Nova Measuring Instruments Ltd. Annual Report 2021

Plain-text annual report

NOVA LTD. FORM 20-F (Annual and Transition Report (foreign private issuer)) Filed 03/01/22 for the Period Ending 12/31/21 Telephone CIK 972-73-229-5600 0001109345 Symbol NVMI SIC Code Industry Sector Fiscal Year 3827 - Optical Instruments and Lenses Semiconductors Technology 12/31 http://www.edgar-online.com © Copyright 2022, EDGAR Online, a division of Donnelley Financial Solutions. All Rights Reserved. Distribution and use of this document restricted under EDGAR Online, a division of Donnelley Financial Solutions, Terms of Use. UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 Form 20-F ☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) or (g) OF THE SECURITIES EXCHANGE ACT OF1934 OR ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2021 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 OR ☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF1934 Commission File Number 000-30668 NOVA LTD.(Exact name of Registrant as specified in its charter) Nova Ltd.Israel(Translation of Registrant’s name into English)(Jurisdiction of incorporation or organization) 5 David Fikes St., Rehovot 7632805, Israel(Address of principal executive offices) Dror David, +972-73-2295833, +972-8-9407776, Rehovot 7632805, Israel(Name, Telephone, E-mail and/or Facsimile number and Address of the Registrant’s Contact Person) Securities registered or to be registered pursuant to Section 12(b) of the Act: Title of each classTrading Symbol(s)Name of each exchange on whichregisteredOrdinary SharesNVMIThe Nasdaq Global Select Market Securities registered or to be registered pursuant to Section 12(g) of the Act: None Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the periodcovered by the annual report: 28,579,044 ordinary shares, as of December 31, 2021. Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒ If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant toSection 13 or 15(d) of the Securities Exchange Act of 1934. Yes ☐ No ☒ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file suchreports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, everyInteractive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) duringthe preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerginggrowth company. See definition of “accelerated filer and large accelerated filer” and “emerging growth company” in Rule 12b-2 ofthe Exchange Act. Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Emerging growth company ☐ If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if theregistrant has elected not to use the extended transition period for complying with any new or revised financial accounting standardsprovided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐ Indicate by check mark whether the registrant has filed a report on the attestation to its management’s assessment of the effectivenessof its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registeredpublic accounting firm that prepared or issued its audit report. Yes ☒ No ☐ Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing: U.S. GAAP ☒ International Financing Reporting Standards as issued by the International Accounting Standards Board ☐ Other ☐ If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item theregistrant has elected to follow: Item 17 ☐ Item 18 ☐ If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act). Yes ☐ No ☒ TABLE OF CONTENTSPART I1Item 1. Identity of Directors, Senior Management and Advisors1Item 2. Offer Statistics and Expected Timetable1Item 3. Key Information1Item 4. Information on the Company28Item 4A. Unresolved Staff Comments47Item 5. Operating and Financial Review and Prospects47Item 6. Directors, Senior Management and Employees63Item 7. Major Shareholder and Related Party Transactions79Item 8. Financial Information82Item 9. The Offer and Listing83Item 10. Additional Information83Item 11. Quantitative and Qualitative Disclosures About Market Risk102Item 12. Description of Securities Other than Equity Securities103PART II104Item 13. Defaults, Dividend Arrearages and Delinquencies104Item 14. Material Modification to the Rights of Security Holders and Use of Proceeds104Item 15. Controls and Procedures104Item 16A. Audit Committee Financial Expert105Item 16B. Code of Ethics105Item 16C. Principal Accountant Fees and Services105Item 16D. Exemptions from the Listing Standards for Audit Committees106Item 16E. Purchases of Equity Securities by the Issuer and Affiliates Purchasers106Item 16F. Change In Registrant’s Certifying Accountant106Item 16G. Corporate Governance106Item 16H. Mine Safety Disclosure106Item 16I. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections106PART III106Item 17. Financial Statements106Item 18. Financial Statements106Item 19. Exhibits106Exhibit Index107SIGNATURES108- i -INTRODUCTION In this annual report (this “Annual Report”), references to “we,” “us,” “our,” “our business,” “the Company,” “Nova” andsimilar references refer to Nova Ltd. and, where appropriate, its consolidated subsidiaries. This annual report contains estimates, projections and other information concerning our industry and our business, as well as dataregarding market research, estimates and forecasts prepared by our management. Information that is based on estimates, forecasts,projections, market research or similar methodologies is inherently subject to uncertainties, and actual events or circumstances maydiffer materially from events and circumstances that are assumed in this information. The industry in which we operate is subject to ahigh degree of uncertainty and risk due to a variety of factors, including those discussed under the headings “Special Note RegardingForward-Looking Statements” and Item 3.D. “Risk Factors” in this Annual Report. CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS This Annual Report contains estimates and forward-looking statements, principally in the sections entitled Item 3.D. “KeyInformation—Risk Factors,” Item 4. “Information on the Company,” and Item 5. “Operating and Financial Review and Prospects.”In some cases, these forward-looking statements can be identified by words or phrases such as “may,” “might,” “will,” “could,”“would,” “should,” “expect,” “plan,” “anticipate,” “intend,” “seek,” “believe,” “estimate,” “predict,” “potential,” “continue,”“contemplate,” “possible” or similar words. Statements regarding our future results of operations and financial position, growthstrategy and plans and objectives of management for future operations, including, among others, expansion in new and existingmarkets, are forward-looking statements. Our estimates and forward-looking statements are mainly based on our current expectations and estimates of future eventsand trends which affect or may affect our business, operations and industry. Although we believe that these estimates and forward-looking statements are based upon reasonable assumptions, they are subject to numerous risks and uncertainties. These forward-looking statements are subject to a number of known and unknown risks, uncertainties, other factors andassumptions, including the risks described in Item 3.D “Key Information—Risk Factors” and elsewhere in this Annual Report,regarding, among other things: Our estimates and forward-looking statements may be influenced by factors including: •Our business could be disrupted by catastrophic events, such as the outbreak of COVID-19.•Increased information technology security threats and more sophisticated computer crime could disrupt our business.•We are dependent on international sales, which expose us to foreign political and economic risks that could impede our plans forexpansion and growth.•Changes in Global trade policies and other factors beyond our control may adversely impact our business, financial condition andresults of operations. - ii -•Because of the technical nature of our business, our intellectual property is extremely important to our business, and our inabilityto protect our intellectual property or our involvement in related litigation could harm our competitive position.•We may incorporate open source technology in some of our software and products, which may expose us to liability and have amaterial impact on our product development and sales.•We operate in an extremely competitive market, and if we fail to compete effectively or to respond to the rapid technologicalchanges, our revenues and market share will decline.•The ongoing consolidation in our industry may harm us if our competitors are able to offer a broader range of products andgreater customer support than we can offer.•The markets we target are cyclical and it is difficult to predict the length and strength of any downturn or expansion period.•Our operations may be delayed or interrupted, and our business could suffer if we violate environmental, safety and health, orESH, regulations•Because most of our current sales are dependent on few specific product lines, factors that adversely affect the pricing anddemand for these product lines could reduce our sales.•We depend on a small number of large customers, and the loss of one or more of them could significantly lower our revenues.•There can be no assurance that revenues from future products or product enhancements will be sufficient to recover thedevelopment costs or to ensure the sale of related inventory.•New product lines that we may introduce in the future may contain defects, which will require us to allocate time and financialresources to correct.•Our dependence on a single manufacturing facility per product line magnifies the risk of an interruption in our productioncapabilities.•We may not be successful in our efforts to complete and integrate current and/or future acquisitions, which could disrupt ourcurrent business activities and adversely affect our results of operations or future growth.•We depend on a limited number of suppliers, and in some cases a sole supplier. Any disruption, delay or termination of thesesupply channels may adversely affect our ability to manufacture our products and to deliver them to our customers.•Our operations may be disrupted by loss of key personnel or failure to attract, recruit, retain and develop qualified employees dueto intense competition for highly skilled personnel.•Our lengthy sales cycle increases our exposure to customer delays in orders, which may result in obsolete inventory and volatilequarterly revenues.•Political, economic, and military instability in Israel may impede our ability to operate and harm our financial results.•Our convertible senior notes may impact our financial results, result in the dilution of existing shareholders, create downwardpressure on the price of our ordinary shares, and restrict our ability to take advantage of future opportunities. We may not havethe ability to raise the funds necessary to settle conversions, and the accounting method for the Convertible Notes couldadversely affect our reported financial condition and results•Our profit margin may be seriously harmed by currency fluctuations.•We participate in government programs under which we receive research and development grants. Some of these programsimpose restrictions on our ability to use the technologies developed under these programs. The reduction or termination of theseprograms would increase our costs.•We experience quarterly fluctuations in our operating results, which may adversely impact our share price.•Our investment portfolio may be adversely affected by market conditions and interest rates. - iii -You should not rely on forward-looking statements as predictions of future events. We have based the forward-lookingstatements contained in this Annual Report primarily on our current expectations and projections about future events and trends thatwe believe may affect our business, financial condition and operating results. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in the section titled “Risk factors” and elsewhere inthis Annual Report. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertaintiesemerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Annual Report. The results, events and circumstances reflected in the forward-lookingstatements may not be achieved or occur, and actual results, events or circumstances could differ materially from those described inthe forward-looking statements. In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. Thesestatements are based on information available to us as of the date of this Annual Report. While we believe that information providesa reasonable basis for these statements, that information may be limited or incomplete. Our statements should not be read to indicatethat we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain,and investors are cautioned not to unduly rely on these statements. The forward-looking statements made in this Annual Report relate only to events as of the date on which the statements aremade. We undertake no obligation to update any forward-looking statements made in this Annual Report to reflect events orcircumstances after the date of this Annual Report or to reflect new information or the occurrence of unanticipated events, except asrequired by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, andyou should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potentialimpact of any future acquisitions, mergers, dispositions, joint ventures or investments.OUR FUNCTIONAL CURRENCY Unless otherwise indicated, all amounts herein are expressed in United States dollars (“U.S. dollars”, “dollars”, “USD”, “US$”or “$”). The currency of the primary economic environment in which we operate is the U.S. dollar, since substantially all our revenuesto date have been denominated in U.S. dollars and over 50% of our expenses are in U.S. dollars or in New Israeli Shekels linked tothe dollar. Transactions and balances denominated in dollars are presented at their original amounts. Non-dollar transactions andbalances have been re-measured into dollars as required by the principles in ASC 830 Foreign Currency Matters. All exchange gainsand losses from such re-measurement are included in the net financial income when they arise. - iv -PART IItem 1. Identity of Directors, Senior Management and Advisors Not applicable. Item 2. Offer Statistics and Expected Timetable Not applicable. Item 3. Key Information 3A. Selected Financial Data [Reserved] 3B. Capitalization and Indebtedness Not applicable. 3C. Reasons for the Offer and Use of Proceeds Not applicable. 3D. Risk Factors You should carefully consider the risks described below before making an investment decision. Additional risks not presently knownto us or that we currently deem immaterial may also impair our business operations. Our business, financial condition or results ofoperations could be materially and adversely affected by any of these risks. The trading price and value of our ordinary sharescould decline due to any of these risks, and you may lose all or part of your investment. This Annual Report also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in theseforward-looking statements as a result of certain factors, including the risks faced by us described below and elsewhere in thisAnnual Report. Economic and External Risks Our business could be disrupted by catastrophic events, such as the outbreak of COVID-19. The COVID-19 pandemic has caused substantial global disruptions, including in the jurisdictions where we develop ourproducts and conduct business and may cause additional disruptions in the future. Local, regional and national authorities innumerous jurisdictions, including the United States and Israel, have implemented a variety of measures designed to slow the spreadof the virus, including social distancing guidelines, quarantines, banning of non-essential travel and requiring the cessation of non-essential activities on the premises of businesses and various other measures and restriction. Such measures and restrictions aresubject to occasional updates by the authorities, hard to predict and depend on the spread of the virus and its variants. 1Some of the risks associated with the pandemic or a worsening of the pandemic in the future include: cancellation or reduction of routes available from common carriers, which may cause delays in our ability to deliver orservice our products or receive components from suppliers necessary to manufacture or service our products; • travel bans or the requirement to quarantine for a lengthy period after entering a jurisdiction, which may delay ourability to install the products we sell or service those products following installation; • governmental orders or employee exposure requiring us, our customers or our suppliers to discontinue manufacturingproducts at our respective facilities for a period of time; • increased costs or inability to acquire components necessary for the manufacture of our products due to loweravailability; • Financial difficulties of one of our suppliers, which will affect our ability to manufacture our products on time fordelivery to our customers; • absence of liquidity at customers and suppliers caused by disruptions from the pandemic, which may hamper theability of customers to pay for the products they purchase on time or at all, or hamper the ability of our suppliers to continue tosupply components to us in a timely manner or at all; and • loss of efficiencies due to remote working requirements for our employees. As a result, the COVID-19 pandemic may adversely affect our business and financial results, and may also have the effect ofheightening many of the other factors described in this section and in the “Risk Factors’” section in this Annual Report. The occurrence of unforeseen or catastrophic events such as terrorist attacks, extreme terrestrial or solar weather events orother natural disasters, emergence of a pandemic, or other widespread health emergencies (or concerns over the possibility of such anemergency), could create economic and financial disruptions, and could lead to operational difficulties that could impair our abilityto manage our business. Increased information technology security threats and more sophisticated computer crime, could disrupt our business. Our global operations are linked by information systems, including telecommunications, the internet, our corporate intranet,network communications, email and various computer hardware and software applications. In light of information technologysecurity threats, we have implemented network security measures and engaged the services of a cybersecurity consulting firm toconduct an information security risk assessment review which was reviewed and discussed by our audit committee and board ofdirectors. In the current environment, there are numerous and evolving risks to cybersecurity and privacy, including criminalhackers, hacktivists, state-sponsored intrusions, industrial espionage, employee malfeasance and human or technological error. High-profile security breaches at other companies and in government agencies have increased in recent years, and security industry expertsand government officials have warned about the risks of hackers and cyberattacks targeting businesses such as ours. Computerhackers and others routinely attempt to breach the security of technology products, services and systems, and to fraudulently induceemployees, customers, sub-contractors, agents, distributors or others to disclose information or unwittingly provide access to systemsor data. In addition, some of our software and products utilize open-source technologies, which may also be used by computerhackers for purpose of cyber-attacks. 2Although we have invested in measures to reduce these risks, we can provide no assurance that our current IT systems arefully protected against third-party intrusions, viruses, hacker attacks, information or data theft or other similar threats. The cost andoperational consequences of implementing, maintaining and enhancing further data or system protection measures could increasesignificantly to overcome increasingly intense, complex, and sophisticated global cyber threats. Despite our best efforts, we are notfully insulated from data breaches and system disruptions and, accordingly, we have experienced and expect to continue toexperience actual or attempted cyberattacks of our IT networks. Although none of these actual or attempted cyberattacks has had amaterial adverse effect on our operations or financial condition thus far, we cannot guarantee that any such incidents will not have amaterial adverse effect on our operations or financial condition in the future. For instance, during 2020 and 2021, we experienced afew fraud attempts involving instructions given by a fraudster to third parties working with the Company, and in one of theseattempts a financial institution used by the Company for certain financial transactions, wired out Company funds without Company'sauthorization. Although almost all of such funds have been retrieved in full by the Company, there is no assurance that such events,at a larger scale, will not happen in the future. Any material breaches of cybersecurity or media reports of perceived securityvulnerabilities to our systems or those of the Company’s third parties, even if no breach has been attempted or occurred, could causeus to experience reputational harm, loss of customers and revenue, regulatory actions and scrutiny, sanctions or other statutorypenalties, litigation, liability for failure to safeguard our customers’ information, or financial losses that are either not insured againstor not fully covered through any insurance maintained by us. Any of the foregoing may have a material adverse effect on ourbusiness, operating results and financial condition. As such, our tools and servers are vulnerable to computer viruses, break-ins and similar disruptions from unauthorizedtampering with our computer systems and tools located at our facility or at customer sites, or could be subject to system failures ormalfunctions for other reasons. Increased information technology security threats and more sophisticated computer crime pose a riskto the security of our systems and networks and the confidentiality, availability and integrity of our data or customer data.Cybersecurity attacks could also include attacks targeting the security, integrity and/or reliability of the hardware and softwareinstalled in our products. System failures or malfunctioning could disrupt our operations and our ability to timely and accuratelyprocess and report key components of our financial results. Further, the regulatory framework for privacy and security issues worldwide is rapidly evolving and is likely to remainuncertain for the foreseeable future. In particular, in the European Union, the General Data Protection Regulation (GDPR) imposesmore stringent data protection requirements and provides for greater penalties for noncompliance. Any inability to adequatelyaddress privacy and security concerns or comply with applicable privacy and data security laws, rules and regulations could have anadverse effect on our business prospects, results of operations and/or financial position. 3We are dependent on international sales, which expose us to foreign political and economic risks that could impede our plansfor expansion and growth. Our principal customers are located in Taiwan, South Korea, China, Japan and the United States, and we produce ourproducts in Israel and the United States. International operations expose us to a variety of risks that could seriously impact ourfinancial condition and impede our growth including: •instability in political or economic conditions, including but not limited to inflation, recession, foreign currency exchangerestrictions and devaluations, restrictive governmental controls on the movement and repatriation of earnings and capital, andactual or anticipated military or political conflicts, particularly in emerging markets; Rising inflation and elevated U.S.budget deficits and overall debt levels, including as a result of federal pandemic relief and stimulus legislation and/oreconomic or market and supply chain conditions, can put upward pressure on interest rates and could be among the factorsthat could lead to higher interest rates in the future. Higher interest rates could adversely affect our overall business or reduceour liquidity. •intergovernmental conflicts or actions, including but not limited to armed conflict, trade wars and acts of terrorism or war,including current war between Russia and the Ukraine; and •interruptions to the Company’s business with its largest customers, distributors and suppliers resulting from but not limitedto, strikes, and financial instabilities. For instance, trade restrictions, changes in tariffs and import and export licenserequirements could adversely affect our ability to sell our products in the countries adopting or changing those restrictions,tariffs or requirements. This could reduce our sales by a material amount. Specifically, starting 2018 and to date, the U.S. Department of Commerce has taken actions to restrict exports to severalChinese based semiconductor manufacturers, such as Fujian Jinhua Integrated Circuit Company, Ltd. (“JHICC”) and SemiconductorManufacturing International Corporation (“SMIC”). These customers have acquired several of our metrology solutions in the past.Due to the abovementioned export restrictions, our U.S. subsidiary is currently restricted from shipping tools or parts or provide anyform of service to JHICC and tools to some specific sites of SMIC, until it is cleared to resume by the appropriate authorities. In addition, in 2020 the US Department of State introduced restrictions on exporting to customers who are suppliers toHuawei, which is a Chinese based electronics supplier. Since the introduction of these restrictions, our US subsidiary has put in placea procedure to ensure compliance with these restrictions. In some cases, the abovementioned export restrictions might also be applicable to the products which we export from othercountries. Additionally, the uncertainty of the economic, financial, regulatory, trade, tax and legal implications of the withdrawal of theU.K. from the E.U. (“Brexit”) and other significant political developments could also have a materially adverse effect on ourbusiness. All of these risks could result in increased costs or decreased revenues, either of which could have a materially adverse effecton our profitability. 4Changes in global trade policies and other factors beyond our control may adversely impact our business, financial conditionand results of operations. The international environment in which we operate is affected from inter-country trade agreements and tariffs. As a result ofrecent revisions in the U.S. administrative policy there are, and may be additional, changes to existing trade agreements, greaterrestrictions on free trade and significant increases in tariffs on goods imported into the United States, particularly those manufacturedin China, Mexico and Canada. Future actions of the U.S. administration and that of foreign governments, including China, withrespect to tariffs or international trade agreements and policies remains currently unclear. The escalation of a trade war, tariffs, retaliatory tariffs or other trade restrictions on products and materials either exported byus to China or raw materials imported by us from China may significantly impede our ability to provide our solutions and service ourcustomers in China or other effected locations. Such developments may result in a decrease in demand for our products andtechnologies as well as delays in payments from our customers. Furthermore, other governmental action related to tariffs orinternational trade agreements, changes in U.S. social, political, regulatory and economic conditions or in laws and policiesgoverning foreign trade, manufacturing, development and investment in the territories and countries, where our customers arelocated, could adversely affect our business, financial condition, operating results and cash flows. We may be affected by instability in the global economy and by financial turmoil. There is an inherent risk, based on the complex relationships among China, Japan, Korea, Taiwan, and the United States, thatpolitical, diplomatic and national security influences might lead to trade disputes, impacts and/or disruptions, in particular thoseaffecting the semiconductor industry. This would adversely affect our business with China, Japan, Korea, and/or Taiwan and perhapsthe entire Asia Pacific region or global economy. A significant trade dispute, impact and/or disruption in any area where we dobusiness could have a materially adverse impact on our future revenue and profits. Instability in the global markets and in thegeopolitical environment in many parts of the world, including current war between Russia and the Ukraine, as well as otherdisruptions may continue to put pressure on global economic conditions. In the event global economic and market conditions, oreconomic conditions in key markets, remain uncertain or deteriorate further, we may experience material impacts on our business,operating results, and financial condition. Because we derive a significant portion of our revenues from sales in Asia, our sales could be hurt by instability of Asianeconomies. A number of Asian countries have experienced political and economic instability. For instance, Taiwan and China have had anumber of disputes, as have North and South Korea, and Japan has for a number of years experienced significant economicinstability. Additionally, the Asia-Pacific region is susceptible to the occurrence of natural disasters, such as earthquakes, cyclones,tsunamis and flooding. We have subsidiaries in Taiwan, South Korea, China and Japan and we have significant customers in Taiwan,South Korea and China. An outbreak of hostilities or other political upheaval, economic downturns or the occurrence of a naturaldisaster in these or other Asian countries would likely harm the operations of our customers in these countries, causing our sales tosuffer. 5 Risks related to technology and Intellectual Property Because of the technical nature of our business, our intellectual property is extremely important to our business, and ourinability to protect our intellectual property could harm our competitive position. Our continued success depends upon our ability to protect our core technology and intellectual property. We therefore have anextensive program devoting resources to seeking patent protection for our inventions and discoveries that we believe will provide uswith competitive advantages. Our patents and applications principally cover various aspects of optical measurement systems andmethods, integrated process control implementation concepts, and optical, opto-mechanical and mechanical design. In addition, ourpatents and applications cover various aspects of X-ray based measurement systems and methods, including process controlimplementation concepts, X-ray energy sources, electron optics and detection, vacuum systems and equipment integration. We cannot assure that: •pending patent applications will be approved; or •any patents will be broad enough to protect our technology, will provide us with competitive advantages or will not bechallenged or invalidated by third parties. We also cannot assure that others will not independently develop similarproducts, duplicate our products or, if patents are issued to us, design around these patents. Furthermore, because patentsmay afford less protection under foreign law than is available under U.S. law, we cannot assure that any foreign patentsissued to us will adequately protect our proprietary rights. In addition, number of the patents which relating to our main-stream products have already expired or are expected to beexpired in the coming years. Such expiration may add significant competition to our tools in this area, which may lead to a decreasein our incomes. In addition, not all of our patents are covering all territories we operate in, and thus in some territories there is lesscoverage to some product lines. In addition to patent protection, we also rely upon trade secret protection, employee and third-party nondisclosure agreementsand other intellectual property protection methods to protect our confidential and proprietary information. Despite these efforts, wecannot be certain that others will not otherwise gain access to our trade secrets or disclose our technology. Additionally, as part of our long-term technological collaboration, we are engaged with joint development activities withsome of our strategic customers and vendors as well as with research institutes. These activities impose some limitations on the jointintellectual property developed as part of these programs. Furthermore, we may be required to institute legal proceedings to protect our intellectual property. If such legal proceedingsare resolved adversely to us, our competitive position and/or results of operations could be harmed. For additional information on ourintellectual property, see “Item 4B. Business Overview — Intellectual Property” in this Annual Report. There has been significant litigation involving intellectual property rights in the semiconductor and related industries, andsimilar litigation involving Nova could force us to divert resources to defend against such litigation or deter our customersfrom purchasing our systems. 6We have been, and may in the future be, notified of allegations that we may be infringing intellectual property rightspossessed by others. In addition, we may be required to commence legal proceedings against third parties, which may be infringingour intellectual property, in order to defend our intellectual property. In the future, protracted litigation and expense may be incurredto defend ourselves against alleged infringement of third-party rights or to defend our intellectual property against infringement bythird parties. Adverse determinations in that type of litigation could: •result in our loss of proprietary rights; •subject us to significant liabilities, including triple damages in some instances; •require us to seek licenses from third parties, which licenses may not be available on reasonable terms or at all; or •prevent us from selling our products. Any litigation of this type, even if we are ultimately successful, could result in substantial cost and diversion of time andeffort by our management, which by itself could have a negative impact on our profit margin, available funds, competitive positionand ability to develop and market new and existing products. For additional information on our intellectual property, see “Item 4B.Business Overview — Intellectual Property” in this Annual Report. We may incorporate open source technology in some of our software and products, which may expose us to liability and havea material impact on our product development and sales. In order to leverage big data and distributed computing, some of our software and products utilize open source technologies.These technologies may be subject to certain open source licenses, including but not limited to the General Public License, which,when used or integrated in particular manners, impose certain requirements on the subsequent use of such technologies, and pose apotential risk to proprietary nature of products. In the event that we have or will in the future, use or integrate software that is subjectto such open source licenses into or in connection with our products in such ways that will trigger certain requirements of these opensource licenses, we may (i) be required to include certain notices and abide by other requirements in the absence of which we may befound in breach of the copyrights owned by the creators of such open source technologies; and/or (ii) be required to disclose our ownsource code or parts thereof to the public, which could enable our competitors to eliminate some or any technological advantage thatour products may have over theirs. Any such requirement to disclose our source code or other confidential information related to ourproducts, and the failure to abide by license requirement resulting in copyright infringement, could materially adversely affect ourcompetitive position and impact our business results of operations and financial condition. 7Risks related to our industry We operate in an extremely competitive market, and if we fail to compete effectively, our revenues and market share willdecline. Although the market for process control systems used in semiconductor manufacturing is currently concentrated andcharacterized by relatively few participants, the semiconductor capital equipment industry is intensely competitive. We competemainly with Onto Innovation Inc. (formerly Nanometrics Inc. and Rudolph Technologies Inc., who have merged during the secondhalf of 2019), and KLA Corp., which manufacture and sell integrated and/or stand-alone process control systems. In addition, wecompete with process equipment manufacturers (“PEMs”), such as ASML Holdings N.V., and Applied Materials Inc., which develop(or might as well acquire companies which develop) in-situ sensors and metrology products. Established companies, both domesticand foreign, compete with our product lines, and new competitors enter our market from time to time. Some of our competitors havegreater financial, engineering, manufacturing and marketing resources than we do. If a particular customer selects a competitor’scapital equipment, we expect to experience difficulty in selling our solution to that customer for a significant period of time. Asubstantial investment is required by the customers to evaluate, test, select and integrate capital equipment into a production line. Asa result, once a manufacturer has selected a particular vendor’s capital equipment, we believe that the manufacturer generally reliesupon that equipment for the specific production line application and frequently will attempt to consolidate its other capital equipmentrequirements with the same vendor. Accordingly, unless our systems offer performance or cost advantages that outweigh acustomer’s expense of switching to our systems, it will be difficult for us to achieve significant sales from that customer once it hasselected another vendor’s system for an application. We believe that our ability to compete successfully depends on a number offactors both within and outside of our control, including: •the contribution and value our solutions bring to our customers; •our product innovation, quality and performance; •our global technical service and support; •the return on investment (ROI) of our equipment and its cost of ownership; •the breadth of our product line; •our success in developing and marketing new products; and •the extendibility of our products. If we fail to compete in a timely and cost-effective manner against current or future competitors, our revenues and marketshare will decline. If we do not respond effectively and on a timely basis to rapid technological changes, our ability to attract and retaincustomers could be diminished, which would have an adverse effect on our sales and ability to remain competitive. The semiconductor manufacturing industry is characterized by rapid technological changes, new product introductions andenhancements and evolving industry standards. Our ability to remain competitive and generate revenue will depend in part upon ourability to develop new and enhanced systems at competitive prices in a timely and cost-effective manner and to accurately predicttechnology transitions. Because new product development commitments must be made well in advance of sales, new productdecisions must anticipate the future demand for products. If we fail to correctly anticipate future demand for products, our sales andcompetitive position will deteriorate. In addition, the development of new measurement technologies, new product introductions orenhancements by our competitors could cause a decline in our sales or loss of market acceptance of our existing products. 8The ongoing consolidation in our industry may harm us if our competitors are able to offer a broader range of products andgreater customer support than we can offer. We believe that the semiconductor capital equipment market has undergone consolidation over the last few years. Forexample, Lam Research Corporation acquired Novellus Systems Inc. in 2016 and Coventor in 2017; Thermo Fisher Scientific Inc.acquired FEI Company, Inc. in 2016; ASML Holdings N.V. acquired Hermes Microvision Inc. in 2016; KLA Corporation acquiredOrbotech Ltd. in 2019; and Nanometrics Inc. and Rudolph Technologies, Inc. merged in 2019. We believe that similar acquisitionsand business combinations involving our competitors, our customers and the PEMs may occur in the future. These acquisitions couldadversely impact our competitive position by enabling our competitors and potential competitors to expand their product offeringsand customer services, which could provide them an advantage in meeting customers’ needs, particularly with those customers thatseek to consolidate their capital equipment requirements with a smaller number of vendors. The greater resources, includingfinancial, marketing, intellectual property and support resources, of competitors involved in these acquisitions could allow them toaccelerate the development and commercialization of new competitive products and the marketing of existing competitive productsto their larger installed bases. Accordingly, such business combinations and acquisitions by competitors and/or customers couldjeopardize our competitive position. The markets we target are cyclical and it is difficult to predict the length and strength of any downturn or expansion period. The semiconductor capital equipment market and industries, which are cyclical, experienced steep downturns and upturns inthe last two decades. In recent years, we have seen a more stable overall capital investment patterns, yet we cannot predict the lengthand strength of potential future downturns or expansions and the impact on our business. Our operations may be delayed or interrupted and our business could suffer if we violate environmental, safety and health,or ESH, regulations. Some of our activities require the use of various gases, chemicals, hazardous materials and other substances such as solventsand sulfuric acid which may have an impact on the environment. We are subject to ESH regulations, and a failure to manage the use,storage, transportation, emission, discharge, recycling or disposal of raw materials or to comply with these ESH regulations couldresult in (i) regulatory penalties, fines and other legal liabilities, (ii) suspension of production or delays in operation and capacityexpansion, (iii) a decrease in our sales, (iv) an increase in pollution cleaning fees and other operation costs, or (v) damage to ourpublic image, any of which could harm our business. In addition, as ESH regulations are becoming more comprehensive andstringent, we may incur a greater amount of capital expenditures in technology innovation and materials substitution in order tocomply with such regulations, which may adversely affect our results of operations. 9 Operational risks Because substantially most of our current sales are dependent on few specific product lines, factors that adversely affect thepricing and demand for these product lines could substantially reduce our sales. We are currently dependent on few process control product lines. We expect these product lines to continue to account for asubstantial portion of our revenues in the coming years. As a result, factors adversely affecting the pricing of, or demand for, theseproduct lines, such as competition and technological change, could significantly reduce our sales. We depend on a small number of large customers, and the loss of one or more of them could significantly lower our revenues. Like our peers serving the semiconductor front end market, our customer base is highly concentrated among a limited numberof large customers. We anticipate that our revenues will continue to depend on a limited number of major customers, although thecompanies considered to be our major customers and the percentage of our revenue represented by each major customer may varyfrom period to period. As a result of our customer concentration, our financial performance may fluctuate significantly from periodto period based, among others, on exogenous circumstances related to our clients. For example, it is possible that any of our majorcustomers could terminate its purchasing relationship with us or significantly reduce or delay the amount of orders for our products,purchase products from our competitors, or develop its own alternative solutions internally. The loss of any one of our majorcustomers would adversely affect our revenues. Furthermore, if any of our customers become insolvent or have difficulties meetingtheir financial obligations to us for any reason, we may suffer losses. For more information regarding our sales by major customersas percentage of our total sales, see Note 15 to our consolidated financial statements contained elsewhere in this Annual Report. Our inability to significantly reduce spending during a protracted slowdown in the semiconductor industry could reduce ourprospects of achieving continued profitability. Historically, we have derived all our revenues, and we expect to continue to derive practically all of our revenues, from salesof our products and related services to the semiconductor industry. Our business depends in large part upon capital expenditures bysemiconductor manufacturers, which in turn depend upon the current and anticipated demand for semiconductors. Thesemiconductor industry has experienced severe and protracted cyclical downturns and upturns. Cyclical downturns, as those we haveexperienced in the past, may cause material reductions in the demand for the products and services that we offer, and may result in adecline in our sales. In addition, our ability to significantly reduce expenses during such cyclical downturn may be limited becauseof: •our continuing need to invest in research and development; •our continuing need to market our new products; and •our extensive ongoing customer service and support requirements worldwide. Furthermore, during 2021, we increased our leased facilities and related investments and our operating expenses. In the eventof a global recession or certain other economic conditions forcing the Company to materially reduce its expenses, portions of suchfacilities may be rendered obsolete. As a result, we may have difficulty achieving continued profitability during a protractedslowdown. 10There can be no assurance that revenues from future products or product enhancements will be sufficient to recover thedevelopment costs or to ensure the sale of inventory related to these products.We must continue to make significant investments in research and development in order to introduce new products andtechnologies, or to enhance the performance, features and functionality of our existing products, to keep pace with the competitivelandscape and to satisfy customer demands. Substantial research and development costs are typically incurred before we confirm thetechnical feasibility and commercial viability of a new product, and not all development activities result in commercially viableproducts. There can be no assurance that revenues from future products or product enhancements will be sufficient to recover thedevelopment costs associated with such products or enhancements. In addition, we cannot be sure that these products orenhancements will receive market acceptance or that we will be able to sell these products at prices that are favorable to us. Ourbusiness will be seriously harmed if we are unable to sell our products at favorable prices or if the market in which we operate doesnot accept our products. In addition, in some cases, we accumulate inventories based on sales forecasts. If such sales forecasts are notmaterialized, we might need to write-off the related inventory, which will increase our losses. New product lines that we may introduce in the future may contain defects, which will require us to allocate time andfinancial resources to correct. Our new product lines may contain defects when first introduced. If there are defects, we will need to divert the attention ofour personnel from our ongoing product development efforts to address the detection and correction of the defects. We cannotprovide assurances that we will not incur any costs or liabilities or experience any lags or delays in the future. Moreover, theoccurrence of such defects, whether caused by our products or the products of another vendor, may result in significant customerrelations problems and adversely affect our reputation and may impair the market acceptance of our products. If any of our systems fail to meet or exceed our internal quality specifications, we cannot ship them until such time as theyhave met such specifications. If we experience significant delays or are unable to ship our products to our customers as aresult of our internal processes or for any other reason, our business and reputation may be adversely affected. Our products are complex and require technical expertise to design and manufacture. Various problems occasionally ariseduring the manufacturing process that may cause delays and/or impair product quality. We actively monitor our manufacturingprocesses to ensure that our products meet our internal quality specifications. Any significant delays stemming from the failure of ourproducts to meet or exceed our internal quality specifications, or for any other reasons, would delay our shipments. Shipment delayscould be harmful to our business, revenues and reputation in the industry. Our dependence on a single manufacturing facility per product line magnifies the risk of an interruption in our productioncapabilities. We have one manufacturing facility for our Optical CD and Raman technology related product lines, which is located inWeizmann Science Park, Nes Ziona, Israel, and one manufacturing facility for our XPS and secondary ion mass spectrometry(“SIMS”) technology related product lines, which is located in Fremont, CA, US (the "Manufacturing Facilities"). TheseManufacturing Facilities include special clean room environments and manufacturing jigs, which are customized to our needs. Inaddition, most of our ongoing inventories, including our main warehouse and work in process, are located in these ManufacturingFacilities. Although we adopted measures to protect these manufacturing facilities and inventories, and a disaster recovery plan, anyevent affecting any of our Manufacturing Facilities, including natural disaster, labor stoppages or armed conflict, may disrupt orindefinitely discontinue our manufacturing capabilities and could significantly impair our ability to fulfill orders and generaterevenues, thus negatively impacting our business. 