
has terminated).
4. Administration of the Plan.
--------------------------
(a) Procedure.
---------
(i) Multiple Administrative Bodies. The Plan may be
------------------------------
administered by different Committees with respect to different groups of
Employees or Consultants.
(ii) Section 162(m). To the extent that the Administrator
--------------
determines it to be desirable to qualify Options 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 of the Common Stock, in
accordance with Section 2(n) of the Plan;
(ii) to select the Employees, Directors and Consultants to whom
Options and Stock Purchase Rights may be granted hereunder;
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<PAGE>
(iii) to determine whether and to what extent Options and Stock
Purchase Rights or any combination thereof, are granted hereunder;
(iv) to determine the number of shares of Common Stock to be
covered by each Option and Stock Purchase Right granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) 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 time or
times when Options or Stock Purchase Rights may be exercised (which may be based
on performance criteria), and any restriction or limitation, or any vesting
acceleration or waiver of forfeiture restrictions regarding any Option or Stock
Purchase Right or the shares of Common Stock relating thereto, based in each
case on such factors as the Administrator, in its sole discretion, shall
determine;
(vii) to determine whether, to what extent and under what
circumstances Common Stock and other amounts payable with respect to an award
under this Plan shall be deferred either automatically or at the election of the
participant (including providing for and determining the amount (if any) of any
deemed earnings on any deferred amount during any deferral period);
(viii) to reduce the exercise price of any Option or Stock
Purchase Right to the then current Fair Market Value if the Fair Market Value of
the Common Stock covered by such Option or Stock Purchase Right shall have
declined since the date the Option was granted;
(ix) to construe and interpret the terms of the Plan;
(x) to prescribe, amend and rescind rules and regulations
relating to the Plan;
(xi) to modify or amend each Option or Stock Purchase Right
(subject to Section 15(c) of the Plan);
(xii) to authorize any person to execute on behalf of the Company
any instrument required to effect the grant of an Option or Stock Purchase Right
previously granted by the Administrator; and
(xiii) to determine the terms and restrictions applicable to
Options and Stock Purchase Rights and any Restricted Stock.
(xiv) to make all other determinations deemed necessary or
advisable for administering the Plan.
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<PAGE>
(c) Effect of Administrator's Decision. The Administrator's
----------------------------------
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options or Stock Purchase Rights.
5. Eligibility. Nonstatutory Stock Options and Stock Purchase Rights may
-----------
be granted to Employees, Directors and Consultants. Incentive Stock Options may
be granted only to Employees. If otherwise eligible, an Employee, Director or
Consultant who has been granted an Option or Stock Purchase Right may be granted
additional Options or Stock Purchase Rights.
6. Limitations.
-----------
(a) Each Option shall be designated in the Notice of Grant as either
an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designations, to the extent that the aggregate Fair Market
Value:
(i) of Shares subject to an Optionee's incentive stock options
granted by the Company, any Parent or Subsidiary, which (ii) become exercisable
for the first time during any calendar year (under all plans of the Company or
any Parent or Subsidiary) exceeds $100,000, such excess Options shall be treated
as Nonstatutory Stock Options. For purposes of this Section 6(a), incentive
stock options shall be taken into account in the order in which they were
granted, and the Fair Market Value of the Shares shall be determined as of the
time of grant.
(b) Neither the Plan nor any Option or Stock Purchase Right shall
confer upon an Optionee any right with respect to continuing the Optionee's
employment or consulting relationship with the Company, nor shall they interfere
in any way with the Optionee's right or the Company's right to terminate such
employment or consulting relationship at any time, with or without cause.
(c) The following limitations shall apply to grants of Options:
(i) No Employee, Director or Consultant shall be granted, in
any fiscal year of the Company, Options to purchase more than 1,000,000 Shares.
(ii) In connection with his or her initial service, an Employee,
Director or Consultant may be granted Options to purchase up to an additional
1,000,000 Shares which shall not count against the limit set forth in subsection
(i) above.
(iii) The foregoing limitations shall be adjusted proportionately
in connection with any change in the Company's capitalization as described in
Section 13.
