SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
- --- Exchange Act of 1934
For the quarterly period ended September 30, 1998
Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
--------------- ---------------
Commission file number 0-13470
--------------------------------
NANOMETRICS INCORPORATED
- ------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 94-2276314
------------------------------- -------------------
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
310 DeGuigne Drive, Sunnyvale, CA 94086
- ---------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (408) 746-1600
---------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
----- -----
At October 14, 1998 there were 8,682,810 shares of common stock, no par value,
issued and outstanding.
1
<PAGE>
NANOMETRICS INCORPORATED
INDEX
Part I. Financial Information Page
----
Item 1 Financial Statements
Consolidated Balance Sheets -
September 30, 1998 and December 31, 1997 .......... 3
Consolidated Statements of Income -
Three months and nine months ended
September 30, 1998 and 1997 ....................... 4
Consolidated Statements of Cash Flows -
Nine months ended September 30, 1998
and 1997 .......................................... 5
Notes to Consolidated Financial
Statements ........................................ 6
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations ..... 8
Part II. Other Information
Item 6 Exhibits and Reports on Form 8-K .................. 11
Signatures .......................................................... 12
2
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
<TABLE>
NANOMETRICS INCORPORATED
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands except share amounts)
<CAPTION>
September 30, December 31,
ASSETS 1998 1997
(Unaudited)
---------- ---------
<S> <C> <C>
CURRENT ASSETS:
Cash and equivalents $ 2,688 $ 3,656
Short-term investments 8,920 9,595
Accounts receivable, less allowance for
doubtful accounts of $412 and $413 9,517 10,225
Inventories 11,495 7,138
Prepaid and deferred income taxes 2,119 2,094
Prepaid expenses and other 867 1,075
-------- --------
Total current assets 35,606 33,783
PROPERTY, PLANT AND EQUIPMENT, NET 2,182 2,187
OTHER ASSETS 1,112 273
-------- --------
TOTAL $ 38,900 $ 36,243
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,454 $ 1,889
Accrued payroll and related expenses 515 596
Other current liabilities 2,595 1,493
Income taxes payable 431 565
Current portion of long-term debt 367 604
-------- --------
Total current liabilities 5,362 5,147
LONG-TERM DEBT 2,189 2,568
-------- --------
Total liabilities 7,551 7,715
-------- --------
SHAREHOLDERS' EQUITY:
Common stock, no par value; 25,000,000 shares
authorized; 8,669,830 and 8,521,484 outstanding 13,754 13,151
Retained earnings 18,326 16,144
Accumulated translation adjustment (731) (767)
-------- --------
Total shareholders' equity 31,349 28,528
-------- --------
TOTAL $ 38,900 $ 36,243
======== ========
<FN>
See Notes to Consolidated Financial Statements
</FN>
</TABLE>
3
<PAGE>
<TABLE>
NANOMETRICS INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share amounts)
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET REVENUES:
Product sales $ 6,249 $ 8,433 $ 25,572 $ 23,475
Service 756 983 2,699 2,899
-------- -------- -------- --------
Total net revenues 7,005 9,416 28,271 26,374
-------- -------- -------- --------
COSTS AND EXPENSES:
Cost of product sales 2,782 3,019 10,409 8,658
Cost of service 835 988 2,787 2,725
Research and development 886 772 3,180 2,111
Acquired in-process research and
development -- -- 2,036 --
Selling 1,366 1,508 4,467 4,397
General and administrative 614 716 2,093 1,965
-------- -------- -------- --------
Total costs and expenses 6,483 7,003 24,972 19,856
-------- -------- -------- --------
OPERATING INCOME 522 2,413 3,299 6,518
-------- -------- -------- --------
OTHER INCOME (EXPENSE):
Interest income 146 132 463 373
Interest expense (23) (36) (69) (85)
Other, net 42 (32) (106) (38)
-------- -------- -------- --------
Total other income (expense), net 165 64 288 250
-------- -------- -------- --------
INCOME BEFORE PROVISION
FOR INCOME TAXES 687 2,477 3,587 6,768
PROVISION FOR INCOME TAXES 274 973 1,405 2,618
-------- -------- -------- --------
NET INCOME $ 413 $ 1,504 $ 2,182 $ 4,150
======== ======== ======== ========