11Our lease agreements for our Manufacturing Facilities include provisions that exempt the landlord and others from liabilityfor damages to our Manufacturing Facilities. Pursuant to the lease agreements for our Manufacturing Facilities, the landlord and anyone on its behalf, and additionaltenants are exempt from any liability for direct or consequential damages to our Manufacturing Facilities, except in the event ofwillful misconduct. While we have obtained insurance policies against certain damages, the aforementioned exemption of liabilitycould compromise our ability to recover the full amount of such damages, and consequently we may incur substantial costs upon theoccurrence of such damages. Because shipment dates may be changed and some of our customers may cancel or delay orders with little or no penalty, andsince we encounter difficulties in collecting cancellation fees from our customers, our backlog may not be a reliable indicatorof actual sales and financial results. We schedule production of our systems based upon order backlog and customer forecasts. We include in backlog only thoseorders received from the customers in which a delivery date has been specified. In general, our ability to rely on our backlog forfuture forecasting and planning is limited because shipment dates may be changed, some customers may cancel or delay orders withlittle or no penalty, and our ability to collect cancellation fees from customers is not assured. Thus, our backlog may not be a reliableindicator of actual sales and financial results and this may affect the accuracy of our forecasts. We may not be successful in our efforts to complete and integrate current and/or future acquisitions, which could disrupt ourcurrent business activities and adversely affect our results of operations or future growth. Any acquisition may involve many risks, including the risks of: •diverting management’s attention and other resources from our ongoing business concerns; •entering markets in which we have no direct prior experience; •improperly evaluating new services, products and markets; •being unable to maintain uniform standards, controls, procedures and policies; •failing to comply with governmental requirements pertaining to acquisitions of local companies or assets by foreignentities; •being unable to integrate new technologies or personnel; •incurring the expenses of any undisclosed or potential liabilities; and •the departure of key management and employees. 12If we are unable to successfully complete our future acquisitions or to effectively integrate our current acquisition of ancosysGmbH (hereinafter: “ancosys”) or future acquisitions, our ability to grow our business or to operate our business effectively could bereduced, and our business, financial condition and operating results could suffer. Even if we are successful in completingacquisitions, we cannot assure that we will be able to integrate the operations of the acquired business without encounteringdifficulty regarding different business strategies with respect to marketing and integration of personnel with disparate businessbackgrounds and corporate cultures. The integration of ancosys acquisition, which closed in January 2022, is in its early stages and,as of the date of this Annual Report, we cannot assure that such process will be completed without encountering difficulties. Further,in certain cases, mergers and acquisitions require special approvals, or are subject to scrutiny by the local authorities, and failing tocomply with such requirements or to receive such approvals, may prevent or limit our ability to complete the acquisitions as well asexpose us to legal proceedings prior or following the consummation of such acquisitions. In some cases, such proceedings, ifinitiated, may conclude in a requirement to divest portions of the acquired business. As of the date of this Annual Report, we are notaware of any pending proceedings as such in connection with the acquisition of ancosys. We depend on continuous cooperation with Process Equipment Manufacturers (“PEMs”) to enable sales of our systemswhich are integrated with the process equipment, and the loss of PEMs as business partners could harm our business. We believe that sales of systems which are integrated with the process equipment will continue to be an important source ofour products revenues. Sales of such systems depend upon the ability of PEMs to sell semiconductor equipment products that areable to integrate with these metrology systems. If our PEMs are unable to sell such products, if they choose to focus their attentionon products that do not integrate our systems, or if they choose to develop their own metrology solutions, our business could suffer.If we were to lose our PEMs as business partners for any reason, our inability to realize sales from such systems could significantlyharm our business. In addition, we may not be able to develop or market such new systems, which could slow or prevent our growth. Some of our commercial agreements with PEMs and customers may include exclusivity provisions and limitations on the useof certain intellectual property. Such limitations may prevent us from engaging in certain business relationships with thirdparties, and may limit our ability to use certain elements of our intellectual property. As a result, our ability to introduce newproducts in relevant markets might be affected. Some of our commercial agreements with PEMs and customers may include exclusivity provisions, which prevent us fromengaging in certain business relationships with third parties. In addition, some of our commercial agreements with PEMs also includelimitations on the use of certain joint intellectual property. These exclusivity obligations and limitations are often used as a tool topromote the development and the penetration of innovative new solutions, and are usually limited in terms of scope and length.When considering whether to enter into any such exclusivity arrangements or accepting such limitations, we usually take intoconsideration the terms of the exclusivity (e.g., length and scope), the expected benefit to the Company, and the risks and limitationsassociated with such exclusivity or limiting undertakings. Exclusivity obligations or limitation of use relating to certain parts of ourtechnology and products may affect our ability to commercialize our products, engage in potentially beneficial business relationshipswith third parties (including by means of a merger or acquisition), or introduce new products into relevant markets, which could slowor prevent our growth. 13We depend on a limited number of suppliers, and in some cases a sole supplier. Any disruption, delay or termination of thesesupply channels may adversely affect our ability to manufacture our products and to deliver them to our customers. We purchase components, subassemblies and services from a limited number of suppliers and occasionally from a single or asole source. Disruption or termination of these sources could occur (due to several factors, including, but not limited to, suppliercapacity limitations, low availability of raw materials, bankruptcy, work stoppages due to COVID-19 or other reasons, acts of war,terrorism, fire, earthquake, energy shortages, flooding or other natural disasters), and these disruptions could have at least atemporary adverse effect on our operations. Although we generally maintain an inventory of critical components used in themanufacture and assembly of our systems, such supplies may not be sufficient to avoid potential delays that could have an adverseeffect on our business. To date, we have not experienced any material disruption or termination of our supply sources. A prolonged inability on our part to obtain components included in our systems on a cost-effective basis could adversely impact ourability to deliver products on a timely basis, which could harm our sales and customer relationships. The disclosure rules regarding the use of conflict minerals may affect our relationships with suppliers and customers. The Securities and Exchange Commission, or SEC, requires certain disclosure by companies that use conflict minerals intheir products, with substantial supply chain verification requirements in the event that the materials come from, or could have comefrom, the Democratic Republic of the Congo or adjoining countries. These rules and verification requirements may impose additionalcosts on us and on our suppliers, and limit the sources or increase the prices of materials used in our products. Among other things,this rule could affect sourcing at competitive prices and availability in sufficient quantities of certain minerals used in themanufacture of components that are incorporated into our products. In addition, the number of suppliers who provide conflict-freeminerals may be limited, and there may be material costs associated with complying with the disclosure requirements, such as costsrelated to the process of determining the source of certain minerals used in our products, as well as costs of possible changes toproducts, processes, or sources of supply as a consequence of such verification activities. We may not be able to sufficiently verifythe origins of the relevant minerals used in components manufactured by third parties through the procedures that we implement, andwe may encounter challenges to satisfy those customers who require that all of the components of our products be certified asconflict-free, which could place us at a competitive disadvantage if we are unable to do so. While we have created processes andprocedures designed to enable compliance to these rules, if in the future we are unable to certify that our products are conflict free,we may face challenges with our customers, which could place us at a competitive disadvantage and harm our reputation. Our lengthy sales cycle increases our exposure to customer delays in orders, which may result in obsolete inventory andvolatile quarterly revenues. Sales of our systems depend, in significant part, upon our customers adding new manufacturing capacity or expandingexisting manufacturing capacity, both of which involve a significant capital commitment. We may experience delays in finalizingsales while a customer evaluates and approves an initial purchase of our systems. Our sales cycle for new customers, products orapplications, may take longer than twelve (12) months to complete. During this time, we may expend substantial funds andmanagement effort, but fail to make any sales. Lengthy sales cycles subject us to a number of significant risks, including inventoryobsolescence and fluctuations in operating results, over which we have limited control. 14 Due to intense competition for highly skilled personnel, we may fail to attract, recruit, retain and develop qualifiedemployees, which could materially and adversely impact our business, financial condition and results of operations. We compete in a market that involves rapidly changing technological and regulatory developments that require a wide-ranging set of expertise and intellectual capital. In order for us to successfully compete and grow, we must attract, recruit, retain anddevelop the necessary personnel who can provide the needed expertise across the entire spectrum of our intellectual capital needs.While we have a number of our key personnel who have substantial experience with our operations, we must also develop andexercise our personnel to provide succession plans capable of maintaining continuity in the midst of the inevitable unpredictabilityof human capital. Our principal research and development activities are conducted from our headquarters in Israel and our subsidiaryin the US. and we face significant competition for suitably skilled developers in this region. The high-tech industry in Israel, the USand other territories we operate in has experienced significant levels of employee attrition and is currently facing a severe shortage ofskilled human capital. We may encounter higher attrition rates in the future, particularly if Israel continues to experience strongeconomic growth. We may not succeed in recruiting additional experienced or professional personnel, retaining current personnel oreffectively replacing current personnel who depart with qualified or effective successors. Many of the companies with which wecompete for experienced personnel have greater resources than us.Our effort to retain and develop personnel may also result in significant additional expenses, which could adversely affect ourprofitability. There can be no assurance that qualified employees will continue to be employed or that we will be able to attract andretain qualified personnel in the future. Failure to retain or attract qualified personnel could have a material adverse effect on ourbusiness, financial condition and results of operations.Risks Related to Our Incorporation and Location in Israel Political, economic and military instability in Israel may impede our ability to operate and harm our financial results. Our principal executive offices and research and development facilities are located in Israel and therefore may be influencedby regional instability and extreme military tension. Accordingly, political, economic and military conditions in Israel and thesurrounding region could directly affect our business. Any armed conflicts, political instability, terrorism, cyberattacks or any otherhostilities involving Israel or the interruption or curtailment of trade between Israel and its present trading partners could affectadversely our operations. Ongoing and revived hostilities or other Israeli political or economic factors, could prevent or delayshipments of our products, harm our operations and product development and cause any future sales to decrease. In the event thathostilities disrupt the ongoing operation of our facilities or the airports and seaports on which we depend to import and export oursupplies and products, our operations may be materially adverse affected. Our operations may be disrupted by the obligation of key personnel to perform military service. Some of our executive officers and employees in Israel are obligated to perform significant periods of military reserve serviceuntil the age of 40 for soldiers and until the age of 45 for officers. This time-period may also be extended by the Military Chief of theGeneral Staff and the approval of the Minister of Defense or by a directive of the Minister of Defense in the event of a declarednational emergency. Our operations could be disrupted by the absence for a significant period of one or more of our executiveofficers or key employees due to military service. To date, our operations have not been materially disrupted as a result of thesemilitary service obligations. Any disruption in our operations due to such obligations would adversely affect our ability to produceand market our existing products and to develop and market future products. 15 Risks Related to Our Indebtedness and Capital Structure Our convertible senior notes due 2025 (“Convertible Senior Notes”) may impact our financial results, result in the dilution ofexisting shareholders, create downward pressure on the price of our ordinary shares, and restrict our ability to takeadvantage of future opportunities. In October 2020, we closed an offering of $200 million aggregate principal amount of 0% Convertible Senior Notes due 2025in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. TheConvertible Senior Notes may affect our earnings per share figures, as accounting procedures may require that we include in ourcalculation of earnings per share the number of ordinary shares into which the Convertible Senior Notes are convertible. TheConvertible Senior Notes may be converted, under the conditions and at the premium specified in the Convertible Senior Notes, intocash and our ordinary shares, if any (subject to our right to pay cash in lieu of all or a portion of such shares). Given the prevailingmarket price of our ordinary shares during the relevant periods in 2021, the Convertible Senior Notes were convertible at the electionof the holders thereof in the fourth quarter of 2021 and in the first quarter of 2022 and are expected to be convertible also lookingforward. If our ordinary shares are issued to the holders of the Convertible Senior Notes upon conversion, there will be dilution toour shareholders’ equity and the market price of our ordinary shares may decrease due to the additional selling pressure in themarket. Any downward pressure on the price of our ordinary shares caused by the sale or potential sale of ordinary shares issuableupon conversion of the Convertible Senior Notes could also encourage short sales by third parties, creating additional downwardpressure on our share price. Furthermore, the indenture for the Convertible Senior Notes will prohibit us from engaging in certain mergers or acquisitionsunless, among other things, the surviving entity assumes our obligations under the Convertible Senior Notes. These and otherprovisions in the indenture could deter or prevent a third party from acquiring us even when the acquisition may be favorable. We currently anticipate that we will be able to rely on and to implement certain clarifications from the applicable TaxAuthorities, with respect to the administration of our Israeli withholding tax obligations in relation to considerations to be paid to theholders of the Convertible Senior Notes upon their future conversion and settlement as well as other related tax aspects. Unexpectedfailure to ultimately obtain such anticipated clarifications from the Israeli Tax Authorities could potentially result in increased Israeliwithholding tax gross-up costs.16We may not have the ability to raise the funds necessary to settle conversions of the Convertible Senior Notes, if we areobligated to settle such conversions, in whole or in part, in cash, repurchase the Convertible Senior Notes upon afundamental change or repay the Convertible Senior Notes in cash at their maturity, and our future debt maycontain limitations on our ability to pay cash upon conversion or repurchase of the Convertible Senior Notes. As per the date of these financial statements, holders of the Convertible Senior Notes have the right, and could have it againin the future, under the indenture governing the Convertible Senior Notes to require us to repurchase all or a portion of theirConvertible Senior Notes upon the occurrence of a fundamental change before the applicable maturity date, at a repurchase priceequal to 100% of the principal amount of such Convertible Notes to be repurchased, plus accrued and unpaid interest, if any.Moreover, we will be required to repay the Convertible Notes in cash at their maturity, unless earlier converted, repurchased orredeemed. We may not have enough available cash or be able to obtain financing at the time we are required to make suchrepurchases of the Convertible Senior Notes and/or repay the Convertible Senior Notes upon maturity. In addition, we have the rightto elect to settle conversions of the Convertible Senior Notes in cash. Our ability to repurchase or to pay cash upon conversion of Convertible Senior Notes may be limited by law, regulatoryauthority or agreements governing our future indebtedness. Our failure to repurchase the Convertible Senior Notes at a time when therepurchase is required by the indenture or to pay cash upon conversion of the Convertible Senior Notes when required or at maturityas required by the indenture would constitute a default under the indenture. A default under the indenture or the fundamental changeitself could also lead to a default under agreements governing our future indebtedness. If the payment of the related indebtednesswere to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness andrepurchase the Convertible Senior Notes or to pay cash upon conversion of the Convertible Senior Notes or at maturity. 17 The accounting method for the Convertible Notes could adversely affect our reported financial condition and results.Under applicable accounting standards we separately account for debt and equity components of convertible notes that maybe settled in cash. The carrying amount of the debt component was based on the fair value of a similar hypothetical debt instrumentexcluding the conversion feature, valued using an effective borrowing rate which was based on our synthetic credit risk. Issuancecosts were allocated to the debt and equity components in proportion to the allocation of proceeds to those components. Thedifference between the principal amount of the Convertible notes and the amount allocated to the debt component was considered tobe debt discount, which is subsequently amortized through non cash interest expenses over the expected life of the ConvertibleNotes. In August 2020, the Financial Accounting Standards Board published an Accounting Standards Update (“ASU”) eliminatingthe separate accounting for the debt and equity components as described above. The ASU will be effective for public entities forfiscal years beginning after December 15, 2021, including interim periods within those fiscal years, early adoption is permitted butnot earlier than fiscal years beginning after December 15, 2020. When effective, the elimination of the separate accounting describedabove may impact the amortization of debt discount and issuance costs that we expect to recognize for the Convertible Notes foraccounting purposes. The ASU described above also eliminates the possibility of treasury stock method for convertible instrumentssuch as the Convertible Notes (unless we make the relevant election eliminating the option to settle the principal amount of therelevant instrument in shares) and instead require application of the “if-converted” method. Under that method, diluted earnings pershare would generally be calculated assuming that all the Convertible Notes were converted solely into ordinary shares at thebeginning of the reporting period, unless the result would be anti-dilutive. The application of the if-converted method is expected toreduce our reported diluted earnings per share. For details, see Note 2.X to our consolidated financial statements contained elsewherein this report. Financial, legal, regulatory and taxation risks Because most of our revenues are generated in U.S. dollars, but a significant portion of our expenses is incurred in currenciesother than U.S. dollars, and mainly New Israeli Shekels, our profit margin may be seriously harmed by currencyfluctuations. We generate most of our revenues in U.S. dollars, but incur a significant portion of our expenses in currencies other than U.S.dollar, and mainly New Israeli Shekel, commonly referred to as NIS. In addition, starting January 1, 2019, in accordance with ASC842 of lease accounting standard, we are required to present a significant NIS linked liability related to our operational leases inIsrael. As a result, we are exposed to risk of devaluation of the U.S. dollar in relation to the NIS and other currencies. In such event,the dollar cost of our operations in countries other than the U.S. will increase and our dollar measured results of operations will beadversely affected. During 2021, the U.S. dollar devaluated against the NIS by 3.3%, after being devaluated by approximately 7.3%in the previous three years. We cannot predict the future trends in the rate of devaluation or revaluation of the U.S. dollar against theNIS, and our cost of operations also could be adversely affected. 18We participate in government programs under which we receive research and development grants. Some of these programsimpose restrictions on our ability to use the technologies developed under these programs. The reduction or termination ofthese programs would increase our costs. Until the end of 2016, we received royalty-bearing grants from the Israel Innovation Authority, or IIA (formerly known as theOffice of the Chief Scientist of the Ministry of Economy and Industry, or the OCS), for the financing of certain of our research anddevelopment programs that meet specified criteria. Starting 2018, we have participated only in IIA royalty free grant programs. In addition, through the years, we participated in consortiums which are either solely managed by the IIA, or are jointconsortia of the IIA and the European Research Area, or only European managed consortia. To maintain our eligibility for theseprograms, we must continue to meet certain conditions. All these programs also restrict our ability to manufacture particular products and transfer particular technology, which weredeveloped as part of the IIA’s programs, outside of Israel. The restrictions associated with these IIA’s programs may require us toobtain approval of the research and development committee nominated by the IIA for certain actions and transactions and payadditional payments to the IIA. Approval to manufacture products, which their development was partially funded by IIA grants,outside of Israel or consent to the transfer of technology, if requested, might not be granted and if granted, may increase our financialliabilities to the IIA. In addition, if we fail to comply with certain restrictions associated with formerly received IIA's funding, wemay be subject to criminal charges. We are further exposed to risks related to the receipt of funding from other governments or governmental agencies inconnection with strategic development programs, under which we receive funding. Under such strategic development programs,governments and governmental agencies typically have the right to terminate the program’s funding at any time. In addition, aproject may be terminated by a mutual agreement, if the parties determine that the project's goals or milestones are not beingachieved. As a result, there is no assurance that these sources of external funding will continue to be available to us in the future, andwe currently expect such external funding to significantly reduce in 2022 and future years. Moreover, under the terms of certaingovernmental funding programs in which we receive funding, the applicable granting agency has the right to audit the costs that weincur, directly and indirectly, in connection with such programs. Any such audit could result in modifications to, or even terminationof, the applicable governmental funding program. Any adverse finding resulting from any such audit could lead to penalties(financial or otherwise), termination of funding programs, suspension of payments or other adverse consequences to our ability toreceive governmental funding. In addition, obligations related to grants received from the IIA grants bear an annual interest ratebased on the 12-month LIBOR. Currently, there is considerable uncertainty regarding the publication of LIBOR beyond 2021, and itis not possible to determine precisely whether, or to what extent, the replacement of LIBOR would affect companies' existing orfuture liabilities to the IIA. The application of tax laws is subject to interpretation and if tax authorities challenge our methodologies or our analysis ofour tax rates it could result in an increase to our worldwide effective tax rate and cause us to change the way we operate ourbusiness. The application of the tax laws of various jurisdictions to our international business activities is subject to interpretation andalso depends on our ability to operate our business in a manner consistent with our corporate structure and intercompanyarrangements. The tax authorities of the jurisdictions in which we operate may challenge our methodologies for valuing developedtechnology or intercompany arrangements, including our transfer pricing, or determine that the manner in which we operate ourbusiness does not achieve the expected tax consequences, which could result in tax and penalty payments and in an increase of ourworldwide effective tax rate, and could adversely affect our financial position and results of operations. 19A certain degree of judgment is required in evaluating our tax positions and determining our provision for income taxes. Inthe ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain.For example, our effective tax rates could be adversely affected by earnings being lower than anticipated in countries where we havelower statutory rates and higher than anticipated in countries where we have higher statutory rates, by changes in foreign currencyexchange rates or by changes in the relevant tax, accounting and other laws, regulations, principles and interpretations. As we operatein numerous taxing jurisdictions, the application of tax laws can be subject to diverging and sometimes conflicting interpretations bytax authorities of these jurisdictions. It is not uncommon for tax authorities in different countries to have conflicting views. Inaddition, tax laws are dynamic and subject to change as new laws are passed and new interpretations of the law are issued or applied.For example, the work being carried out by the OECD on base erosion and profit shifting as a response to increasing globalization oftrade could result in changes in tax treaties or the introduction of new legislation that could impose an additional tax on businesses.As a result of changes to laws or interpretations, our tax positions could be challenged, and our income tax expenses could increasein the future. For instance, if tax authorities in any of the countries in which we operate were to successfully challenge our transfer prices,they could require us to reallocate our income to reflect transfer pricing adjustments, which could result in an increased tax liabilityto us. In addition, if the country from which the income was reallocated did not agree with the reallocation asserted by the firstcountry, we could become subject to tax on the same income in both countries, resulting in double taxation. If tax authorities were toallocate income to a higher tax jurisdiction, subject our income to double taxation or assess interest and penalties, it could increaseour tax liability, which could adversely affect our financial position and results of operations. The enactment of legislation implementing changes in taxation of international business activities, the adoption of othercorporate tax reform policies, or changes in tax legislation or policies could impact our future financial position and results ofoperations. There can be no assurance that our effective tax rate for the year ended December 31, 2021 will not change over time as aresult of changes in corporate income tax rates or other changes in the tax laws the jurisdictions in which we operate. Any changes intax laws could have an adverse impact on our financial results. Corporate tax reform, base-erosion efforts and tax transparencycontinue to be high priorities in many tax jurisdictions where we have business operations. As a result, policies regarding corporateincome and other taxes in numerous jurisdictions are under heightened scrutiny and tax reform legislation is being proposed orenacted in a number of jurisdictions. 20For example, there is growing pressure in many jurisdictions and from multinational organizations such as the Organizationfor Economic Cooperation and Development (OECD) and the EU to amend existing international taxation rules in order to align thetax regimes with current global business practices. Specifically, in October 2015, the OECD published its final package of measuresfor reform of the international tax rules as a product of its Base Erosion and Profit Shifting (BEPS) initiative, which was endorsed bythe G20 finance ministers. Many of the initiatives in the BEPS package required and resulted in specific amendments to the domestictax legislation of various jurisdictions and to existing tax treaties. We continuously monitor these developments. Although many ofthe BEPS measures have already been implemented or are currently being implemented globally (including, in certain cases, throughadoption of the OECD’s “multilateral convention” (to which Israel is also a party) to effect changes to tax treaties which entered intoforce on July 1, 2018 and through the European Union’s “Anti Tax Avoidance” Directives), it is still difficult in some cases to assessto what extent these changes our tax liabilities in the jurisdictions in which we conduct our business or to what extent they mayimpact the way in which we conduct our business or our effective tax rate due to the unpredictability and interdependency of thesepotential changes. In January 2019 the OECD announced further work in continuation of the BEPS project, focusing on two“pillars.” On October 8, 2021, 136 countries approved a statement known as the OECD BEPS Inclusive Framework, which buildsupon the OECD’s continuation of the BEPS project. The first pillar is focused on the allocation of taxing rights between countries forin-scope large multinational enterprises (with revenue in excess of Euro 20 Billion and profitability of at least 10%) that sell goodsand services into countries with little or no local physical presence. The second pillar is focused on developing a global minimum taxrate of at least 15 percent applicable to in-scope multinational enterprises (with revenue in excess of Euro 750 million). Israel is oneof the 136 jurisdictions that has agreed in principle to the adoption of the global minimum tax rate. Given these developments, it isgenerally expected that tax authorities in various jurisdictions in which we operate may increase their audit activity and may seek tochallenge some of the tax positions we have adopted. It is difficult to assess if and to what extent such challenges, if raised, mightimpact our effective tax rate. In addition, the U.S. government may enact significant changes to the taxation of business entities including, among others,an increase in the corporate income tax rate. While different versions of United States tax legislation have been discussed andconsidered by Congress, the likelihood of these changes being enacted or implemented is unclear. We are currently unable to predictwhether such changes will occur and, if so, the ultimate impact on our business or results of our operations. Our entitlement to certain tax benefits under the Israeli Capital Investment Encouragement Law may increase our ETR. Starting 2017, we made an election to receive Tax benefits under Israeli “Economic Efficiency Law” as a “PreferredTechnological Enterprise”. While we believe that we meet the statutory conditions to entitle us to such benefits there can be noassurance that the tax authorities in Israel will concur to our position in general and for each specific year separately. Should it bedetermined that we have not, or do not meet such conditions, the benefits received would be cancelled. We would also be required topay increased taxes or refund any benefits previously received, adjusted to the Israeli consumer price index and interest, or othermonetary penalty. For additional information regarding Approved and Benefited Enterprise, Preferred Enterprise and Preferred TechnologicalEnterprise see, “Item 10E. Taxation – Israeli Taxation” in this Annual Report. It should be noted that the Israeli government may reduce or eliminate the above-mentioned benefits in the future. Thetermination or reduction of these grants or tax benefits could harm our financial condition and results of operations, and result insignificantly higher tax payment. In addition, if we increase our activities outside Israel due to, for example, future acquisitions oroutsourcing of manufacturing or development activities, these activities generally will not be eligible for inclusion in Israeli grants ortax benefit programs. Accordingly, our effective corporate tax rate could increase significantly in the future. 21We experience quarterly fluctuations in our operating results, which may adversely impact our share price. Our quarterly operating results within a specific year can fluctuate significantly. A principal reason is that we derive asubstantial portion of our revenue from the sale of a relatively small number of systems to a relatively small number of customers. Asa result, our revenues and results of operations for any given quarter may decrease due to factors relating to the timing of orders, thetiming of shipments of systems, and the timing of recognizing these revenues. Furthermore, our quarterly results are affected by thecyclical nature of the semiconductor capital equipment market and industries. We also have a limited ability to predict revenues for future quarterly periods and, as a result, face risks of revenue shortfalls.If the number of systems we actually ship, and thus the amount of revenues we are able to record in any particular quarter, is belowour expectations, the adverse effect may be magnified by our inability to adjust spending quickly enough to compensate for therevenue shortfall. Some of our contracts and arrangements potentially subject us to the risk of significant or non-limited liability. We produce highly complex optical and electronic components and, accordingly, there is a risk that defects may occur in anyof our products. Such defects can give rise to significant costs, including expenses relating to recalling products, replacing defectiveitems, writing down defective inventory and loss of potential sales. In addition, the occurrence of such defects may give rise toproduct liability and warranty claims, including liability for damages caused by such defects. In our commercial relationship with customers, we attempt to negotiate waivers of consequential and indirect damagesarising from damages for loss of use, loss of product, loss of revenue and loss of profit caused by our products. Similarly, withrespect to our commercial relationship with subcontractors and suppliers, we attempt to negotiate arrangements which do not includea limitation of liabilities and limitation of consequential and indirect damages. However, some contracts and arrangements we arebound by, expose us to product liability claims resulting in personal injury or death, up to an unlimited amount, and the incurrence ofthe risk of material penalties for consequential or liquidated damages. Additionally, under such contracts and arrangements, we maybe named in product liability claims even if there is no evidence that our products caused the damage in question, and such claimscould result in significant costs and expenses relating to attorneys’ fees and damages. In addition, such contracts and arrangements may include non-limited liability provisions for infringement of a third party’sintellectual property rights in connection with our products. Although we have not incurred in the past any material penalties for consequential or liquidated damages, we may incur suchpenalties in the future. Such penalties for consequential or liquidated damages may be significant (and so is the legal processconducted in connection with such penalties) and could negatively affect our financial condition or results of operations. 22A large number of our ordinary shares continue to be owned by a relatively small number of shareholders, whose future salesof our shares, if substantial, may depress our share price. If our principal shareholders sell substantial amounts of our ordinary shares, including shares issued upon the exercise ofoutstanding options or warrants, the market price of our ordinary shares may fall. For additional information on our majorshareholders, see “Item 7A – Major Shareholders” in this Annual Report. Certain shareholders may control the outcome of matters submitted to a vote of our shareholders, including the election ofdirectors. To the best of our knowledge, approximately 30% of our outstanding ordinary shares are cumulatively held by four of ourshareholders. As a result, and although we are currently not aware of any voting agreement between such shareholders, if theseshareholders voted together or in the same manner, they would have the ability to control the outcome of corporate actions requiringan ordinary majority vote of shareholders as set in the Company’s Amended and Restated Articles of Association. Even if theseshareholders do not vote together, each one of them may have the ability to influence the outcome of corporate actions requiring thevote of shareholders as set in the Company’s Amended and Restated Articles of Association. For additional information on our majorshareholders, see “Item 7A – Major Shareholders” in this Annual Report. The market price of our ordinary shares may be affected by a limited trading volume and may fluctuate significantly. In the past, there has been a limited public market for our ordinary shares and there can be no assurance that an active tradingmarket for our ordinary shares will continue. An absence of an active trading market could adversely affect our shareholders’ abilityto sell our ordinary shares in short time periods. Our ordinary shares have experienced, and are likely to experience in the future,significant price and volume fluctuations, which could adversely affect the market price of our ordinary shares without regard to ouroperating performance. In addition, the price of our ordinary shares could also be affected by possible sales of our ordinary shares by investors whoview our convertible senior notes as a more attractive means of equity participation in our company, and by hedging and arbitragetrading activity that such investors may engage in. We manage our available cash through various bank institutions and invest large portions of our cash reserves in bankdeposits. A bankruptcy of one of the banks in which or through which we hold or invest our cash reserves, might prevent usto access that cash for an uncertain period of time. We manage our available cash through various bank institutions and invest large portions of our cash reserves in bankdeposits. As of December 31, 2021, a large portion of our cash reserves were invested in bank institutions, of which approximately22% was invested in one institution. A bankruptcy of one of the banks in which we hold our cash reserves or through which weinvest our cash reserves, might prevent us to access that cash for an uncertain period of time. Our investment portfolio may be adversely affected by market conditions and interest rates. We maintain substantial balances of liquid investments, for purposes of financing our operations and acquisitions. Ourmarketable securities totaled $199 million as of December 31, 2021. The performance of the capital markets affects the values offunds that are held in marketable securities. These assets are subject to market fluctuations and various developments, including,without limitation, rating agency downgrades that may impair their value. We generally buy and hold our portfolio positions, whileminimizing credit risk by setting limits for minimum credit rating and maximum concentration per issuer. Our investments consistprimarily of government and corporate debentures, which are primarily fixed-income securities. Although we believe that we generally adhere to conservative investment guidelines, the continuing turmoil in the financialmarkets may result in impairments of the carrying value of our investment assets. In addition, as our investment portfolio is investedprimarily in fixed-income securities it is affected by changes in interest rates. Interest rates are highly sensitive to many factors,including governmental monetary policies and domestic and international economic and political conditions. Any significant declinein our financial income or the value of our investments as a result of the changes in interest rates and interest rate expectations of thefinancial markets, deterioration in the credit rating of the securities in which we have invested, or general market conditions, couldhave an adverse effect on our results of operations and financial condition. We classify our investments as available-for-sale.Changes in the fair value of investments classified as available-for-sale are not recognized as income during the period, but rather arerecognized as other comprehensive income, or OCI, which is a separate component of equity until realized. Realized losses in ourinvestments portfolio may adversely affect our financial position and results. 23We may fail to maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002. The Sarbanes-Oxley Act of 2002 imposes certain duties on us and our executives and directors. Our efforts to comply withthe requirements of Section 404 (Assessment of Internal Control), which started in connection with our Annual Report on Form 20-Ffor the fiscal year ended December 31, 2007, have resulted in increased general and administrative expense and a diversion ofmanagement time and attention, and we expect these efforts to require the continued commitment of resources. Section 404 of theSarbanes-Oxley Act of 2002 requires (i) management’s annual review and evaluation of our internal control over financial reportingand (ii) an attestation report issued by an independent registered public accounting firm on our internal control over financialreporting, in connection with the filing of our Annual Report on Form 20-F for each fiscal year. We have documented and tested ourinternal control systems and procedures in order for us to comply with the requirements of Section 404. While our assessment of ourinternal control over financial reporting resulted in our conclusion that as of December 31, 2021, our internal control over financialreporting was effective, we cannot predict the outcome of our testing in future periods. If we fail to maintain the adequacy of ourinternal controls, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls overfinancial reporting. Failure to maintain effective internal control over financial reporting could result in investigation or sanctions byregulatory authorities, and could have a material adverse effect on our operating results, investor confidence in our reported financialinformation, and the market price of our ordinary shares. Provisions of our Amended and Restated Articles of Association and Israeli law may delay, prevent or make difficult anacquisition of Nova, which could prevent a change of control and negatively affect the price of our ordinary shares. Israeli corporate law regulates mergers, requires tender offers for acquisitions of shares above specified thresholds, for specialapprovals for transactions involving directors, officers or significant shareholders and regulates other matters that may be relevant tothese types of transactions. Furthermore, Israeli tax considerations may make potential transactions unappealing to us or to some ofour shareholders. See Exhibit 2.1 to this Annual Report, “Description of the Securities”. For a more detailed discussion regardingsome anti-takeover effects of Israeli law. These provisions of Israeli law may delay, prevent or make difficult an acquisition of Nova, which could prevent a change ofcontrol and therefore depress the price of our shares. 24The rights and responsibilities of our shareholders are governed by Israeli law and differ in some respects from the rightsand responsibilities of shareholders under U.S. law. We are incorporated under Israeli law. The rights and responsibilities of holders of our ordinary shares are governed by ourAmended and Restated Articles of Association and by the Israeli Companies Law, 1999 (the “Companies Law”). These rights andresponsibilities differ in some respects from the rights and responsibilities of shareholders in typical U.S. corporations. In particular,pursuant to the Companies Law each shareholder of an Israeli company has to act in good faith in exercising his or her rights andfulfilling his or her obligations toward the company and other shareholders and to refrain from abusing his power in the company,including, among other things, in voting at the general meeting of shareholders and class meetings, on amendments to a company’sarticles of association, increases in a company’s authorized share capital, mergers, and transactions requiring shareholders’ approvalunder the Companies Law. In addition, a controlling shareholder of an Israeli company or a shareholder who knows that it possessesthe power to determine the outcome of a shareholder vote or who has the power to appoint or prevent the appointment of a directoror officer in the company, or has other powers toward the company has a duty of fairness toward the company. However, Israeli lawdoes not define the substance of this duty of fairness. Because Israeli corporate law has undergone extensive revision in recent years,there is little case law available to assist in understanding the implications of these provisions that govern shareholder behavior. Any shareholder with a cause of action against us as a result of buying, selling or holding our ordinary shares may havedifficulty asserting a claim under U.S. securities laws or enforcing a U.S. judgment against us or our officers, directors orIsraeli auditors. We are organized under the laws of the State of Israel, and we maintain most of our operations in Israel. Most of our officersand directors as well as our Israeli auditors reside outside of the United States and a substantial portion of our assets and the assets ofthese persons are located outside the United States. Therefore, if you wish to enforce a judgment obtained in the United Statesagainst us, or our officers, directors and auditors, you will probably have to file a claim in an Israeli court. Additionally, you mightnot be able to bring civil actions under U.S. securities laws if you file a lawsuit in Israel. We have been advised by our Israeli counselthat Israeli courts generally enforce a final executory judgment of a U.S. court for liquidated amounts in civil matters after a hearingin Israel. If a foreign judgment is enforced by an Israeli court, it will be payable in Israeli currency. However, payment in the localcurrency of the country where the foreign judgment was given will be acceptable, subject to applicable foreign currency restrictions. Our shares are listed for trade on more than one stock exchange, and this may result in price variations. Our ordinary shares are listed for trading on the Nasdaq Global Select Market and on the Tel Aviv Stock Exchange Ltd., orTASE. This may result in price variations. Our ordinary shares are traded on these markets in different currencies, U.S. dollars on theNasdaq Global Select Market and New Israeli Shekels on the TASE. These markets have different opening times and close ondifferent days. Different trading times and differences in exchange rates, among other factors, may result in our shares being tradedat a price differential on these two markets. In addition, market influences in one market may influence the price at which our sharesare traded on the other. 