(iv) If an Option is cancelled in the same fiscal year of the
Company in which it was granted (other than in connection with a transaction
described in Section 13), the cancelled Option will be counted against the
limits set forth in subsections (i) and (ii) 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.
-6-
<PAGE>
7. Term of Plan. Subject to Section 19 of the Plan, the Plan shall
------------
become effective upon the earlier to occur of its adoption by the Board or its
approval by the shareholders of the Company as described in Section 19 of the
Plan. It shall continue in effect for a term of ten (10) years unless terminated
earlier under Section 15 of the Plan.
8. Term of Option. The term of each Option shall be stated in the Notice
--------------
of Grant; provided, however, that 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 Notice of Grant. However, in the case of an Option granted
to an Optionee who, at the time the 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 term of the Option shall be five (5)
years from the date of grant or such shorter term as may be provided in the
Notice of Grant.
9. Option Exercise Price and Consideration.
---------------------------------------
(a) Exercise Price. The per share exercise price for the Shares to be
--------------
issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(A) 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 shall be no less than 110% of the Fair
Market Value per Share on the date of grant.
(B) granted to any other Employee, the per Share exercise
price shall be no less than 100% of the Fair Market Value per Share on the date
of grant.
(ii) In the case of a Nonstatutory Stock Option, the per Share
exercise price shall be no less than 50% of the Fair Market Value per Share on
the date of grant. In the case of a Nonstatutory Stock Option intended to
qualify as "performance-based compensation" within the meaning of Section 162(m)
of the Code, the per Share exercise price shall be no less than 100% of the Fair
Market Value per Share on the date of grant.
(b) 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. In so doing, the Administrator may specify that an
Option may not be exercised until the completion of a service period.
(c) 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. Such
consideration may consist entirely of:
-7-
<PAGE>
(i) cash,
(ii) check,
(iii) promissory note,
(iv) other Shares which (A) in the case of Shares acquired upon
exercise of an option, have been owned by the Optionee for more than six months
on the date of surrender, and (B) 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,
(v) delivery of a properly executed exercise notice together
with such other documentation as the Administrator and the broker, if
applicable, shall require to effect an exercise of the Option and delivery to
the Company of the sale or loan proceeds required to pay the exercise price,
(vi) any combination of the foregoing methods of payment, or
(vii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.
10. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
-----------------------------------------------
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 Option Agreement.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company receives: (i)
written notice of exercise (in accordance with the Option Agreement) from the
person entitled to exercise the Option, 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 Option Agreement and the Plan. Shares issued upon exercise of
an Option shall be issued in the name of the Optionee or, if requested by the
Optionee, in the name of the Optionee and his or her spouse. Until the stock
certificate evidencing such Shares is 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 Optioned Stock, notwithstanding the
exercise of the Option. The Company shall issue (or cause to be issued) such
stock certificate 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 stock certificate is issued, except as provided in Section 13 of the
Plan.
-8-
<PAGE>
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.
(b) Termination of Employment or Consulting Relationship or
-------------------------------------------------------
Directorship. In the event an Optionee's Continuous Status as an Employee,
- ------------
Director or Consultant terminates (other than upon the Optionee's death or
Disability), the Optionee may exercise his or her Option, but only within such
period of time as is determined by the Administrator, and only to the extent
that the Optionee was entitled to exercise it at the date of termination (but in
no event later than the expiration of the term of such Option as set forth in
the Notice of Grant). In the case of an Incentive Stock Option, the
Administrator shall determine such period of time (in no event to exceed ninety
(90) days from the date of termination) when the Option is granted. If, at the
date of termination, the Optionee is not entitled to exercise his or her entire
Option, the Shares covered by the unexercisable portion of the Option shall
revert to the Plan. If, after termination, the Optionee does not exercise his
or her Option within the time specified by the Administrator, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(c) Disability of Optionee. In the event an Optionee's Continuous
----------------------
Status as an Employee, Director or Consultant terminates as a result of the
Optionee's Disability, the Optionee may exercise his or her Option, but only
within twelve (12) months from the date of such termination, and only to the
extent that the Optionee was entitled to exercise it at the date of such
termination (but in no event later than the expiration of the term of such
Option as set forth in the Notice of Grant). If, at the date of termination,
the Optionee is not entitled to exercise his or her entire Option, the Shares
covered by the unexercisable portion of the Option shall revert to the Plan.