NET INCOME PER SHARE:
Basic $ .05 $ .18 $ .25 $ .50
======== ======== ======== ========
Diluted $ .05 $ .17 $ .24 $ .47
======== ======== ======== ========
SHARES USED IN PER SHARE
COMPUTATION:
Basic 8,669 8,327 8,618 8,290
======== ======== ======== ========
Diluted 9,074 9,002 9,018 8,780
======== ======== ======== ========
<FN>
See Notes to Consolidated Financial Statements
</FN>
</TABLE>
4
<PAGE>
<TABLE>
NANOMETRICS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
<CAPTION>
Nine Months Ended
September 30,
1998 1997
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,182 $ 4,150
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 153 161
Purchase of in-process research and development 2,036 --
Deferred taxes (906) 367
Changes in assets and liabilities:
Accounts receivable (890) (10)
Inventories (2,769) (1,230)
Prepaid expenses and other 136 (501)
Accounts payable and other current liabilities (323) 624
Income taxes payable (29) (1,221)
-------- --------
Net cash provided by (used in) operating activities (410) 2,340
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term investments (12,823) (13,547)
Sales/maturities of short-term investments 13,498 10,583
Capital expenditures (170) (64)
Product line acquisition (3,038) --
-------- --------
Net cash used in investing activities (2,533) (3,028)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt (551) (251)
Issuance of common stock 603 299
-------- --------
Net cash provided by financing activities 52 48
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 1,923 713
-------- --------
NET CHANGE IN CASH AND EQUIVALENTS (968) 73
CASH AND EQUIVALENTS, beginning of period 3,656 1,725
-------- --------
CASH AND EQUIVALENTS, end of period $ 2,688 $ 1,798
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest $ 73 $ 85
======== ========
Cash paid for income taxes $ 2,223 $ 4,161
======== ========
<FN>
See Notes to Consolidated Financial Statements
</FN>
</TABLE>
5
<PAGE>
NANOMETRICS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 Consolidated Financial Statements
The consolidated financial statements include the accounts of Nanometrics
Incorporated and its wholly owned subsidiaries. All significant inter-company
accounts and transactions have been eliminated.
While the quarterly financial information is unaudited, the financial
statements included in this report reflect all adjustments (consisting only of
normal recurring adjustments) which the Company considers necessary for a fair
presentation of the results of operations for the interim periods covered and of
the financial condition of the Company at the date of the interim balance sheet.
The operating results for interim periods are not necessarily indicative of the
operating results that may be expected for the entire year. The information
included in this report should be read in conjunction with the information
included in the Company's 1997 Annual Report on Form 10-K filed with the
Securities and Exchange Commission.
Note 2. Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market and consist of the following (in thousands):
September 30, December 31,
1998 1997
-------------- --------------
Raw materials and subassemblies $ 3,790 $ 2,676
Work in process 4,226 1,528
Finished goods 3,479 2,934
------------- --------------
$ 11,495 $ 7,138
============= ==============
Note 3. Product Line Acquisition
On March 30, 1998 the Company entered into an agreement with Optical
Specialties, Inc. ("OSI") to purchase a metrology system product line and
related assets used to measure the critical dimensions and overlay registration
errors observed in submicron lithography. Under the agreement, the Company paid
approximately $3.2 million in cash for the assets and in-process technology. The
purchase price was allocated on the basis of the estimated fair value of the
assets acquired and liabilities assumed as follows (in thousands):
Fair value of tangible assets acquired $ 1,923
In-process research and development 2,036
Liabilities assumed (734)
-----
Purchase consideration $ 3,225
=====
In addition, during the three months ended March 31, 1998, the Company hired
certain former employees of OSI and incurred approximately $350,000 in related,
non-recurring hiring expenses (such expenses are classified in the statement of
income according to the employees' function).