25Our business could be negatively affected as a result of actions of activist shareholders, and such activism could impact thetrading value of our securities. In recent years, certain Israeli issuers listed on United States exchanges have been faced with governance-related demandsfrom activist shareholders, as well as unsolicited tender offers and proxy contests. Although as a foreign private issuer we are notsubject to U.S. proxy rules, responding to these types of actions by activist shareholders could be costly and time-consuming,disrupting our operations and diverting the attention of management and our employees. Such activities could interfere with ourability to execute our strategic plan. In addition, a proxy contest for the election of directors at our annual meeting would require usto incur significant legal fees and proxy solicitation expenses and require significant time and attention by management and ourboard of directors. The perceived uncertainties due to these potential actions of activist shareholders also could affect the marketprice and volatility of our securities. We may be classified as a “passive foreign investment company” for U.S. income tax purposes, which could have significantand adverse tax consequences to U.S. shareholders. Generally, if for any taxable year 75% or more of our gross income consists of specified types of passive income, or, onaverage, at least 50% of our assets are held for the production of, or produce, passive income, we may be characterized as a passiveforeign investment company (a “PFIC”) for U.S. federal income tax purposes. Classification of Nova as a PFIC could result inadverse U.S. tax consequences to our U.S. shareholders, such as ineligibility for any preferential tax rates on capital gains or ondividends, interest charges on certain taxes treated as deferred, and additional reporting requirements under U.S. federal income taxlaws and regulations. If we are a PFIC, it may be possible for U.S. holders of our ordinary shares to mitigate certain of theseconsequences by making an election to treat us as a “qualified electing fund” under Section 1295 of the Internal Revenue Code of1986, as amended (the “Code”) or a “mark-to-market election” under Section 1296 of the Code. U.S. shareholders should consultwith their own U.S. tax advisors with respect to the U.S. tax consequences of investing in our ordinary shares. We believe that for our 2021 taxable year we were not a PFIC. Nonetheless, because the determination of whether we are, orwill be, a PFIC for a taxable year depends on the application of complex U.S. federal income tax rules, which are subject to variousinterpretations, there is a risk that we were a PFIC in 2021. Absent one of the elections referenced above, if we are a PFIC for anytaxable year during which a U.S. holder holds our ordinary shares, we generally will continue to be treated as a PFIC with respect tosuch U.S. holder in all succeeding years regardless of whether we cease to meet the PFIC tests in one or more subsequent years.Currently we expect that we will not be a PFIC in 2022 or subsequent years. However, PFIC status is determined based on our assetsand income over the course of each taxable year, and is dependent on a number of factors, including the value of our assets, thetrading price of our ordinary shares and the amount and type of our gross income. Therefore, there can be no assurances that we willnot become a PFIC for the 2022 taxable year, or any future year, or that the Internal Revenue Service will not challenge anydetermination made by us concerning our PFIC status. For a discussion on how we might be characterized as a PFIC and related taxconsequences, please see the section of this Annual Report entitled “Taxation - U.S. Taxation – Passive Foreign InvestmentCompanies.” Investors should consult their own tax advisors regarding all aspects of the application of the PFIC rules to our ordinaryshares. 26If a United States person is treated as owning at least 10% of our shares, such holder may be subject to adverse U.S. federalincome tax consequences.If a United States person is treated as owning (directly, indirectly or constructively) at least 10% of the value or voting powerof our shares, such person may be treated as a “United States shareholder” with respect to each “controlled foreign corporation” inour group. Because our group includes one or more U.S. subsidiaries, certain of our non-U.S. subsidiaries will be treated ascontrolled foreign corporations (regardless of whether we are or are not treated as a controlled foreign corporation). A United Statesshareholder of a controlled foreign corporation may be required to annually report and include in its U.S. taxable income its pro ratashare of the controlled foreign corporation’s “Subpart F income”, “global intangible low-taxed income” and investments in U.S.property, whether or not such controlled foreign corporation makes any distributions. An individual that is a United Statesshareholder with respect to a controlled foreign corporation generally would not be allowed certain tax deductions or foreign taxcredits that would be allowed to a United States shareholder that is a U.S. corporation. A failure to comply with these reportingobligations may subject you to significant monetary penalties and may prevent the statute of limitations with respect to your U.S.federal income tax return for the year for which reporting was due from starting. We cannot provide any assurances that we willassist investors in determining whether any of our current or future non-U.S. subsidiaries are treated as a controlled foreigncorporation or whether such investor is treated as a United States shareholder with respect to any of such controlled foreigncorporations or furnish to any United States shareholders information that may be necessary to comply with the aforementionedreporting and tax paying obligations. The Internal Revenue Service provided limited guidance on situations in which U.S.shareholders may rely on publicly available information to comply with their reporting and tax paying obligations with respect toforeign-controlled CFCs. A United States investor should consult their own advisors regarding the potential application of these rulesto its investment in the shares.New United States tax legislation may impact our results of operations and financial condition.The U.S. government may enact significant changes to the taxation of business entities including, among others, an increasein the corporate income tax rate and the imposition of minimum taxes, the capitalization of certain costs related to research anddevelopment or surtaxes on certain types of income. The likelihood of these changes being enacted or implemented is unclear. Weare currently unable to predict whether such changes will occur. If such changes are enacted or implemented, we are currently unableto predict the ultimate impact on our business.27Item 4. Information on the Company 4.A History and Development of the Company Nova Ltd. was incorporated in May 1993 under the laws of the State of Israel. We commenced operations in October 1993 todesign, develop and produce integrated process control systems for use in the manufacture of semiconductors, also known asintegrated circuits or chips. In April 2000, we conducted an initial public offering and our shares were listed for trading on the Nasdaq stock exchange. In June 2002, we listed our shares on the TASE, pursuant to legislation which enables Israeli companies whose shares aretraded on certain stock exchanges outside of Israel to be registered on the TASE, while reporting, in substance, in accordance withthe provision of the relevant foreign securities law applicable to the Company. Until 2008, most of our products were sold to process equipment manufacturers such as Applied Materials, Inc. and EbaraCorp., which later sold these products to semiconductor manufacturers. Since then, we have changed our business model, sellingsubstantially all of our products directly to semiconductor manufacturers. Through this process, which has also enabled us tointroduce to these customers additional products and features, we have improved our products gross margins and net profitability. In April 2015, we acquired ReVera Inc., a privately held company headquartered in Santa Clara, California, which develops,manufactures and sells stand-alone metrology tools for measurements of thin-films and composition applications in thesemiconductor industry, and on December 31, 2017, we merged ReVera into its parent company, Nova Measuring Instruments, Inc. In July 25, 2021, we changed the legal name of our Company from Nova Measuring Instruments Ltd. to Nova Ltd. to matchthe Company’s long-term strategy. The Company has retained its NVMI ticker symbol and its Process Insight® tagline At the end of 2021, we had six direct fully owned subsidiaries, in the U.S., Taiwan, Korea, China, Japan and Germany. In November 2021, we signed a definitive agreement to acquire ancosys, a privately held company Headquartered inPliezhausen Germany which is a leading provider of chemical analysis and metrology solutions for advanced semiconductormanufacturing, supporting both frontend and backend semiconductor manufacturing. The transaction’s closing was completed inJanuary 2022. Our headquarter office is located in Israel at 5 David Fikes St., 10th Floor, Rehovot.4.A.8. The SEC maintains an internet site that contains reports, proxy and information statements, and other information regardingissuers that file electronically with the SEC (http://www.sec.gov). The information is also available on our website(http://www.novami.com). 284.B Business Overview Our Company Nova is a leading innovator and key provider of metrology solutions for advanced process control used in semiconductormanufacturing. Nova delivers continuous innovation by providing high-performance metrology solutions for effective processcontrol throughout the semiconductor fabrication process. We bring pioneering metrology solutions to semiconductors processcontrol, by industrializing lab and research-grade technologies and developing emerging metrology solutions. Nova’s productportfolio, deployed at the world’s largest integrated-circuit manufacturers, combines high-precision hardware and cutting-edgesoftware, and provides its customers with deep insight into the development and production of the most advanced semiconductordevices. Nova’s capability to deliver innovative Optical, X-ray and SIMS technology solutions enables its customers to improveperformance, enhance product yields and accelerate time to market. Nova’s market offering is driven by product divisions: The Dimensional Metrology Division (DMD) which is responsible foroptical technology-based metrology solutions (integrated and standalone), and the Materials Metrology Division (MMD) which isresponsible for x-ray based solutions. The corporate units, such as marketing, next generation technology, human resources, financeand global business group, support both divisions. This structure allows the company to focus management attention on each productline separately, as well as to facilitate the integration of additional businesses or technologies in the future. In January 2022, through the acquisition of ancosys, we expanded our technology base. ancosys is a leading provider ofchemical analysis metrology solutions for advanced semiconductor manufacturing. ancosys’ automated analytical systems combineflexible architecture with industry-grade capabilities and support both frontend and backend semiconductor manufacturing. Webelieve that the combined advanced portfolio will deliver cutting edge solutions for advanced semiconductor process control and willexpand Nova’s total available market beyond frontend semiconductor manufacturing into the backend and advanced packagingmarkets. Our Market Semiconductor Industry and the Metrology Market The semiconductor manufacturing process starts with a flat silicon disc known as a silicon wafer upon which integratedcircuits are constructed. To construct the integrated circuits, a series of layers of thin films that act as conductors, semiconductors orinsulators are applied. During the manufacturing process, these film layers are subjected to processes which remove portions of thefilm, create circuit patterns and perform other functions. The semiconductor manufacturing process requires numerous precise stepsand strict control of equipment performance and process sequences. Tight process control can be achieved through monitoring siliconwafers and measuring relevant parameters before’ during or after each process step, with metrology tools. The demand for our metrology systems is driven by capital equipment spending of the semiconductor manufacturers, whichis in turn driven by the worldwide demand for semiconductor components embedded in technology devices. Industry data indicatesworldwide demand for semiconductors will continue to grow, driven by the growing adoption of 5G and advanced networkinfrastructure, artificial intelligence (“AI”) and internet of things (“IoT”) applications, as well as network and data centers thrivingthrough the work-from-home, learn-from-home, buy from home and gaming trends. The growing investment in advanced technology nodes introduces growing complexity and new challenges into thesemiconductor manufacturing process, as manufacturers are continuously pushed to improve performance and cost to gaincompetitive advantage. In a climate of constant growth, suppliers and manufacturers are asked to constantly come up with newproducts with greater functionality, better performance at lower prices. As a result, many new complex materials, advanced structuresand processes are being introduced into the semiconductor manufacturing ecosystem. An environment of growing complexity in chipdesign and manufacturing set favorable business conditions for process control demand. 29 The Semiconductor Manufacturing Process Semiconductors devices typically consist of transistors, memory cells or other components connected by an intricate systemof circuitry on silicon wafers. Integrated circuit manufacturing involves many individual steps, some of which are repeated severaltimes, through which numerous copies of an integrated circuit are formed on a single silicon wafer. Because semiconductorspecifications are extremely tight, and integrated circuits are becoming more complex, the process steps are constantly monitored,and critical parameters are measured at each step using metrology equipment. Key process steps, such as Deposition,Photolithography, Etch and Chemical-Mechanical Planarization, rely on metrology systems to monitor film thickness, uniformity,and critical dimensions and material characteristics, to ensure the correct result has been achieved. The measurements taken by metrology systems during the manufacturing process help ensure process uniformity and helpsemiconductor manufacturers avoid costly rework and misprocessing, therefore increasing efficiency, yield and time to market. The Need for Effective Process Control and Metrology Tools Several technical and operational trends within the semiconductor manufacturing industry are strengthening the need formore effective process control and metrology solutions. These trends include: • Smaller IC Devices. The development of advanced smaller features means a larger numbers of integrated circuits perwafer. As feature geometries decrease, the manufacturing process tolerances decreases as well, and manufacturing yield becomesincreasingly sensitive to processing deviations and defects. In addition, the increased complexity means higher chance of errorduring manufacturing, leading to additional inline monitoring and metrology steps. • Transition to 3D Device. The transition to ever more complex 3D Integration technology, in order to improveperformance, requires complex fabrication and as a result more sophisticated metrology solutions to be capable of measuring criticaldimensions and materials properties in these 3D structures. • Faster Time to Market. The accelerating rate of obsolescence of technology and the faster ramp to yield required bycustomers makes early achievement of high manufacturing yields a critical component of profitability and metrology has a criticalrole in achieving these demanding results. • Materials Engineering. In order to overcome limitations in the continued shrink of transistor dimensions, which isused to improve performance, leading manufacturers are introducing new novel materials to IC production. New materialsintroduction requires new processing and metrology solutions in the atom level and thus represent a challenging development for thesemiconductor manufacturing industry. It also representing a growing demand for more tighter materials control and thereforeincreasing demand for Materials Metrology solutions to control parameters such as composition, stress, ultra-thickness,crystallization and more. 30• New Manufacturing Steps. Multiple Lithography technologies including multi-patterning and E-Beam are increasingthe number of Etch and CMP process steps and EUV poses unique metrology challenges. • Foundry Model. The rising investment needed for leading edge semiconductor process development and production,as well as the proliferation of different types of devices, lead to manufacturing increasingly being outsourced to foundries. A foundrytypically runs several different processes and makes numerous different semiconductor product types in one facility. Since Foundriesare running multiple products at the same time, the need for process control and metrology is increasing in order to qualify multipledevices on the same wafer at the same high process quality. • Advanced Memory Technology (SSD). Memory manufacturers are going through technology evolution and buildvertical devices to manage layers of NAND Memory. Such a complex device that can hold up to hundreds of thin high aspect ratiovertical layers requires significant changes in the manufacturing process. These changes require also many more steps to controlthrough different Metrology solutions and increase the overall process control intensity for these High Aspect Ratio evolvingstructures. In order to address the continuous increasing costs and challenges associated with these trends, semiconductor manufacturersmust improve manufacturing procedures, production yields and time to market. Beyond improving the technology, introducing newprocess steps and innovative fabrication capabilities, Semiconductors manufacturers must tighten the control over the process andtherefore must increase the Metrology intensity as well as introduce new innovative Metrology solutions. These new solutions willallow manufactures to overcome new challenges in dimensions and materials engineering. The Semiconductor Market – Update According to Gartner, semiconductor revenues are expected to grow by 25.1% in 2022, compared to growth of 10.4% in2021. In addition, Gartner forecasts capital spending and wafer fab equipment to grow in 2022 by 11.5% and 10.7% respectively,following growth of 31.8% in CAPEX and 35.8% in WFE in 2021. (Gartner Forecast Semiconductor Wafer Fab Equipment,Worldwide, 4Q21 Update, published December 2021). According to research reports, future demand drivers for semiconductors include 5G mobile devices, data center and cloudinfrastructure, Artificial Intelligence, Augmented and Virtual Reality, Smart Sensors, internet-of-things and other electronicequipment. Products & Technologies Our product portfolio includes a complete set of metrology platforms suited for dimensional, films ,materials and chemicalmetrology measurements for process control across multiple semiconductor manufacturing process steps including lithography, Etch,CMP, deposition, electrochemical plating and advanced packaging. Our offering is comprised of several key product lines, spanningmultiple technologies and addressing key challenges in semiconductor process control, from R&D to High-Volume-Manufacturing. 31Our strategy to offer holistic and diversified portfolio supports the industry’s frequent transitions, establishing the advantagesand unique value we bring to our customers. With the introduction of new technologies and products, we cover a wider variety ofapplications, which increase our served and available markets and footprint in the semiconductor manufacturing market. TechnologyProduct LineKey applicationsProduct families••••Broadband SpectrophotometryScatterometrySpectral ReflectometryImaging and Image ProcessingDimensional Optical CDIntegrated MetrologyCritical DimensionsThin films Nova i PlatformNova 3090Nova 2040Nova ASTERADimensional Optical CD Stand-Alone MetrologyNova T-platformNova MMSR•Spectral InterferometryNova PRISM••X-Ray Photoelectron SpectroscopyX-Ray FluorescenceX-RayMaterialsMetrologyThin filmComposition Nova VERAFLEX•Secondary Ion Mass SpectrometrySIMS MaterialsMetrologyComposition depth-profiling Nova METRION•Raman SpectroscopyOptical MaterialsMetrologyStrainCrystallinityNova ELIPSON•Computational Modeling forPhysical modeling (ModelingSoftware Solutions) Nova Mars Metrology Platforms ••Machine LearningAdvanced AlgorithmsMathematical modelingalgorithms (Software solutions) Nova FIT••Big Data AnalyticsHigh Power ComputingFleet Management(Software solutions)Nova FMNova HPCQEDFollowing the acquisition of ancosys in January 2022, we have expanded our technology offering by adding ChemicalAnalytical methods (such as CVS, HPLC, Titration, Spectroscopy) with applications of Chemical metrology in various steps.32About the product lines Our product portfolio is composed from 3 major product lines. 1.Dimensional Metrology Nova’s integrated metrology (IM) - Integrated platforms that enable advanced process control (APC) required for the mostadvanced logic and memory technology nodes. Nova’ IM solutions offer fast metrology with high productivity, targetingmanufacturing of advanced logic and memory device technologies. Integrated metrology systems are directly integrated withmanufacturing process equipment and provide semiconductor manufacturers with effective and efficient process control bymeasuring wafers within the process environment. This family of products allows within-wafer and within-die variation control.Enriched with Nova’s advanced modeling and algorithmic solutions, Nova’s integrated metrology provides enhancements inmetrology accuracy, precision, and tool matching. Nova’s stand-alone metrology platforms are utilized to characterize critical dimensions such as width, shape and profile with highprecision and accuracy and are used in multiple areas of the fabrication process such as photolithography, etch, CMP and depositionsteps. Nova’s stand-alone platforms are targeted for critical dimensions (CD) and thin films measurements at the most advancedlogic and memory technology nodes across all semiconductor leading customers. The expression “stand-alone metrology”generically describes free standing metrology equipment, located in line, i.e., next to the processing equipment measuring wafersamples in a station of its own. Nova’s stand-alone metrology product line is comprised of several platforms, ranging from normalchannel only to multiple channels of information in one tool. Nova’s unique channels of information enables high metrologyperformance combined with high productivity. When incorporating Nova’s advanced suite of modeling and machine learningsolutions, the Optical CD stand-alone platform provides cutting-edge performance for critical dimensions (CD) and thin filmsmeasurements of the most complex layer stacks and 3D structures. 2.Modeling and Software All of Nova’s hardware products are combined with our suite of advanced algorithms and software modeling solutions. Nova’ssoftware modeling solutions combine top notch algorithms in the field of Artificial Intelligence and machine learning. Nova’s suiteof software modeling products is comprised of Nova MARS physical and geometrical modeling and Nova FIT data driven machinelearning modeling solutions. These solutions are supported by Nova HPC, a computational management layer, which also serves asthe foundation for Nova’s Centralized Fleet Management and Control. Our comprehensive software modeling portfolio providescustomers with a complete modeling and application development solution designed for complex 3D and HAR structures in the mostadvanced logic and memory technology nodes.: •Nova MARS - Nova MARS software package is a multi-channel metrology modeling engine designed for the most advanced3D structures in advanced process nodes of semiconductor manufacturing. It’s a complete modeling solution forscatterometry and interferometry models’ development, material characterization and recipe optimization which is crucial forfacing increasing challenges in semiconductor metrology. The Nova MARS also injects physical and process relatedknowledge to solve complex structures. •Nova FIT - Nova FIT modeling suite compliments traditional modeling of Optical Critical Dimensions by machine learningand data driven algorithmic solutions. The algorithmic suite works in conjunction with Nova MARS physical modelingengine and Nova’s fleet management solution to improve metrology performance, speed up time to solution and expandmetrology envelope for enriched process control. Nova FIT embeds advanced machine learning and big data architecture intooptical modeling, enhancing the way customers utilize metrology measurement data to tighten process windows, avoidprocess excursions and improve yield. 33•Nova’s Centralized Fleet Management and Control - Nova’s Fleet Management and Performance Monitoring Center simplifythe management and enhance the productivity of Nova tools in the fabrication site. The platform’s ability to process andanalyze large amounts of fleet and metrology data using advanced data analytic tools provides our customers with intelligentand predictive insights on tool performance and process trends. •Nova HPC - The Nova HPC is a High-Performance Computing solution, which is designed to accelerate Nova MARS andNova FIT work processes. Nova HPC significantly expedites application development by accelerating library-building, realtime regression and recipe-setting processes. Its advanced computing hardware design enables optimization of Nova’sproprietary algorithm performance, thus enabling the most calculation-demanding application development. 3.Materials Metrology Materials are considered the next frontier in advancing integrated circuits beyond dimensional and architectural scaling. Thegrowing usage of complex and novel materials in advanced technology nodes has increased the demand for metrology solutions thatcan measure materials properties, In Line and In Die, with high precision and accuracy. Nova’s materials metrology offering utilizespowerful X-Ray, Raman and SIMS technologies that have been optimized to provide the automation, speed and reliability required intoday’s advanced semiconductor production environment. As part of Nova’s strategic plan, Nova intends to increase its focus on theevolving materials engineering market. The demand to precisely characterize and control materials composition, thickness, stress andmore, is growing in advanced Memory and Logic nodes and requires innovative metrology solutions. Our Nova ELIPSON,METRION and VERAFLEX platforms aim to provide such capabilities. •VERAFLEX - Nova’s VERAFLEX combines enhanced XPS (X-Ray photoelectron spectroscopy) capability with a uniquelow energy XRF (X-Ray fluorescence) channel to address logic and memory device fabrication challenges. This innovativeinline technology is a surface-sensitive quantitative spectroscopic technique that is used to determine the elementalcomposition of thin films. •Nova METRION - Nova METRION- targets process control of 3D logic and memory semiconductor devices. The technologyenables advanced materials profile measurements by bringing secondary ion mass spectrometry (SIMS) into semiconductorproduction lines on both monitor and product wafer. The Nova METRION provides quantitative and actionable results ondepth profiling of compositional information with high-depth resolution and precision. •Nova ELIPSON - Nova ELIPSON utilizes Raman spectroscopy, a vibrational spectroscopy technique, to detect multiplematerial properties such as strain, crystallinity, phases, grain size and composition. The combination of a small spot and highspeed of this non-destructive, optical method makes it a metrology of choice for both memory and logic segments. 34Our Customers, Sales and Marketing Our sales and marketing strategy is based mostly on direct sales channels where we engage with our customers from the earlystages of process development, to address their challenges in the development phase, and later on support their technology transitionto high volume production. We seek to establish and maintain tight cooperative relationships with our customers by consistentlyproviding them with a high level of service, support and new capabilities. We have a global network of sales and marketing,customer service and applications support offices worldwide. Our teams are empowered by frequent trainings, remote supportoptions, online resources and rich marketing collateral. We serve all leading manufacturers in the logic, foundry and memory sectors of the integrated circuit manufacturing industry.Our customers are located across Asia, Europe and North America. For the distribution of our total revenues, from products and services, by geographic areas, see Note 12A to our consolidatedfinancial statements. The semiconductor industry is dominated by a small number of large companies. As a result, our sales are highlyconcentrated among a relatively small number of customers. The following table indicates the percentage of our total revenuesderived from sales to our five largest customers and the range of these revenues from these customers for the periods indicated. 2019 2020 2021 Total revenues from five largest customers 67% 69% 70%Range of revenues from five largest customers 3%-27% 5%-26% 4%-31%CompetitionThe industries in which Nova operates are highly competitive and characterized by rapid technological change. Nova’s abilityto compete generally depends on its ability to develop and introduce competitive solutions, commercialize its technology in a timelymanner, continuously improve its products, and develop new products that meet the evolving customer requirements. Significantcompetitive factors include technical capability and differentiation, productivity, cost-effectiveness and the ability to support a globalcustomer base. The importance of these factors varies according to customers’ needs, including product mix and respective productrequirements, applications, and the timing and circumstances of purchasing decisions. Substantial competition exists in all areas ofNova’s business. Competitors range from small companies that compete in a single region, which may benefit from policies and regulationsthat favor domestic companies, to global, diversified companies. Nova’s ability to compete requires a high level of investment inR&D, marketing and sales, and global customer support activities. Research and Development We have assembled a core team of experienced scientists and engineers who are highly skilled in their particular field ordiscipline. Our research and development core competencies, technologies and disciplines are in scatterometry, thin film metrology,XPS, interferometry, Raman Spectroscopy metrology and semiconductor process control, and include multidisciplinary measurementinstruments, complex system engineering, algorithms, physical modeling, optical design, interpretation software, machine learning,image acquisition, pattern recognition, X-ray energy sources, electron optics and detection, vacuum systems and equipmentintegration. Our research and development staff consist of about 330 highly skilled members, approximately 80 of whom holdPh.D.’s (not including skilled members of ancosys, which we acquired in January 2022). In addition, we rely on independentsubcontractors and consultants in various fields. Since June 2003, our research and development operations in Israel are certified forISO 9001 quality standard (Current ISO 9001:2015 version).35The metrology and process control market is characterized by continuous technological development and productinnovations. We believe that the rapid and ongoing development of new products and enhancements to our existing product lines iscritical to our success. Accordingly, we devote a significant portion of our technical, management and financial resources todeveloping innovative products, new applications and emerging innovative technologies. Our vision is to continue to be an innovative leader in the semiconductor process control market, through increasing ourleadership in the Dimensional and Materials metrology solutions, and our research and development efforts and activities are designed to support this vision. Our research and development effortsare structured through different and separate development projects, which are initiated following a detailed project plan, technicalfeasibility, and risk analysis. The main projects are monitored throughout their life cycle in a structured process, including designreviews and project management reviews. In the frame of our research and development activities we participate from time to time in development consortiumarrangements, which also help us to support our customers in the transition to advance technology nodes. These consortia are jointcollaboration programs with other semiconductors companies and are supported and funded by the IIA and\or European JointResearch. It should be noted, that in order to maintain our eligibility for these programs, we must continue to meet certain conditions.These programs might restrict our ability to manufacture particular products and transfer particular technology, which were fundedby the IIA. For additional information, see “Item 5C - Grants from the Israel Innovation Authority & European programs” in thisAnnual Report. As part of our long-term technological collaboration, we are also engaged with joint development activities with some of ourstrategic customers, as well as with research institutes and other semiconductor companies. These activities sometimes imposelimitations on the joint intellectual property developed as part of these programs. Patents and Other Proprietary Rights Our continued success depends upon our ability to protect our core technology and intellectual property. We therefore have anextensive program devoting resources to seeking patent protection for our inventions and discoveries that we believe will provide uswith competitive advantages. Our patents and applications principally cover various aspects of optical measurement systems andmethods, integrated process control implementation concepts, and optical, opto-mechanical and mechanical design. In addition, ourpatents and applications cover various aspects of X-ray based measurement systems and methods, including process controlimplementation concepts, X-ray energy sources, electron optics and detection, vacuum systems and equipment integration. With theacquisition of ancosys in January 2022, our patents and applications portfolio also include aspects of Chemical metrology. To protectour proprietary rights, we also rely on a combination of copyrights, trademarks, trade secret laws, contractual provisions (e.g.confidentiality agreements) and licenses. Our copyrights include software copyrights. We constantly seek to control access to, anddistribution of our proprietary information, such as our proprietary algorithms. We enter into confidentiality and proprietary rightsagreements with our employees, consultants and business partners, and we control access to and distribution of our proprietaryinformation. 36 Our in-house know-how is an important element of our intellectual property. The development and management of ourproducts requires sophisticated coordination among many specialized employees. We believe that duplication of this coordination bycompetitors or individuals seeking to copy our products would be difficult. The risk of a competitor effectively replicating thefunctionality of our products is further mitigated by the fact that most of the core technology operating on our systems is not exposedto a user or to our competitors. To protect our technology, we implement multiple layers of security. Despite our efforts to protect our proprietary rights, competitors may be able to develop similar technology independently ordesign around our patents and, despite our efforts, our trade secrets may be disclosed to others. Furthermore, the laws of countriesother than the U.S. may not protect our intellectual property to the same extent as the laws in the U.S. We also cannot assure that: (i)our pending patent applications will be approved; (ii) any patents granted will be broad enough to protect our technology or provideus with competitive advantages or will not be successfully challenged or invalidated by third parties; or (iii) that the patents of otherswill not have an adverse effect on our ability to do business. We may also have to commence legal proceedings against third partiesto protect our intellectual property. From time to time, we receive communications from others asserting that our products infringe or may infringe theirintellectual property rights. Typically, our in-house patent counsel investigates these matters and, where appropriate, retains outsidecounsel to provide assistance. We are not presently involved in any material legal proceedings in which a third party has asserted thatwe have violated their intellectual property rights. If, however, we become involved in any such litigation and its outcome is adverseto us, it may result in a loss of proprietary rights, subject us to significant liabilities, including triple damages in some instances,require us to seek licenses from third parties which may not be available on reasonable terms or at all, or prevent us from selling ourproducts. Furthermore, any litigation relating to intellectual property, even if we are ultimately successful, could result in substantialcosts and diversion of time and effort by our management. This in and of itself could have a negative impact on us. While we believethat we would be successful in any litigation seeking to enforce our patent rights, the ultimate outcome of any litigation or other legalproceedings cannot be predicted. Manufacturing We have one manufacturing facility for our Optical based product lines (including the Raman technology), which is located inNess-Ziona, Israel, and one manufacturing facility for our X-ray and SIMS based product lines, which is located in Fremont, CA,US. In addition, we are expecting to expand our production and development capabilities with a new state-of-the-art clean roomin Rehovot Israel that will support the Company’s newly introduced technologies and continuous growth. This new clean room isexpected to become operational by the end of 2022. In addition to the expansion of our Israel cleanroom footprint, we are also in theprocess of establishing a cleanroom in a new facility to our Fremont site. This cleanroom is expected to become operational in thefirst half of 2022. As part of Nova’s corporate social responsibility, the construction is also expected to support high sustainabilitystandards. Our principal manufacturing activities include assembly, integration, final testing and calibration. Our production activitiesare conducted in our manufacturing and repair center facility in Israel and in Fremont. We rely and expect to continue to rely onsubcontractors and turnkey suppliers to fabricate components, build subassemblies and perform other non-core activities in a cost-effective manner. While we use standard components and subassemblies wherever possible, most mechanical parts, metalfabrications, optical components and other critical components used in our products are engineered and manufactured to ourspecifications. A small portion of these components and subassemblies are obtained from a limited group of suppliers, andoccasionally from a single source supplier. In order to leverage the relatively high volume of systems we manufacture, and in order to decrease production costs, wecontinue to focus our internal manufacturing activities on processes that add significant value or require unique technology orspecialized knowledge and outsource others. Our site in Israel received the ISO 9001 quality mark by an international certificationinstitute in October 1999. Since then, we have upgraded our quality systems to conform to ISO 9001:2015 requirements. Our site inFremont received the ISO 9001:2015 quality mark in November 2021. We received the formal certification of ISO 14001 in 2010which was upgraded to ISO 14001:2015 in 2016 and in 2014 we received the formal certification of OHSAS 18001:2007 for ourmanufacturing operations in Israel which was upgraded to ISO 45001 in 2019. We are being annually recertified for these standards. 37Environmental, Social and Governance (ESG) Nova ESG 2021 Status Based on our ESG plan that was launched in 2020 we aim at creating an advanced ethical, inclusive, and sustainable ecosystem thatimproves the lives of the communities and the environment we are a part of. Recognizing the far-reaching implications that corporatebehavior has over the socio-economic environment, we have been working towards full integration of ESG principles into oureveryday operations and decision-making processes.In 2020 we forged ahead on our environmental, social and governance (ESG) journey, and focused on developing a broaderperspective and meaningful examination of the ESG aspects we affect. When COVID-19 disrupted everyday operations and lives ofevery person on the planet, our top priority was keeping our employees and their families safe, secure, and cared for. Hence, wequickly adapted our operations and health and safety measures to support our global teams.In addition to the emphasis on the safety and wellbeing of our employees, Nova recognized the growing need to streamline the ESGmanagement within the company. As such, Nova launched its ESG strategy in 2020, with the review and guidance of the company’sboard of directors and with the cooperation with a global steering committee comprised of several Officers and Employees.Following the adoption of this strategy, we instituted initiatives and working programs across the organization to provide clarity andcoherence on Nova's ESG positions and activities.We are proud of our ESG achievements throughout 2020 and 2021, and we plan to continue and develop our corporate ESG strategy.Our existing and planned ESG activities which are described below, indicate our growing commitment and engagement in thismatter.38In order to highlight the different directions we are taking in our ESG plans we describe it in the following chart:EnvironmentBuilding a Sustainable FutureWe strive to play our part in building a better future by protecting our environment and making a positiveimpact on the planet for the next generations to inherit.CommunityRelationsLifting our CommunitiesWe welcome members of the community into our family and provide them with the resources required topromote equality, belonging and self-worthDiversityExpanding Cultural DiversityWe’re committed to building a diverse organization with a unique sense of belonging. We strive to expand ourmultidisciplinary platform with diverse talents and inspire the various segments of society.InclusionEmpowering Every VoiceOur organization fosters an inclusive, open-minded and accepting environment. We respect all individuals andensure everyone is seen, heard, feel valued and respected.Ethics &GovernanceChampioning our EmployeesPeople at Nova always come first. We strive to create an ethical, safe and motivational workplace for ouremployees, one in which they belong, while their privacy, interests and well-being are protected.General:ESG Steering CommitteeComposed of several executive officers and company employees and under the guidance of our board of directors and management,we have established an ESG steering committee. The committee, led by the Chief Human Resources Officer is responsible to set theannual targets, evaluate the ESG implementation progress as a whole, review counsels’ recommendations, and lead internal workplans and their alignment with our ESG strategy and commitments, with special emphasis on Nova’s annual ESG report.39Global ESG LeadNova’s main internal focal point to run all programs is the Global ESG Lead. The incumbent is working as an integral part of Nova’sHR division, as well as aligned with, and under the guidance of the aforementioned head of ESG steering committee. The incumbentis responsible for:•Communicating with business leaders across all Nova departments and sites on ESG•Developing and coordinating the strategies which underpin the company's ESG objectives•Conducting research into best practices to further ensure Nova’s positive impact on local communities and the environment,and•Representing and raising public awareness regarding our ESG commitmentNova’s ESG Current Analysis:In 2021, we contracted Ernst & Young (Israel) Ltd. to conduct a full initial analysis of ESG maturity throughout identified materialtopics, across all Nova global locations. The analysis was based on global ESG standards, such as GRI and SASB, and leading ESGraters’ expectations, including MSCI and Sustainalitycs. Key findings of the review indicated the following:•The company is at an ESG medium-high maturity level with Business Continuity Plan indicating high level understanding ofrisk management and preparedness•The Company demonstrates wide range of Social and Governance activities, including employees’ trainings on code ofethics, promoting gender equality, supporting of employees and suppliers during COVID19, putting emphasis on productquality, and more.Nova is planning to release public disclosure of these activities in its planned ESG report 2022.1.Environment:Nova is a global organization, with operations and supply chains which span over multiple countries and cultures. It is for this reasonthat the nature of our work and the countries we source from and operate in, mean that despite our best intentions and efforts, there isalways a risk that various forms of environment hazards and risks may exist. Yet, we believe sustainability is an indisputable force ofchange in our current environment, transforming how we live and work, and impacting our understanding of social and economicvalue and growth. This defines Nova’s environment standards and dictates our approach to our operations, supply chain and partnersmanagement, as well as our approach to promoting long-standing solutions and alternatives to improving our environmental impact.Nova’s responsibility to advance sustainability and environmental responsibility, lies first and foremost with entering building ournew headquarters in 2019 with sustainability of a “Leed Gold” certificate - LEED (Leadership in Energy and Environmental Design),which is a widely used green building rating system and provides a framework for healthy, safe, highly efficient, and cost-savinggreen buildings. The building includes installed control management systems with sensors for light and air conditioning, and withanti-sun layered curtains on all windows, which allow efficient energy consumption. Furthermore in all of Nova’s new buildings andfacilities across the globe - U.S., Taiwan, and China - we strive to follow the sustainability standards.We also implemented recycling measures in our facilities, which allow proper gathering and recycling.40In general, our production lines don’t not involve industrial waste, and any waste that is created from used metal and electronicscomponents is being processed through authorized companies which manage the disposal of toxic substances (IPA - "Tabib”). Wealso implemented recycling measures of production line related waste, such as packing materials, including crates and woodenpallets. In 2022, we will be focusing on the creation of Climate Change / EHS policy that discusses the commitment of Nova to thevarious activities that are in place; create standardization and unification of data collection in all sites; and finally, set KPI’s andGoals for the following years based on data collected and benchmarks.2.Social:Nova’s unique DNA and operating culture, along with its position as a leader in the semiconductor process control market, withapproximately 1,000 employees and almost a dozen worldwide sites, position us with an extraordinary opportunity and responsibilityto have a meaningful impact on the community surrounding us. We believe that by welcoming diverse cultures, experiences andopinions, we can develop technologies and ideas that transform lives and shape and impact the population around us.Our strategy, shaped in 2020, is focused on the Human Capital. A top priority for us is ensuring all our employees and their familiesare safe, secure, and cared for. Along with the Access to Health Care we provide globally, this concern has increased with thedisruption of COVID-19 to everyday lives and our daily operations have changed accordingly. Furthermore, in 2021, we decided todeepen our human capital focus on the Diversity, Equity and Inclusion (DE&I) pillars, and to frame our various operation programsaccordingly:•We set a goal to increase the number of our female recruits by 10 percent during the year, a goal we have successfullyachieved worldwide. As a result, the absolute number of female recruits in 2021 was doubled from 2020 and tripled from2019.