If, after termination, the Optionee does not exercise his or her Option within
the time specified herein, the Option shall terminate, and the Shares covered by
such Option shall revert to the Plan.
(d) Death of Optionee. In the event of the death of an Optionee, the
-----------------
Option may be exercised, at any time within twelve (12) months following the
date of death (but in no event later than the expiration of the term of such
Option as set forth in the Notice of Grant), by the Optionee's estate or by a
person who acquired the right to exercise the Option by bequest or inheritance,
but only to the extent the Optionee was entitled to exercise the Option at the
date of death. If, at the time of death, the Optionee was not entitled to
exercise his or her entire Option, the Shares covered by the unexercisable
portion of the Option shall revert to the Plan. If, after death, the Optionee's
estate or a person who acquired the right to exercise the Option by bequest or
inheritance does not exercise the Option within the time specified herein, the
Option shall terminate, and the Shares covered by such Option shall revert to
the Plan.
11. Stock Purchase Rights.
---------------------
(a) Rights to Purchase. Stock Purchase Rights may be issued either
------------------
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing, by means of a Notice of Grant, of the terms, conditions and
restrictions related
-9-
<PAGE>
to the offer, including the number of Shares that the offeree shall be entitled
to purchase, the price to be paid (which price shall not be less than 50% of the
Fair Market Value of the Shares as of the date of the offer), and the time
within which the offeree must accept such offer, which shall in no event exceed
six (6) months from the date upon which the Administrator made the determination
to grant the Stock Purchase Right. The offer shall be accepted by execution of a
Restricted Stock Purchase Agreement in the form determined by the Administrator.
(b) Repurchase Option. Unless the Administrator determines otherwise,
-----------------
the Restricted Stock Purchase Agreement shall grant the Company a repurchase
option exercisable upon the voluntary or involuntary termination of the
purchaser's employment with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock purchase agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at a rate determined by the
Administrator.
(c) Other Provisions. The Restricted Stock Purchase Agreement shall
----------------
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion. In
addition, the provisions of Restricted Stock Purchase Agreements need not be the
same with respect to each purchaser.
(d) Rights as a Shareholder. Once the Stock Purchase Right is
-----------------------
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 13
of the Plan.
12. Non-Transferability of Options and Stock Purchase Rights. An Option
--------------------------------------------------------
or Stock Purchase Right 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
Optionee, only by the Optionee.
-10-
<PAGE>
13. Adjustments Upon Changes in Capitalization, Dissolution, Merger, Asset
----------------------------------------------------------------------
Sale or Change of 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 Option and Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
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 Option or Stock
Purchase Right.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, to the extent that an Option or Stock
Purchase Right has not been previously exercised, it will terminate immediately
prior to the consummation of such proposed action. The Board may, in the
exercise of its sole discretion in such instances, declare that any Option or
Stock Purchase Right shall terminate as of a date fixed by the Board and give
each Optionee the right to exercise his or her Option or Stock Purchase Right as
to all or any part of the Optioned Stock, including Shares as to which the
Option or Stock Purchase Right would not otherwise be exercisable.