Note 4. Other Current Liabilities
Other current liabilities consist of the following (in thousands):
September 30, 1998 December 31, 1997
------------------ -----------------
Commissions payable $ 463 $ 564
Accrued warranty 975 479
Other 1,157 450
------------- --------------
$ 2,595 $ 1,493
============= ==============
6
<PAGE>
Note 5. Net Income Per Share
<TABLE>
The reconciliation of the share denominator used in the basic and diluted
net income per share computations are as follows (in thousands):
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
Weighted average common shares 1998 1997 1998 1997
----- ----- ----- -----
<S> <C> <C> <C> <C>
outstanding-shares used in basic
net income per share computation 8,669 8,327 8,618 8,290
Dilutive effect of common stock equivalents,
using the treasury stock method 405 675 400 490
----- ----- ----- -----
Shares used in dilutive net income
per share computation 9,074 9,002 9,018 8,780
===== ===== ===== =====
</TABLE>
During the three and nine month periods ended September 30, 1998 and
1997, the Company had common stock options outstanding which could potentially
dilute basic net income per share in the future, but were excluded from the
computation of diluted net income per share as the common stock options'
exercise prices were greater than the average market price of the common shares
for the period. At September 30, 1998, 71,000 such common stock options with a
weighted average exercise price of $7.80 per share were excluded from the
diluted net income per share computations.
Note 6. Comprehensive Income
In the first quarter of 1998, the Company adopted Statement of Financial
Accounting Standard No. 130, "Reporting Comprehensive Income," which requires an
enterprise to report the change in net assets during the period from nonowner
sources ("comprehensive income") . For the three months ended September 30, 1998
and 1997, comprehensive income, which consisted of net income for the periods
and changes in accumulated translation adjustments, was $575,000 and $1,307,000,
respectively. For the nine months ended September 30, 1998 and 1997,
comprehensive income was $2,216,000 and $3,984,000, respectively.
Note 7. New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued SFAS No.
131, "Disclosure about Segments of an Enterprise and Related Information," which
establishes annual and interim reporting standards for an enterprise's business
segments and related disclosures about its products, services, geographic areas
and major customers. This statement is effective for fiscal year 1998 and
adoption will not affect the Company's financial position, results of operations
or cashflows.
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," which
defines derivatives, requires that all derivatives be carried at fair value, and
provides for hedging accounting when certain conditions are met. This statement
is effective for all fiscal quarters of fiscal years beginning after June 15,
1999. Although the Company has not fully assessed the implications of this new
statement, the Company does not believe adoption of this statement will have a
material impact on the Company's financial position or results of operations.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Total net revenues for the three months ended September 30, 1998 were
$7,005,000, a decrease of $2,411,000 or 26% from the comparable period in 1997.
For the nine months ended September 30, 1998, total net revenues of $28,271,000
increased by $1,897,000 or 7% from the comparable period in 1997. Product sales
of $6,249,000 for the three months ended September 30, 1998, decreased
$2,184,000 or 26% as compared with the same periods during 1997. This decrease
resulted from a generally weakening demand for semiconductor equipment observed
in the U.S., Japan and Pacific Rim countries which was offset, to some extent,
by increased sales of the Company's products to magnetic disk and flat panel
manufacturers. Product sales of $25,572,000 for the nine months ended September
30, 1998, increased $2,097,000 or 9% as compared with the same period during
1997. The increase in product sales resulted from stronger demand for, and
increased shipments of, the Company's products during the first two quarters of
1998, especially for its automated products, particularly from customers in the
Far East and Europe. Service revenue of $756,000 and $2,699,000 for the three
months and nine months ended September 30, 1998, respectively, decreased
$227,000 or 23% and $200,000 or 7%, respectively, as compared to the same
periods in 1997. These decreases in service revenue are primarily attributable
to lower sales of accessories in the U.S. and Japan.
Cost of product sales as a percentage of product sales increased to 45%
in the third quarter of 1998 from 36% in the third quarter of 1997 due to lower
sales volume resulting in higher per unit manufacturing costs. Cost of product
sales as a percentage of product sales increased to 41% in the nine months ended
September 30, 1998 from 37% for the same period in 1997 primarily because of
Metra sales, which had a lower gross margin than the Company's other products
and underabsorbed manufacturing costs related to the start up of production on
the Metra product line during the first two quarters of 1998. Cost of service as
a percentage of service revenue increased to 110% in the third quarter of 1998
from 101% in the third quarter of 1997 and increased to 103% in the nine months
ended September 30, 1998 from 94% for the same period in 1997 as a result of the
increased cost of additional headcount associated with servicing the Company's
new Metra product line that did not account for a proportional increase in
service revenue.