•We implemented inclusive language across several companywide documents and procedures•We conducted training to our leadership and HR teams on DE&I challenges and opportunities•We established employee resource groups devoted to the issue of DE&I•We nominated a Disability Services and Compliance Officer to provide care and support for individuals with disabilities andassist them to integrate into the organization, and•We adjusted Nova’s website to the latest accessibility requirements and standards.41In 2021 we have deepened our relationships with our surrounding communities and strengthened our Community Relations. Novahas been striving for years to provide members of our local and global communities with resources to generate true social change bymaking a difference in people’s lives. With the help of our most valuable assets, our employees, we have chosen to focus on fourcritical areas: empowering women, people with disabilities, youth at risk, and national emergencies. In 2021, we established adonation committee led by our executive leadership and adopted a Donation and Charitable Contribution Policy which was approvedby our board of directors. We are committed to make a significant impact on our community by mentoring and nurturing relatedprojects and activities together with numerous non-profit organizations worldwide. As such, in 2021 we have dedicated our resourcesto the following activities:•Supporting youth at risk - through working with our partners, we have reached approximately 500 youths around Israel,supporting them with a unique program that runs “Night Vans" equipped with professional counsels who meet youths andprovides support to the youths on their “own territory", helping them integrate into society.•Keeping our communities physically safe from harm - we have supported the addition of a new mobile bomb shelter in theheavily bombarded City of Ashkelon in Israel.•We offered Nova employees opportunities to volunteer and contribute to supporting youth via private tutoring in English andSTEM (science, technology, engineering and mathematics) professions or other endeavors and topics which are close to theirhearts and can help and inspire the youth.•We have strategically partnered with organizations in Taiwan and the U.S., that are best connected to the local communitiesand can help us promote aspects of STEM education among children and youth and empowering women.Moving forward into 2022, investing in our Human Capital, and developing the diversity and inclusion pillars will continue to be acentral focus. In addition to preserving human rights and social justice, we believe that increasing diversity, inclusion, and genderequality at the company will deliver a range of potential business benefits, including a more talented and satisfied team ofemployees.3.Governance:As part of our sustainable operations policies, we aim that our corporate governance and corporate behavior mechanisms align theinterest of all our stakeholders. To do so, we developed a strong set of corporate values that inspire ethical behavior across alldecision-making processes, and a management and control system to ensure that ethics and security issues are given their dueweight, as following:•Board Practices:•Our board of directors consists of seven (7) members, of whom six (6) are independent and three (3) are women. In 2021,26 meetings of our board of directors and its committees were held, with the directors’ attendance rate being higher than90%.•The Audit Committee of our board of directors currently consists of four (4) members, all independent directors, three(3) of whom are women and two (2) of whom hold deep financial expertise. The primary function of the committee is toassist the board of directors in fulfilling its oversight responsibilities by reviewing financial information, internal controlsand the audit process. In addition, the committee is responsible for oversight of the work of our independent auditors, aswell as the implementation of our internal enforcement plan and governance policies. The committee meets at regularlyscheduled quarterly meetings.•The function of our Nominating Committee of the board of directors’ includes responsibility for identifying individualsqualified to become board members and recommending that the board of directors consider the director nominees forelection at the general meeting of shareholders. The Committee currently consists of three (3) members, two (2) of whomare independent directors.42•The committee overseeing our pay practices is the Compensation Committee of our board of directors, whose functionincludes assisting the board of directors in discharging its responsibilities relating to compensation of the Company’sofficers, directors and executives and the overall compensation programs and reviewing and approving, or if required bylaw, approving, and recommending for approval by the board of directors, grants and awards under the Company’s equityincentive plans. The primary objective of the committee is to oversee the development and implementation of thecompensation policies and plans that are appropriate for the Company in light of all relevant circumstances, and whichprovide incentives that fit the Company’s long-term strategic plans and are consistent with the culture of the Companyand the overall goal of enhancing shareholder’s value. The Committee currently consists of four (4) members, allindependent directors and two (2) of whom are women.For further details on our board of directors and its Committees’ practices, refer to Item 6.C in this Annual Report.•Compensation Policy:Our Compensation committee and board of directors have adopted a policy regarding the compensation and terms ofemployment of their directors and officers (“Compensation Policy”), which pursuant to the Companies Law is presented forre-approval of the Company’s shareholders at least once in every three years. Our shareholders voted on June 17, 2019 for theCompensation Policy recommended by our board of directors. Our Compensation Policy is designed to promote ourobjectives, business plan and long-term strategy, to create appropriate incentives to our office holders while taking intoconsideration the size and nature of operations of our Company as well as the competitive environment in which we operate.As such, our Compensation Policy is intended to incentivize superior individual excellence and to align the interests of ouroffice holders with our long-term performance, and as a result, with those of our shareholders. To that end, a portion of anoffice holder compensation package is targeted to reflect both our short- and long-term goals, the office holder’s individualperformance, as well as measures designed to reduce office holder’s incentive to take excessive risks that may harm us in thelong-term. For example, the Policy limits office holders’ value of cash bonuses and equity-based compensation and sets aminimum vesting period for equity-based compensation. Our Compensation Policy also addresses each office holder’sindividual characteristics (such as position, education, scope of responsibilities, seniority and contribution to the attainment ofour goals) as the basis for compensation variation among our office holders, and considers the internal ratios betweencompensation of our office holders and directors to those of other employees. For further details on our pay practices, refer toItem 6.B in this Annual Report. •Shareholder Control & Ownership:Nova is publicly traded whose securities are listed on the Nasdaq and TASE, and over 99% of our shares are held in freefloat. To our best knowledge, none of our shareholders is a controlling shareholder which can direct the Company’s activities.In addition, each share is entitled to one vote on each matter to be voted on at any Company’s shareholders meeting. Based oninformation provided to us, as of February 14, 2022 our 15 directors and officers, have had, as a group, sole voting andinvestment power of less than 2% of the issued and outstanding ordinary shares of our Company as of such date. For furtherdetails on our Pay practices, refer to Item 6.E and Item 7 in this Annual Report.43•Ethical Business Conduct:Nova depends on its reputation for innovation, quality, service, and integrity. We are committed to upholding the highestprofessional standards of business conduct and maintaining confidence and trust in our relationships with each other, with ouremployees, customers, investors, suppliers, business partners, regulators, and others. We are committed to ethical businesspractices and compliance with all applicable standards, laws and regulations, and we believe that maintaining high standardsof Corporate Governance is important for our success. We have hundreds of employees working worldwide, and each facilityupholds its individual organizational culture while committed to the global Nova Code of Conduct and other CorporateGovernance Policies. Our Executive and Financial Officers have leadership responsibilities that include nurturing this cultureof commitment to ensure standards and compliance. In order to anchor this strategy in our day to day activities, we haveadopted the following policies and practices:•Code of Conduct. All of our directors, officers, service providers and employees must conduct themselves in accordancewith our Code and seek to avoid even the appearance of improper behavior. The code is intended to promote thefollowing:Compliance with Laws, Regulations and Company Policies; Avoiding conflict of interests and personalexploitation of corporate opportunities; Competition and Fair Dealing, handling of business inducements, and preventinganti-trust violations; Prevention of Discrimination and Harassment and promoting healthy and safe work environment;Preserving complete and accurate business information and records and engaging in an accurate accounting practices, andconfidentiality of the company’s information; handling of public fillings and Protection and Proper Use of CompanyAssets; The Code sets principals and standards for: Insider trading policies, Anti-fraud, Anti-corruption policies,Whistleblower Policy. The Code is available on our employees portal, and each employee must familiarize with uponjoining the company, and on an annual basis. The code is also posted on Nova’s website. Employees are clearlyencouraged to report violations to the compliance team, senior management, or other officers as deemed appropriate. Ifmatters concern accounting or auditing issues, employees can directly report to the Audit committee of the board ofdirectors. Whistleblowers who make reports in good faith of suspected violations are protected from retaliation such asdemotion or termination of employment because of reporting. Any Employee who wants to bring an ethical issue to light,can also write an anonymous complaint to the Corporate Secretary.•Insider Trading Policy. Nova has adopted an Insider Trading Policy that all employees must be familiar with and adhereto. Officers and employees may not trade in Nova’s securities while in the possession of “material non-publicinformation” concerning Nova, its customers and suppliers, or during any quarterly or special blackout periods. Officers,Employees, and their immediate family members may trade in Nova’s securities only outside of the clearly definedblackout periods. A failure to comply with the Policy could result in a serious violation of the securities laws and mayinvolve both civil and criminal penalties.44•Anti-Fraud and Anti Bribery Policies. We are committed to ethical behavior and values. It is amongst our first prioritiesto establish a corporate and working culture that enhances the value of ethics and promote the individual responsibility aswell. To this effect, the Company has established an Anti-Fraud and Anti-Bribery Policies and Guidelines and aComplaint Procedure, which set the highest standards for personnel conduct related to ethical behavior and alertness. Thecornerstone in preventing fraud is the creation of an environment that fosters morality, integrity and business conduct.Our Anti-Fraud policy outlines the responsibilities of all the involved parties with respect to fraud prevention, the actionsto be taken if fraud is suspected and the mechanism of verifying suspicion of fraud, the reporting process and the recoveryaction plan. Our Anti-Bribery sets forth rules governing the giving, offering or receiving of anything of value to or fromany non-Nova personnel with the intention of obtaining, securing, promoting or retaining any business activity. Thepurpose of the policy is to make sure that Nova and its employees do not violate applicable corruption laws and to protectthe reputation of the Company. In addition to the anti-fraud policy, in 2021, we implemented an anti-fraud steeringcommittee and forum which oversees and identifies fraud risks across the Company, and implemented an anti-fraudprogram which is tested and verified on a yearly basis.•Accounting and Tax Transparency:Our approach to global taxation for all types of taxes is to consistently comply with legal, regulatory, and internal controlrequirements as well as support our business and commercial strategy. We are committed to adhere to all applicableglobal tax laws, filings, and reporting disclosures. We account for tax risks in accordance with the applicable accountingstandards and have internal controls in place over our tax reporting processes. Our transfer pricing policies are alignedwith the guidelines of the Organization of Economic Co-operation and Development (OECD), as well as with all of thejurisdictions in which we operate. We apply the arm’s length principle when conducting intercompany transactions. Wehave an established network of internal and external tax and finance professionals who are knowledgeable in variousdirect and indirect taxes and who monitor ongoing tax law and business changes, so that we may adapt processes anddeliverables accordingly. This network, along with our framework regarding internal policies and controls, seeks toensure the complete and accurate communication of tax positions and risks, through established governance and reportingprocesses to our management and board of directors. Further details on our accounting and tax practices can be found inItems 10.E of this Annual Report.Moving forward into 2022Nova is committed to continue playing a major part in transforming societies to become more responsible, diverse, and sustainable.Indeed, we will continue to embed ESG responsibilities into our core business, culture and continue influence all our stakeholders.Our planned ESG policies and practices for 2022 will include (but are not limited to):•Considering the relevance of social development goals for our ESG overall strategy, as well as the wider community inwhich we operate•Further exploring how a broader ESG approach can underpin good practice for our company and its impact•Documentation, standardization and publication of company policies•Setting KPI’s and goals for the following years to assess company’s progress•Further investigating ESG priorities such as safety, belonging of our employees, sustainability development andcollaborating with the local community.45Capital Expenditures Our capital expenditures are primarily for network infrastructure, computer hardware and software, leasehold improvementsof our facilities, expansion of clean room facilities and demonstration and development tools. None of these assets are held ascollateral or guarantee other obligations. For additional information on our capital expenditures, see “Item 5B. Liquidity and CapitalResources” in this Annual Report. Government Regulation For information relating to the impact of certain government regulations on our business, see “Item 5.C – Grants from theIsrael Innovation Authority” on this Annual Report. 4.C Organizational Structure Our Subsidiaries Our subsidiaries as of the end of 2021 and the countries of their incorporation are as follows. All of our subsidiaries arewholly owned by the Company:Name of SubsidiaryCountry of IncorporationNova Measuring Instruments, Inc.Delaware, U.S.Nova Measuring Instruments K.K.JapanNova Measuring Instruments Taiwan Ltd.TaiwanNova Measuring Instruments Korea Ltd.KoreaNova Measuring Instruments GmbHGermanyNova Measuring Instruments (Shanghai) Co.,LtdChinaAs of January 25, 2022, with the closing of the acquisition transaction of ancosys GmbH, the following subsidiaries were added: Name of Subsidiary Country of Incorporation Ownershipancosys GmbHGermany100% owned by Nova MeasuringInstruments GmbHancosys Korea LLCKorea100% owned by ancosys GmbHancosys Instrument Taiwan LtdTaiwan100% owned by ancosys GmbHancosys Inc.Delaware100% owned by ancosys GmbH 4.D Property, Plant and Equipment As of the end of 2021, our main facilities, located in Rehovot and Ness-Ziona, Israel, are currently occupying an aggregate ofapproximately 13,000 square meters, including: approximately 2,000 square meters of production facilities, approximately 5,700square meters of research and development offices (including approximately 1,400 square meters of laboratories) and approximately6,000 square meters of headquarters, operations, sales and marketing, service and support and administration facilities. 46In September 2019, our Israel headquarters moved to a new building at the Science Park in Rehovot. The lease agreement inRehovot is expected to extend until 2029. We have the option to extend this lease period by two periods of five years each, subject tocustomary conditions. The lease period for an additional space of approximately 2,500 square meters in Rehovot, began in 2021 andwill extend through the same lease periods. As of the end of 2021, the lease agreement in Ness Ziona is expected to extend until January 31, 2026. Our subsidiaries lease offices in various locations, for use as a research and development, manufacturing, service and pre-salefacility (depending on each subsidiary’s needs). Our U.S. subsidiary, Nova Measuring Instruments, Inc. leases approximately 3,800square meters in Fremont, CA, which includes approximately 850 square meters of production facilities. In addition to this space, theUS entity entered into a new lease agreement for an additional 2,880 square meter facility, of which approximately 700 square feetwill be allocated as an engineering cleanroom. Both Fremont leases are now synchronized to expire on March 31, 2029 with anoption to extend for additional five years, subject to customary conditions. In addition, we lease approximately 70 square meters inNew York, approximately 200 square meters in Oregon and approximately 160 square meters in Idaho. Our Taiwanese subsidiaryleases a new space of approximately 1,750 square meters which includes a cleanroom facility, our Korean subsidiary leasesapproximately 1,250 square meters, our Subsidiary in China leases approximately 1,200 square meters our European subsidiaryleases approximately 150 square meters in Germany and France, and our Japanese subsidiary leases approximately 100 squaremeters. ancosys and its subsidiaries, which we acquired in January 2022, hold leased offices in each of their respective locations. Inaddition, ancosys owns a 15,800 square meters of real estate located in Bad Urach, Germany, out of which approximately 8,000square meters can be utilized for ancosys’ operations. We believe that our facilities and equipment are in good operating condition and adequate for their present usage. Item 4A. Unresolved Staff Comments None. Item 5. Operating and Financial Review and Prospects Information in this Operating Review and Financial Prospects Section should be read in conjunction with our consolidatedfinancial statements and notes thereto which are included elsewhere in this report. Executive Overview Nova is a leading innovator and key provider of metrology solutions for advanced process control used in semiconductormanufacturing. Nova delivers continuous innovation by providing state-of-the-art high-performance metrology solutions for effectiveprocess control throughout the semiconductor fabrication lifecycle. We bring pioneering metrology solutions to the world of processcontrol, by industrializing lab and research-grade technologies and developing emerging metrology solutions. Nova’s productportfolio, deployed by the world’s largest integrated-circuit manufacturers, combines high-precision hardware and cutting-edgesoftware, provides its customers with deep insight into the development and production of the most advanced semiconductor devices.Nova’s unique capability to deliver innovative metrology solutions enable its customers to improve performance, enhance productyields and accelerate time to market. We market and sell our metrology systems mainly to semiconductor manufacturers, and in somecases to semiconductor process equipment manufacturers.47 Our business is greatly affected by the level of spending on capital equipment by semiconductor manufacturers. In addition,demand for our products and services is affected by the timing of new IC capacity expansion and ramping up of new technologynodes, by the timing of releasing products by us and our competitors, market acceptance of our new or enhanced products andchanges or improvements in semiconductor design or manufacturing processes. In the recent five years (2016-2021), we were able to achieve positive Compound Annual Growth Rate (CAGR) of productsrevenues of approximately 22%, while Gartner Inc. estimates that the Process Control segment has achieved a CAGR ofapproximately 16.9% (Gartner Q4-2021 forecast, published on December 2021). During these years, we successfully diversified ourtechnology to include X-Ray capabilities on top of our Optical technology, to measure both Dimensional and Material parameters,we added advanced machine learning algorithms on top of our physical modeling, and we advanced our traditional tool set to includeadvanced capabilities in both hardware and software. We also diversified our revenue mix across semiconductor segments andterritories. During these years, we were also able to increase our total available market through development of new technologiesused for Materials and Dimensions metrology, addressing emerging applications in Memory and Foundry/Logic. In 2021, product sales accounted for approximately 81.0% of our total revenues, and services accounted for approximately19.0%. As of the end of 2021, we had cash reserves, net of long term debt related to convertible senior notes, of approximately $370million, and working capital of approximately $278 million. In January 2022, we used approximately $80 million of this cash to payfor the acquisition of ancosys. Our service organization is operating on a profit and loss basis and the objectives of our service organization are defined andmeasured by: customer satisfaction, quality support parameters; and by profit and loss criteria. The service organization providessupport to all products we sell, during both the warranty period and the post warranty period. Service revenues are mostly driven byextended warrant, Time and Materials requests, service contracts and proactive sales to the install base to improve productivity andmetrology capabilities. Significant Events in 2021 and Outlook for 2022 During 2021, we demonstrated several significant achievements: •Significant business growth •Meaningful growth in both Products and Service sales •Growth in systems’ production and deliveries by all our global sites. 48•Diversified customer mix, including several major leading customers. •Further market adoption of Nova’s advanced portfolio by wafer fabrication customers: oHardware and Software coupling oUnique Optical and X-Ray solutions oHolistic offering, including Integrated and Standalone metrology oMaterials and Dimensions solutions •Continuous proliferation of Nova’s recent optical solutions – PRISM and ELIPSON. •Continued investments in research and development programs aimed to generate new organic growth engines foradvanced process control. •Introduction of Nova METRION®. Nova METRION® targets process control of 3D logic and memory semiconductordevices. The technology enables advanced materials profile measurements by bringing secondary ion massspectrometry (SIMS) into semiconductor production lines and provides quantitative and actionable results on depthprofiling of compositional information with high-depth resolution and precision. •Introduction of several new generations of Dimensional and Materials metrology platforms. Introduction of MachineLearning solutions (NovaFIT) to enhance metrology measurements and to complement the traditional Physicalmodeling (NovaMARS). •Deepening collaboration with several research institutes and customers' development centers, utilizing a variety of ourproducts, leading to our positioning as a long-term technology development and high-volume manufacturing partner. •The acquisition of ancosys, a privately held company headquartered in Germany, closed in January 2022. ancosys is aleading provider of chemical analysis and metrology solutions for advanced semiconductor manufacturing. •ESG (Environment, Social and Governance) – during 2021 the company has built & embraced an enhanced CorporateSocial Responsibility Strategy. We are determined as a company to play a vital role in creating a world that valuesequality, safety and environmental health for the benefit of future generations to come. We are committed toproactively invest in embedding social responsibility as part of our culture and business management to support ourvalues. In 2022, we plan to focus on the following: •Investing in the organization development to enhance the human capital and the strength of the global teams basedon our values and culture. •Continue to strengthen our competitive and market position, through unique innovation and technical leadership. 49•Continue executing our innovation and development plans for meeting future industry challenges. •Expand our total available markets by addressing new emerging metrology applications and market segments,through solutions delivery to the challenging buildup of advanced Logic technology nodes, memory scaledVNAND nodes and DRAM scaled devices at leading edge customers. •Continue delivery of advanced metrology systems to the trailing edge technology nodes to support newapplications ramp up. •Executing our plans to meet Nova’s long-term strategy, which defines the Company’s growth path in revenue,customers, technology and financial performance, to support our profitable growth. •Continue leading the emerging metrology markets with innovative and disruptive solutions. •Continue the collaborations and joint research programs with leading semiconductor manufacturers and relevantleading research institutes. •Continue our products innovation and diversification through several new product introductions to extend theCompany’s market leadership and total available market. •Continue our plans to generate revenues and competitive edge through SW algorithm and Machine Learningsolutions. •Strengthening the partnership with our customers and build a “Customer Centric” approach to accommodate anddeliver customers’ requirements along the semiconductor lifecycle. •Build an extensive roadmap for ancosys' chemical metrology products in order to enhance Nova's existingproduct's offering. •Create synergy between Nova and ancosys' technologies towards a combined offering for advanced applications,which require dimensional, material and chemical metrology. •Grow our clean room and production facilities to meet the semiconductor demand cycle around the globe. •Elevate our investment in ESG programs in order to promote social responsibilities programs through our fivepillars program (for details refer to Environmental, Social and Governance (ESG) chapter in Item 4.B in thisAnnual Report). The challenges and risks Nova faces in meeting its plans include: •Meeting strategic, development, operational and delivery targets in light of the COVID-19 global pandemic and thevarious influences across the world. •Overcoming supply chain challenges in light of shortage, demand and cost. 50•On time delivery of the required solutions to meet the current and future needs of our existing and new customers. •Correctly understanding the market trends and competitive landscape to ensure our products retain properdifferentiation to win customer confidence. •Creating aggressive, innovative and competitive roadmap deliverables at reasonable costs in order to properly controlexpenses. •Identifying the metrology evolution roadmap for future industry needs to meet process control requirements and leadthe market. •Achieving long-term growth targets while supporting extensive growth in all our activities. •Building a solid global infrastructure to accommodate further growth. In order to address the risks and challenges associated with the COVID 19 pandemic Nova implemented a thorough anddetailed global plan to secure the employees safety and health, guarantee supply chain resiliency, assure business continuity andcontinuous support to our customers. In order to address the technical and roadmap risks and challenges, we are working closely with leading customers’development and research groups and with the leading process equipment manufacturers as well as with leading technology researchinstitutes. The purpose of working closely with these entities is to receive as early as possible information and feedback on theircurrent and future metrology and process control needs and tune our roadmap to support such needs. It is our belief that Nova has been able to consistently improve its market position as a result of a combination of factors: •Optical metrology has become an enabler for the entire industry over the last few years, sometimes on the account ofother metrology capabilities. •Material Metrology has been widely adopted by leading memory and logic/foundry customers. •Nova’s unique metrology portfolio, combining Optical and X-Ray metrology for both dimensions and materials,provide the most advanced solution, combining the best innovative metrology capabilities with the best reliability andreturn on investment. •The ability to provide a unique and differentiated technology portfolio sets Nova apart from the competition andadding a competitive edge to our offering. •Our solutions are well accepted by leading customers that allow us to gain more market share with additional processsteps and new applications. •Our ability to closely team with our customers allows us to predict the industry evolution and process controlchallenges and by that introduce innovative and advanced metrology solutions to solve industry needs. 51•Our diversified portfolio, which is a result of continuous investment in research and development, is becoming moreattractive to our customers. •Extending our solutions’ base to include hardware and software elements in a coupled offering. •Successful track record in completing and integrating inorganic products , as a result of M&A, which allows us todiversify our product offering to expand our addressable markets. •Well controlled P&L and operating model to support our profitable growth and operational resiliency. Understanding the industry’s challenges for the next several years, it is our belief that we should continue our long-termgrowth as the adoption of our solutions increases as a function of process complexity and industry development. We believe that ourserved addressable market is continuously expanding as we penetrate to more steps of the semiconductor manufacturing processesand, as we continue innovating our portfolio for leading new emerging metrology opportunities. We also believe that going forward,as the semiconductor production process is becoming much more complicated with variety of challenges, the necessity for ourunique portfolio, combining multiple technologies for both Materials and Dimensional metrology, will grow in the next few years. Critical Accounting Policies Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financialstatements, which have been prepared in accordance with the United States of America generally accepted accounting principles. Webelieve the following critical accounting policies, among others, affect our more significant judgments and estimates used in thepreparation of our consolidated financial statements. Use of Estimates – General The preparation of financial statements in conformity with generally accepted accounting principles requires management tomake estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets andliabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Ourmanagement evaluates its estimates on an ongoing basis, including those related to, but not limited to income taxes and taxuncertainties, collectability of accounts receivable, inventory accruals, fair value and useful lives of intangible assets, lease discountrate, lease period, convertible senior notes borrowing rate, and revenue recognition. These estimates are based on management'sknowledge about current events and expectations about actions the Company may undertake in the future. Actual results could differfrom those estimates. Revenue Recognition Under ASC 606, the company derives revenue from the sales of advanced process control systems, spare parts, labor hours(mainly systems installation) and service contracts. 52Revenues derived from sales of advanced process control systems, spare parts and labor hour are recognized at point in time,when control of the promised goods or services is transferred to the customers, upon fulfillment of the contractual terms. Revenues derived from service contract, which generally specify fixed payment amounts and contractual terms for periodslonger than one month, are recognized ratably over time. The amount recognized reflects the consideration that the Company expects to be entitled to in exchange for thoseperformance obligations. Revenues from sales which were not yet determined to be final sales due to acceptance provisions are deferred. Contracts with customers may include multiple performance obligations. For such arrangements, the Company allocatesrevenue to each performance obligation based on its relative Standalone Selling Price (“SSP”). Judgment is required to determine theSSP for each distinct performance obligation. The Company uses a range of amounts to estimate SSP when it sells each of theproducts and services separately and needs to determine whether there is a discount to be allocated based on the relative SSP of thevarious products and services. The Company enters into revenue arrangements that includes products and services which are generally distinct andaccounted for as separate performance obligations. The Company determines whether arrangements are distinct based on whether thecustomer can benefit from the product or service on its own or together with other resources that are readily available and whetherthe Company's commitment to transfer the product or service to the customer is separately identifiable from other obligations in thecontract. Marketable Securities The Company accounts for marketable securities in accordance with ASC Topic 320, “Investments – Debt and EquitySecurities”. The Company’s investments in marketable securities consist of high-grade treasury, corporate and municipal bonds. Investments in marketable securities are classified as available for sale at the time of purchase. Available for sale securitiesare carried at fair value based on quoted market prices, with unrealized gains and losses, reported in accumulated othercomprehensive income (loss) in shareholders’ equity. Realized gains and losses on sales of marketable securities, are included infinancial expenses (income), net. The amortized cost of marketable securities is adjusted for amortization of premium and accretionof discount to maturity, both of which, together with interest, are included in financial expenses (income), net. The Company classifies its marketable securities as either short term or long term based on each instruments’ underlyingcontractual maturity date. Marketable securities with maturities of 12 months or less are classified as short-term and marketablesecurities with maturities greater than 12 months are classified as long-term. The Company accounts for Credit losses in accordance with ASU 2016-13, Topic 326 “Financial Instruments – CreditLosses: Measurement of Credit Losses on Financial Instruments” which modified the other than temporary impairment model foravailable for sale debt securities. The guidance requires the Company to determine whether a decline in fair value below theamortized cost basis of an available for sale debt security is due to credit related factors or noncredit related factors. A credit relatedimpairment should be recognized as an allowance on the balance sheet with a corresponding adjustment to earnings, however, if theCompany intends to sell an impaired available for sale debt security or more likely than not would be required to sell such a securitybefore recovering its amortized cost basis, the entire impairment amount would be recognized in earnings with a correspondingadjustment to the security’s amortized cost basis. 53Inventories Inventories are stated at the lower of cost or net realizable value. Inventory write-downs are provided to cover risks arisingfrom slow-moving items, technological obsolescence, excess inventories, discontinued products, and for market prices lower thancost, if any. We periodically evaluates the quantities on hand relative to historical and projected sales volume (which is determinedbased on an assumption of future demand and market conditions), the age of the inventory and the expected consumption of servicespare parts. At the point of the loss recognition, a new lower cost basis for that inventory is established. Any adjustments to reducethe cost of inventories to their net realizable value are recognized in earnings in the current period. Inventory includes costs of products delivered to customers and not recognized as cost of sales, where revenues in the relatedarrangements were not recognized. To support the our service operations, we maintains service spare parts inventory and reduce the net carrying value of thisinventory over the service life Goodwill Goodwill and other purchased intangible assets have been recorded as a result of the acquisition of ReVera. Goodwillrepresents the excess of the purchase price in a business combination over the fair value of net tangible and intangible assetsacquired, and related liabilities. Goodwill amount on December 31, 2021 was $20.1 million. We have not yet concluded thepurchase price allocation analysis of ancosys acquisition, which was closed in January 2022. We expect this analysis to significantlyincrease the goodwill amounts in future balance sheets. Goodwill is not amortized, but rather is subject to an impairment test. In accordance with ASC 350, “Intangibles – Goodwilland Other”, at least annually (in the fourth quarter), or more frequently if events or changes in circumstances indicate that thecarrying value may be impaired. The Company has an option to perform a qualitative assessment to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying value prior to performing the quantitative goodwillimpairment test. The Company operates in one operating segment, and this segment comprises its only reporting unit. Following the adoption of ASU 2017-04, "Simplifying the Test for Goodwill Impairment", as part of the quantitativegoodwill impairment test, any excess of the carrying value of the reporting unit over its fair value is recognized as an impairmentloss, and the carrying value of goodwill is written down to the fair value of the reporting unit. For the year ended December 31,2021, we performed an annual impairment analysis, and no impairment losses have been identified. Intangible assets As a result of the acquisition of ReVera in April 2015, our balance sheet included acquired intangible assets, in the aggregateamount of approximately $5.1 million and $2.6 million as of December 31, 2020 and 2021, respectively. We have not yet concludedthe purchase price allocation analysis of ancosys acquisition, which was closed in January 2022. We expect this analysis tosignificantly increase the intangible assets amounts in future balance sheets. 54 In 2015, we allocated the purchase price of ReVera to the tangible and intangible assets acquired and liabilities assumed,based on their estimated fair values. These valuations require management to make significant estimations and assumptions,especially with respect to intangible assets. Critical estimates in valuing intangible assets include future expected cash flows fromtechnology acquired, backlog and customer relationships. Management’s estimates of fair value are based on assumptions believedto be reasonable, but which are inherently uncertain and unpredictable. Intangible assets are comprised of acquired technology, customer relations, backlog and IP R&D. Accounting for income tax We are subject to income taxes in Israel, the United States and numerous foreign jurisdictions. Significant judgment is required inevaluating our uncertain tax positions and determining our taxes. Although we believe our reserves are reasonable, no assurance canbe given that the final tax outcome of these matters will not be different from that which is reflected in our historical income taxprovisions and accruals. We adjust these reserves in light of changing facts and circumstances, such as the closing of a tax audit orthe refinement of an estimate. To the extent that the final tax outcome of these matters is different than the amounts recorded, suchdifferences will affect the provision for income taxes in the period in which such determination is made. Our accounting for certain income tax effects is incomplete, but we have determined reasonable estimates for those effects. Ourreasonable estimates are included in our financial statements as of December 31, 2021. Significant judgment is also required in determining any valuation allowance recorded against deferred tax assets. In assessing theneed for a valuation allowance, we consider all available evidence, including past operating results, estimates of future taxableincome, and the feasibility of tax planning strategies. In the event that we change our determination as to the amount of deferred taxassets that can be realized, we will adjust our valuation allowance with a corresponding impact to the provision for income taxes inthe period in which such determination is made. Convertible senior notes The Company accounts for its convertible senior notes in accordance with ASC 470-20 "Debt with Conversion and Other Options".Pursuant to ASC Subtopic 470-20, issuers of certain convertible debt instruments, such as the Notes, that may be settled wholly orpartially in cash upon conversion are required to separately account for the liability (debt) and equity (conversion option)components of the instrument. The liability component at issuance is recognized at fair value, based on the fair value of a similarinstrument of similar credit rating and maturity that does not have a conversion feature. The equity component is based on the excessof the principal amount of the convertible senior notes over the fair value of the liability component and is recorded in additionalpaid-in capital. The equity component, net of issuance costs and deferred tax effects is presented within additional paid-in-capital andis not remeasured as long as it continues to meet the conditions for equity classification. The difference between the principal amountand the liability component represents a debt discount that is amortized to financial expense over the respective terms of the Notesusing an effective interest rate method. The Company allocated the total issuance costs incurred to the liability and equitycomponents of the convertible senior notes based on their relative values. 55Issuance costs attributable to the liability and equity components were $5,894 and $518, respectively. Issuance costs attributable tothe liability are netted against the principal balance and will be amortized to financial expense using the effective interest methodover the contractual term of the notes. The effective borrowing rate of the liability component of the notes (after deduction of theabovementioned issuance costs attributed to the liability component) is 2.365%. This borrowing rate was based on Company'ssynthetic credit risk rating. For a discussion of other significant accounting policies used in the preparation of our financial statements and recentaccounting pronouncements, see Note 2 to our consolidated financial statements contained elsewhere in this report. New Accounting Pronouncements For information regarding new accounting pronouncements, see Note 2X to our consolidated financial statements containedelsewhere in this Annual Report. 5.A Operating Results Overview A substantial portion of our revenues is coming from a small number of customers, and we anticipate that our revenues willcontinue to depend on a limited number of major customers. For the distribution of our total revenues, from products and services, by geographic areas, see Note 15a to our consolidatedfinancial statements. The sales cycle of our systems is long and the rate and timing of customer orders may vary significantly from month to monthas a function of the specific timing of fab expansions. We schedule production of our systems based upon order backlog andcustomer forecasts. Our revenues increased by 54.5% in 2021 following an increased by 19.8% in 2020, and decrease of 10.4% in 2019. The following table shows the relationship, expressed as a percentage, of the listed items from our consolidated incomestatements to our total revenues for the periods indicated: Percentage of Total Revenues Year ended December 31,: 2019 2020 2021 Revenues from product 74.3% 77.7% 81.0%Revenues from services 25.7% 22.3% 19.0%Total revenues 100.0% 100.0% 100.0%Cost of revenues products 29.9% 29.2% 31.1%Cost of revenues services 15.9% 14.1% 11.9%Total cost of revenues 45.8% 43.2% 43.0%Gross profit 54.2% 56.8% 57.0%Operating expenses: Research and development, net 19.8% 19.7% 15.8%Sales and marketing 12.5% 10.9% 9.5%General and administrative 4.5% 4.6% 4.2%Amortization of intangible assets 1.2% 0.9% 0.5%Total operating expenses 38.0% 36.1% 30.0%Operating income 16.2% 20.6% 27.0%Financial income (expenses), net 1.4% 0.3% (0.8)%Income before income taxes 17.6% 21.0% 26.2%Income tax expenses 1.9% 3.2% 3.8%Net income 15.6% 17.8% 22.4% 56 Comparison of Years Ended December 31, 2021 and 2020 Revenues. Our revenues in 2021 increased by $146.7 million, or 54.5%, compared to 2020. Revenues attributable to productsales were $337.0 million, an increase of $127.7 million, or 61.0%, compared to 2020. Revenues attributable to services were $79.1million, an increase of $19.0 million, or 31.6%, compared to 2020. The increase in product revenues in 2021 was attributed to higherdemand for our products across all main product lines, including revenues from new product line introduced in 2021. The increase inservices revenues in 2021 was attributed mainly to the increase in our systems installed base and to higher professional services andtime and materials sales. Cost of Revenues and Gross Profit. Cost of revenues consists of labor, material and overhead costs of manufacturing oursystems, royalties, and the costs associated with our worldwide service and support infrastructure. It also consists of inventory write-offs and provisions for estimated future warranty costs for systems we have sold. Our cost of revenues attributable to product sales in2021 was $129.5 million. Our gross margin attributable to product revenues in 2021 was 61.6%, compared to 62.5% in 2020. Thedecrease in products gross margins in 2021 is related mainly to the different product mix as well as to higher supply chain costs. Our cost of services in 2021 was $49.2 million, compared to $37.9 million in 2020. Gross margin attributable to servicerevenues in 2021 was 37.8%, compared to 36.9% in 2020. The increase in services gross margins in 2021 is related mainly to theincrease in service revenues which also included a more favorable service revenue mix. Research and Development Expenses, net. Consist primarily of salaries and related expenses and also include consulting fees,subcontracting costs, related materials and overhead expenses, after offsetting grants received or receivable from the IIA and theEuropean Community, as well as other funding for research and development activities. Our net research and development expensesin 2021 were $65.9 million, an increase of $12.9 million, or 24.2%, compared to 2020, after offsetting grants received of $4.9 millionin 2021 and $5.6 million in 2020. Research and development expenses excluding grants received or receivable in 2021 were $70.8million, compared to $58.6 million in 2020, and increased due to higher investment in existing and new products and technologiesand higher personnel costs. In 2021, net research and development expenses represented 15.8% of our revenues, compared to 19.7%of our revenues in 2020. Sales and Marketing Expenses. Sales and marketing expenses are mainly comprised of salaries and related costs for sales andmarketing personnel, travel related expenses, overhead and commissions to our representatives and sales personnel. Our sales andmarketing expenses in 2021 were $39.3 million, an increase of $10.0 million, or 34.0%, compared to 2020. The increase in sales andmarketing expenses in 2021 was mainly attributed to the higher personnel costs and higher commissions due to the increase inrevenues. Sales and marketing expenses represented 9.5% of our revenues in 2021 compared to 10.9% of our revenues in 2020. General and Administrative Expenses. General and administrative expenses are comprised of salaries and related expensesand other non-personnel related expenses such as legal expenses. Our general and administrative expenses in 2021 were $17.3million, an increase of $4.8 million, or 38.4%, compared to 2020. The increase in general and administration expenses was attributedmainly to higher personnel costs and related overhead, including acquisition related expenses. In 2021, general and administrationexpenses represented 4.2% of our revenues, compared to 4.6% of our revenues in 2020. 57Amortization of Intangible Assets. As part of the acquisition of ReVera on April 2, 2015, the Company acquired $12.3 millionof intangible asset related to technology. In both 2021 and 2020, the Company recorded $2.5 million of amortization of intangibleassets respectively. Financial income (expense), net. Financial income (expenses), net is comprised of interest income, financial expenses relatedto the Convertible Senior Notes, exchange rate impact and bank charges. In 2021, we recorded $3.1 million of net financial expensescompared to $0.9 million of net financial income in 2020. The increase in financial expenses was mainly attributed to the $4.3million of financial expenses related to the Convertible Senior Notes which reflect full year expenses compared to $0.9 million in2020 which reflect expenses of less than one quarter. In addition, in 2021 our interest income was $2.2 million compared to $4.1million in 2020 which mainly attributed to the less favorable interest economic environment. This was offset by $0.9 millionexchange rate loss in 2021 compared to $2.2 million exchange rate loss in 2020 which was attributed to strengthen of the NIScompared to the USD. Income Tax Expenses. Income tax expenses are comprised of current tax expenses and deferred tax expenses/income. In2021, we recorded $16.2 million of income tax expenses, reflecting effective tax rate of 14.8 %. In 2020, we recorded $8.6 million ofincome tax expenses, reflecting effective tax rate of 15.2%. The decrease in the effective tax rate in 2021 is attributed mainly toincrease in US territory tax benefits, which was partially off-set by $3.7 million taxes related to elective tax settlement in Israel. Comparison of Years Ended December 31, 2020 and 2019 is incorporated by reference to the Company’s Annual Report on Form 20-F filed with the Securities and Exchange Commission on March 1, 2021. 