(c) Merger or Asset Sale. Subject to the provisions of paragraph (d)
--------------------
hereof, in the event of a merger of the Company with or into another
corporation, or the sale of substantially all of the assets of the Company, each
outstanding Option and Stock Purchase Right shall be assumed or an equivalent
option or right shall be substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation. In the event that the successor
corporation does not agree to assume the Option or Stock Purchase Right or to
substitute an equivalent option or right, the Administrator shall, in lieu of
such assumption or substitution, provide for the Optionee to have the right to
exercise the Option or Stock Purchase Right as to all of the Optioned Stock,
including Shares as to which it would not otherwise be exercisable. If the
Administrator makes an Option or Stock Purchase Right fully exercisable in lieu
of assumption or substitution in the event of a merger or sale of assets, the
Administrator shall notify the Optionee that the Option or Stock Purchase Right
shall be fully exercisable for a period of fifteen (15) days from the date of
such notice, and the Option or Stock Purchase Right will terminate upon the
expiration of such period. For the purposes of this paragraph, the Option or
Stock Purchase Right shall be considered assumed if, following the merger or
sale of assets, the option or right confers
-11-
<PAGE>
the right to purchase, for each Share of Optioned Stock subject to the Option or
Stock Purchase Right immediately prior to the merger or sale of assets, the
consideration (whether stock, cash, or other securities or property) received in
the merger or sale of assets 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 sale of assets was not solely common stock of the successor
corporation or its Parent, the Administrator may, with the consent of the
successor corporation and the participant, provide for the consideration to be
received upon the exercise of the Option or Stock Purchase Right, for each Share
of Optioned Stock subject to the Option or Stock Purchase Right, 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 sale of assets.
(d) Change in Control. In the event of a "Change in Control" of the
-----------------
Company, as defined in paragraph (e) below, then the following acceleration and
valuation provisions shall apply:
(i) Except as otherwise determined by the Board, in its
discretion, prior to the occurrence of a Change in Control, any Options
and Stock Purchase Rights outstanding on the date such Change in Control
is determined to have occurred that are not yet exercisable and vested
on such date shall become fully exercisable and vested;
(ii) Except as otherwise determined by the Board, in its
discretion, prior to the occurrence of a Change in Control, the value of
all outstanding Options and Stock Purchase Rights, to the extent they
are exercisable and vested (including Options and Stock Purchase Rights
that shall become exercisable and vested pursuant to subparagraph (i)
above), shall be cashed out at the Change in Control Price, (reduced by
the exercise price applicable to such Options or Stock Purchase Rights).
The cash out proceeds shall be paid to the Optionee or, in the event of
death of an Optionee prior to payment, to the estate of the Optionee or
to a person who acquired the right to exercise the Option or Stock
Purchase Right by bequest or inheritance.
(e) Definition of "Change in Control". For purposes of this Section
---------------------------------
13, a "Change in Control" means the happening of any of the following:
(i) When any "person," as such term is used in Sections 13(d) and
14(d) of the Exchange Act (other than the Company, a Subsidiary 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 13
d-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 other than the
person who owns more than 50% of such voting power on the date of
adoption of this plan; or
(ii) The occurrence of a transaction requiring shareholder
approval, and involving the sale of all or substantially all of the
assets of the Company or the merger of the Company with or into another
corporation.
-12-
<PAGE>
(f) Change in Control Price. For purposes of this Section 13, "Change
-----------------------
in Control Price" shall be, as determined by the Board, (i) the highest Fair
Market Value of a Share within the 60 day period immediately preceding the date
of determination of the Change in Control Price by the Board (the "60-Day
Period"), or (ii) the highest price paid or offered per Share, as determined by
the Board, in any bona fide transaction or bona fide offer related to the Change
in Control of the Company, at any time within the 60-Day Period, or (iii) some
lower price as the Board, in its discretion, determines to be a reasonable
estimate of the fair market value of a Share.
14. Date of Grant. The date of grant of an Option or Stock Purchase Right
-------------
shall be, for all purposes, the date on which the Administrator makes the
determination granting such Option or Stock Purchase Right, or such other later
date as is determined by the Administrator. Notice of the determination shall
be provided to each Optionee within a reasonable time after the date of such
grant.
15. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may at any time amend,
-------------------------
alter, suspend or terminate the Plan.
(b) Shareholder Approval. The Company shall obtain shareholder
--------------------
approval of any Plan amendment to the extent necessary and desirable to comply
with Rule 16b-3 or with Section 422 of the Code (or any successor rule or
statute or other applicable law, rule or regulation, including the requirements
of any exchange or quotation system on which the Common Stock is listed or
quoted). Such shareholder approval, if required, shall be obtained in such a
manner and to such a degree as is required by the applicable law, rule or
regulation.