Research and development expenses for the three month and nine month
periods ended September 30, 1998 increased $114,000 or 15% and $1,069,000 or 51%
respectively, compared to the same periods in 1997 due primarily to the
increased cost of additional headcount associated with research and development
for the Company's new Metra overlay registration product line and its new
Nanospec 9000 integrated dry wafer thickness metrology product line.
In the first quarter of 1998, the Company paid approximately $3.2
million for the assets and in-process technology related to OSI's Metra product
line. Of this purchase price, $2,036,000 related to the value of in-process
technology that had no alternative future use and was charged to expense in the
accompanying statement of income for the nine months ended September 30, 1998.
The Company's increase in research and development expenses discussed above is
primarily attributable to efforts to bring the acquired in-process technology to
completion.
Selling expenses in the third quarter of 1998 decreased by $142,000 or
9% compared to the third quarter of 1997 as a result of lower commission and
other expenses associated with lower sales. Selling expenses for the nine months
ended September 30, 1998 increased $70,000 or 2% compared to the same period in
1997 primarily because of the increased cost of additional headcount associated
with the sales and marketing of the Company's new Metra product line.
8
<PAGE>
General and administrative expenses for the third quarter of 1998
decreased by $102,000 or 14% compared to the third quarter of 1997 due to
spending associated with the decreased level of operations in the third quarter
of 1998. General and administrative expenses for the nine month period ended
September 30, 1998 increased by $128,000 or 7% compared to the same period in
1997 primarily as a result of spending associated with the increased level of
operations during the first two quarters of 1998.
Other income (expense), net for the three month and nine month periods
ended September 30, 1998 increased $101,000 or 158% and $38,000 or 15%
respectively, from the comparable periods in 1997 due primarily to exchange rate
gains in the third quarter of 1998 and to higher interest income in 1998.
The Company reported an operating income of $522,000 and net income of
$413,000 for the third quarter of 1998 compared to an operating income of
$2,413,000 and net income of $1,504,000 for the same period in 1997. For the
first nine months of 1998, the Company reported an operating income of
$3,299,000 and net income of $2,182,000 which compared to an operating income of
$6,518,000 and net income of $4,150,000 for the same period in 1997.
Liquidity and Capital Resources
At September 30, 1998, the Company had working capital of $30,244,000
compared to $28,636,000 at December 31, 1997. The current ratio at September 30,
1998 was 6.6 to 1. The Company believes working capital including cash and
short-term investments of $11,608,000 will be sufficient to meet its needs at
least through the next twelve months. Operating activities for the first nine
months of 1998 used cash of $410,000 primarily from increased accounts
receivable and inventory which were offset to some extent by net income adjusted
for the in-process technology purchase of the Metra product line, while the net
purchases of short-term investments provided $675,000, capital expenditures used
$170,000, purchase of the Metra product line used $3,038,000, debt repayment
used $551,000 and issuance of common stock provided $603,000.
Forward Looking Statements
The foregoing Management Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. These statements involve risks and uncertainties and
actual results could differ materially as a result of a number of factors,
including (i) demand for the Company's products, which is affected by factors
including the cyclicality of the semiconductor, magnetic recording head and flat
panel display industries served by the Company, (ii) patterns of capital
spending by customers, (iii) technological changes in the markets served by the
Company and its customers, (iv) market acceptance of existing and new products
and product enhancements of both the Company and its customers, (v) the timing,
cancellation or delay of customer orders and shipments, (vi) competition,
including competitive pressure on product prices and changes in pricing by the
Company's customers or suppliers, (vii) fluctuation in foreign currency exchange
rates, particularly the Japanese yen, (viii) the proportion of direct sales
versus sales through distributors and representatives, (ix) the timing of new
product announcements and releases of products by the Company or its
competitors, including the Company's ability to design, introduce and
manufacture new products on a timely and cost effective basis, (x) the size and
timing acquisitions of business, products or technologies and fluctuations in
the availability and cost of components and subassemblies, (xi) economic
downturns in Asia and the general condition of the U.S. economy, which may
negatively affect sales of the Company's products and the factors set forth
under "Management's Discussion and Analysis of Financial Condition and Results
of Operations - Risk Factors" in the 1997 Annual Report on form 10-K. The
Company undertakes no obligation to update forward looking statements made in
this report to reflect events or circumstances after the date of this report
9
<PAGE>
or to update reasons why actual results could differ from those anticipated in
such forward-looking statements.