5.B Liquidity and Capital Resources As of December 31, 2021, we had working capital of approximately $278.6 million, compared to working capital ofapproximately $497.8 million as of December 31, 2020. The decrease in our reported working capital in 2021 was related mainly toclassification of convertible senior notes in the amount of $183.0 million to current liabilities, and to classification of marketablesecurities investment with maturity dates which are longer than one year in the amount of $137.4 million to non-current assets.Excluding these classifications, our working capital increased by approximately $101.2 million mainly as a result of our fluent netprofits in 2021. Cash and cash equivalents, short-term and long-term deposits and marketable securities as of December 31, 2021 were$552.9 million compared to $427.9 million as of December 31, 2020, and increased mainly as a result our fluent operating cash flow.In January 2022, we used approximately $80 million of this cash to pay for the acquisition of ancosys. 58Trade accounts receivables increased from $63.3 million as of December 31, 2020 to $68.4 million as of December 31, 2021. Inventories increased from $61.7 million as of December 31, 2020 to $78.7 million as of December 31, 2021. The increase ininventory is related to new products as well as to the overall increase in our business levels for products and services. Operating activities in 2021 generated positive cash flow from operating activities of $132.3 million compared to a positivecash flow from operating activities of $60.3 million in 2020. The increase in operating cash flow in 2021 is mainly related to higherprofitability. The following table describes our investments in capital expenditures during the last three years (US dollars, in thousands): 2019 2020 2021 Domestic Abroad Domestic Abroad Domestic Abroad Electronic equipment 3,975 418 2,742 431 2,356 1,134 Office furniture and equipment 2,192 604 28 510 22 283 Leasehold improvements 11,231 2,849 1,865 867 371 650 Total 17,398 3,871 4,635 1,808 2,749 2,067 In 2021, the investment in capital expenditures was financed from our fluent operating cash flow, and included mainlyinvestments in electronic equipment. In 2022, we expect our capital spending to significantly increase to more than $20 million,mainly as a result of expected investments in manufacturing and demonstration facilities in Israel. Our principal liquidity requirement is expected to be for working capital and capital expenditures, as well as additionalacquisitions. We believe that our current cash reserves will be adequate to fund our planned activities for at least the next twelvemonths. Our long-term capital requirements will be affected by many factors, including the success of our current products, ourability to enhance our current products and our ability to develop and introduce new products that will be accepted by thesemiconductor industry. We plan to finance our long-term capital needs with our cash reserves together with positive cash flow fromoperations, if any. If these funds are insufficient to finance our future business activities, which may include acquisitions, we wouldhave to raise additional funds through the issuance of additional equity or debt securities, through borrowing or through other means.We cannot assure that additional financing will be available on acceptable terms. Presently, our short-term debt is comprised from Convertible Senior Notes. We do not have a readily available source of long-term debt financing such as a line of credit. With regard to usage of hedging financial instruments and the impact of inflation and currency fluctuations, see “Item 11.Quantitative and Qualitative Disclosures about Market Risk” in this Annual Report. 5.C Research and Development, Patents and Licenses, etc. For information regarding our research and development activities, see “Item 4B – Research and Development” in thisAnnual Report.59 Grants from the Israeli Innovation Authority & European Programs IIA sponsoring for generic research and development projects of large Israeli companies We participate in a generic research and development programs sponsored by the IIA, available for Israeli companies thatmeet specific criteria’s set forth by the IIA. Companies eligible to participate in these programs receive IIA funding intended to focuson long-term creation of know-how and technological infrastructure, used for the development or production of future innovativeproducts. These programs do not require payments of royalties to the IIA, but all other restrictions under the Innovation Law, such aslocal manufacturing obligations and know-how transfer limitations, as further detailed hereunder, are applicable to the know howdeveloped by us with the funding received in such programs. IIA sponsoring for Israeli research and development consortiums In 2020 and 2019, and in previous years, we participated in a consortium program sponsored by IIA. Under the terms of thisprogram, we cooperate with additional companies, Universities and research institutes in Israel, organized in a consortium for thedevelopment of new technologies. The rules of the consortium include several references to the distribution of knowledge betweenthe consortium members, requires us to provide the other members in the consortium with a non-sub-licensable license to use the“new information” developed by such member, without consideration. These programs do not require payments of royalties to theIIA, but all other restrictions under the Innovation Law, such as local manufacturing obligations and know-how transfer limitations,as further detailed hereunder, are applicable to the know how developed by us with the funding received in such programs. Jointprograms of the European Research Area and the IIA We participate in European consortia, which are joint programs governed by the Electronic Component Systems for EuropeanLeadership Joint Undertaking (the “JU”) as part of the Horizon 2020 cooperation between the European Research Area and the IIA(the “EU Consortiums”). Some of the obligations and undertakings specified hereunder in connection with our IIA activities (such as the restrictionsunder the Innovation Law and obligation to grant certain access rights to our technology and intellectual property rights) apply withrespect to some of these joint projects. In addition, the participation in an EU Consortium includes specific obligations, such as thefollowing: The budgeted grant will be paid to the company pursuant to certain rules regarding ‘eligible costs’; Obligation to properlyimplement the activities assigned under the specific EU Consortium project; Restrictions in contributions of third parties (by serviceor otherwise); Obligation to keep information up to date and to inform about events and circumstances likely to affect the consortiumactivity; Obligations related to records keeping, investigations and audits by the JU in order to verify the proper implementation ofthe specific EU Consortium project and compliance with the obligations under the terms of the program, including assessingdeliverables and reports during a period of up to two years following the receipt by the company of the full grant payment;Obligations related to Intellectual property allocation generated by an EU Consortium, background intellectual property designationprior to the commencement of the EU Consortium’s project and the provision of access rights to results obtained as part of the EUConsortium. Breach of such obligations may result in the reduction of the aggregate expected grant amount or claiming backpreviously received grants. In addition, the company may be subject to administrative and financial penalties such as temporaryexclusion from all JU European Consortiums and fines of up to 10% of the maximum expected grant, as well as to contractualliabilities. 60European Research Area program We also participate in European consortiums which are not part of the JU (Joint Undertaking) program, thus, these programsare funded only by the European commission with no national funding from the Israel Innovation Authority. The restrictions underthe Israeli Innovation Law do not apply to the project under these programs. Some of the specific obligations mentioned in theprevious paragraph apply to the projects under these programs. Past royalty bearing programs and royalties arrangements Some of our previous research and development efforts were financed in part through royalty-bearing grants. We wereobligated to pay royalties from sales of products funded with these grants. This obligation included different annual interest ratesranging up to 5%. In August 2016, we entered into a royalty buyout arrangement, or the Arrangement, with the IIA. As part of theArrangement we paid approximately $12.9 million to the IIA in September 2016. The contingent net royalty liability to the IIA at thetime we executed the Arrangement was approximately $24 million. As a result of the foregoing payment, we are released from anyfuture royalty payments on these previous funds received from the IIA. However, to the extent that we will be able to commercializeproducts that were developed as part of IIA programs and were declared as “failed” at the time of the Arrangement, we will berequired to pay royalties to the IIA from income generated from such commercialization. Currently, we do not anticipate that suchfailed projects will generate revenues in the future. We note that the Arrangement does not release the Company from otherobligations towards the IIA as further detailed herein. In addition, in the future, we may, alone or together with third parties,participate in research and development programs, which may bear royalty obligations (depending on the specific terms of theapplicable program). Pertinent obligations under the Israeli Encouragement of Research, Development and Technological Innovation in the Industry Law1984 Under the Encouragement of Research, Development and Technological Innovation in the Industry Law 1984 and theprovisions of the applicable regulations, rules, procedures and benefit tracks, together the Innovation Law, a qualifying research anddevelopment program is typically eligible for grants of up to 50% of the program’s pre-approved research and developmentexpenses. The program must be approved by a committee of the IIA. The recipient of the grants is required to return the grants by thepayment of royalties on the revenues generated from the sale of products (and related services) developed (in whole or in part) underIIA program up to the total amount of the grants received from IIA, linked to the U.S. dollar and bearing annual interest (asdetermined in the Innovation Law). Following the full payment of such royalties and interest, there is generally no further liabilityfor royalty payment for our currently developed and sold products. Nonetheless, the restrictions under the Innovation Law (asgenerally specified below) will continue to apply even after our company has repaid the grants, including accrued interest, in full. The main pertinent obligations under the Innovation Law are as follows: •Local Manufacturing Obligation. The terms of the grants under the Innovation Law require that we manufacture the productsdeveloped with these grants in Israel. Under the regulations promulgated under the Innovation Law, the products may bemanufactured outside Israel by us or by another entity only if prior approval is received from the IIA (such approval is notrequired for the transfer of less than 10% of the manufacturing capacity in the aggregate, as declared to be manufactured outof Israel in the applications for funding, in which case a notice should be provided to the IIA). This approval may be givenonly if we abide by all the provisions of the Innovation Law and related regulations. Ordinarily, as a condition to obtainingapproval to manufacture outside Israel, we would be required to pay royalties at an increased rate (usually 1% in addition tothe standard rate and increased royalties cap between 120% and 300% of the grants, depending on the manufacturing volumethat is performed outside Israel). We note that a company also has the option of declaring in its IIA grant application anintention to exercise a portion of the manufacturing capacity abroad, thus, if the grant application is approved by IIA, suchcompany will avoid the need to obtain additional approvals and pay the increased royalties cap for manufacturing outside ofIsrael at portions which were mentioned in such approved grant applications. 61•Know-How transfer limitation. The Innovation Law restricts the ability to transfer know-how funded by the IIA outside ofIsrael, including by way of a license to a non-Israeli entity. Transfer of IIA funded know-how outside of Israel requires priorapproval of the IIA. The IIA approval to transfer know-how created, in whole or in part, in connection with an IIA-fundedproject to third party outside Israel is subject to payment of a redemption fee to the IIA calculated according to a formulaprovided under the Innovation Law that is based, in general, on the ratio between the aggregate IIA grants to the company’saggregate investments in the project that was funded by these IIA grants, multiplied by the transaction consideration, takinginto account depreciation mechanism, and less royalties already paid to the IIA. The regulations promulgated under theInnovation Law establish a maximum payment of the redemption fee paid to the IIA under the above mentioned formulas anddifferentiates between two situations: (i) in the event that the company sells its IIA funded know-how, in whole or in part, oris sold as part of an M&A transaction, and subsequently ceases to conduct business in Israel, the maximum redemption feeunder the above mentioned formulas will be no more than six times the total grants received (plus accrued interest) fordevelopment of the know-how being transferred, or the entire amount received from the IIA, as applicable; (ii) in the eventthat following the transactions described above (i.e., asset sale of IIA funded know-how or transfer as part of an M&Atransaction) the company undertakes to continue its R&D activity in Israel (for at least three years following such transfer andmaintain at least 75% of its R&D staff employees it had for the six months before the know-how was transferred, whilekeeping the same scope of employment for such R&D staff), then the company is eligible for a reduced cap of the redemptionfee of no more than three times the amounts received (plus accrued interest) for the applicable know-how being transferred,or the entire amount received from the IIA, as applicable. No assurance can be given that approval to any such transfer, ifrequested, will be granted and what will be the amount of the redemption fee payable. Approval of the transfer of IIA funded technology to another Israeli company requires a pre-approval by IIA and may begranted only if the recipient undertakes to fulfil all the liabilities to IIA and undertakes abides by all the provisions of theInnovation law and related regulations, including the restrictions on the transfer of know-how and manufacturing rightsoutside of Israel and the obligation to pay royalties. In light of the Arrangement (as further discussed below), in certaincircumstances, under such sale transactions (i.e., the transfer of IIA funded technology or portion thereof to another Israelicompany), we might be obligated to pay royalties to the IIA from any income derived from such a sale transaction. 62•Licensing arrangements. Under the terms of the Innovation Law, licensing know how developed under the IIA programsoutside of Israel, requires prior consent of IIA and payment of license fees to IIA, calculated in accordance with the licensingrules promulgated under the Innovation Law. The payment of the license fees does not discharge the company from theobligation to pay royalties or other payments due to IIA in accordance with Innovation Law. These restrictions may impair our ability to enter into agreements for those products or technologies which were developed withassistance of the IIA grants without the approval of the IIA. We cannot be certain that any approval of the IIA will be obtained onterms that are acceptable to us, or at all. Furthermore, in the event that we undertake a transaction involving the transfer to a non-Israeli entity of know-how developed with IIA funding pursuant to a merger or similar transaction, the consideration available to ourshareholders may be reduced by the amounts we are required to pay to the IIA. Any approval, if given, will generally be subject toadditional financial obligations. Failure to comply with the requirements under the Innovation Law may subject us to mandatoryrepayment of grants received by us (together with interest and penalties), as well as may expose us to criminal proceedings. Inaddition, IIA may from time-to-time audit sales of products which it claims incorporate technology funded via IIA programs and thismay lead to additional royalties being payable on additional products. 5.D Trend Information For Information regarding most significant recent trends in our market, see “Item 4B– Our Market – The World Economy –Update” in this Annual Report. Item 6. Directors, Senior Management and Employees 6.A Directors and Senior Management The following is the list of senior management and directors as of February 14, 2022:NameAgePositionMichael Brunstein (3) 78Chairman of the Board of DirectorsAvi Cohen (1)(2) 68DirectorRaanan Cohen (2)(3)66DirectorZehava Simon (1)(2)63Director (External Director until May 2018)Dafna Gruber (1)(3)56Director (External Director until May 2018)Sarit Sagiv (1)(2)53DirectorEitan Oppenhaim 56Director, President and Chief Executive OfficerDror David 52Chief Financial OfficerShay Wolfling 50Chief Technology OfficerAdrian S. Wilson50President of US subsidiary & General Manager Material Metrology DivisionEffi Aboody51Corporate VP and General Manager Dimensional Metrology Division (1)Member of the audit committee (2)Member of the compensation committee (3)Member of the Nominating committee 63Dr. Michael Brunstein was named chairman of our board of directors in June 2006, after serving as member of our board ofdirectors from November 2003. During the years 1990 and 1999, Dr. Brunstein served as Managing Director of Applied MaterialsIsrael Ltd. Prior to that, Dr. Brunstein served as President of Opal Inc., and as a Director of New Business Development in OptrotechLtd. Dr. Brunstein holds a B.Sc. in Mathematics and Physics from The Hebrew University, Jerusalem, and a M.Sc. and a Ph.D. inPhysics from Tel Aviv University, Israel. Mr. Avi Cohen has served as a director of the Company since 2008. He also, serves as executive chairman of XJet Ltd. (aprivate company) and Chakratec Ltd. (a public company) as well as on the board of directors of Cortica Ltd. and CGS TowerNetworks Ltd. From July 2016 to September 2017 Mr. Cohen served as the chief executive officer of MX1, a global media serviceprovider founded in July 2016 as a result of the acquisition of RR Media (Nasdaq: RRM) by SES S.A. and the following mergerbetween RR Media, and SES Platform Services GmbH. From July 2012 till the merger, Mr. Cohen served as the chief executiveofficer of RR Media. Prior to that, until March 2012, Mr. Cohen served as president and chief executive officer of OrbitTechnologies, a public company traded on the TASE. From September 2006 to December 2008, Mr. Cohen served as chief operatingofficer and deputy to the chief executive officer of ECI Telecom Ltd. Prior to joining ECI, Mr. Cohen served in a variety of executivemanagement positions at KLA (Nasdaq: KLAC). From 2003 he was a group vice president, corporate officer and member of theexecutive management committee. From 1995 he was the president of KLA Israel responsible for the optical metrology division.Prior to joining KLA, Mr. Cohen also spent three years as managing director of Octel Communications, Israel, after serving as chiefexecutive officer of Allegro Intelligent Systems, which he founded and which was acquired by Octel. Mr. Cohen holds B.Sc. andM.Sc. degrees in electrical engineering and applied physics from Case Western Reserve University, USA. Mr. Raanan Cohen was appointed as a director of the Company by our board of directors in February 2014. Prior to that anduntil December 2012, Mr. Cohen has served as the President and Chief Executive Officer of Orbotech Ltd., a public company tradedon Nasdaq. Mr. Cohen has also served in a range of other executive positions at Orbotech Ltd, including Co-President for Businessand Strategy, EVP and President of the Printed Circuit Board (PCB) Division, Vice President for the PCB-AOI product line andPresident and chief executive officer of Orbotech, Inc. Prior to its merger with Orbotech in 1991, Mr. Cohen held various positions atOrbot, another manufacturer of AOI systems. Prior to joining Orbot in 1984, he worked at Telrad Networks Ltd. Mr. Cohencurrently serves as the Chief Executive Officer of EyeWay Vision Ltd., a private company. Mr. Cohen holds a B.Sc. in ComputerScience from the Hebrew University in Jerusalem, Israel. Ms. Zehava Simon was elected as the Company’s external director in accordance with the provisions of the Companies Lawin June 2014 and reelected in June 2017. Effective as of May 2018, and our adoption of the exemption under the Regulation (asdefined below), Ms. Simon is no longer classified as an external director under the Companies Law. Ms. Simon served as a VicePresident of BMC Software from 2000 until 2013 and in her last position (as of 2011) acted as Vice President of CorporateDevelopment. From 2002 to 2011, Ms. Simon served as Vice President and General Manager of BMC Software in Israel. In this role,she was responsible for directing operations in Israel and India as well as offshore sites. Prior to that, Ms. Simon held variouspositions at Intel Israel., which she joined in 1982, including leading of Finance & Operations and Business Development for Intel inIsrael. Ms. Simon is currently a board member of Audiocodes Ltd., a public company traded on Nasdaq and TASE, Nice Systems, apublic company traded on Nasdaq and TASE. Ms. Simon is a former member of the board of directors of Insightec Ltd. (2005-2012),M-Systems Ltd., a Nasdaq listed company which was acquired in 2006 by SanDisk Corp., a public company traded on Nasdaq aswell (2005-2006) and Tower Semiconductor Ltd., a public company traded on TASE and Nasdaq (1999-2004). Ms. Simon holds aB.A. in Social Sciences from the Hebrew University, Jerusalem, Israel, a law degree (LL.B.) from the Interdisciplinary Center inHerzliya and an M.A. in Business and Management from Boston University, USA. 64Ms. Dafna Gruber was elected as the Company’s external director in accordance with the provisions of the Companies Lawin April 2015 and reelected in April 2018. Effective as of May 2018, and our adoption of the exemption under the Regulation, Ms.Gruber is no longer classified as an external director under the Companies Law. Ms. Gruber has broad experience, serving as chieffinancial officer and a senior executive management member in leading hi-tech companies traded on both Nasdaq and TASE. Ms.Gruber serves as the chief financial officer of Netafim Ltd., a private company. Prior to that as chief financial officer in variouscompanies including Aqua security Ltd. Landa Corporation Ltd. and Clal Industries Ltd. From 2007 until 2015, Ms. Gruber servedas the chief financial officer of Nice Systems Ltd., a public company traded on Nasdaq and TASE. responsible, inter alia, forfinance, operation, MIS and IT, legal and investor relations. From 1996 until 2007, Ms. Gruber was part of Alvarion Ltd., a publiccompany traded on Nasdaq and TASE, mostly as chief financial officer. Ms. Gruber currently serves as an as an external at ICLgroup ltd., Tufin software technologies Ltd and a board member of Cellebrite Ltd. Ms. Gruber is a certified public accountant andholds a Bachelor’s degree in Accounting and Economics from Tel Aviv University, Israel. Ms. Sarit Sagiv was appointed to serve as a director of the Company by our board of directors in August 2021. Ms. Sagivserves as a member of the Investments Committee of Phoenix Insurance and as a member of the board of directors of OPC EnergyLtd., a public company traded on TASE. Ms. Sagiv had served as General Manager of the Global Business division at Amdocs(Nasdaq: DOX) in the years 2016-2020. Prior to this role, Ms. Sagiv served as the Chief Financial Officer of Nice Ltd. (NASDAQand TASE: NICE), with responsibility for the finance, legal, operations and IT areas, as well as the Chief Financial Officer of RetalixLtd. (Nasdaq and TASE: RTLX), playing a key role in the transaction with NCR. Ms. Sagiv also held various other Chief FinancialOfficer and senior financial positions. Ms. Sagiv is a certified public accountant. She holds a B.A. in Accounting and Economics andan MBA, both from Tel Aviv University, and an MA in Law from Bar Ilan University. Mr. Eitan Oppenhaim has been serving as the President and Chief Executive Officer of the Company since July 31, 2013, andwas appointed by our board of directors to also serve as a director of the Company in October 2019. He has previously served as theExecutive Vice President Global Business Group, since November 2010. From 2009 until 2010, Mr. Oppenhaim served as VicePresident and Europe General Manager of Alvarion Ltd., a public company traded on Nasdaq. During the years 2007 through 2009,Mr. Oppenhaim served as Vice President of sales and marketing of OptimalTest Ltd.. Prior to that, from 2002 till 2006, Mr.Oppenhaim served as Vice President – Business Manager of the Flat Panel Displays division of Orbotech Ltd., a public companytraded on Nasdaq. From 2001 till 2002, Mr. Oppenhaim served as Managing Director of Asia Pacific at TTI Telecom International, aleading provider of assurance, analytics and optimization solutions to communications service providers (CSP) worldwide. Prior tothat, from 1994 till 2001, Mr. Oppenhaim held several key executive positions at Comverse Network Systems Ltd., a public companytraded on Nasdaq. Mr. Oppenhaim holds a BA in Economics from the Haifa University, Israel and an MBA from Ben-GurionUniversity, Beer-Sheva, Israel. 65Mr. Dror David has served as the Chief Financial Officer since November 2005. Mr. David joined Nova in April 1998, as theCompany’s Controller, and since then served in various financial and operational positions, including the position of Vice Presidentof Resources, in which he was responsible for the finance, operations, information systems and human resources functions of theCompany. Mr. David was also a leading member in the Company’s initial public offering on Nasdaq in 2000, the Company’s privateplacement in 2007 and the Company's secondary offering in 2010. Prior to joining Nova, Mr. David spent five years in publicaccounting with Deloitte Touch in Tel Aviv, specializing in industrial high-tech companies. Mr. David is a Certified PublicAccountant in Israel, holds a B.A. in Accounting and Economics from Bar Ilan University, and an M.B.A. from Derby University ofBritain. Dr. Shay Wolfling joined Nova in 2011, as Chief Technology Officer. Prior to joining Nova, Dr. Wolfling was an R&Dmanager at KLA-Tencor-Belgium (formerly ICOS Vision Systems, a public traded company acquired by KLA in 2008), where he ledmultidisciplinary metrology & inspection development projects. From 2000 until its technology acquisition by ICOS in 2005, Dr.Wolfling was a founder and Vice President of Research and Development of Nano-Or-Technologies, a start-up company with aproprietary technology for 3D optical measurements. Dr. Wolfling took Nano-Or from the idea stage to initial product sales. Prior tofounding Nano-Or, Dr. Wolfling was a project manager in Y-Beam-Technologies, a start-up offering laser-based skin treatments. Dr.Wolfling has several patents under his name in the field of optical measurements. Dr. Wolfling holds a B.Sc. in physics andmathematics from the Hebrew University of Jerusalem, Israel, a second degree in physics from Tel-Aviv University, Israel and aPh.D. in physics from the Hebrew University of Jerusalem, Israel. Mr. Adrian S. Wilson Joined Nova in January 2018 as General Manager Material Metrology Division and President of our USsubsidiary, Nova Measuring Instruments, Inc. Mr. Wilson has over 25 years of Semiconductor capital equipment and materialsexperience. Mr. Wilson joins us from Nanometrics Inc, where he held the position of Vice President & General Manager ofAdvanced Imaging and Analytics Business Unit. Prior to Nanometrics Inc, he held the position of Managing Director of Element SixTechnologies Ltd., the non-abrasive arm of the synthetic diamond group of DeBeers, focused on thermal management and opticalcomponents for the semiconductor industry. Mr. Wilson has experience in leading both start-ups and divisions within large publicmulti-national companies, including KLA, FormFactor Inc. and Phoenix X-ray Systems & Services Inc., a capital equipment start-up. Mr. Wilson holds a bachelor’s degree in Electronics Engineering, post Grad in Marketing Management and a MBA inTechnology Management. Mr. Wilson’s accreditations include Fellow of the Chartered Institute of Marketing (UK) and Fellow of theInstitute of Directors (UK). Mr. Effi Aboody has served as our Corporate VP and General Manager Dimensional Metrology Division since September2019. Mr. Aboody joined Nova in 2016 as Vice President and Head of the Global Applications team. Mr. Aboody started his career atIntel Corporation Ltd in 1996 as an Integration engineer, working in Portland and California R&D centers, in both logic andmemory devices, followed by several managerial positions including Process Integration , Sort testing manager and Yield manager.In 2008 Mr. Aboody served as Yield and Integration Departments at Numonyx Ltd focusing on NOR flash memory process andreliability. In 2011 Mr. Aboody managed the Engineering and Yield Departments at Micron Technology Ltd Fab12. In 2013 Mr.Aboody returned to Intel Corporation to manage the Fab28 Yield Organization, responsible for CPU and SoC outgoing yieldperformance, defects and Labs. Effi holds an Executive MBA from Tel Aviv University and a B.Sc. in Materials Engineering fromBen-Gurion University. 66Voting Agreement We are not aware of any voting agreement currently in effect. 6.B Compensation The aggregate compensation expensed, including share-based compensation and other compensation expensed by us, to oursenior management members listed in item 6.A in this Annual Report, with respect to the year ended December 31, 2021 (consistingof 5 persons) was approximately $10 million. This amount includes approximately 0.5 million set aside or accrued to providepension, severance, retirement, or similar benefits and amounts expensed by the Company for automobiles made available to itsexecutive officers). Disclosure regarding the compensation of our senior executives on an individual basis will be disclosed in our proxystatement in connection with the 2021 annual general meeting of shareholders in accordance with Israeli regulations. Terms of employment of Mr. Eitan Oppenhaim, our President and Chief Executive Officer and a member of the board ofdirectors, as approved by our shareholders, are as follows: General (i) a monthly base salary of NIS 161,000; (ii) an annual bonus of up to fourteen (14) monthly base salaries (with additionalpayment of up to 100% of the target bonus in the case of over achievement), subject to objectives which are annually predeterminedby the board of directors and its committees, in accordance with our compensation policy; (iii) in connection with termination ofemployment (other than for cause), a three month advance notice and a six month adjustment period, during which Mr. Oppenhaimwill be entitled to all of his compensation elements, and to the continuation of vesting of his options. In the event of employmenttermination during a fiscal year (unless for cause), the bonus shall be prorated (subject to certain adjustments); (iv) customary socialbenefits such as pension fund or management insurance, education fund, vacation pay, sick leave and convalescence pay; (v) subjectto required approvals under applicable law, a directors and officers insurance, including a “run-off” insurance policy; (vi) non-disclosure, non-compete and ownership of intellectual property undertakings; and (vii) monthly travel expenses or a Company car,cellular phone, a land line phone, toll road expenses, a laptop computer and other expense reimbursements pursuant to the Companygeneral policies. 67Equity-Based Compensation Since January 1, 2019 until December 31, 2021, per the approval of the respective annual general meeting of shareholders, Mr.Oppenhaim was granted a total of 70,000 options to purchase ordinary shares of the Company with an exercise price of $25.89, and61,225 restricted share units. The options vest in equal annual installments over a terms of four years commencing one yearfollowing the grant date and the restricted share units vest in equal annual installments over a terms of three years commencing oneyear from the grant date; All options and restricted share units expire seven (7) years after each grant date; can be cancelled inaccordance with the terms and conditions of the applicable incentive plan of the Company or the employment terms of Mr.Oppenhaim; and, were made in accordance with and subject to Section 102 of the Income Tax Ordinance of 1961 (New Version) (the“Ordinance”). In addition, Mr. Oppenhaim was granted in July 2019, July 2020 and July 2021, a total of 91,225 performance basedrestricted units that vest over a period of three (3) years, provided that the Company meets or exceeds the performance targets forvesting set by the compensation committee and board of directors of the Company, unless such restricted share units have beencancelled in accordance with the terms and conditions of the share incentive plan of the Company or the employment terms of Mr.Oppenhaim. In the event a portion of these restricted share units fails to vest, such portion will be carried forward to the third vestingdate and will vest if the Company’s average annual return on equity based on net income during the previous three (3) years shall beno less than ten percent (10%). Compensation upon Significant Event Upon the occurrence of a Significant Event, unvested options granted to Mr. Oppenhaim will vest upon the consummation ofthe Significant Event, and unexercised options may be exercised until the earlier of two years from the consummation of theSignificant Event, and termination of the options. Such arrangements will not apply if Mr. Oppenhaim remains the chief executiveofficer of our company or the surviving entity, and unvested options are replaced for new options of the surviving entity as part ofthe Significant Event with a vesting schedule and terms identical to the replaced options. Further, upon a Significant Event, Mr.Oppenhaim will be entitled to a special bonus of up to 12 monthly salaries, subject to the approval of the compensation committeeand our board of directors and subject to the limitation on a special bonus imposed by our compensation policy. In the event oftermination of employment (up to 12 months from the Significant Event), Mr. Oppenhaim will be entitled to the retirement termsunder his employment agreement, the special bonus described above and the payment of the annual bonus in full for the year inwhich the Significant Event has occurred, subject to the annual bonus plan, on an annual basis calculation, and subject to theapproval of the compensation committee and our board of directors prior to the consummation of the transaction, or the respectivebody in the new surviving entity following the transaction, as applicable. A “Significant Event” is defined for this purpose as: (1)the sale of all or substantially all of our company’s assets; (2) a merger of our company with or into another company or entity afterwhich our shareholders will hold 50% or less of the surviving entity; (3) our company becoming a division or a subsidiary of anothercompany; or (4) the purchase of our company's shares, after which the purchaser will hold 50% or more of our company's shares,provided, however, that the purchaser is not one of our institutional investors upon execution of the purchase agreement. Compensation upon Acquisition Upon Acquisition of a company (which is not an affiliate of the company), Mr. Oppenhaim will be entitled to receive a bonusof up to 12 monthly salaries subject to the approval of the compensation committee and our board of directors and subject to thelimitation on a special bonus imposed by our compensation policy. An “Acquisition” includes, among others, a merger of ourcompany or a subsidiary of our company with or into another entity, such that upon consummation of such transaction ourshareholders will hold more than 50% of the surviving entity. In accordance with this entitlement, on February 2022 ourcompensation committee and board have approved a bonus of 12 monthly salaries for the acquisition of ancosys, to be paid to Mr.Oppenhaim in April 2022. 68Directors and Officers Equity Based Compensation As of February 14, 2021, a total of 317,266 options to purchase our ordinary shares and 207,921 RSU’s were outstanding andheld by certain directors and senior management members listed in item 6.A in this Annual Report (consisting of 11 persons), ofwhich 208,817 options are currently exercisable or exercisable within 60 days of February 14, 2021, 68,038 shares are held bytrustee due to vested RSUs and 2,595 RSU’s will vest within 60 days of February 14, 2021. See “Item 6E. Share Ownership” in thisAnnual Report. In accordance with our current equity-based compensation policy, the exercise price of granted options is equal to the closingsale price of the Company's ordinary shares on Nasdaq on the day of grant. Compensation of Directors The total amount paid or payable to the directors (consisting of seven persons, not including Mr. Oppenhaim), for 2021 wasapproximately $0.35 million. The compensation arrangement of our directors (excluding the chairman of the board of directors and, unless approvedotherwise, any other director who is also an employee of the Company) includes an annual payment of NIS 92,000 (approximatelyUS$28,500) and a payment per meeting of NIS3,000 (approximately US$930) (for each execution of a written consent in lieu of ameeting, an amount of NIS 1,500 and for each meeting that the director attends by teleconference, an amount of NIS 1,800). The compensation arrangement of Dr. Michael Brunstein, the chairman of our board of directors includes a gross annual feeof US$110,000 payable monthly in NIS. In the 2019 annual general meeting, our shareholders approved an amendment to the equity-based compensation paid to ourdirectors, such that each member of our board of directors (excluding the chairman) will be granted an annual award of options topurchase 3,340 ordinary shares and 2,220 restricted share units, or, options and restricted share units with an aggregate fair marketvalue of US$100,000 (with the same ratio of options and restricted share units), the lower of the two. Such grant will be made toeach director on the date of each annual general meeting at which such director is elected or reelected. Our chairman will be grantedan annual award of options to purchase 15,850 ordinary shares and 10,550 restricted share units, or, options and restricted share unitswith an aggregate fair market value of US$600,000 (with the same ratio of options and restricted share units), the lower of the two.Such grant will be made on the date of each annual general meeting at which our chairman is elected or reelected. The exercise priceof each option will be determined pursuant to our equity-based compensation policy and the equity awards will vest annually over aperiod of four years. On June 17, 2019, our shareholders approved our current compensation policy, and on June 25, 2020, our shareholdersapproved an amendment to the compensation policy related to directors and officers liability insurance policy premium. The full text of our current compensation policy was included as Appendix A to the proxy statement attached to our report onForm 6-K, furnished to the Securities and Exchange Commission on May 7, 2019. 696.C Board Practices Our Amended and Restated Articles of Association, as adopted by the Company’s shareholders and recently amended on June24, 2021, or the Articles, provide that we may have between five and nine directors. Our board of directors currently consists ofseven directors, three of which are women. Under the Companies Law, companies incorporated under the laws of the State of Israel that are “public companies,”including companies with shares listed on the Nasdaq Global Select Market, are required to appoint at least two external directors. Pursuant to regulations promulgated under the Companies Law, companies with shares traded on a U.S. stock exchange,including the Nasdaq Global Select Market, may, subject to certain conditions, “opt out” from the Companies Law requirements toappoint external directors and related Companies Law rules concerning the composition of the audit committee and compensationcommittee of the board of directors. In accordance with these regulations, in May 2018, we elected to “opt out” from the CompaniesLaw requirements to appoint external directors and related Companies Law rules concerning the composition of the audit committeeand compensation committee of the board of directors. Under these regulations, the exemptions from such Companies Law requirements will continue to be available to us so longas: (i) we do not have a “controlling shareholder” (as such term is defined under the Companies Law), (ii) our shares are traded on aU.S. stock exchange, including the Nasdaq Global Select Market, and (iii) we comply with the director independence requirements,the audit committee and the compensation committee composition requirements, under U.S. laws (including applicable NasdaqRules) applicable to U.S. domestic issuers. Our board of directors has determined that all of our directors qualify as ‘‘independent directors’’ as defined by The NasdaqStock Market Rules. Our Articles provide that directors may be elected at our annual general meeting of shareholders by a vote of the holders ofmore than 50% of the total number of votes represented at such meeting, not taking into consideration abstention votes. In addition,our board of directors is authorized to appoint directors, at its discretion, provided that the total number of directors does not exceedthe maximum number of directors permitted by the Articles. Our directors (other than the directors who were in the position ofexternal directors until May 2018) serve as such until the next annual general meeting of our shareholders. Effective as of May 2018,and our adoption of the exemption under the Israeli Companies Regulations (Reliefs for Public Companies whose Shares are Listedon a Stock Exchange Outside of Israel), 2000, or the Regulation, our directors in office who were elected and classified as externaldirectors, Ms. Dafna Gruber and Ms. Zehava Simon, are no longer classified as such under the Companies Law. According to the Companies Law, the board of directors of a public company must establish the minimum number of boardmembers that are to have accounting and financial expertise while considering, inter alia, the nature of the company, its size, thescope and complexity of its operations and the number of directors stated in the Articles.70 Our board of directors resolved that the minimum number of board members that need to have accounting and financialexpertise is one (1). Our board of directors determined that each of Ms. Dafna Gruber and Ms. Sarit Sagiv has accounting and financial expertiseas described in the regulations promulgated pursuant to the Companies Law, and that, therefore, the requirements of the minimumnumber of board members that need to have accounting and financial expertise, as set by the board of directors, has been met. Our board of directors has adopted a training program for newly appointed directors. Once appointed and following thecompletion of their onboard training, our directors continue to receive ongoing training as part of our directors training anddevelopment efforts. Family Relationships There are no family relationships between any members of our executive management and our directors. Board of Directors’ Committees The Company’s board of directors has appointed the following committees: Audit Committee Our Audit Committee is comprised of Dafna Gruber (Chairperson), Zehava Simon, Avi Cohen and Sarit Sagiv. The auditcommittee is responsible to provide oversight of the accounting and financial reporting process of the Company and the audits of thefinancial statements of the Company, and assist the Board in its oversight of (i) the integrity of the Company's financial statementsand other published financial information, (ii) the Company's compliance with applicable financial and accounting related standards,rules and regulations, (iii) the selection, engagement and termination, subject to shareholder approval, of the Company's independentauditor, (iv) the pre-approval of all audit, audit-related and all permitted non-audit services, if any, by the Company's independentauditor, and the compensation therefor, (v) the Company's internal controls over financial reporting and (vi) risk assessment and riskmanagement, including cyber risks. Under the Companies Law, the audit committee is responsible, among others, for (i) identifying deficiencies in the businessmanagement practices of the Company, including by consulting with the internal auditor, and recommending remedial actions withrespect to such deficiencies; (ii) reviewing and approving related party transactions, including, among others, determining whether ornot such transactions are deemed material actions or extraordinary transactions; (iii) ensuring that a competitive process is conductedfor related party transactions with a controlling shareholder (regardless of whether or not such transactions are deemed extraordinarytransactions), optionally based on criteria which may be determined by the audit committee annually in advance; (iv) setting forth theapproval process for transactions that are 'non-negligible' (i.e., transactions with a controlling shareholder that are classified by theaudit committee as non-negligible, even though they are not deemed extraordinary transactions), as well as determining which typesof transactions would require the approval of the audit committee, optionally based on criteria which may be determined annually inadvance by the audit committee; (v) evaluating the Company’s internal audit program and the performance of the Company’s internalauditor and the resources at his/her disposal; (vi) reviewing the scope of work of the Company’s external auditor and makingrecommendations regarding his/her salary; and (vii) creating procedures relating to the employees’ complaints regarding deficienciesin the administration of the Company as well as adopting against retaliation. The audit committee is also responsible for reviewingand approving any material change or waiver in the Company's Corporate Code of Conduct regarding directors or executive officers,and disclosures made in the Company's annual report in such regard. The audit committee operates under a charter dully adopted bythe board of directors. 71Our board of directors has determined that each member of our audit committee is independent as such term is defined inRule 10A‑3 under the Exchange Act, and that each member of our audit committee satisfies the additional requirements applicableunder the Nasdaq rules to members of an audit committee. Compensation Committee Our Compensation Committee is comprised of Zehava Simon (Chairperson), Avi Cohen Raanan Cohen and Sarit Sagiv. Thefunction of the compensation committee is described in the approved charter of the committee, and includes assisting the board ofdirectors in discharging its responsibilities relating to compensation of the Company’s officers, directors and executives and theoverall compensation programs and reviewing and approving, or if required by law, approving and recommending for approval bythe board of directors, grants and awards under the Company’s equity incentive plans. The primary objective of the committee is tooversee the development and implementation of the compensation policies and plans that are appropriate for the Company in light ofall relevant circumstances, and which provide incentives that fit the Company’s long-term strategic plans and are consistent with theculture of the Company and the overall goal of enhancing shareholder’s value. Our board of directors has determined that each member of our compensation committee is independent under the Nasdaqrules, including the additional independence requirements applicable to the members of a compensation committee. Under the Companies Law and our compensation committee charter, our compensation committee is responsible, amongothers, for (i) recommending to the board of directors regarding its approval of a compensation policy in accordance with therequirements of the Companies Law, and any other compensation policies, incentive-based compensation plans and equity-basedplans; (ii) overseeing the development and implementation of such compensation plans and policies that are appropriate in light of allrelevant circumstances and recommending to the board of directors regarding any amendments or modifications that thecompensation committee deems appropriate; (iii) determining whether to approve transactions concerning the terms of engagementand employment of our officers and directors that require compensation committee approval under the Companies Law or ourcompensation plans and policies; and (iv) taking any further actions as the compensation committee is required or allowed to underthe Companies Law or the compensation plans and policies. Nominating Committee Our Nominating Committee is comprised of Raanan Cohen (Chairperson), Michael Brunstein, and Dafna Gruber. Thefunction of the nominating committee is described in the approved charter of the committee, and includes responsibility foridentifying individuals qualified to become board members and recommending that the board of directors consider the directornominees for election at the general meeting of shareholders. The nominating and corporate governance committee is alsoresponsible for developing and recommending to the board of directors a set of corporate governance guidelines applicable to theCompany, periodically reviewing such guidelines and recommending any changes thereto. 