(c) Effect of Amendment or Termination. No amendment, alteration,
----------------------------------
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
16. Conditions Upon Issuance of Shares.
----------------------------------
(a) Legal Compliance. Shares shall not be issued pursuant to the
----------------
exercise of an Option or Stock Purchase Right unless the exercise of such Option
or Stock Purchase Right and the issuance and delivery of such Shares shall
comply with all relevant provisions of law, including, without limitation, the
Securities Act of 1933, as amended, the Exchange Act, the rules and regulations
promulgated thereunder, and the requirements of any stock exchange or quotation
system upon which the Shares may then be listed or quoted, 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 of an
--------------------------
Option or Stock Purchase Right, the Company may require the person exercising
such Option or Stock Purchase Right to represent and warrant at the time of any
such exercise that the Shares are being purchased only for
-13-
<PAGE>
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.
17. Liability of Company.
--------------------
(a) 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.
(b) Grants Exceeding Allotted Shares. If the Optioned Stock covered
--------------------------------
by an Option or Stock Purchase Right exceeds, as of the date of grant, the
number of Shares which may be issued under the Plan without additional
shareholder approval, such Option or Stock Purchase shall be void with respect
to such excess Optioned Stock, unless shareholder approval of an amendment
sufficiently increasing the number of Shares subject to the Plan is timely
obtained in accordance with Section 15(b) of the Plan.
18. Reservation of Shares. The Company, during the term of this Plan,
---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
19. Shareholder Approval. Continuance of the Plan shall be subject to
--------------------
approval by the shareholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such shareholder approval shall be obtained
in the manner and to the degree required under applicable federal and state law.
-14-
<PAGE>
NANOMETRICS INCORPORATED
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
1997 ANNUAL MEETING OF SHAREHOLDERS
MAY 15, 1997
The undersigned shareholder(s) of Nanometrics Incorporated, a California
corporation, hereby acknowledges receipt of the Notice of Annual Meeting of
Shareholders and Proxy Statement, each dated April 25, 1997, 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 1997 Annual Meeting of
Shareholders of Nanometrics Incorporated to be held on Thursday, May 15, 1997 at
1:30 p.m., local time, at the principal offices of the Company located at 310
DeGuigne Drive, Sunnyvale, California, 94086 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 Nathaniel Brenner Norman V. Coates John D. Heaton
Clifford F. Smedley Kanegi Nagai
ITEM 2. PROPOSAL TO APPROVE AMENDMENTS TO THE COMPANY'S 1991 STOCK OPTION PLAN
(A) TO INCREASE THE NUMBER OF SHARES OF COMMON STOCK AVAILABLE FOR OPTIONS
THEREUNDER FROM 1,500,000 SHARES TO 3,000,000 SHARES, (B) TO ALLOW PARTICIPATION
UNDER THE 1991 STOCK OPTION PLAN BY NON-EMPLOYEE DIRECTORS, AND (C) TO QUALIFY
OPTIONS ISSUED UNDER THE 1991 STOCK OPTION PLAN AS "PERFORMANCE-BASED
COMPENSATION" WITHIN THE MEANING OF SECTION 162(M) OF THE INTERNAL REVENUE CODE
OF 1986, AS AMENDED.
( ) FOR ( ) AGAINST ( ) ABSTAIN
ITEM 3. PROPOSAL TO RATIFY THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS
INDEPENDENT AUDITORS OF THE COMPANY FOR THE 1997 FISCAL YEAR.
( ) FOR ( ) AGAINST ( ) ABSTAIN
(Continued and to be signed, on reverse side)
(Continued from other side)
In their discretion the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
THIS BALLOT WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS
INDICATED, WILL BE VOTED FOR THE ELECTION OF DIRECTORS, FOR APPROVAL OF
AMENDMENTS TO THE COMPANY'S 1991 STOCK OPTION PLAN, AND FOR RATIFICATION OF
DELOITTE & TOUCHE LLP AS INDEPENDENT AUDITORS 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
Dated: _____________________, 1997
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.