Year 2000 Issues
The Year 2000 issue is the result of many currently installed computer
programs being written using two digits rather than four to define the
applicable year. As a result, these computer programs are unable to distinguish
between 21st century dates and 20th century dates and could cause computer
system failures or miscalculations that result in significant business
disruptions.
The Company has begun to undertake an initiative intended to identify,
assess and remediate its Year 2000 issues so that its computer equipment and
software will function properly with respect to dates in the Year 2000 and
thereafter. For this purpose, computer equipment and software includes the
Company's information technology ("IT") systems as well as non-information
technology systems such as alarm systems and fax machines. In addition, both IT
systems and non-IT systems may contain third-party embedded technology that is
not Year 2000 ready. With respect to its IT systems, the Company has purchased a
Year 2000 upgrade license from the vendor and expects to implement the upgrade
by mid-1999. The Company currently expects that the cost of the upgrade license
and the related internal and external costs to implement it will approximate
$140,000. With respect to its non-IT systems, the Company is currently in the
process of identifying potential Year 2000 issues and the extent to which any
material Year 2000 issues exist. At this point, the Company has not yet
developed a contingency plan for dealing with the most reasonably likely worst
case scenario, and such scenario has not yet been identified. The Company plans
to complete such contingency planning no later than December 31, 1999.
Many of the Company's products incorporate computer software to control
certain add-on features and functionality. Although recent versions of most of
the Company's products incorporate software that is Year 2000 ready, the Company
is in the process of assessing the extent to which certain of its products are
not Year 2000 ready and what action, if any, will be necessary to remediate
significant Year 2000 issues in those products. The Company has not approximated
the scope and therefore the cost of such actions, and such costs may adversely
affect the Company's results of operations in a given period. These Year 2000
issues, if not remediated prior to the Year 2000, may result in negative
customer reaction, harm to the Company's reputation and possible litigation any
or all of which could adversely affect the Company's future operating results.
The costs of the Company's Year 2000 assessment and remediation efforts
and the ability of the Company to complete such efforts are Company estimates
based on various assumptions, including the availability of resources. There can
be no assurance that these estimates will prove to be accurate, and actual
results could differ materially from these estimates. Specific factors that
could cause such material differences include, but are not limited to, the
availability and cost of personnel trained in Year 2000 issues and the ability
to identify, assess and remediate all relevant computer programs and embedded
technology.
10
<PAGE>
NANOMETRICS INCORPORATED
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
Ex. 10.1 - Amendment to and Restatement of Salary Reduction Agreement
Ex. 27 - Financial Data Schedule
B. Reports on Form 8-K.
None.
11
<PAGE>
NANOMETRICS INCORPORATED
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NANOMETRICS INCORPORATED
(Registrant)
/s/ Vincent J. Coates
- -------------------------
Vincent J. Coates
Chairman of the Board
/s/ John Heaton
- -------------------------
John Heaton
Chief Executive Officer
/s/ Paul B. Nolan
- -------------------------
Paul B. Nolan
Chief Financial Officer
Dated: November 10, 1998
12
AMENDMENT TO AND RESTATEMENT OF
SALARY REDUCTION AGREEMENT
WHEREAS, VINCENT J. COATES and, pursuant to a resolution of its Board
of Directors at its meeting of February 20, 1985, NANOMETRICS INCORPORATED, a
California corporation, entered into a Salary Reduction Agreement (the "Salary
Reduction Agreement") dated May 1, 1985; and
WHEREAS, VINCENT J. COATES and, pursuant to a resolution of its Board
of Directors at its meeting of August 21, 1996, NANOMETRICS INCORPORATED, a
California corporation, decided to amend and restate such Salary Reduction
Agreement, a copy of which Amendment to and Restatement of Salary Reduction
Agreement is attached hereto is exhibit 1; and
WHEREAS, the parties wish to amend such Salary Reduction Agreement to
reflect subsequent salary adjustments and to clarify that Mr. coates' salary
shall continue for five (5) years from the date upon which he is forced to
resign from his position as, or is otherwise removed from his position as,
Chairman of the Board of Nanometrics INCORPORATED and at the rate which he is
receiving on such relinquishment date, and that all benefits for which Mr.