72Our audit committee also acts as our investment committee. All committees are acting according to written charters that were approved by our board of directors. Additionally, weadopted an internal enforcement plan which was approved by our board of directors. The internal enforcement plan, as part of whichwe adopted and implementing procedures and policies in order to comply with the provisions of the Israeli Securities Law, 5728-1968 (the “Israeli Securities Law”), the Companies Law. The internal enforcement plan includes, among others, the boardcommittees’ charters and the internal auditor charter, procedures with respect to related party transactions, insider trading, whichprohibits hedging activities, equity-based compensation policy, reporting and complaints, anti-bribery and anti-fraud policies and acode of conduct. Each of our committees have the power to retain, terminate and approve the related fees and other retention terms,as it deems appropriate, outside counsel and other experts and consultants to assist the committee in connection with itsresponsibilities without our board of directors’ approval and at the Company's expense. Approval of Related Party Transaction The Companies Law requires that office holders of a company, including directors and executive officers, promptly discloseto the board of directors any personal interest they may have and all related material information known to them about any existingor proposed transaction with such company. The approval of the board of directors is required for 'non-extraordinary' transactionsbetween a company and its office holders, or between a company and other persons in which an office holder has a personal interest,unless such company's articles of association provide otherwise. Under the Companies Law, a 'non-extraordinary' transactionbetween a company or between the company and a third party in which an office holder of a company has a personal interest, willrequire the approval of the board of directors or a committee authorized by the board of directors, unless such company's articles ofassociation provide otherwise. Our Articles do not provide otherwise, and therefore such transaction requires the approval of ourboard of directors. If a transaction is an “extraordinary transaction”, it is subject to the approval of the audit committee prior to itsapproval by the board of directors. For information regarding the necessary approvals under the Companies Law for transactionswith office holders and directors regarding their terms of engagement with the company, see “— Compensation of Officers andDirectors” in this Item below. In addition, an extraordinary transaction between a public company and a controlling shareholder (i.e. a shareholder who hasthe ability to direct the activities of a company, including a shareholder that owns 25% or more of the voting rights if no othershareholder owns more than 50% of the voting rights, but excluding a shareholder whose power derives solely from its position onthe board of directors or any other position with the company), or in which a controlling shareholder has a personal interest,including a private placement in which the controlling shareholder has a personal interest, a transaction between a public companyand a controlling shareholder, the controlling shareholders' relative, or entities under its control, directly or indirectly, with respect toservices to be provided to the public company, and a transaction concerning the terms of compensation of the controlling shareholderor the controlling shareholder’s relative, who is an office holder or an employee, requires the approval of the audit committee or, insome cases, the compensation committee (see "— Compensation of Officers and Directors" in this Item below), the board ofdirectors and a majority of the shares voted by the shareholders of the company participating and voting on the matter in ashareholders’ meeting. In addition, the shareholder approval must fulfill one of the following requirements: (i) the majority mustinclude at least a majority of the shares of the voting shareholders who have no personal interest in the transaction (in counting thetotal votes of such shareholders, abstentions are not taken into account); or (ii) the total of opposition votes among the shareholderswho have no personal interest in the transaction may not exceed 2% of the aggregate voting rights in the company. Any suchtransaction the term of which is more than three years, must be approved in the same manner every three years, unless with respect tocertain transactions as permitted by the Companies Law, the audit committee has determined that longer term is reasonable under thecircumstances. 73According to the Companies Law, if an extraordinary transaction is discussed by the board of directors or the auditcommittee, directors and office holders that have personal interest in the proposed transaction, may not participate in the discussionor vote. However, if the majority of the members of the audit committee or the board of directors (as applicable) have personalinterest in the proposed transaction, then all directors (including those with personal interest) may participate in the discussion andvote, provided that in the event the majority of the members of the board of directors have personal interest in the transaction, saidtransaction will also be subject to the approval of the Company's shareholders. Compensation of Officers and Directors Under the Companies Law, Israeli public companies are required to establish a compensation committee and adopt a policyregarding the compensation and terms of employment of their directors and officers. For information on the composition, roles andobjectives of the compensation committee pursuant to the Companies Law and our compensation committee charter, see above “—Board of Directors’ Committees — Compensation Committee" in this Annual Report. Pursuant to the Companies Law, the compensation policy must be approved by the company's board of directors afterreviewing the recommendations of the compensation committee. The compensation policy also requires the approval of the generalmeeting of the shareholders, which approval must satisfy one of the following (the "Majority Requirement"): (i) the majority shouldinclude at least a majority of the shares of the voting shareholders who are non-controlling shareholders or do not have a personalinterest in the approval of the compensation policy (in counting the total votes of such shareholders, abstentions are not be taken intoaccount) or (ii) the total number of votes against the proposal among the shareholders mentioned in paragraph (i) does not exceedtwo percent of the aggregate voting power in the company. Under certain circumstances and subject to certain exceptions, the boardof directors may approve the compensation policy despite the objection of the shareholders, provided that the compensationcommittee and the board of directors determines that it is for the benefit of the company, following an additional discussion andbased on detailed arguments. The Companies Law provides that the compensation policy must be re-approved (and re-considered) every three years, in themanner described above. Moreover, the board of directors is responsible for reviewing from time to time the compensation policyand deciding whether or not there are any circumstances that require an adjustment to the company's compensation policy. Whenapproving the compensation policy, the relevant organs must take into consideration the goals and objectives listed in the CompaniesLaw, and include reference to specific issues listed in the Companies Law. Such issues include, among others (the “CompensationPolicy Mandatory Criteria”): (i) the relevant person’s education, qualifications, professional experience and achievements; (ii) suchperson's position within the company, the scope of his responsibilities and previous compensation arrangements with the company;(iii) the proportionality of the employer cost of such person in relation to the employer cost of other employees of the company, andin particular, the average and median pay of other employees in the company, including contract workers, and the impact of thedifferences between such person's compensation and the other employees' compensation on the labor relations in the company; (iv)the authority, at the board of director's sole discretion, to lower any variable compensation components or set a maximum limit (cap)on the actual value of the non-cash variable components, when paid; and (v) in the event that the terms of engagement include anytermination payments - the term of employment of the departing person, the company’s performance during that term, and thedeparting person’s contribution to the performance of the company. 74In addition, the Companies Law provides that the following matters must be included in the compensation policy (the"Compensation Policy Mandatory Provisions"): (i) the award of variable components must be based on long term and measurableperformance criteria (other than non-material variable components, which may be based on non-measurable criteria taking intoaccount the relevant person's contribution to the performance of the company); (ii) the company must set a ratio between fixed andvariable pay, set a cap on the payment of any cash variable compensation components as of the payment of such components, and seta cap on the maximum cash value all non-cash variable components as of their grant date; (iii) the compensation policy must includea provision requiring the relevant person to return to the company any compensation that was awarded on the basis of financialfigures that were subsequently restated; (iv) equity based variable compensation components should have an appropriate minimumvesting periods, which should be linked to long term performance objectives; and (v) the company must set a clear limit ontermination payments. Pursuant to the Companies Law, any transaction with an office holder (except directors and the chief executive officer of thecompany) with respect to such office holder's compensation arrangements and terms of engagement, requires the approval of thecompensation committee and the board of directors. Such transaction must be consistent with the provisions of the company'scompensation policy, provided that the compensation committee and the board of directors may, under special circumstances,approve such transaction that is not in accordance with the company's compensation policy, if both of the following conditions aremet: (i) the compensation committee and the board of directors discussed the transaction in light of the roles and objectives of thecompensation committee (also see above "—Board of Directors' Committees — Compensation Committee" in this Annual Report)and after taking into consideration the Compensation Policy Mandatory Criteria and including in such transaction the CompensationPolicy Mandatory Provisions; and (ii) the company's shareholders approved the transaction, provided that in public companies theapproval must satisfy the Majority Requirement. Notwithstanding the above, the compensation committee and the board of directorsmay, under special circumstances, approve such transaction even if the shareholders' meeting objected to its approval, provided that(i) both the compensation committee and the board of directors re-discussed the transactions and decided to approve it despite theshareholder's objection, based on detailed arguments, and (ii) the company is not a 'Public Pyramid Held Company'. For the purposehereof, a "Public Pyramid Held Company" is a public company that is controlled by another public company (including companiesthat issued only debentures to the public), which is also controlled by another public company (including companies that issued onlydebentures to the public) that has a controlling shareholder. 75Transactions between public companies (including companies that have issued only debentures to the public) and their chiefexecutive officer, with respect to his or her compensation arrangement and terms of engagement, require the approval of thecompensation committee, the board of directors and the shareholder's meeting, provided that the approval of the shareholders'meeting must satisfy the Majority Requirement. Notwithstanding the above, the compensation committee and the board of directorsmay, under special circumstances, approve such transaction with the chief executive officer even if the shareholders' meetingobjected to its approval, provided that (i) both the compensation committee and the board of directors re-discussed the transactionsand decided to approve it despite the shareholder's objection, based on detailed arguments, and (ii) the company is not a PublicPyramid Held Company. Such transaction with the chief executive officer must be consistent with the provisions of the company'scompensation policy, provided that the compensation committee and the board of directors may, under special circumstances,approve such transaction that is not in accordance with the company's compensation policy, if both of the following conditions aremet: (i) the compensation committee and the board of directors discussed the transaction in light of the roles and objectives of thecompensation committee (see above —“Board of Directors' Committees – Compensation Committee" in this Annual Report) andafter taking into consideration the Compensation Policy Mandatory Criteria and including in such transaction the CompensationPolicy Mandatory Provisions; and (ii) the company's shareholders approved the transaction, provided that in public companies theapproval must satisfy the Majority Requirement. In addition, the compensation committee may determine that such transaction withthe CEO does not have to be approved by the shareholders of the company, provided that: (i) the chief executive officer isindependent based on criteria set forth in the Companies Law; (ii) the compensation committee determined, based on detailedarguments, that bringing the transaction to the approval of the shareholders may compromise the chances of entering into thetransaction; and (iii) the terms of the transaction are consistent with the provisions of the company's compensation policy. Under theCompanies Law, non-material amendments of transactions relating to the compensation arrangement or terms of engagement ofoffice holders (including the chief executive officer), require only the approval of the compensation committee. With respect to transactions relating to the compensation arrangement and terms of engagements of directors in publiccompanies (including companies that have issued only debentures to the public), the Companies Law provides that such transactionis subject to the approval of the compensation committee, the board of directors and the shareholders' meeting. Such transaction mustbe consistent with the provisions of the company's compensation policy, provided that the compensation committee and the board ofdirectors may, under special circumstances, approve such transaction that is not in accordance with the company's compensationpolicy, if both of the following conditions are met: (i) the compensation committee and the board of directors discussed thetransaction in light of the roles and objectives of the compensation committee (see above "—Board Practices –Board of Directors'Committees – Compensation Committee" in this Annual Report) and after taking into consideration the Compensation PolicyMandatory Criteria and including in such transaction the Compensation Policy Mandatory Provisions; and (ii) the company'sshareholders approved the transaction, provided that in public companies the approval must satisfy the Majority Requirement. 76Pursuant to the Companies Law, a compensation policy must be re-approved (and re-considered) at least once in every threeyears. The current compensation policy was approved by our shareholders in June 2019, and on June 25, 2020, our shareholdersapproved an amendment to the compensation policy with respect to the premium payable in connection with our directors andofficers liability insurance policy. Internal Auditor Under the Companies Law, the board of directors must also appoint an internal auditor nominated by the audit committee.Our internal auditor is Ms. Dana Gottesman-Erlich, CPA (Isr.) of BDO Ziv Haft, an independent registered accounting firm which isa part of the BDO international accounting firm. The role of the internal auditor is to examine whether a company’s actions complywith the law and proper business procedure. The internal auditor may not be an interested party or office holder, or a relative of anyinterested party or office holder, and may not be a member of the company’s independent accounting firm or its representative. TheCompanies Law defines an interested party as a holder of 5% or more of the shares or voting rights of a company, any person orentity that has the right to nominate or appoint at least one director or the general manager of the company or any person who servesas a director or as the general manager of a company. Our internal auditor is working based on a risk survey and audit plan, which isdetermined by our audit committee and approved by our board of directors. 6.D Employees Set forth below is a chart showing the number of people we employed at the times indicated: As of December 31, 2019(*) 2020(*) 2021(*) Total Personnel 646 713 819 Located in Israel 349 385 428 Located abroad 297 328 391 In operations 108 129 176 In research and development 251 300 328 In global business 247 263 240 In general and administration 40 49 75 (*) The numbers of employees set forth in this table do not include contractors and an insignificant number of temporaryemployees retained by the Company from time to time. The numbers do not include employees of ancosys, acquired in January2022.In the high-tech industry in general and specifically in the semiconductors industry, there is intense competition for high-skilled employees. Nova believes that the company’s future success will depend, by a large part, on our continued ability to attract,hire and retain qualified and highly motivated employees in every role and seniority level. We were a member of the Industrialists Association in Israel, an employer’s union until December 31, 2006. Under applicableIsraeli law, we and our employees are subject to protective labor provisions such as restrictions on working hours, minimum wages,paid vacation, sick pay, severance pay and advance notice of termination of employment as well as equal opportunity and anti-discrimination laws. Orders issued by the Israeli Ministry of Economy and Industry make certain industry-wide collective bargainingagreements applicable to us. These agreements affect matters such as cost of living adjustments to salaries, length of working hoursand week, recuperation and travel expenses. In Israel, we are subject to the instructions of the Extension Order in the Industrial Fieldfor Extensive Pension Insurance 2006 according to the Israeli Collective Bargaining Agreements Law, 1957 (the “Extension Order”).The Extension Order determines the pension terms of the employees which fall under its criteria. 776.E Share Ownership Based on information provided to us, our 11 directors and senior management members listed in Item 6.A in this AnnualReport, have had, as a group, sole voting and investment power for 279,450 shares beneficially owned by them as of February 14,2022 (representing approximately 1% of the 28,586,276 issued and outstanding ordinary shares of our company as of such date).Such number includes 208,817 shares subject to options that are immediately exercisable or exercisable within 60 days of February14, 2022 (with expiration dates ranging between 2022 and 2028; exercise prices ($/share) ranging between $11.68 and $102.35),68,038 shares held by the trustee due to vested RSUs, and 2,595 RSUs to be vested within 60 days as of February 14, 2022. Each ofsuch directors and senior management members beneficially owned less than 1% of our company’s shares as of such date. Beneficial ownership of shares is determined in accordance with the rules of the SEC and generally includes any shares overwhich a person exercises sole or shared voting or investment power. Ordinary shares that are subject to warrants or options that arepresently exercisable or exercisable within 60 days of the date of February 14, 2022 are deemed to be outstanding and beneficiallyowned by the person holding the options for the purpose of computing the percentage ownership of that person, but are not treated asoutstanding for the purpose of computing the percentage of any other person. Employee Benefit Plans The share option plans under which we have outstanding equity grants, are described below: 2007 Incentive Plan (which was active until October 2017) - As of December 31, 2021, options to purchase 4,304,112ordinary shares at an exercise prices which range from $0.43 to $24.96, the fair market value of our shares on the dates of grant,were granted under this plan of which, as of December 31, 2021, 2,940,323 options were exercised, 156,639 options wereoutstanding and exercisable, 1,207,150 options had been cancelled and no options were outstanding and unvested. As of December31, 2021, a total of 834,142 RSU’s had been granted, of which 728,223 had vested, 105,919 had been cancelled and no RSU's wereoutstanding. Following adoption of 2017 share incentive plan, as detailed herein, we have ceased granting equity under the 2007incentive plan. 2017 Share Incentive Plan - The maximum number of ordinary shares to be issued under the plan, which was adopted by ourboard of directors on August 1, 2017, is 2,500,000, subject to future increases or decreases by the Company. As of December 31,2021, options to purchase 635,877 ordinary shares at an exercise prices which range from $22.56 to $102.35, the closing price ofthe Company's ordinary shares on Nasdaq on the day of grant, were granted under this plan of which, as of December 31, 2021,134,245 options were exercised, 171,223 options were outstanding and exercisable, 172,729 options had been cancelled and157,680 were outstanding and unvested. As of December 31, 2021, 849,823 RSU’s had been granted, of which 310,479 RSU’s hadvested, 76,292 had been cancelled and 463,014 RSU's were outstanding. On June 17, 2019, our shareholders (following an approval by our compensation committee and board of directors),approved the Company's compensation policy, which includes, among others, provisions relating to equity-based compensation forNova's executive officers.78 The compensation policy provides, among others, that: (i) such equity based compensation is intended to be in a form ofshare options and/or other equity based awards, such as RSUs, in accordance with the Company's equity incentive plan in place asmay be updated from time to time; (ii) all equity-based incentives granted to executive officers will be subject to vesting periods inorder to promote long-term retention of the awarded executive officers. Unless determined otherwise in a specific award agreementapproved by the compensation committee and the board of directors, grants to executive officers (other than directors) will vestgradually over a period of between three to five years; and (iii) all other terms of the equity awards will be in accordance withNova's incentive plans and other related practices and policies. The board of directors may, following approval by the compensationcommittee, extend the period of time for which an award is to remain exercisable and make provisions with respect to theacceleration of the vesting period of any executive officer's awards, including, without limitation, in connection with a corporatetransaction involving a change of control, subject to any additional approval as may be required by the Companies Law. Thecompensation policy also provides that the equity-based compensation will be granted from time to time and be individuallydetermined and awarded according to the performance, educational background, prior business experience, qualifications, role andthe personal responsibilities of the executive officer. The fair market value of the equity-based compensation for the executiveofficers will be determined according to acceptable valuation practices at the time of grant. Our compensation policy provides thatequity-based compensation awarded to employees, executive officers or directors shall not be, in the aggregate, in excess of 10% ofour share capital on a fully diluted basis at the date of the grant. Our equity-based compensation policy, which was initially adopted in February 2007 and was most recently amended inMay 2021, provides, among others, that the exercise price for each option will be equal to the closing sale price of the Company'sordinary shares on Nasdaq on the day of grant. For additional information regarding our employees’ incentive plans, see Note 9 of our consolidated financial statements,contained elsewhere in this report. Item 7. Major Shareholder and Related Party Transactions A. Major Shareholders The following table sets forth certain information regarding the beneficial ownership of our outstanding ordinary shares as ofthe dates indicated below for each shareholder who we know beneficially owns five percent or more of the outstanding ordinaryshares. Beneficial ownership of shares is determined under rules of the SEC and generally includes any shares over which a personexercises sole or shared voting or investment power. Applicable percentages are based on 28,586,276 ordinary shares outstanding asof February 14, 2022.79 Name Number ofOrdinarySharesBeneficiallyOwned Percentageof OrdinarySharesBeneficiallyOwned Wasatch Advisors Inc. (1) 2,651,946 9.28%Migdal Insurance & Financial Holdings Ltd. (2) 1,939,093 6.78%Harel Insurance Investments & Financial Services Ltd. (3) 1,890,099 6.61%Menora Mivtachim Holdings Ltd. (4) 1,730,937 6.06%FMR LLC (5) 1,514,015 5.30% (1)The information is based upon Amendment no. 2 Schedule 13G filed with the SEC by Wasatch Advisors Inc. on February 10,2022 regarding holdings as of December 31, 2021. (2)The information is based upon Schedule 13G filed with the SEC by Migdal Insurance & Financial Holdings Ltd. on February2, 2022 regarding holdings as of December 31, 2021. (3)The information is based upon Amendment no. 8 to Schedule 13G filed with the SEC by Harel Insurance Investments &Financial Services Ltd. on January 31, 2022 regarding holdings as of December 31, 2021. (4)The information is based upon Amendment no. 4 to Schedule 13G filed with the SEC by Menora Mivtachim Holdings Ltd.,Menora Mivtachim Pensions and Gemel Ltd., Menora Mivtahim Insurance Ltd., Menora Mivtachim VehistadrutHamehandesim Nihul Kupot Gemel Ltd. and Shomera Insurance Company Ltd. on February 10, 2022 regarding holdings asof December 31, 2021. (5)The information is based upon Schedule 13G filed with the SEC by FMR LLC, its subsidiaries and Abigail P. Johnson onFebruary 10, 2022 regarding holdings as of December 31, 2021. All the shareholders of the Company have the same voting rights. To our knowledge, the significant changes in the percentage of ownership held by our major shareholders during the pastthree years have been: (i) the decrease in the percentage of ownership by Clal Insurance Enterprises Holdings Ltd. below 5% in2019; (ii) the decrease in the percentage of ownership of Psagot Investment House Ltd. below 5% in 2019; (iii) the increase in thepercentage of ownership of Migdal Insurance & Financial Holdings above 5% in 2020; (iv) the decrease in the percentage ofownership by The Phoenix Holdings Ltd., Itshak Sharon (Tshuva), and Delek Group Ltd below 5% in 2020; and (v) the increase inthe percentage of ownership by Adage Capital Partners LP, Adage Capital Partners GP, L.L.C and Adage Capital Advisors L.L.Cabove 5% in 2019 and the decrease to below 5% in 2021; (vi) the increase in the percentage of ownership by Wasatch Advisors Inc.above 5% in 2020. (vii) the increase in the percentage of ownership by FMR LLC above 5% in 2021. As of February 14, 2022, our ordinary shares were held by 13 registered holders (not including CEDE & Co.). Based on theinformation provided to us by our transfer agent, as of February 14, 2022, 10 registered holders were U.S. domicile holders and heldapproximately 0.02% of our outstanding ordinary shares. Control of Registrant To the Company’s knowledge, it is not owned or controlled by a foreign government. Except for the shareholders identifiedabove owning more than five percent of the Company’s ordinary shares, the Company has no knowledge of any corporation or othernatural or legal person owning a controlling interest in the Company. 80B. Related Party Transactions In June 2021, we obtained directors’ and officers’ liability insurance for our officers and directors with coverage in anaggregate amount of $30 million (including $10 million Side A DIC). This directors’ and officers’ liability insurance was presentedand approved by our compensation committee in accordance with the framework under our compensation policy. Our compensation policy authorizes the Company, as long as the compensation policy is in effect, to extend and/or renew thedirectors’ and officers’ liability insurance or enter into a new insurance policy, provided however, that the insurance transactioncomplies with the following conditions: (i) the annual premium to be paid by us will not exceed 9% of the aggregate coverage of theinsurance policy; (ii) the limit of liability of the insurer will not exceed the greater of $50 million or 30% of our shareholders equitybased on our most recent financial statements at the time of approval by the compensation committee; and (iii) the insurance policy,as well as the limit of liability and the premium for each extension or renewal will be approved by the compensation committee (and,if required by law, by the board of directors) which will determine that the sums are reasonable considering our exposures, the scopeof coverage and the market conditions and that the insurance policy reflects the current market conditions, and it will not materiallyaffect our profitability, assets or liabilities. Further, upon circumstances to be approved by the compensation committee (and, if required by law, by the board ofdirectors), we will be entitled to enter into a "run off" insurance policy of up to seven years, with the same insurer or any otherinsurance, as follows: (i) the limit of liability of the insurer will not exceed the greater of $50 million or 30% of our shareholdersequity based on our most recent financial statements at the time of approval by the compensation committee; (ii) the annual premiumwill not exceed 300% of the last paid annual premium; and (iii) the insurance policy, as well as the limit of liability and the premiumfor each extension or renewal will be approved by the compensation committee (and, if required by law, by the board of directors)which shall determine that the sums are reasonable considering our exposures covered under such policy, the scope of cover and themarket conditions, and that the insurance policy reflects the current market conditions and that it will not materially affect ourprofitability, assets or liabilities. We may also extend the insurance policy in place to include cover for liability pursuant to a future public offering ofsecurities as follows: (i) the additional premium for such extension of liability coverage will not exceed 50% of the last paid annualpremium; and (ii) the insurance policy as well as the additional premium will be approved by the compensation committee (and ifrequired by law, by the board of directors) which will determine that the sums are reasonable considering the exposures pursuant tosuch public offering of securities, the scope of cover and the market conditions and that the insurance policy reflects the currentmarket conditions, and it does not materially affect our profitability, assets or liabilities. In addition, following the approval by our shareholders at the annual general meeting held on June 24, 2021, we undertook toindemnify our officers and directors up to the greater of (a) twenty-five percent (25%) of the Company’s total shareholders’ equityaccording to the Company’s most recent financial statements as of the time of the actual payment of indemnification; (b) US$200million; (c) ten percent (10%) of the Company "total market cap" (which shall mean the average closing price of the Company’sordinary shares over the 30 trading days prior to the actual payment of indemnification multiplied by the total number of issued andoutstanding shares of the Company as of the date of actual payment); and (d) in connection with or arising out of a public offering ofthe Company’s securities, the aggregate amount of proceeds from the sale by the Company and/or any shareholder of Company’ssecurities in such offering. Pursuant to our amended and restated compensation policy, we may indemnify our directors and officersto the fullest extent permitted by applicable law, for any liability and expense that may be imposed on the director or the officer, asprovided in the indemnity agreement between us and such individuals, all subject to applicable law and our articles of association.Our amended and restated compensation policy also provides that we may exempt our directors and officers in advance for all or anyof their liability for damage in consequence of a breach of the duty of care vis-a-vis our company, to the fullest extent permitted byapplicable law. For information relating to options granted to officers and directors, see “Item 6E. Share Ownership” in this Annual Report.For information regarding our compensation policy and compensation arrangements with our directors and executive officers(including our chairman and chief executive officer), please refer to “Item 6B. Compensation” in this Annual Report. 81 7.C Interest of Experts and Counsel Not applicable. Item 8. Financial Information 8.A Consolidated Statements and Other Financial Information See “Item 17. Financial Statements” in this Annual Report. Legal Proceedings From time to time, we or our subsidiaries may be a party to legal proceedings and claims in the ordinary course of business.While the outcome of these matters cannot be predicted with certainty, we do not believe they will have a material effect on ourconsolidated financial position, results of operations, or cash flows. We are currently not involved in any significant legal proceedings. Dividend Policies We anticipate that, for the foreseeable future, we will retain any earnings to support operations and to finance the growth anddevelopment of our business. Therefore, we do not expect to pay cash dividends for at least the next several years. The distribution of dividends may be limited by the Companies Law, which permits the distribution of dividends only out ofretained earnings or earnings derived over the two most recent fiscal years, whichever is higher, provided that there is no reasonableconcern that payment of a dividend will prevent a company from satisfying its existing and foreseeable obligations as they becomedue. Our Amended and Restated Articles of Association provide that dividends will be paid at the discretion of, and upon resolutionby, our board of directors. In addition, distribution of dividends may be subject to certain tax implication. For additional information regarding taximplication of dividends' distribution, see “Item 10E. Taxation – Israeli Taxation” in this Annual Report. 82Export Sales Substantially all of our products are sold to customers located outside Israel . 8.B Significant Changes Not applicable. Item 9. The Offer and Listing 9.A Offer and Listing Details Our ordinary shares began trading on Nasdaq on April 11, 2000 under the symbol “NVMI”. Our ordinary shares wereregistered for trading on the Tel Aviv Stock Exchange Ltd. in 2002 under the symbol “הבונ”. 9.B Plan of Distribution Not applicable. 9.C Markets Our ordinary shares are quoted on the Nasdaq Global Select Market under the symbol “NVMI” and on the Tel Aviv StockExchange Ltd. 9.D Selling Shareholders Not applicable. 9.E Dilution Not applicable. 9.F Expenses on the Issue Not applicable. Item 10. Additional Information 10.A Share Capital Not applicable. 10.B Memorandum and Articles of Association On July 25, 2021, and in pursuant to the approval of our shareholders in the annual general meeting held on June 25, 2020,we changed the legal name of our Company from Nova Measuring Instruments Ltd. to Nova Ltd. to Match the Company’s long-termstrategy.At the annual general meeting held on June 24, 2021, our shareholders approved the following changes in our amended andrestated articles of association: (i) an increase of the authorized share capital of the Company by an additional 20,000,000 (twentymillion) ordinary shares, such that the authorized share capital of the Company following such increase consists of 60,000,000 (sixtymillion) ordinary shares (ii) elimination of the par value of our ordinary shares; (iii) an amendment to Article 94 concerningjurisdiction.A copy of our amended and restated articles of association is attached as Exhibit 1.1 to this Annual Report. The informationcalled for by this Item is set forth in Exhibit 2.1 to this Annual Report and is incorporated by reference into this Annual Report.8310.C Material Contracts Acquisition of ancosys GmbH In January 2022, we consummated from existing funds the acquisition of 100% of the equity of ancosys GmbH, a privatelyheld company headquartered in Pliezhausen Germany, in an all-cash transaction valued at approximately $90 million, including aperformance based earnout of $10 million. The agreement dated November 16, 2021 by and among Nova Ltd., Nova MeasuringInstruments GmbH, ancosys GmbH and the Representative (named therein) is filed as exhibit to this Annual Report. Israeli Lease Agreement On May 3, 2018, we entered into a lease agreement, or the Lease Agreement, with Bayside Land Corporation Ltd., orBayside. Pursuant to the Lease Agreement, we are currently leasing from Bayside a total of approximate 10,000 square meters, or theInitial Space, in a new building at the Science Park in Rehovot. The lease period for the Initial Space extends until 2029, or the Initial Lease Period. We have the option to extend the leaseperiod by two periods of five years each, subject to customary conditions. The Lease agreement also includes a leasing of an additional space of approximately 3,000 square meters, or the AdditionalSpace, which has started in 2021, and will extend through the same lease periods as the Initial Space. These leases cannot be terminated by us during the Initial Lease Period. Under certain circumstances, Bayside may terminatethe Agreement in the event of change of control in the Company. The average monthly lease, parking and management costs for the Initial and Additional Space are expected to beapproximately NIS 700,000 per month in 2022. After the first 5 years of the Initial period the monthly lease and parking paymentsfor the Initial and Additional Space will be increased by 4%. During each of the additional lease option periods, the monthly leaseand parking payments for the Initial and Additional Space will be increased by 2.5%. The monthly lease, parking and managementcosts are linked to the Israeli consumer price index. For a description of our issuance of convertible notes, see Note 16 to our consolidated financial statements included withinthis annual report.10.D Exchange Controls Israeli law and regulations do not impose any material foreign exchange restrictions on non-Israeli holders of our ordinaryshares. Dividends, if any, paid to holders of our ordinary shares, and any amounts payable upon our dissolution, liquidation orwinding up, as well as the proceeds of any sale in Israel of our ordinary shares to an Israeli resident, may be paid in non-Israelicurrency or, if paid in Israeli currency, may be converted into freely repatriable dollars at the rate of exchange prevailing at the timeof conversion.84 10.E Taxation Israeli Taxation The following is a summary of the material Israeli tax laws applicable to us, and some Israeli Government programsbenefiting us. This section also contains a discussion of some Israeli tax consequences to persons owning our ordinary shares. Thissummary does not discuss all the aspects of Israeli tax law that may be relevant to a particular investor in light of his or her personalinvestment circumstances or to some types of investors subject to special treatment under Israeli law. Examples of this kind ofinvestor include traders in securities who are subject to special tax regimes not covered in this discussion. Some parts of thisdiscussion are based on a new tax legislation which has not been subject to judicial or administrative interpretation. The discussionshould not be construed as legal or professional tax advice and does not cover all possible tax considerations. SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE ISRAELI OR OTHER TAXCONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF OUR ORDINARY SHARES, INCLUDING, INPARTICULAR, THE EFFECT OF ANY FOREIGN, STATE OR LOCAL TAXES. General Corporate Tax Structure in Israel Israeli companies are generally subject to corporate tax on their taxable income at the rate of 23% for the 2018 tax year andthereafter. However, the effective tax rate payable by a company that derives income from an Approved Enterprise, a BeneficiaryEnterprise, a Preferred Enterprise, a Special Preferred Enterprise, a Preferred Technology Enterprise or Special Preferred TechnologyEnterprise (as discussed below) may be lower. Capital gains derived by an Israeli company are generally subject to the prevailingregular corporate tax rate. Income Tax Regulations (Rules on Bookkeeping by Foreign Invested Companies and Certain Partnerships andDetermination of their Taxable Income), 1986 As a “foreign invested company” (as defined in the Israeli Law for the Encouragement of Capital Investments-1959), theCompany's management has elected to apply Income Tax Regulations (Rules for Maintaining Accounting Records of ForeignInvested Companies and Certain Partnerships and Determining Their Taxable Income) - 1986. Accordingly, its taxable income orloss is calculated in US Dollars. Tax Benefits under the Law for the Encouragement of Capital Investments, 1959 Tax benefits prior to the 2005 Amendment The Law for the Encouragement of Capital Investments, 1959, generally referred to as the “Investments Law”, provided(prior to the 2005 amendment) that a capital investment in eligible facilities may, upon application to the Israeli Authority forInvestments and Development of the Industry and Economy (the “Investment Center”), be granted the status of an ApprovedEnterprise. Each certificate of approval for an Approved Enterprise relates to a specific investment program delineated both by itsfinancial scope, including sources or funds, and by its physical characteristics or the facility or other assets, e.g., the equipment to bepurchased and utilized pursuant to the program. 85A company owning an Approved Enterprise is eligible for a combination of grants and tax benefits (the “Grant Track”). Thetax benefits under the Grant Track include, among others, accelerated depreciation and amortization for tax purposes. The benefitsperiod is ordinarily seven years commencing with the year in which the Approved Enterprise first generates taxable income. Thebenefits period is limited to 12 years from the earlier of the commencement of production by the Approved Enterprise or 14 yearsfrom the date of approval of the Approved Enterprise. A company owning an Approved Enterprise may elect to forego its entitlements to grants and tax benefits under the GrantTrack and apply for alternative package of tax benefits for a benefit period of between seven and ten years (the “Alternative Track”).Under the Alternative Track, a company’s undistributed income derived from the Approved Enterprise will be exempt from corporatetax for a period of between two and ten years, starting from the first year the company derives taxable income under the ApprovedEnterprise program. The length of this exemption will depend on the geographic location of the Approved Enterprise within Israel.After the exemption period lapses, the company shall be subject to tax at a reduced corporate tax rate between of 10% to 25%depending on the level of foreign investment in the company in each year for the remainder of the benefits period. We elected to be taxed under the Alternative Track. Dividends paid to Shareholders out of income attributed to an Approved Enterprise (or out of dividends received from acompany whose income is attributed to an Approved Enterprise) are generally subject to withholding tax at the rate of 15% or at alower rate provided under an applicable tax treaty (subject to the receipt in advance of a valid certificate from the ITA allowing for areduced tax rate). The 15% tax rate is limited to dividends and distributions out of income derived during the benefits period andactually paid at any time up to 12 years thereafter. After this period, the withholding tax is applied at a rate of up to 30%, or at thelower rate under an applicable tax treaty (subject to the receipt in advance of a valid certificate from the Israel Tax Authorityallowing for a reduced tax rate). In the case of a company which is considered a Foreign Investment Company as defined in theInvestment Law, the 12-year limitation on reduced withholding tax on dividends does not apply. A dividend distributed or deem distributed out of income derived from the Approved Enterprise which was exempt from tax("Trapped Profits") will be subject to corporate tax (on grossed up the amount reflecting such pre-tax income from which suchdividend was distributed) at the rate which would have been applied had the income not been exempt, which is at ranged between10%-25%, depending on the level of foreign investment in the company in each year. On November 15, 2021 a new amendment of the Investment Law was enacted (i) providing a reduced corporate income taxon the Trapped Profits distributed within a year from such amendment. The reduced corporate income tax is based on a certainformula and subject to reinvestment of certain amounts in enumerated assets/activities; (ii) harshening the rules with respect todetermining the profits from which a dividend was distributed and providing that part of any dividend distribution, will be deemedas distributed from the Trapped Profits, according to a certain formula. In December 2021, we entered into an elective tax agreement with the Israeli Tax Authorities and opt-in with the newamendment. The reduced corporate income tax on the Trapped Profits was approximately $5.8M, or 10%, and was provided for inthe 2021 financial statements of operations, net of related provisions. We currently intend to reinvest any income derived from ourApproved Enterprise program and not to distribute such income as a dividend. See also Note 11B to our consolidated financialstatements contained elsewhere in this report.86 Tax benefits under the 2005 Amendment An amendment to the Investments Law, which is effective as of April 1, 2005, has changed certain provisions of theInvestments Law, or the 2005 Amendment. An eligible investment program under the 2005 Amendment qualifies for benefits as a“Beneficiary Enterprise” (rather than as an Approved Enterprise, which status is still applicable for investment programs approvedprior to April 1, 2005 and/or investment programs under the Grant Track). According to the 2005 Amendment, only ApprovedEnterprises receiving cash grants require the prior approval of the Investment Center. As a result, a company was no longer requiredto obtain the advance approval of the Investment Center in order to receive the tax benefits previously available under the alternativebenefits program. Rather, a company may claim the tax benefits offered by the Investment Law directly in its tax returns, providedthat its facilities meet the criteria for tax benefits set forth in the 2005 Amendment. A company that had a Beneficiary Enterprisemay, at its discretion, approach the ITA for a pre-ruling confirming that it is in compliance with the provisions of the InvestmentLaw. The duration of the tax benefits described herein is limited to the earlier of seven (7) or ten (10) years (depending on thegeographic location of the Beneficiary Enterprise within Israel) from the Commencement Year (as described below) or 12 or 14 yearsfrom the first day of the Year of Election (as described below), depending on the location of the company within Israel.Commencement Year is defined as the later of the first tax year in which a company had derived liable income for tax purposes fromthe Beneficiary Enterprise, or the Year of Election, which is defined as the year in which a company requested to have the taxbenefits apply to the Beneficiary Enterprise. The tax benefits granted to a Beneficiary Enterprise are determined, depending on thegeographic location of the Beneficiary Enterprise within Israel. Similar to the previously available Alternative Track, exemption from corporate tax may be available on undistributed incomefor a period of two to ten years ("Trapped Profits"), depending on the geographic location of the Beneficiary Enterprise within Israel,and a reduced corporate tax rate of 10% to 25% for the remainder of the benefits period, depending on the level of foreigninvestment in each year. If the company pays a dividend out of income derived from the Beneficiary Enterprise during the benefitsperiod and such dividend is actually paid at any time up to 12 years thereafter, except with respect to a foreign investment company(an “FIC”), in which case the 12-year limit does not apply, such income will be subject to withholding tax at the rate of 15% or alower rate under a tax treaty, if applicable (subject to the receipt in advance of a valid certificate from the ITA, allowing for a reducedtax rate). A Company that pays dividend out of Trapped Profits will be subject to tax with respect to the amount distributed (grossedup to reflect such pre-tax income that it would have had to earn in order to distribute the dividend) at the corporate tax rate whichwould have otherwise been applicable. The benefits available to a Beneficiary Enterprise are subject to the continued fulfillment of conditions stipulated in theInvestment Law and its regulations. If a company does not meet these conditions, it would be required to refund the amount of taxbenefits, as adjusted by the Israeli consumer price index and interest, or other monetary penalty.87 As a result of the 2005 Amendment, tax-exempt income generated under the provisions of the Investments Law, as amended,will subject us to taxes upon distribution or liquidation and we may be required to record deferred tax liability with respect to suchtax-exempt income. On November 15, 2021 a new amendment of the Investment Law was enacted (i) providing a reduced corporateincome tax on the Trapped Profits distributed within a year from such amendment. The reduced corporate income tax is based on acertain formula and subject to reinvestment of certain amounts in enumerated assets/activities.; (ii) harshening the rules with respectto determining the profits from which a dividend was distributed and providing that part of any dividend distribution, will be deemedas distributed from the Trapped Profits, according to a certain formula. In December 2021, we entered into an elective tax agreement with the Israeli Tax Authorities and opt-in with the newAmendment. The reduced corporate income tax on the Trapped Profits was approximately $5.8M, or 10%, and was provided for inthe 2021 financial statements of operations, net of related provisions. We had three Approved Enterprise plans under the InvestmentsLaw, which entitled us to certain tax benefits. In addition, in 2011, based on Company investments in property and equipment in theyears 2008 and 2009, the Company submitted the applicable form as a Benefited Enterprise in accordance with the 2005 Amendmentto the Investments Law. The year of election was 2010. Tax benefits under the 2011 Amendment On December 29, 2010, the Israeli Parliament approved the 2011 amendment to the Investments Law (the “2011Amendment”). The 2011 Amendment significantly revised the tax incentive regime in Israel, commencing on January 1, 2011. The 2011 Amendment introduced a new status of “Preferred Enterprise”, replacing the existed status of “BeneficiaryEnterprise” and introduced new benefits for income generated by a “Preferred Company” through its Preferred Enterprise. APreferred Company is an industrial company that meets certain conditions (including a minimum threshold of 25% export).However, under the 2011 Amendment the requirement for a minimum investment in productive assets in order to be eligible for thebenefits granted under the Investments Law as with respect to “Beneficiary Enterprise” was cancelled. A Preferred Company is entitled to a reduced flat tax rate with respect to its preferred income attributed to the PreferredEnterprise, at the following rates: Tax YearDevelopment Region “A”Other Areas within Israel2011-201210%15%20137%12.5%2014-20169%16%2017 onwards7.5%16% * In December 2016, the Israeli Parliament (the Knesset) approved an amendment to the Investments Law pursuant to whichthe tax rate applicable to Preferred Enterprises in Development Region "A" would be reduced to 7.5% as of January 1, 2017. The classification of income generated from the provision of usage rights in know-how or software that were developed inthe Preferred Enterprise, as well as royalty income received with respect to such usage, as preferred income is subject to the issuanceof a pre-ruling from the ITA stipulates that such income is associated with the productive activity of the Preferred Enterprise inIsrael. 