Coates remains eligible, and the conversion of such benefits, including health
and life insurance benefits, shall be continued at Company expense during such
five (5) year period at Mr. Coates' request.
NOW, THEREFORE, IT IS AGREED AS FOLLOWS: As approved and adopted by
resolution of the board of directors at its meeting held on June 18, 1998, the
Salary Reduction Agreement between Mr. Coates and NANOMETRICS INCORPORATED dated
August 21, 1996, is hereby amended, and the provisions of said Salary Reduction
Agreement are hereby restated, in their entirety, effective April 16, 1998 to
read as follows:
"SALARY REDUCTION AGREEMENT
This Agreement is entered into this 18th day of June, 1998 by and
between Vincent J. Coates ("Mr. Coates"), a California resident and Nanometrics
Incorporated, a California corporation (the "Company").
<PAGE>
RECITALS
WHEREAS, Mr. Coates is currently employed as Chairman of the Board of
the company, a position which he has held since the inception of the Company in
1975, and
WHEREAS, Mr. Coates' annual based salary was Three Hundred Thousand
Dollars ($300,000) per year when he entered into a Salary reduction Agreement,
dated May 1, 1985, and
WHEREAS, Mr. Coates and the Company and its Board of Directors have
agreed that, in light of the fact that the company has acquired competent staff
to perform duties previously performed by Mr. Coates, and Mr. Coates is better
able now to delegate his duties to his staff, the Company's reliance upon Mr.
Coates has decreased, and that it would be appropriate to reduce his annual base
salary to reflect the decrease in his responsibilities;
NOW, THEREFORE, the parties hereby agree as follows:
1. Effective as of March 1, 1985, Mr. Coates' salary was reduced from
an annual base rate of $300,000 to an annual base rate of $200,000, and his
salary has since varied as follows:
3/1/85 V. J. Coates took a cut in pay - $200,000/year
10/85 V. J. Coates took a cut in pay - $100,000/year
2/13/89 Merit increase $111,250/year
2/19/90 Merit increase $121,225/year
1/1/92 Merit increase $133,348/year
3/21/94 Merit increase $146,684/year
5/22/96 Compensation Committee/Board of Directors' decision to
maintain Mr. Coates' salary at same level.
5/15/97 compensation Committee/Board of Directors' decision to
increase Mr. Coates' salary to $200,000/year
2. All additional benefits which Mr. Coates previously enjoyed as an
officer and employee of the Company have continued and shall continue, based
upon the new annual base salary.
3. The parties hereby expressly agree that this Agreement is intended
solely to set out the parties' understanding with respect to compensation and is
not intended to constitute a contract of employment for any period of time. Mr.
Coates understands that he is, and following the execution of this Agreement,
remains, an at-will employee of the Company.
4. Effective April 16, 1998, in the event that Mr. Coates is forced
because of a merger, acquisition or for any reason to resign or is otherwise
removed from or loses his position as Chairman of the Board of NANOMETRICS
INCORPORATED, as such position has been defined in terms of responsibilities and
compensation as of this date, his salary will continue on normal paydays with
regular withholding for five (5)
<PAGE>
years from that date at the base salary rate which he received at the time of
such relinquishment. In addition, during such five (5) year period, any Company
benefits for which Mr. Coates remains eligible, shall be continued at Company
expense, including life and health insurance coverage (medical, dental and
prescription) and including any conversion of such coverage, e.g., conversion of
health insurance coverage to COBRA and the conversion of COBRA to individual
coverage, upon Mr. Coates' request. The Company shall pay any portion of such
benefit (s) which Mr. Coates would ordinarily be required to pay during such
five (5) year period.
5. Should Mr. Coates relinquish his position as Chairman of the Board
and as an employee but not as a member of the Board of Directors, he shall be
eligible to collect fees as an outside director as long as he remains a
Director. He shall be eligible for travel and other normal incidental expenses
incurred in connection with attendance at Board and Committee meetings.