88 In addition, the 2011 Amendment introduced a new status of “Special Preferred Company” which is an Industrial companymeeting, in addition to the conditions prescribed for “Preferred Company” certain additional conditions (including that the totalPreferred Enterprise income is at least NIS 1 billion and part of a group that generates income of at least NIS 10 billion). The tax rateapplicable for a period of 10 years to income generated by such an enterprise will be reduced to 5%, if located in DevelopmentRegion “A”, or to 8%, if located in other area within the State of Israel. Dividends distributed from preferred income which is attributed to a “Preferred Enterprise” or a “Special Preferred Enterprise”will be subject to withholding tax at source at the following rates: (i) Israeli resident corporations – 0% (although, if such dividendsare subsequently distributed to individuals or a non-Israeli company, withholding tax at a rate of 20% or such lower rate as may beprovided in an applicable tax treaty will apply), (ii) Israeli resident individuals – 20% (iii) non-Israeli residents - 20% (or a lower rateunder a tax treaty, if applicable, subject to the receipt in advance of a valid certificate from the ITA allowing for a reduced tax rate). The 2011 Amendment also revised the Grant Track to apply only to the approved programs located in Development Region“A” and shall provide not only cash grants (as prior to the 2011 Amendment) but also the granting of loans. The rates for grants andloans shall not be fixed but up to 20% of the amount of the approved investment. In addition, a company owning a PreferredEnterprise under the Grant Track may be entitled also to the tax benefits which are prescribed for a Preferred Enterprise. The provisions of the 2011 Amendment do not apply to existing “Beneficiary Enterprises” or “Approved Enterprises”, whichwill continue to be entitled to the tax benefits under the Investments Law, as has been in effect prior to the 2011 Amendment, unlessthe company owning such enterprises had made an election to apply the provisions of the 2011 Amendment (such election cannot belater rescinded), which is to be filed with the ITA, not later than the date prescribed for the filing of the company’s annual tax returnfor the respective year. A company owning a Beneficiary Enterprise or Approved Enterprise which made such election by June 30,2015, will be entitled to distribute income generated by the Approved/Beneficiary Enterprise to its Israeli corporate shareholders taxfree. Until the end of 2015, we did not utilize tax benefits related to Preferred Enterprises. In 2016, we started utilized suchbenefits, with a related tax rate of 16%. The New Technological Enterprise Incentives Regime—the 2017 Amendment The 2017 Amendment was enacted as part of the Economic Efficiency Law that was published on December 29, 2016, andbecame effective on January 1, 2017. The 2017 Amendment provides new tax benefits for two types of “Technology Enterprises”, asdescribed below, and is in addition to the other existing tax beneficial programs under the Investment Law. The new incentives regime will apply to “Preferred Technological Enterprises” that meet certain conditions, including: (1) theR&D expenses in the three years preceding the tax year were at least 7% on average of one year out of the company's turnover orexceeded NIS 75 million (approximately $21 million) for a year; and (2) one of the following: (a) at least 20% of the workforce (orat least 200 employees) are employees whose full salary has been paid and reported in the Company’s financial statements as R&Dexpenses; (b) a venture capital investment approximately equivalent to at least NIS 8 million was previously made in the companyand the company did not change its line of business; (c) growth in sales by an average of 25% or more, over the three yearspreceding the tax year, provided that the turnover was at least NIS 10 million (approximately $2.8 million), in the tax year and ineach of the preceding three years; or (d) growth in workforce by an average of 25% or more, over the three years preceding the taxyear, provided that the company employed at least 50 employees, in the tax year and in each of the preceding three years. 89A “Special Preferred Technological Enterprise” is an enterprise that meets conditions 1 and 2 above, and in addition is part ofa group that has total annual consolidated revenues at least NIS 10 billion. Preferred Technological Enterprises will be subject to a reduced corporate tax rate of 12% on their income that qualifies as“Preferred Technology Income”, as defined in the Investment Law. The tax rate is further reduced to 7.5% for a PreferredTechnology Enterprise located in Development Region "A". These corporate tax rates shall apply only with respect to the portion ofintellectual property developed in Israel. In addition, a Preferred Technology Company will enjoy a reduced corporate tax rate of12% on capital gain derived from the sale of certain “Benefited Intangible Assets” (as defined in the Investment Law) to a relatedforeign company if the Benefited Intangible Assets were acquired from a foreign company on or after January 1, 2017 for at leastNIS 200 million (approximately $56 million), and the sale receives prior approval from the IIA. Special Preferred TechnologicalEnterprises will be subject to 6% on “Preferred Technology Income” regardless of the company’s geographic location within Israel. In addition, a Special Preferred Technology Enterprise will enjoy a reduced corporate tax rate of 6% on capital gain derivedfrom the sale of certain “Beneficiary Intangible Assets” to a related foreign company if the Beneficiary Intangible Assets were eitherdeveloped by the Special Preferred Technology Enterprise or acquired from a foreign company on or after January 1, 2017, and thesale received prior approval from the IIA. A Special Preferred Technology Enterprise that acquires Benefited Intangible Assets from a foreign company for more thanNIS 500 million (approximately $142 million), will be eligible for these benefits for at least ten years, subject to certain approvals asspecified in the Investment Law. Dividends distributed by a Preferred Technology Enterprise or a Special Preferred Technology Enterprise, paid out ofPreferred Technology Income, are generally subject to withholding tax at source at the rate of 20% or such lower rate as may beprovided in an applicable tax treaty (subject to the receipt in advance of a valid certificate from the ITA allowing for a reduced taxrate). However, if such dividends are paid to an Israeli company, no tax is required to be withheld. If such dividends are, distributedto a foreign company that holds solely or together with other foreign companies at least 90% of the shares of the distributingcompany and other conditions are met, the withholding tax rate will be 4% (or a lower rate under a tax treaty, if applicable, subject tothe receipt in advance of a valid certificate from the ITA allowing for a reduced tax rate). We reviewed the criteria for the tax rate of a “Preferred Technological Enterprise” and a “Special Preferred TechnologicalEnterprise” and concluded that we are entitled to the reduced tax rate under the “Preferred Technological Enterprises” tax incentiveregime starting 2017. We have notified the ITA that we elected applying this status starting 2017. As part of these tax incentives, theCompany is required to allocate its taxable income between income from preferred technological enterprise and income related topreferred enterprise or regular corporate income. 90Law for the Encouragement of Industry (Taxes), 5729-1969 The Law for the Encouragement of Industry (Taxes), 1969, or the Industry Encouragement Law defines “IndustrialCompany” as an Israeli resident company which was incorporated in Israel, which 90% or more of its income in any tax year(exclusive of income from certain government loans) is generated from an “Industrial Enterprise” that it owns and located in Israel orin the “Area”, in accordance with the definition under section 3A of the Israeli Income Tax Ordinance (New Version) 1961, or theOrdinance. An “Industrial Enterprise” is defined as an enterprise whose principal activity in a given tax year is industrialmanufacturing. An Industrial Company is entitled to certain tax benefits, including: (i) an amortization of the cost of purchased patent, theright to use patent or know-how that were purchased in good faith and are used for the development or promotion of the IndustrialEnterprise, over an eight-year period, beginning from the year in which such rights were first used, (ii) the right to elect to fileconsolidated tax returns with additional Israeli Industrial Companies controlled by it, and (iii) the right to deduct expenses related topublic offerings in equal amounts over a period of three years beginning from the year of the offering. Eligibility for benefits under the Encouragement of Industry Law is not contingent upon the approval of any governmentalauthority. We believe that we qualify as an “Industrial Company” within the meaning of the Industry Encouragement Law. There is noassurance that we qualify or will continue to qualify as an Industrial Company or that the benefits described above will be availableto us in the future. Taxation of the Company Shareholders Capital Gains Capital gain tax is imposed on the disposition of capital assets by an Israeli resident, and on the disposition of such assets bya non-Israeli resident if those assets are either (i) located in Israel; (ii) are shares or a right to a share in an Israeli residentcorporation, or (iii) represent, directly or indirectly, rights to assets located in Israel, unless a tax treaty between Israel and the seller’scountry of residence provides otherwise. The Ordinance distinguishes between “Real Gain” and the “Inflationary Surplus”. RealGain is the excess of the total capital gain over Inflationary Surplus computed generally on the basis of the increase in the IsraeliConsumer Price Index (CPI) or, in certain circumstances, according to the change in the foreign currency exchange rate, between thedate of purchase and the date of disposition. Generally, the capital gain accrued by individuals on the sale of our ordinary shares will be taxed at the rate of 25%.However, if the individual shareholder is a “Controlling Shareholder” (i.e., a person who holds, directly or indirectly, alone ortogether with such person’s relative or another person who collaborates with such person on a permanent basis, 10% or more of oneof the Israeli resident company’s means of control) at the time of sale or at any time during the preceding twelve (12) months period(or claims a deduction for interest and linkage differences expenses in connection with the purchase and holding of such shares),such gain will be taxed at the rate of 30%. 91The Real Gain derived by corporations will be generally subject to the ordinary corporate tax rate (23% in 2018 andthereafter). Individual and corporate shareholder dealing in securities in Israel are taxed at the tax rates applicable to business income –23% for corporations in 2018 and thereafter and a marginal tax rate of up to 47% in 2020 for individuals, unless the benefitingprovisions of an applicable treaty applies. Notwithstanding the foregoing, capital gain derived from the sale of our ordinary shares by a non-Israeli shareholder may beexempt under the Ordinance from Israeli taxation provided that the following cumulative conditions, among other things, are met: (i)the shares were purchased upon or after the registration of the securities on the stock exchange, (ii) the seller does not have apermanent establishment in Israel to which the derived capital gain is attributed. ; and (iii) with respect to our ordinary shares listedon a recognized stock exchange outside of Israel, so long as neither the shareholder nor the particular capital gain is otherwisesubject to the Israeli Income Tax Law (Inflationary Adjustments) 5745-1985. Non-Israeli corporations will not be entitled to theforegoing exemptions if (i) an Israeli resident has a controlling interest, directly or indirectly, alone or together with another (i.e.,together with a relative, or together with someone who is not a relative but with whom, according to an agreement, there is regularcooperation in material matters of the company, directly or indirectly), or together with another Israeli resident, exceed 25% in one ormore of the means of control in such non-Israeli resident corporation or (ii) Israeli residents are the beneficiaries of, or are entitled to,25% or more of the revenues or profits of such non-Israeli resident corporation, whether directly or indirectly. In addition, the sale of shares may be exempt from Israeli capital gain tax under the provisions of an applicable tax treaty. Forexample, the U.S.-Israel Double Tax Treaty exempts U.S. resident from Israeli capital gain tax in connection with such sale,exchange or disposition provided, among others, that (i) the U.S. resident owned, directly or indirectly, less than 10% of an Israeliresident company’s voting power at any time within the 12 month period preceding such sale; (ii) the seller, being an individual, ispresent in Israel for a period or periods of less than 183 days in the aggregate at the taxable year; (iii) the capital gain from the salewas not derived through a permanent establishment of the U.S. resident which is maintained in Israel; (iv) the capital gain arisingfrom such sale, exchange or disposition is not attributed to real estate located in Israel; (v) the capital gains arising from such sale,exchange or disposition is not attributed to royalties; and (vi) the shareholder is a U.S. resident (for purposes of the U.S.-IsraelDouble Tax Treaty) and is holding the shares as a capital asset. However, under the U.S.-Israel Double Tax Treaty, a U.S. residentwould be permitted to claim a credit for the Israeli tax against the U.S. federal income tax imposed with respect to the sale, exchangeor disposition, subject to the limitations in U.S. laws applicable to foreign tax credits. The U.S.-Israel Double Tax Treaty does notprovide such credit against any U.S. state or local taxes. Either the purchaser, the stockbrokers or financial institution, through which payment to the seller is made, are obliged,subject to the above-mentioned exemptions, to withhold Israeli tax at source from such payment. Shareholders may be required todemonstrate that they are exempt from tax on their capital gains in order to avoid withholding at source at the time of sale.Specifically, in transactions involving a sale of all of the shares of an Israeli resident company, in the form of a merger or otherwise,the ITA may require from shareholders who are not liable for Israeli tax to sign declarations in forms specified by this authority orobtain a specific exemption from the ITA to confirm their status as non-Israeli resident. 92At the sale of securities traded on a stock exchange a detailed return, including a computation of the tax due, must be filedand an advanced payment must be paid on January 31 and July 31 of every tax year in respect of sales of securities made within theprevious six months. However, if all tax due was withheld at source according to applicable provisions of the Ordinance andregulations promulgated thereunder the aforementioned return need not be filed and no advance payment must be paid. Capital gainis also reportable on the annual income tax return. Dividends A distribution of dividends from income, which is not attributed to an Approved Enterprise/Beneficiary Enterprise/PreferredEnterprise /Preferred Technological Enterprise to an Israeli resident individual, will generally be subject to income tax at a rate of25%. However, a 30% tax rate will apply if the dividend recipient is a “Controlling Shareholder” (as defined above) at the time ofdistribution or at any time during the preceding 12 months period. If the recipient of the dividend is an Israeli resident corporation,such dividend will be exempt from income tax provided the income from which such dividend is distributed was derived or accruedwithin Israel. Distribution of dividends from income attributed to a Preferred Enterprise or a Preferred Technological Enterprise is generallysubject to a withholding tax at source at the rate of 20%. However, if such dividends are distributed to an Israeli company, nowithholding tax is imposed, although, if such dividends are subsequently distributed to individuals or a non-Israeli company,withholding tax at a rate of 20% or such lower rate as may be provided in an applicable tax treaty may apply (subject to the receipt inadvance of a valid certificate from the Israel Tax Authority allowing for an exemption). Dividends distributed from income attributedto an Approved Enterprise and/or a Beneficiary Enterprise are generally subject to a withholding tax at source at the rate of 15%.Those rates may be further reduced under the provisions of any applicable double tax treaty (subject to the receipt in advance of avalid certificate from the ITA allowing for a reduced tax rate). The Ordinance generally provides that a non-Israeli resident (either individual or corporation) is subject to an Israeli incometax on the receipt of dividends at the rate of 25% (30% if the dividends recipient is a “Controlling Shareholder” (as defined above), atthe time of distribution or at any time during the preceding 12 months period); those rates are subject to a reduced tax rate under theprovisions of an applicable double tax treaty (subject to the receipt in advance of a valid certificate from the ITA allowing for areduced tax rate). For example, under the U.S.-Israel Double Tax Treaty the following rates will generally apply in respect ofdividends distributed by an Israeli resident company to a U.S. resident: (i) if the U.S. resident is a corporation which holds duringthat portion of the taxable year which precedes the date of payment of the dividend and during the whole of its prior taxable year (ifany), at least 10% of the outstanding shares of the voting stock of the Israeli resident paying corporation and not more than 25% ofthe gross income of the Israeli resident paying corporation for such prior taxable year (if any) consists of certain type of interest ordividends – the maximum tax rate is 12.5% on dividends, not generated by an Approved Enterprise, (ii) if both the conditionsmentioned in section (i) above are met and the dividend is paid from an Israeli resident company’s income which was entitled to areduced tax rate applicable to an Approved Enterprise– the tax rate is 15%, and (iii) in all other cases, the tax rate is 25%, or thedomestic rate (if such is lower). The aforementioned rates under the U.S.-Israel Double Tax Treaty will not apply if the dividendincome was derived through a permanent establishment of the U.S. resident maintained in Israel.93 If the dividend is attributable partly to income derived from an Approved Enterprise, a Beneficiary Enterprise a PreferredEnterprise, or a Technological Preferred Enterprise, and partly to other sources of income, the withholding rate will be a blended ratereflecting the relative portions of the two types of income. Payors of dividends on our shares, including the Israeli stockbroker effectuating the transaction, or the financial institutionthrough which the securities are held, are generally required, subject to any of the foregoing exemption, reduced tax rates and thedemonstration of a shareholder of his, her or its foreign residency, to withhold taxes upon the distribution of dividends at a rate of25%, provided that the shares are registered with a Nominee Company (for corporations and individuals, whether the recipient is aControlling Shareholder or not). A non-Israeli resident who receives dividends from which tax was withheld is generally exempt from the obligation to file taxreturns in Israel with respect to such income, provided that (i) such income was not generated from business conducted in Israel bythe taxpayer, (ii) the taxpayer has no other taxable sources of income in Israel with respect to which a tax return is required to befiled, and (iii) the taxpayer is not obligated to pay excess tax (as further explained below). Excess Tax Individuals who are subject to tax in Israel are also subject to an additional tax at a rate of 3% on annual income exceedingNIS 663,240 for 2022 and thereafter, which amount is linked to the Israeli Consumer Price Index, (including, but not limited toincome derived from dividends, interest and capital gains). Estate and Gift Tax Israeli law presently does not impose estate or gift taxes. Foreign Exchange Regulations Non-residents of Israel who hold our ordinary shares are able to receive any dividends, and any amounts payable upon thedissolution, liquidation and winding up of our affairs, repayable in non-Israeli currency at the rate of exchange prevailing at the timeof conversion. However, Israeli income tax is generally required to have been paid or withheld on these amounts. In addition, thestatutory framework for the potential imposition of currency exchange control has not been eliminated, and may be restored at anytime by administrative action. U.S. Taxation The following discussion describes certain material United States (“U.S.”) federal income tax consequences generallyapplicable to U.S. holders (as defined below) of the purchase, ownership and disposition of our ordinary shares. This summaryaddresses only holders who acquire and hold ordinary shares as “capital assets” for U.S. federal income tax purposes (generally,assets held for investment purposes). For purposes of this discussion, a “U.S. holder” is a beneficial owner of ordinary shares who is: •An individual citizen or resident of the U.S. (as determined under U.S. federal income tax rules); 94•a corporation (or another entity taxable as a corporation for U.S. federal income tax purposes) created or organized in orunder the laws of the U.S., any state thereof, or the District of Columbia; •an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or •a trust, if (a) a U.S. court is able to exercise primary supervision over its administration and one or more U.S. persons havethe authority to control all of its substantial decisions; or (b) the trust has in effect a valid election in effect under applicableTreasury Regulations (as defined below) to be treated as a United States person. This summary is for general information purposes only and does not purport to be a comprehensive description of all of theU.S. federal income tax considerations that may be relevant to a decision to purchase, hold or dispose of the Company’s ordinaryshares. In addition, the possible application of U.S. federal estate or gift taxes or any aspect of state, local or non-U.S. tax laws is notconsidered. This discussion is based on current provisions of the Internal Revenue Code of 1986, as amended (the “Code”), TreasuryRegulations promulgated under the Code by the U.S. Treasury Department (including proposed and temporary regulations) (the“Treasury Regulations”), rulings, current administrative interpretations and official pronouncements by the Internal Revenue Service(the “IRS”), and judicial decisions, all as currently in effect and all of which are subject to differing interpretations or to change, witha retroactive effect. Such changes could materially and adversely affect the tax consequences described below. No assurance can begiven that the IRS would not assert, or that a court would not sustain, a position contrary to any of the tax consequences describedbelow. This discussion does not address all aspects of U.S. federal income taxation that may be relevant to any particular U.S. holderbased on the holder’s particular circumstances, including, but not limited to: •persons who own, directly, indirectly or constructively, 10% or more (by voting power or value) of our outstanding votingshares; •persons who hold the ordinary shares as part of a hedging, straddle or conversion transaction; •persons whose functional currency is not the U.S. dollar; •persons who acquire their ordinary shares in a compensatory transaction; •broker-dealers; •insurance companies; •regulated investment companies; •real estate investment companies; •qualified retirement plans, individual retirement accounts and other tax-deferred accounts; •traders who elect to mark-to-market their securities; •tax-exempt organizations; •banks or other financial institutions; 95•persons subject to special tax accounting rules as a result of any item of gross income with respect to ordinary shares beingtaken into account in an applicable financial statement; •U.S. expatriates and certain former citizens and long-term residents of the United States; and •persons subject to the alternative minimum tax. The tax treatment of a partner in a partnership (or other entity or arrangement classified as a partnership for U.S. federalincome tax purposes) may depend on both the partnership’s and the partner’s status and the activities of the partnership. Partnerships(or other entities or arrangements classified as a partnership for U.S. federal income tax purposes) that are beneficial owners ofordinary shares, and their partners and other owners, should consult their own tax advisers regarding the tax consequences of theacquisition, ownership and disposition of ordinary shares. THIS SUMMARY OF MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS IS FOR GENERALINFORMATION ONLY AND IS NOT TAX ADVICE. EACH HOLDER SHOULD CONSULT ITS TAX ADVISOR WITHRESPECT TO THE PARTICULAR TAX CONSEQUENCES TO IT OF AN INVESTMENT IN THE ORDINARY SHARES,INCLUDING THE EFFECTS OF APPLICABLE UNITED STATES FEDERAL INCOME TAX LAWS AS WELL AS ANY TAXCONSEQUENCES ARISING UNDER THE UNITED STATES FEDERAL ESTATE OR GIFT TAX RULES OR UNDER THELAWS OF ANY FOREIGN, STATE OR LOCAL JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY. Distributions on the Ordinary Shares We currently do not intend to distribute dividends for at least the next several years. However, if we make any distributions ofcash or other property to a U.S. holder of our ordinary shares, the amount of the distribution for U.S. federal income tax purposeswill equal the amount of cash and the fair market value of any property distributed and will also include the amount of Israeli taxeswithheld, if any, as described above under “[Israel Taxation] — Dividends” above. In general (and subject to the PFIC rulesdiscussed below), any distribution paid by us on the ordinary shares to a U.S. holder will be treated as dividend income to the extentthe distribution does not exceed our current and/or accumulated earnings and profits, as determined under U.S. federal income taxprinciples. The amount of any distribution which exceeds these earnings and profits will be treated first as a non-taxable return ofcapital, reducing the U.S. holder’s tax basis in its ordinary shares to the extent thereof, and then as capital gain income (long-termcapital gain if the U.S. holder’s holding period exceeds one year), from the deemed disposition of the ordinary shares (subject to thePFIC rules discussed below). Corporate holders generally will not be allowed a deduction for dividends received on the ordinaryshares. The amount of any dividend paid in NIS (including amounts withheld to pay Israeli withholding taxes) will equal the U.S.dollar value of the NIS calculated by reference to the exchange rate in effect on the date the dividend is received by the U.S. holder,regardless of whether the NIS are converted into U.S. dollars. A U.S. holder will have a tax basis in the NIS equal to their U.S. dollarvalue on the date of receipt. If the NIS received are converted into U.S. dollars on the date of receipt, the U.S. holder shouldgenerally not be required to recognize foreign currency gain or loss in respect of the distribution. If the NIS received are notconverted into U.S. dollars on the date of receipt, a U.S. holder may recognize foreign currency gain or loss on a subsequentconversion or other disposition of the NIS. Such gain or loss will be treated as U.S. source ordinary income or loss. 96Dividends paid by us generally will be foreign source, “passive income” for U.S. foreign tax credit purposes. U.S. holdersmay elect to claim as a foreign tax credit against their U.S. federal income tax liability the Israeli income tax withheld fromdividends received on the ordinary shares. The Code provides limitations on the amount of foreign tax credits that a U.S. holder mayclaim. U.S. holders that do not elect to claim a foreign tax credit may instead claim a deduction for Israeli income tax withheld, butonly for a year in which these U.S. holders elect to do so for all foreign income taxes. The rules relating to foreign tax credits arecomplex (and may also be impacted by the tax treaty between the United States and Israel), and you should consult your tax advisorto determine whether you would be entitled to this credit. Under current law, certain distributions treated as dividends that are received by an individual U.S. holder from a “qualifiedforeign corporation” generally qualify for a 20% reduced maximum tax rate so long as certain holding period and other requirementsare met. A non-U.S. corporation (other than a corporation that is treated as a PFIC with respect to the U.S. holder for the taxable yearin which the dividend is paid or the preceding taxable year) generally will be considered to be a qualified foreign corporation (i) if itis eligible for the benefits of a comprehensive tax treaty with the United States which the Secretary of Treasury of the United Statesdetermines is satisfactory for purposes of this provision and which includes an exchange of information program, or (ii) with respectto any dividend it pays on stock which is readily tradable on an established securities market in the United States. Dividends paid byus in a taxable year in which we are not a PFIC and with respect to which we were not a PFIC in the preceding taxable year withrespect to the U.S. holder are expected to be eligible for the 20% reduced maximum tax rate, although we can offer no assurances inthis regard. However, any dividend paid by us in a taxable year in which we are a PFIC or were a PFIC in the preceding taxable yearwith respect to the U.S. holder will be subject to tax at regular ordinary income rates (along with any applicable additional PFIC taxliability, as discussed below). The additional 3.8% tax on “net investment income” (described below) may apply to dividends received by certain U.S.holders who meet certain modified adjusted gross income thresholds. Sale, Exchange or Other Taxable Disposition of the Ordinary Shares Upon the sale, exchange or other taxable disposition of the ordinary shares (subject to the PFIC rules discussed below), a U.S.holder generally will recognize capital gain or loss in an amount equal to the difference between the amount realized and the U.S.holder’s tax basis in the ordinary shares. The gain or loss recognized on the sale or exchange of the ordinary shares generally will belong-term capital gain (currently taxable at a reduced rate for non-corporate U.S. holders) or loss if the U.S. holder’s holding periodof the ordinary shares is more than one year at the time of the disposition. The deductibility of capital losses is subject to limitations. Gain or loss recognized by a U.S. holder on a sale or exchange of ordinary shares generally will be treated as U.S. sourceincome or loss for U.S. foreign tax credit purposes. Under the tax treaty between the United States and Israel, gain derived from thesale, exchange or other taxable disposition of ordinary shares by a holder who is a resident of the U.S. for purposes of the treaty andwho sells the ordinary shares within Israel may be treated as foreign source income for U.S. foreign tax credit purposes. The additional 3.8% tax on “net investment income” (described below) may apply to certain U.S. holders who meet certainmodified adjusted gross income thresholds, including capital gains. 97Passive Foreign Investment Companies In general, a foreign (i.e., non-U.S.) corporation will be a PFIC for any taxable year in which, after applying the relevantlook-through rules with respect to the income and assets of its subsidiaries, either (1) 75% or more of its gross income in the taxableyear is “passive income,” or (2) assets held for the production of, or that produce, passive income comprise 50% or more of theaverage of its total asset value in the taxable year. For purpose of the income test, passive income generally includes dividends,interest, royalties, rents, annuities and net gains from the disposition of assets, which produce passive income. For purposes of theasset test, assets held for the production of passive income includes assets held for the production of, or that produce dividends,interest, royalties, rents, annuities, and other income that are considered passive income for purposes of the income test. Indetermining whether we meet the asset test, cash is considered a passive asset and the total value of our assets generally will betreated as equal to the sum of the aggregate fair market value of our outstanding stock plus our liabilities. If we own at least 25% (byvalue) of the stock of another corporation, we will be treated, for purposes of the PFIC tests, as owning our proportionate share of theother corporation’s assets and receiving our proportionate share of the other corporation’s income. The income test is conducted atthe taxable year-end. The asset test is conducted on a quarterly basis and the quarterly results are then averaged together. If a corporation is treated as a PFIC for any year during a U.S. holder’s holding period and the U.S. holder does not timelyelect to treat the corporation as a “qualified electing fund” under Section 1295 of the Code or elect to mark its ordinary shares tomarket (both elections described below), any gain on the disposition of the shares will be treated as ordinary income, rather thancapital gain, and the holder will be required to compute its tax liability on that gain, as well as on dividends and other distributions,as if the income had been earned ratably over each day in the U.S. holder’s holding period for the shares. The portion of the gain anddistributions allocated to prior taxable years in which a corporation was a PFIC will be ineligible for any preferential tax rateotherwise applicable to any “qualified dividend income” or capital gains, and will be taxed at the highest ordinary income tax rate ineffect for each taxable year to which this portion is allocated. An interest charge will be imposed on the amount of the tax allocatedto these taxable years. A U.S. holder may elect to treat a corporation as a qualified electing fund only if the corporation complies withrequirements imposed by the IRS to enable the shareholder and the IRS to determine the corporation’s ordinary earnings and netcapital gain. Additionally, if a corporation is a PFIC, a U.S. holder who acquires shares in the corporation from a decedent generallywill be denied the normally available step-up in tax basis to fair market value for the shares at the date of death of the decedent andinstead will have a tax basis equal to the decedent’s tax basis if lower than fair market value. These adverse tax consequencesassociated with PFIC status could result in a material increase in the amount of tax that a U.S. holder would owe and an impositionof tax earlier than would otherwise be imposed and additional tax form filing requirements. Unless otherwise provided by the IRS, ifa corporation is classified as a PFIC, a U.S. person that is a direct or indirect holder generally will be required to file IRS Form 8621,Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund, or any applicablesuccessor form, to report its ownership interest in such entity. If a corporation is treated as a PFIC with respect to a U.S. holder for any taxable year, the U.S. holder will be deemed to ownshares in any of the foreign entities in which such corporation holds equity interests that are also PFICs (or “lower-tier PFICs”), andthe U.S. holder may be subject to the tax consequences described above with respect to the shares of such lower-tier PFIC such U.S.holder would be deemed to own. 98Status of Nova as a PFIC. Under the income test, less than 75% of our gross income was passive income in 2021. Under theasset test, while we continued to have substantial amounts of cash and short-term deposits and the market value of our ordinaryshares continued to be volatile, a determination of the value of our assets by reference to the average market value of our ordinaryshares and our liabilities results in a conclusion that the average value of our passive assets did not exceed 50% of the average valueof our gross assets in 2021. Nonetheless, there is a risk that we were a PFIC in 2021 or we will be a PFIC in 2022 or subsequentyears. Additionally, due to the complexity of the PFIC provisions and the limited authority available to interpret such provisions,there can be no assurance that our determination regarding our PFIC status could not be successfully challenged by the IRS. Available Elections. If we become a PFIC for any taxable year, an election to treat us as a “qualified electing fund” or to“mark-to-market” our ordinary shares may mitigate the adverse tax consequences of PFIC status to a U.S. holder. If a U.S. holder makes a qualified electing fund election (a “QEF election”) for its ordinary shares that is effective from thefirst taxable year that the U.S. holder holds our ordinary shares and during which we are a PFIC, the electing U.S. holder will avoidthe adverse consequences of our being classified as a PFIC, but will instead be required to include in income a pro rata share of ournet capital gain, if any, and other earnings and profits (“ordinary earnings”) as long-term capital gains and ordinary income,respectively, on a current basis, in each case whether or not distributed, in the taxable year of the U.S. holder in which or with whichour taxable year ends. A subsequent distribution of amounts that were previously included in the gross income of U.S. holders shouldnot be taxable as a dividend to those U.S. holders who made a QEF election. In the event we incur a net loss for a taxable year, suchloss will not be available as a deduction to an electing U.S. holder, and may not be carried forward or back in computing our netcapital gain or ordinary earnings in other taxable years. The tax basis of the shares of an electing U.S. holder generally will beincreased by amounts that are included in income, and decreased by amounts distributed but not taxed as dividends, under the QEFrules described above. In order to make (or maintain) a QEF election, the U.S. holder must annually complete and file IRS Form8621, Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund, or any applicablesuccessor form. However, we do not expect that we will prepare or provide to U.S. Holders a “PFIC annual information statement,”which would enable a U.S. Holder to make a QEF election. Alternatively, if a U.S. holder elects to “mark-to-market” its ordinary shares, the U.S. holder generally will include in itsincome any excess of the fair market value of our ordinary shares at the close of each taxable year over the holder’s adjusted basis insuch ordinary shares. A U.S. holder generally will be allowed an ordinary deduction for the excess, if any, of the adjusted tax basis ofthe ordinary shares over the fair market value of the ordinary shares as of the close of the taxable year, or the amount of any netmark-to-market gains recognized for prior taxable years, whichever is less. A U.S. holder’s adjusted tax basis in the ordinary sharesgenerally will be adjusted to reflect the amounts included or deducted under the mark-to-market election. Additionally, any gain onthe actual sale or other disposition of the ordinary shares generally will be treated as ordinary income. Ordinary loss treatment alsowill apply to any loss recognized on the actual sale or other disposition of ordinary shares to the extent that the amount of such lossdoes not exceed the net mark-to-market gains previously included with respect to such ordinary shares. If a U.S. holder makes a validmark-to-market election with respect to our ordinary shares for the first taxable year of the U.S. holder in which the U.S. holderholds (or is deemed to hold) our ordinary shares and for which we are determined to be a PFIC, such holder generally will not besubject to the PFIC rules described above in respect of its ordinary shares. A mark-to-market election applies to the tax year forwhich the election is made and to each subsequent year, unless our ordinary shares cease to be marketable, as specifically defined, orthe IRS consents to revocation of the election. No view is expressed regarding whether our ordinary shares are marketable for thesepurposes or whether the election will be available. However, because a mark-to-market election likely cannot be made for any lower-tier PFICs, if we are a PFIC, a U.S. holder will generally continue to be subject to the PFIC rules discussed above with respect tosuch holder’s indirect interest in any investments that we hold that are treated as an equity interest in a PFIC for U.S. federal incometax purposes. As a result, it is possible that any mark-to-market election will be of limited benefit. 99If a U.S. holder makes either the QEF election or the mark-to-market election, distributions and gain will not be recognizedratably over the U.S. holder’s holding period or be subject to an interest charge as described above. Further, the denial of basis step-up at death described above will not apply. If a U.S. holder makes the QEF election, gain on the sale of the ordinary shares will becharacterized as capital gain. However, U.S. holders making one of these two elections may experience current income recognition,even if we do not distribute any cash. The elections must be made with the U.S. holder’s federal income tax return for the year ofelection, filed by the due date of the return (as it may be extended) or, under certain circumstances provided in applicable TreasuryRegulations, subsequent to that date. The foregoing discussion relating to the QEF election and mark-to-market elections assumes that a U.S. holder makes theapplicable election with respect to the first year in which Nova qualifies as a PFIC. If the election is not made for the first year inwhich Nova qualifies as a PFIC, the procedures for making the election and the consequences of election will be different. SPECIFIC RULES AND REQUIREMENTS APPLY TO BOTH THE QEF ELECTION AND THE MARK-TO-MARKETELECTION, AND YOU ARE URGED TO CONSULT YOUR TAX ADVISOR CONCERNING OUR PFIC STATUS AND THEVARIOUS ELECTIONS YOU CAN MAKE. Medicare Tax on Net Investment Income A U.S. holder that is an individual or estate, or a trust that does not fall into a special class of trusts that is exempt from suchtax, will be subject to a 3.8% tax on the lesser of (1) the U.S. holder’s “net investment income” for the relevant taxable year and (2)the excess of the U.S. holder’s modified adjusted gross income for the taxable year over a certain threshold. A U.S. holder’s “netinvestment income” generally may include its dividend income and its net gains from the disposition of shares, unless such dividendsor net gains are derived in the ordinary course of the conduct of a trade or business (other than a trade or business that consists ofcertain passive or trading activities). If you are a U.S. holder that is an individual, estate or trust, you are urged to consult your taxadvisors regarding the applicability of the Medicare tax to your income and gains in respect of your investment in the shares and theinteraction of these rules with the rules applicable to income included as a result of the QEF election. 100United States Information Reporting and Backup Withholding In general, U.S. holders may be subject to certain information reporting requirements under the Code relating to theirpurchase and/or ownership of stock of a foreign corporation such as the Company. Failure to comply with these informationreporting requirements may result in substantial penalties. Specifically, certain U.S. Holders holding specified foreign financial assets, including our ordinary shares, with an aggregatevalue in excess of the applicable U.S. dollar threshold, are subject to certain exceptions, required to report information relating to ourOrdinary Shares by attaching a complete IRS Form 8938, Statement of Specified Foreign Financial Assets, to their tax returns, foreach year in which they hold our ordinary shares. U.S. Holders are urged to consult their own tax advisors regarding informationreporting requirements relating to the ownership of our Ordinary Shares. In addition, and as discussed in the section of this Annual Report entitled “U.S. Taxation – Passive Foreign InvestmentCompanies”, if a corporation is classified as a PFIC, a U.S. person that is a direct or indirect holder generally will be required to filean informational return annually on IRS Form 8621, Information Return by a Shareholder of a Passive Foreign Investment Companyor Qualified Electing Fund, or any applicable successor form, to report its ownership interest in such entity, unless otherwiseprovided by the IRS. Dividend payments and proceeds from the sale or disposal of ordinary shares may be subject to information reporting to theIRS and possible U.S. federal backup withholding. Certain holders (including, among others, corporations) generally are not subjectto information reporting and backup withholding. A U.S. holder generally will be subject to backup withholding if such holder is nototherwise exempt and such holder: •fails to furnish its taxpayer identification number, or TIN, which, for an individual, is ordinarily his or her social securitynumber; •furnishes an incorrect TIN; •is notified by the IRS that it is subject to backup withholding because it has previously failed to properly report payments ofinterest or dividends; or •fails to certify, under penalties of perjury, that it has furnished a correct TIN and that the IRS has not notified the U.S.holder that it is subject to backup withholding. Any U.S. holder who is required to establish exempt status generally must file IRS Form W-9 (“Request for TaxpayerIdentification Number and Certification”). Backup withholding is not an additional tax and may be claimed as a refund or a credit against the U.S. federal income taxliability of a U.S. Holder, provided that the required information is timely furnished to the IRS. 10.F Dividends and Paying Agents Not applicable. 