6. This Agreement shall be governed by and construed in accordance with
the laws of the State of California."
IN WITNESS WHEREOF, the parties hereto have executed this AMENDMENT TO
AND RESTATEMENT OF SALARY REDUCTION AGREEMENT effective as of the 16th day of
April 1998.
/s/ Vincent J. Coates
---------------------
Vincent J. Coates
NAOMETRICS INCORPORATED,
by its Board of Directors:
/s/ Nathaniel Brenner /s/ Norman V. Coates
- ---------------------- ---------------------
Nathaniel Brenner Norman V. Coates
/s/ Kanegi Nagai /s/ Clifford Smedley
- ---------------------- ---------------------
Kanegi Nagai Clifford Smedley
/s/ John D. Heaton
----------------------
John D. Heaton
1 Attachment: Exhibit 1
<PAGE>
EXHIBIT 1
AMENDMENT TO AND RESTATEMENT OF
SALARY REDUCTION AGREEMENT
WHEREAS, VINCENT J. COATES and, pursuant to a resolution of its Board
of Directors at its meeting of February 20, 1985, NANOMETRICS INCORPORATED, a
California corporation, entered into a Salary Reduction Agreement (the "Salary
Reduction Agreement") dated May 1, 1985, a copy of which is attached hereto as
Exhibit A; and
WHEREAS, the parties wish to amend such Salary Reduction Agreement to
reflect subsequent salary adjustments and to clarify that Mr. Coates' salary
shall continue for five (5) years from the date upon which he relinquishes his
position as CEO of Nanometrics Incorporated and at the rate which he is
receiving on such relinquishment date, and that all benefits for which Mr.
Coates remains eligible, and the conversion of such benefits, including health
and life insurance benefits, shall be continued at Company expense during such
five (5) year period at Mr. Coates' request.
NOW, THEREFORE, IT IS AGREED AS FOLLOWS: As approved and adopted by
resolution of the Board of Directors at its meeting held on August 21, 1996, the
Salary Reduction Agreement between Mr. Coates and Nanometrics Incorporated dated
May 1, 1985, is hereby amended, and the provisions of said Salary Reduction
Agreement are hereby restated, in their entirety, to read as follows:
1
EXHIBIT 1
<PAGE>
EXHIBIT 1
"SALARY REDUCTION AGREEMENT
This Agreement is entered into this 21st day of August, 1996 by and
between Vincent J. Coates ("Mr. Coates"), a California resident and Nanometrics
Incorporated, a California corporation (the "Company").
RECITALS
WHEREAS, Mr. Coates is currently Chairman of the Board and Chief
Executive Officer ("CEO") of the Company, a position which he has held since the
inception of the Company in 1975, and
WHEREAS, Mr. Coates' annual base salary was Three Hundred Thousand
Dollars ($300,000) per year when he entered into a Salary Reduction Agreement,
dated May 1, 1985, and
WHEREAS, Mr. Coates and the Company and its Board of Directors have
agreed that, in light of the fact that the Company has acquired competent
vice-presidents and other staff to perform duties previously performed by Mr.
Coates, and Mr. Coates is better able now to delegate his duties to his staff,
the Company's reliance upon Mr. Coates has decreased, and that it would be
appropriate to reduce his annual base salary to reflect the decrease in his
responsibilities;
NOW, THEREFORE, the parties hereby agree as follows:
1. Effective as of March 1, 1985, Mr. Coates' salary was reduced from
an annual base rate of $300,000 to an annual base rate of $200,000, and his
salary has since varied as follows:
3/1/85 V. J. Coates took a cut in pay - $200,000/year
10/85 V. J. Coates took a cut in pay - $100,000/year
2
EXHIBIT 1
<PAGE>
EXHIBIT 1
2/13/89 Merit increase - $111,250/year
2/19/90 Merit increase - $121,225/year
1/1/92 Merit increase - $133,349/year
3/21/94 Merit increase - $146,684/year
5/22/96 Compensation Committee/Board of Directors' decision to
maintain Mr. Coates' salary at same level.
2. All additional benefits which Mr. Coates previously enjoyed as an
officer and employee of the Company have continued and shall continue, based
upon the new annual base salary.
3. The parties hereby expressly agree that this Agreement is intended
solely to set out the parties' understanding with respect to compensation and is
not intended to constitute a contract of employment for any period of time. Mr.
Coates understands that he is, and following the execution of this Agreement,
remains, an at-will employee of the Company.
4. In the event that Mr. Coates is required for any reason to
relinquish his position as CEO of Nanometrics, his salary will continue on
normal paydays with regular withholding for five (5) years from that date at the
base salary rate which he received at the time of such relinquishment regardless
of whether or not he remains as Chairman of the Board. In addition, during such
five (5) year period, any Company benefits for which Mr. Coates remains
eligible, shall be continued at Company expense, including life and health
insurance coverage (medical, dental and prescription) and including any
conversion of such coverage, e.g., conversion of health insurance coverage to
COBRA and the
3
EXHIBIT 1
<PAGE>
EXHIBIT 1
conversion of COBRA to individual coverage, upon Mr. Coates' request. The
Company shall pay any portion of such benefit(s) which Mr. Coates would
ordinarily be required to pay during such five (5) year period.
5. Should Mr. Coates relinquish his position as CEO but not as Chairman
of the Board, he shall not collect fees as an outside director as long as his
salary as CEO is continued. However, he shall be eligible for travel and other
normal incidental expenses incurred in connection with attendance at Board and
Committee meetings.
6. This Agreement shall be governed by and construed in accordance with
the laws of the State of California."
IN WITNESS WHEREOF, the parties hereto have executed this AMENDMENT TO
AND RESTATEMENT OF SALARY AGREEMENT effective as of the 21st day of August 1996.
/s/ Vincent J. Coate
---------------------
Vincent J. Coates
NANOMETRIC INCORPORATED,
by its Board of Directors:
/s/ Nathaniel Brenner /s/ Norman V. Coates
- ---------------------- ---------------------
Nathaniel Brenner Norman V. Coates
/s/ Kanegi Nagai /s/ Clifford Smedley
- ---------------------- ---------------------
Kanegi Nagai Clifford Smedley
/s/ John D. Heaton
- ---------------------
John D. Heaton
1 Attachment: Exhibit A
4
EXHIBIT 1
<PAGE>
EXHIBIT 1
SALARY REDUCTI0N AGREEMENT
This Agreement is entered into this 1st day of May, 1985 by and between
Vincent J. Coates, a California resident and Nanometrics Incorporated, a
California corporation (the "Company").
WHEREAS, Mr. Coates is currently the President and Chairman of the
Board of the Company, a position which he has held since the inception of the
Company in 1975 and
WHEREAS, his current annual base salary is $300,000 per year, and
WHEREAS, Mr. Coates and the Company and its Board of Directors have
agreed that, in light of the fact that the Company has acquired competent
vice-presidents and other staff to perform duties previously performed by Mr.
Coates, and Mr. Coates Is better able now to delegate his duties to his staff,
the Company's reliance upon Mr. Coates has decreased, and that it would be
appropriate to reduce his annual base salary to reflect the decrease in his
responsibilities;
NOW, THEREFORE, the parties hereby agree as follows:
1. Effective as of March 1, 1985, Mr. Coates will be compensated at the
base annual rate of $200,000.00. All additional benefits which Mr. Coates
previously enjoyed as an officer and employee of the Company shall continue,
based upon the new annual base salary.
2. The parties hereby expressly agree that this Agreement is intended
solely to set out the parties' understanding with respect to compensation and is
not intended to constitute a contract of employment for any period of time. Mr.
Coates understands that he is, and following the execution of this Agreement,
remains, an at-will employee of the Company.
3. In the event that Mr. Coates is required for any reason to
relinquish his position as President, Chairman, CEO of Nanometrics his salary
will continue for 5 years from that date.
EXHIBIT A
EXHIBIT 1
<PAGE>
EXHIBIT 1
4. This agreement shall be governed by and construed in accordance with
the laws of the State of California.
Executed as of the date of first above written.
NANOMETRICS INCORPORATED
a California corporation
By: /s/ Gary Rhea
-----------------------------
Gary Rhea
Title: VP Finance
--------------------------
/s/ Vincent J. Coates
--------------------------------
Vincent J. Coates
EXHIBIT 1
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