10.G Statements by Experts Not applicable.101 10.H Documents on Display As a foreign private issuer, are exempt from the rules under the Exchange Act related to the furnishing and content of proxystatements, and our officers, directors and principal shareholders are exempt from the reporting and short-swing profit recoveryprovisions contained in Section 16 of the Exchange Act. Furthermore, as a foreign private issuer, we are also not subject to therequirements of Regulation FD (Fair Disclosure) promulgated under the Exchange Act. In addition, we are not be required under theExchange Act to file annual or other reports and consolidated financial statements with the SEC as frequently or as promptly as U.S.companies whose securities are registered under the Exchange Act. Instead, we must file with the SEC, within 120 days after the endof each fiscal year, or such other applicable time as required by the SEC, an Annual Report containing consolidated financialstatements audited by an independent registered public accounting firm. We also intend to furnish certain other material informationto the SEC under cover of Form 6-K. We maintain a corporate website at www.novami.com. Information contained on, or that can be accessed through, ourwebsite does not constitute a part of this Annual Report. We have included our website address in this Annual Report solely as aninactive textual reference. 10.I Subsidiary Information Not applicable. Item 11. Quantitative and Qualitative Disclosures About Market Risk Market Risk Market risk represents the risk of loss that may impact the consolidated financial position, results of operations or cash flowsof the Company. The Company is exposed to market risk in the area of foreign exchange rates, as described below. The Company does not utilize financial instruments for trading purposes and holds no derivative financial instruments thatcould expose it to significant market risk. Impact of Currency Fluctuation Because our results are reported in U.S. Dollars, changes in the rate of exchange between the Dollar and local currencies inthose countries in which we operate (primarily the NIS) will affect the results of our operations. The dollar cost of our operations incountries other than the U.S., is negatively influenced by revaluation of the U.S. dollar against other currencies. During 2021, thevalue of the U.S. dollar devaluated against the NIS by approximately 3.3%. As of December 31, 2021, the majority of our netmonetary assets were denominated in dollars and the remainder was denominated mainly in NIS. Net monetary assets that are notdenominated in dollars or dollar-linked NIS were affected by the currency fluctuations in 2021 and are expected to continue to beaffected by such currency fluctuations in 2022. As of December 31 ,2021 the Company recorded a NIS and Israel CPI linked leaseliability, under the implementation of ASC 842 in the amount of $27.3 million (including exchange rate differences of $0.8 million). In 2020, we entered into currency-forward transactions and currency-put options (NIS/dollar) of approximately $100 millionwith settlement dates through 2020-2021, designed to reduce cash-flow exposure to the impact of exchange-rate fluctuations on firmcommitments of approximately $100 million. In accordance with ASC 815-10, we recorded in 2020 an increase of approximately$0.6 million in fair market value in "Other Comprehensive Income". Short-term exposures to changing foreign exchange rates areprimarily due to operating cash flows denominated in foreign currencies and transactions denominated in non-functional currencies.Our most significant foreign currency exposures are related to our operations in Israel. We have used foreign exchange forwardcontracts to partially cover known and anticipated exposures. We estimate that an instantaneous 10% depreciation in NIS from itslevel against the dollar as of December 31, 2020, with all other variables held constant, would decrease the fair value of our netliabilities denominated in NIS, held at December 31, 2020, by approximately $1.9 million.102 In 2021, we entered into currency-forward transactions and currency-put options (NIS/dollar) of approximately $147 millionwith settlement dates through 2021-2022, designed to reduce cash-flow exposure to the impact of exchange-rate fluctuations on firmcommitments of approximately $147 million. In accordance with ASC 815-10, we recorded in 2021 an decrease of approximately$0.4 million in fair market value in "Other Comprehensive Income". Short-term exposures to changing foreign exchange rates areprimarily due to operating cash flows denominated in foreign currencies and transactions denominated in non-functional currencies.Our most significant foreign currency exposures are related to our operations in Israel. We have used foreign exchange forwardcontracts to partially cover known and anticipated exposures. We estimate that an instantaneous 10% depreciation in NIS from itslevel against the dollar as of December 31, 2021, with all other variables held constant, would decrease the fair value of our netliabilities denominated in NIS, held at December 31, 2021, by approximately $2.2 million. Item 12. Description of Securities Other than Equity Securities Not applicable. 103PART IIItem 13. Defaults, Dividend Arrearages and Delinquencies None. Item 14. Material Modification to the Rights of Security Holders and Use of Proceeds Not applicable. Item 15. Controls and Procedures a) Our management, including our chief executive officer and chief financial officer, has evaluated the effectiveness ofour disclosure controls and procedures as of December 31, 2021. The term “disclosure controls and procedures”, as defined inRules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures that are designed to ensure thatinformation required to be disclosed by us in the reports that we file or submits under the Exchange Act is recorded, processed,summarized and reported, within the time periods specified in the rules and forms of the SEC. Disclosure controls andprocedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed byus in the reports that we file or submit under the Exchange Act is accumulated and communicated to the our management,including our chief executive officer and chief financial officer, or persons performing similar functions, as appropriate toallow timely decisions regarding required disclosure. Based on the foregoing, our chief executive officer and chief financialofficer have concluded that, as of December 31, 2021, our disclosure controls and procedures were effective. b) Our management, under the supervision of our chief executive officer and chief financial officer, is responsible forestablishing and maintaining adequate internal control over our financial reporting. The Company’s internal control overfinancial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act, means a process designed to providereasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles. Internal control over financial reporting includespolicies and procedures that: •pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and assetdispositions; •provide reasonable assurance that transactions are recorded as necessary to permit the preparation of our financialstatements in accordance with generally accepted accounting principles, and that our receipts and expenditures arebeing made only in accordance with authorizations of our management and directors; and •provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use ordisposition of assets that could have a material effect on our financial statements. Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition,projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequatebecause of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 104Our management evaluated the effectiveness of our internal control over financial reporting as of December 31, 2021, basedon the criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of SponsoringOrganizations of the Treadway Commission (COSO). Based on this evaluation, our management concluded that, as ofDecember 31, 2020, the Company’s internal control over financial reporting was effective. c) Kost Forer Gabbay & Kasierer, an independent registered accounting firm and a member firm of Ernst & Young, hasissued an attestation report on the effectiveness of our internal control over financial reporting, as stated in their reportincluded herein. See “Report of Independent Registered Public Accounting Firm” on page F-3. d) There were no changes in our internal controls over financial reporting identified with the evaluation thereof thatoccurred during the period covered by this Annual Report that have materially affected, or are reasonable likely to materiallyaffect our internal control over financial reporting. Item 16A. Audit Committee Financial Expert Our board of directors has determined that our audit committee includes two audit committee financial experts, as defined byItem 16A of Form 20-F. Our board of directors has determined that each of Ms. Dafna Gruber and Ms. Sarit Sagiv is an “auditcommittee financial expert” as defined by the SEC rules as well as an independent director as such term is defined by Rule 5605(a)(2) of the Nasdaq Stock Market and has the requisite financial experience as defined by the Nasdaq rules. Item 16B. Code of Ethics The Company has adopted a written code of conduct that applies to all Company employees, including the Company’sdirectors, principal executive officer, principal financial officer and principal accounting officer. You may review our code of conduct on our website: https://www.novami.com/, under “Investors/Corporate Governance”. Item 16C. Principal Accountant Fees and Services During the last four fiscal years, Kost Forer Gabbay & Kasierer, an independent registered accounting firm and a memberfirm of Ernst & Young Global (“Kost Forer Gabbay & Kasierer”) has acted as our registered public accounting firm and independentauditors. The following table provides information regarding fees paid by us to Kost Forer Gabbay & Kasierer for all services,including audit services, for the years ended December 31, 2020 and 2021: 2020 2021 Audit Fees 586,000 570,000 Tax Fees 89,000 64,000 Other Fees 125,000 314,000 Total 800,000 948,000 105 “Audit fees” are fees associated with the annual audit of the Company consolidated financial statements and services thatgenerally the independent accountant provides, such as consents and assistance with and review of documents filed with the SEC aswell as certain fees related to the audit in connection with our issuance of convertible senior notes in October 2020. The audit feealso includes consultations on various accounting issues, performance of local statutory audits, fees associated with the audit ofmanagement assessment of internal control over financial reporting, annual tax returns and audit of reports to IIA. “Tax Fees” arefees related to ad hoc tax consulting services and opinions. “Other Fees” include services related to SEC regulation consulting, organizational consultation, and due diligence services. Our audit committee has adopted a pre-approval policy for the engagement of our independent accountant to perform certainservices. Pursuant to this policy, which is designed to assure that such engagements do not impair the independence of our auditors,all audit, audit related and tax services must be specifically approved by the audit committee and certain other non-audit, non-auditrelated and non-tax services may be approved without consideration of specific case-by-case provided certain terms and proceduresare met. The Company’s audit committee approved all of the services provided by Kost Forer Gabbay & Kasierer in fiscal years2021 and 2020. Item 16D. Exemptions from the Listing Standards for Audit Committees The Company has not obtained any exemption from applicable audit committee listing standards. Item 16E. Purchases of Equity Securities by the Issuer and Affiliates Purchasers None. Item 16F. Change In Registrant’s Certifying Accountant None. Item 16G. Corporate Governance There are no significant ways in which the Company’s corporate governance practices differ from those followed by domesticcompanies listed on the Nasdaq Global Select Market. Item 16H. Mine Safety Disclosure Not applicable. Item 16I. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections Not applicable. PART IIIItem 17. Financial Statements Not applicable. Item 18. Financial StatementsSee pages F-1 through F-35.Item 19. Exhibits See Exhibit Index. 106 NOVA LTD. CONSOLIDATED FINANCIAL STATEMENTSAS OF DECEMBER 31, 2021 NOVA LTD. CONSOLIDATED FINANCIAL STATEMENTSAS OF DECEMBER 31, 2021Contents PageReports of Independent Registered Public Accounting Firm (PCAOB ID No. 1281)F-3 - F-5Consolidated Balance SheetsF-6Consolidated Statements of OperationsF-7Consolidated Statements of Comprehensive IncomeF-8Consolidated Statements of Changes in Shareholders' EquityF-9Consolidated Statements of Cash FlowsF-10Notes to Consolidated Financial StatementsF-11 - F-35F - 2Kost Forer Gabbay & Kasierer144 Menachem Begin Road, Building A,Tel-Aviv 6492102, IsraelTel: +972-3-6232525Fax: +972-3-5622555ey.comREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors ofNOVA LTD. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Nova Ltd. (the Company) as of December 31, 2021 and 2020, therelated consolidated statements of operations, comprehensive income, shareholders' equity and cash flows for each of the three yearsin the period ended December 31, 2021, and the related notes (collectively referred to as the "consolidated financial statements"). Inour opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company atDecember 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period endedDecember 31, 2021, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)(PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in InternalControl-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013framework), and our report dated March 1, 2022, expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on theCompany’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required tobe independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules andregulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the auditto obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error orfraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whetherdue to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accountingprinciples used and significant estimates made by management, as well as evaluating the overall presentation of the financialstatements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that wascommunicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are materialto the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication ofcritical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not,by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts ordisclosures to which it relates. F - 3 Valuation of excess and obsolete inventory reserve Description of theMatter The Company’s inventories totaled $78.7 million as of December 31, 2021. As described in Note 2i to theconsolidated financial statements, the Company assesses the value of inventories, including raw materials,service inventory, work-in-process and finished goods, in each reporting period, and values its inventoriesat the lower of cost or net realizable value. Reserves for potential excess and obsolete inventory are madebased on management's analysis of inventory levels, future sales forecasts, the expected consumption ofservice spare parts, and market conditions. Auditing management's estimates for valuation of inventories involved subjective auditor judgment due tothe significant assumptions made by management about the future salability of the inventories. Theseassumptions include the assessment, by inventory category (finished goods, work-in-process, serviceinventory and raw materials), of future usage and market demand for the Company's products. How We Addressed theMatter in Our Audit We obtained an understanding, evaluated the design, and tested the operating effectiveness of internalcontrols over the Company's excess and obsolete inventory reserve process, including management'sassessment of the underlying assumptions and data. Our substantive audit procedures included, among others, evaluating the significant assumptions statedabove and the accuracy and completeness of the underlying data management used to value excess andobsolete inventory. We compared the cost of on-hand inventories to historical sales and evaluatedadjustments to sales forecasts for specific product considerations, such as technological changes oralternative uses. We also assessed the historical accuracy of management's estimates and performedsensitivity analyses over the significant assumptions to evaluate the changes in the obsolete and excessinventory estimates that would result from changes in the underlying assumptions. /s/ KOST FORER GABBAY & KASIERERKOST FORER GABBAY & KASIERERA Member of Ernst & Young Global We have served as the Company's auditor since 2015. Tel-Aviv, IsraelMarch 1, 2022 F - 4 Kost Forer Gabbay & Kasierer144 Menachem Begin Road, Building A,Tel-Aviv 6492102, IsraelTel: +972-3-6232525Fax: +972-3-5622555ey.com REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors ofNOVA LTD. Opinion on Internal Control Over Financial Reporting We have audited Nova Ltd.’s internal control over financial reporting as of December 31, 2021, based on criteria established inInternal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013framework) (the COSO criteria). In our opinion, Nova Ltd. (the Company) maintained, in all material respects, effective internalcontrol over financial reporting as of December 31, 2021, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)(PCAOB), the consolidated balance sheets of the Company as of December 31, 2021, and 2020, the related consolidated statementsof operations, comprehensive income, shareholders' equity and cash flows for each of the three years in the period ended December31, 2021, and the related notes, and our report dated March 1, 2022, expressed an unqualified opinion thereon. Basis for Opinion The Company's management is responsible for maintaining effective internal control over financial reporting, and for its assessmentof the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report onInternal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control overfinancial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to beindependent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulationsof the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the auditto obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all materialrespects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weaknessexists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performingsuch other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for ouropinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliabilityof financial reporting and the preparation of financial statements for external purposes in accordance with generally acceptedaccounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain tothe maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of thecompany; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statementsin accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made onlyin accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regardingprevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a materialeffect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate becauseof changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ KOST FORER GABBAY & KASIERERKOST FORER GABBAY & KASIERERA Member of Ernst & Young Global Tel-Aviv, IsraelMarch 1, 2022F - 5 NOVA LTD.CONSOLIDATED BALANCE SHEETS(U.S. dollars in thousands, except share data) As of December 31, 2 0 2 1 2 0 2 0 ASSETS Current assets Cash and cash equivalents 126,698 232,304 Short-term interest-bearing bank deposits 221,897 191,567 Marketable securities (Note 3) 61,568 - Trade accounts receivable, net of allowance of $37 and $70 at December 31, 2021 and 2020,respectively 68,446 63,314 Inventories (Note 4) 78,665 61,734 Other current assets (Note 5) 9,242 9,782 Total current assets 566,516 558,701 Non-current assets Marketable securities (Note 3) 137,415 - Interest-bearing bank deposits 3,672 2,547 Restricted interest-bearing bank deposits 1,600 1,476 Deferred tax assets (Note 14) 6,161 2,869 Severance pay funds (Note 9) 1,327 1,281 Operating lease right-of-use assets (Note 11) 30,627 29,109 Property and equipment, net (Note 6) 34,460 34,168 Intangible assets, net (Note 7) 2,601 5,059 Goodwill 20,114 20,114 Other long-term assets 661 462 Total non-current assets 238,638 97,085 TOTAL ASSETS 805,154 655,786 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities Convertible senior notes, net (Note 10) 183,037 - Trade accounts payable 36,218 24,096 Deferred revenues 15,338 4,717 Operating lease current liabilities (Note 11) 4,452 3,703 Other current liabilities (Note 8) 48,885 28,418 Total current liabilities 287,930 60,934 Non-Current liabilities Convertible senior notes, net (Note 10) - 178,808 Accrued severance pay (Note 9) 3,686 3,719 Operating lease long-term liabilities (Note 11) 33,450 31,905 Other long-term liabilities 6,334 8,882 Total non-current liabilities 43,470 223,314 Commitments and contingencies (Note 12) TOTAL LIABILITIES 331,400 284,248 SHAREHOLDERS’ EQUITY (Note 13) Ordinary shares (Note 1):December 31, 2021, no par value - Authorized 60,000,000 shares, Issued and Outstanding28,579,044.December 31, 2020, NIS 0.01 par value - Authorized 40,000,000 shares, Issued and Outstanding28,176,862 - 74 Additional paid-in capital 139,847 129,274 Accumulated other comprehensive income (loss) (814) 570 Retained earnings 334,721 241,620 Total shareholders’ equity 473,754 371,538 Total liabilities and shareholders’ equity 805,154 655,786 The accompanying notes are an integral part of the consolidated financial statements. F - 6 NOVA LTD.CONSOLIDATED STATEMENTS OF OPERATIONS(U.S. dollars in thousands, except share and per share data) Year ended December 31, 2 0 2 1 2 0 2 0 2 0 1 9 Revenues: Products 337,026 209,320 167,200 Services 79,087 60,076 57,709 Total revenues 416,113 269,396 224,909 Cost of revenues: Products 129,535 78,555 67,300 Services 49,217 37,918 35,789 Total cost of revenues 178,752 116,473 103,089 Gross profit 237,361 152,923 121,820 Operating expenses: Research and development, net (Note 2R) 65,857 53,015 44,508 Sales and marketing 39,336 29,321 28,213 General and administrative 17,324 12,514 10,066 Amortization of intangible assets (Note 7) 2,458 2,503 2,625 Total operating expenses 124,975 97,353 85,412 Operating income 112,386 55,570 36,408 Financial income (expense), net (Note 17) (3,133) 926 3,078 Income before taxes on income 109,253 56,496 39,486 Income tax expenses 16,152 8,589 4,315 Net income 93,101 47,907 35,171 Earnings per share: Basic 3.28 1.71 1.26 Diluted 3.12 1.65 1.23 Shares used in calculation of earnings per share: Basic 28,371,610 28,096,814 27,895,096 Diluted 29,816,066 28,949,739 28,574,202 The accompanying notes are an integral part of the consolidated financial statements. F - 7 NOVA LTD.CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(U.S. dollars in thousands) Year ended December 31, 2 0 2 1 2 0 2 0 2 0 1 9 Net income 93,101 47,907 35,171 Other comprehensive income, net of tax: Available-for-sale investments (Note 3): Unrealized gain (loss) on available-for-sale marketable securities, net (1,016) - - Cash flow hedges (Note 16): Unrealized gain from cash flow hedges 74 1,351 236 Less: reclassification adjustment for net loss included in net income (442) (796) (33)Other comprehensive income (loss) (1,384) 555 203 Total comprehensive income 91,717 48,462 35,374 The accompanying notes are an integral part of the consolidated financial statements. F - 8 NOVA LTD.CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY(U.S. dollars in thousands, except share amounts) Ordinary Shares AdditionalPaid-inCapital AccumulatedOtherComprehensiveIncome (Loss) RetainedEarnings TotalShareholders'Equity Number Amount Balance as of January 1, 2019 27,917,505 $74 $122,312 $(188) $158,542 $280,740 Issuance of shares upon exercise ofoptions 246,373 (*) 492 - - 492 Issuance of shares upon vesting ofRSU 118,486 (*) (*) - - - Share based compensation - - 5,092 - - 5,092 Share repurchase at cost (276,747) (*) (7,159) - - (7,159)Other comprehensive income - - - 203 - 203 Net income - - - - 35,171 35,171 Balance as of December 31, 2019 28,005,617 74 120,737 15 193,713 314,539 Issuance of shares upon exercise ofoptions 302,730 (*) 367 - - 367 Issuance of shares upon vesting ofRSU 119,281 (*) (*) - - - Share based compensation - - 6,949 - - 6,949 Equity component of convertiblesenior notes, net of issuance costs andtax - - 13,770 - - 13,770 Share repurchase at cost (250,766) (*) (12,549) - - (12,549) Other comprehensive income - - - 555 - 555 Net income - - - - 47,907 47,907 Balance as of December 31, 2020 28,176,862 74 129,274 570 241,620 371,538 Issuance of shares upon exercise ofoptions 236,652 (*) 11 - - 11 Issuance of shares upon vesting ofRSU 165,530 (*) (*) - - - Share based compensation - - 10,488 - - 10,488 Elimination of the par value of theOrdinary shares (Note 1) - (74) 74 - - - Other comprehensive income (loss) - - - (1,384) - (1,384)Net income - - - - 93,101 93,101 Balance as of December 31, 2021 28,579,044 - 139,847 (814) 334,721 473,754 (*) Less than $1The accompanying notes are an integral part of the consolidated financial statements. F - 9 NOVA LTD.CONSOLIDATED STATEMENTS OF CASH FLOWS(U.S. dollars in thousands) Year ended December 31, 2 0 2 1 2 0 2 0 2 0 1 9 Cash flows from operating activities: Net income 93,101 47,907 35,171 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation of property and equipment 6,475 5,875 5,401 Amortization of intangible assets 2,458 2,503 2,625 Amortization of premium and accretion of discount on marketable securities,net 1,708 - - Amortization of debt discount and issuance costs 4,229 868 - Share-based compensation 10,488 6,949 5,092 Net effect of exchange rate fluctuation (745) (1,584) (510)Changes in assets and liabilities: Trade accounts receivables, net (5,132) (11,711) 1,928 Inventories (18,457) (16,271) (7,518)Other current and long-term assets 192 6,878 (6,161)Deferred tax assets, net (2,989) (193) (681)Operating lease right-of-use assets 1,680 1,351 2,372 Trade accounts payables 11,697 3,255 1,691 Deferred revenues 10,621 2,461 (1,728)Operating lease liabilities (904) 91 2,685 Other current and long-term liabilities 17,919 11,520 65 Accrued severance pay, net (79) 354 260 Net cash provided by operating activities 132,262 60,253 40,692 Cash flows from investment activities: Change in short-term and long-term interest-bearing bank deposits (31,456) (36,016) (4,181)Investment in marketable securities (215,091) - - Proceed from maturities of marketable securities 12,862 - - Purchase of property and equipment (4,816) (6,443) (21,269)Net cash used in investing activities (238,501) (42,459) (25,450)Cash flows from financing activities: Proceeds from the issuance of convertible senior notes, net of issuance costs - 193,588 - Purchases of treasury shares - (12,549) (7,159)Proceeds from exercise of options 11 367 492 Net cash provided by (used in) financing activities 11 181,406 (6,667)Effect of exchange rate fluctuations on cash and cash equivalents 622 1,356 296 Increase (decrease) in cash and cash equivalents (105,606) 200,556 8,871 Cash and cash equivalents - beginning of year 232,304 31,748 22,877 Cash and cash equivalents - end of year 126,698 232,304 31,748 Supplemental disclosure of non-cash activities: Operating right-of-use assets recognized with corresponding operating leaseliabilities 3,198 2,367 31,465 Supplemental disclosure of cash flow information: Cash paid during the year for income taxes 13,275 3,981 8,342 The accompanying notes are an integral part of the consolidated financial statements. F - 10 NOVA LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(U.S. dollars in thousands, except share and per share data) NOTE 1 - GENERAL Business Description: Nova Ltd. (”Nova” or the “Parent Company”) was incorporated and commenced operations in 1993 in the design,development and production of process control systems, used in the manufacturing of semiconductors. Nova haswholly owned subsidiaries in the United States of America (the “U.S.”), Japan, Taiwan, Korea, China and Germany(together defined as the “Company”). On July 25, 2021 the Company changed its name from Nova Measuring Instruments Ltd. to Nova Ltd. The Company continues research and development for the next generation of its products and additionalapplications for such products. The Company operates in one operating segment. On April 2, 2015, the Company completed the acquisition of 100% shares of ReVera Inc. (hereinafter – ReVera) aprivately-held U.S. company. On December 31, 2017, ReVera, merged into Nova Measuring Instruments, Inc. The ordinary shares of the Company are traded on the NASDAQ Global Market since April 2000 and on the Tel-Aviv Stock Exchange since June 2002. On June 24, 2021, the Company increased its authorized share capital to 60,000,000 Ordinary Shares andeliminated the par value of the Ordinary shares. NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES The Company’s consolidated financial statements have been prepared in accordance with generally acceptedaccounting principles (“GAAP”) in the United States of America. The following is a summary of the significant accounting policies, which were applied in the preparation of thesefinancial statements, on a consistent basis: A.Principles of Consolidation and Basis of Presentation The Company’s consolidated financial statements include the financial statements of Nova Ltd. and its whollyowned subsidiaries. All intercompany balances and transactions have been eliminated. B.Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requiresmanagement to make estimates and assumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts ofrevenues and expenses during the reporting periods. The Company's management evaluates its estimates on anongoing basis, including those related to, but not limited to income taxes and tax uncertainties, collectability oftrade accounts receivable, inventory accruals, fair value and useful lives of intangible assets, lease discount rate,lease period, convertible senior notes borrowing rate and revenue recognition. These estimates are based onmanagement's knowledge about current events and expectations about actions the Company may undertake in thefuture. Actual results could differ from those estimates. The novel coronavirus (“COVID-19”) pandemic has created, and may continue to create, significant uncertainty inmacroeconomic conditions, and the extent of its impact on the Company’s operational and financial performancewill depend on certain developments, including the duration and spread of the outbreak and the impact on theCompany’s customers and its sales cycles. The Company considered the impact of COVID-19 on the estimates andassumptions and determined that there were no material adverse impacts on the consolidated financial statementsfor the period ended December 31, 2021. As events continue to evolve and additional information becomesavailable, the Company’s estimates and assumptions may change materially in future periods. F - 11 NOVA LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(U.S. dollars in thousands, except share and per share data) NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.) C.Financial Statements in U.S. Dollars The currency of the primary economic environment in which the operations of the Company and its subsidiaries areconducted is the U.S. dollar (the “dollar”). Accordingly, the Company uses the dollar as its functional and reportingcurrency. Certain of the dollar amounts in the financial statements may represent the dollar equivalent of othercurrencies, including the New Israeli Shekel (“NIS”). Transactions and balances denominated in dollars arepresented at their dollar amounts. Non-dollar transactions and balances are re-measured into dollars in accordancewith the principles set forth in ASC 830, “Foreign Currency Translation”. All transaction gains and losses of the re-measured monetary balance sheet items are reflected in the statements ofoperations as financial income or expenses, as appropriate. D.Cash and Cash Equivalents Cash and cash equivalents represent short-term highly liquid investments (mainly interest-bearing deposits) withmaturity dates not exceeding three months from the date of deposit. E.Short Term Bank Deposit Short-term bank deposits consist of bank deposits with original maturities of more than three months and up totwelve months. F.Marketable Securities The Company accounts for marketable securities in accordance with ASC Topic 320, “Investments – Debt andEquity Securities”. The Company’s investments in marketable securities consist of high-grade treasury, corporateand municipal bonds. Investments in marketable securities are classified as available for sale at the time of purchase. Available for salesecurities are carried at fair value based on quoted market prices, with unrealized gains and losses, reported inaccumulated other comprehensive income (loss) in shareholders’ equity. Realized gains and losses on sales ofmarketable securities, are included in financial income (expenses), net. The amortized cost of marketable securitiesis adjusted for amortization of premium and accretion of discount to maturity, both of which, together with interest,are included in financial income (expenses), net. The Company classifies its marketable securities as either short term or long term based on each instrument’sunderlying contractual maturity date. Marketable securities with maturities of 12 months or less are classified asshort-term and marketable securities with maturities greater than 12 months are classified as long-term. The Company accounts for Credit losses in accordance with ASU 2016-13, Topic 326 “Financial Instruments –Credit Losses: Measurement of Credit Losses on Financial Instruments” which modified the other than temporaryimpairment model for available for sale debt securities. The guidance requires the Company to determine whether adecline in fair value below the amortized cost basis of an available for sale debt security is due to credit relatedfactors or noncredit related factors. A credit related impairment should be recognized as an allowance on thebalance sheet with a corresponding adjustment to earnings, however, if the Company intends to sell an impairedavailable for sale debt security or more likely than not would be required to sell such a security before recoveringits amortized cost basis, the entire impairment amount would be recognized in earnings with a correspondingadjustment to the security’s amortized cost basis. The Company’s allowance for credit losses on marketable securities was not material for the year ended onDecember 31, 2021. F - 12 NOVA LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(U.S. dollars in thousands, except share and per share data) NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.) G.Trade Accounts Receivables Trade accounts receivables are recorded and carried at the original invoiced amount less an allowance for anypotential uncollectible amounts, in accordance with ASC 326. The Company makes estimates of expected creditlosses for based upon its assessment of various factors, including historical experience, the age of the tradereceivable balances, credit quality of its customers, current economic conditions, reasonable and supportableforecasts of future economic conditions, and other factors that may affect its ability to collect from customers. H.Business Combination The Company accounts for business combination in accordance with ASC No, 805, “Business Combination” (ASC805). ASC 805 requires recognition of assets acquired and liabilities assumed at the acquisition date, measured attheir fair values as of that date. Any access of the fair value of net assets acquired over purchased price and anysubsequent changes in estimated contingencies are to be recorded in the consolidated statements of operations. I.Inventories Inventories are stated at the lower of cost or net realizable value. Inventory write-downs are provided to cover risksarising from slow-moving items, technological obsolescence, excess inventories, discontinued products, and formarket prices lower than cost, if any. The Company periodically evaluates the quantities on hand relative tohistorical and projected sales volume (which is determined based on an assumption of future demand and marketconditions), the age of the inventory and the expected consumption of service spare parts. At the point of the lossrecognition, a new lower cost basis for that inventory is established. Any adjustments to reduce the cost ofinventories to their net realizable value are recognized in earnings in the current period. Inventory includes costs of products delivered to customers and not recognized as cost of sales, where revenues inthe related arrangements were not recognized. To support the Company’s service operations, the Company maintains service spare parts inventory and reduce thenet carrying value of this inventory over the service life. Cost is determined as follows: •Raw materials - based on the moving average cost method. •Service inventory, work in process and finished goods - based on actual production cost basis (materials, laborand indirect manufacturing costs). J.Property and Equipment Property and equipment are presented at cost, net of accumulated depreciation. Annual depreciation is calculatedbased on the straight-line method over the estimated useful lives of the related assets. Estimated useful life is asfollows: Years Electronic equipment3-7Office furniture and equipment3-17Over the shorter of the term of thelease (including its extension periods)Leasehold improvementsor the useful life of the asset Depreciation methods, useful lives and residual values are reviewed at the end each reporting year and adjusted ifappropriate. F - 13 NOVA LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(U.S. dollars in thousands, except share and per share data) NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.) K.Goodwill and Intangible Assets Goodwill and other purchased intangible assets have been recorded as a result of the acquisition of ReVera.Goodwill represents the excess of the purchase price in a business combination over the fair value of net tangibleand intangible assets acquired, and related liabilities. Goodwill is not amortized, but rather is subject to an impairment test, in accordance with ASC 350, “Intangibles –Goodwill and Other”, at least annually (in the fourth quarter), or more frequently if events or changes incircumstances indicate that the carrying value may be impaired. The Company has an option to perform aqualitative assessment to determine whether it is more-likely-than-not that the fair value of a reporting unit is lessthan its carrying value prior to performing the quantitative goodwill impairment test. The Company operates in oneoperating segment, and this segment comprises its only reporting unit. Following the adoption of ASU 2017-04, "Simplifying the Test for Goodwill Impairment", any excess of thecarrying value of the reporting unit over its fair value is recognized as an impairment loss, and the carrying value ofgoodwill is written down to the fair value of the reporting unit. Intangible assets with finite life (refer to note 2L for impairment assessment of intangible assets with finite life) areamortized over their useful lives using a method that reflects the pattern in which the economic benefits of theintangible assets are consumed or otherwise used, or, if that pattern cannot be reliably determined, using a straight-line amortization method. Weighted Average Useful Life(Years)Technology (*)3-7Customer relationships10IPR&D (*)3 (*) During 2021 a completion of the development and successful launch of the IPR&D related product wasdetermined. The useful life of the IPR&D technology was determined to be 3 years and amortizing was initiated,subject to annual impairment assessment as described in Note 2L L.Impairment of Long-Lived Assets Long-lived assets (tangible and intangible assets with finite life), held and used by the Company are reviewed forimpairment whenever events or changes in circumstances indicate that the carrying amount of the assets (or assetGroup) may not be recoverable. In the event that the sum of the expected future cash flows (undiscounted andwithout interest charges) of the long-lived assets is less than the carrying amount of such assets, an impairmentcharge would be recognized, and the assets (or asset Group) would be written down to their estimated fair values.During the years 2021, 2020 and 2019, no impairment losses have been identified. IPR&D is tested for impairment annually or more frequently when indicators of impairment exist. The Companyfirst assesses qualitative factors to determine if it is more likely than not that the IPR&D is impaired and whether itis necessary to perform a quantitative impairment test. The qualitative assessment considers various factors,including changes in demand, the abandonment of the IPR&D or significant economic slowdowns in thesemiconductor industry and macroeconomic environment. If adverse qualitative trends are identified that couldnegatively impact the fair value of the asset, then quantitative impairment test is performed to compare the carryingvalue of the asset to its undiscounted expected future cash flows. If this test indicates that there is impairment, the impaired asset is written down to fair value, which is typicallycalculated using discounted expected future cash flows utilizing an appropriate discount rate. No impairment losses have been identified during 2021, 2020 and 2019 relating to goodwill and intangible assets. F - 14 NOVA LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(U.S. dollars in thousands, except share and per share data) NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.) M.Accrued Warranty Costs Accrued warranty costs are calculated with respect to the warranty period on the Company’s products and are basedon the Company’s prior experience and in accordance with management’s estimate. The estimated future warrantyobligations are affected by the warranty periods, install base, labor and other related costs incurred in correcting aproduct failure. N.Derivative Financial Instruments ASC 815 requires the presentation of all derivatives as either assets or liabilities on the balance sheet and themeasurement of those instruments at fair value. For derivative instruments that are designated and qualify as a cash flow hedge (i.e., hedging the exposure tovariability in expected future cash flows that is attributable to a particular risk), the gain or loss on the derivativeinstrument is reported as a component of other comprehensive income and reclassified into earnings in the sameperiod or periods during which the hedged transaction affects earnings. See Note 16 for disclosure of the derivativefinancial instruments in accordance with such pronouncements. O.Leases Under ASC 842, a contract is or contains a lease when the Company has the right to control the use of an identifiedasset for a period of time. The Company determines if an arrangement is a lease at inception of the contract, whichis the date on which the terms of the contract are agreed to, and the agreement creates enforceable rights andobligations. The commencement date of the lease is the date that the lessor makes an underlying asset available forthe Company’s use. On the commencement date leases are evaluated for classification and assets and liabilities arerecognized based on the present value of lease payments over the lease term. The lease term used to calculate the lease liability includes options to extend or terminate the lease when it isreasonably certain that the option will be exercised. The right-of-use (“ROU”) asset is initially measured as theamount of lease liability, adjusted for any initial lease costs, prepaid lease payments and any lease incentives. Costsincurred for common area maintenance, real estate taxes, and insurance are not included in the lease liability andare recognized as they are incurred. The Company's leases include office buildings for its facilities and car leases, which are all classified as operatingleases. Certain lease agreements include rental payments that are adjusted periodically for the consumer price index("CPI"). The ROU and lease liability were calculated using the CPI as of the adoption date and will not besubsequently adjusted, unless the liability is reassessed for other reasons. Certain leases include renewal optionsthat are under the Company's sole discretion. The renewal options were included in the ROU and liabilitycalculation if it was reasonably assured that the Company will exercise the option. As the Company’s lease arrangements do not provide an implicit rate, the Company uses its incremental estimatedborrowing rate at lease commencement to measure ROU assets and lease liabilities. Operating lease expense isgenerally recognized on a straight-line basis over the lease term. For leases with a term of one year or less, theCompany elected not to record the ROU asset or liability. F - 15 NOVA LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(U.S. dollars in thousands, except share and per share data) NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.) P.Convertible Senior Notes The Company accounts for its convertible senior notes in accordance with ASC 470-20 "Debt with Conversion andOther Options". Pursuant to ASC Subtopic 470-20, issuers of certain convertible debt instruments, such as theNotes, that may be settled wholly or partially in cash upon conversion are required to separately account for theliability (debt) and equity (conversion option) components of the instrument. The liability component at issuance isrecognized at fair value, based on the fair value of a similar instrument of similar credit rating and maturity thatdoes not have a conversion feature. The equity component is based on the excess of the principal amount of theconvertible senior notes over the fair value of the liability component and is recorded in additional paid-in capital.The equity component, net of issuance costs and deferred tax effects is presented within additional paid-in-capitaland is not remeasured as long as it continues to meet the conditions for equity classification. The differencebetween the principal amount and the liability component represents a debt discount that is amortized to financialexpense over the respective terms of the Notes using an effective interest rate method. The Company allocated thetotal issuance costs incurred to the liability and equity components of the convertible senior notes based on theirrelative values. Issuance costs attributable to the liability and equity components were $5,894 and $518, respectively. Issuancecosts attributable to the liability are netted against the principal balance and will be amortized to financial expenseusing the effective interest method over the contractual term of the notes. The effective borrowing rate of theliability component of the notes (after deduction of the abovementioned issuance costs attributed to the liabilitycomponent) is 2.365%. This borrowing rate was based on Company's synthetic credit risk rating.See note 2X regarding the adoption of a new accounting pronouncement as of January 1, 2022. Q.Revenue Recognition Revenue Recognition Policy The Company enters into revenue arrangements that include products and services which are distinct and accountedfor as separate performance obligations. The Company determines whether promises are distinct based on whetherthe customer can benefit from the product or service on its own or together with other resources that are readilyavailable and whether the Company's commitment to transfer the product or service to the customer is separatelyidentifiable from other obligations in the contract. The Company derives revenue from sales of advanced process control systems, spare parts, labor hours (mainlyrelated to installation) and service contracts. Revenues derived from sales of advanced process control systems, spare parts and labor hours are recognized at apoint in time, when control of the promised goods or services is transferred to the customers, upon fulfillment ofthe contractual terms (typically upon shipment of the systems and spare parts or when the service is completed forlabor hours). Revenues derived from service contracts, are recognized ratably over time in accordance with the term of thecontract since the Company has a stand-ready obligation to provide the service. Such contracts generally include afixed fee. Revenues from sales which were not yet determined to be final sales due to certain acceptance provisions aredeferred. Contracts with Multiple Performance Obligations Contracts with customers may include multiple performance obligations. For such arrangements, the Companyallocates revenue to each performance obligation based on its relative Standalone Selling Price (“SSP”). Judgmentis required to determine the SSP for each distinct performance obligation. The Company uses a range of amounts toestimate SSP when it sells each of the products and services separately and needs to determine whether there is adiscount to be allocated based on the relative SSP of the various products and services. F - 16 NOVA LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(U.S. dollars in thousands, except share and per share data) NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.) Remaining Performance Obligations Remaining performance obligations (RPOs) represent contracted revenues that had not yet been recognized andinclude deferred revenues and invoices that have been issued to customers but were uncollected and have not beenrecognized as revenues. As of December 31, 2021, the aggregate amount of the RPOs was $41,055 comprised of$15,338 deferred revenues and $25,717 of uncollected amounts that were not yet recognized as revenues. TheCompany expects the RPO to be recognized as revenues over the next year. Contract Balances Contract balances are presented separately on the consolidated balance sheets. Revenues recognized during 2021, 2020 and 2019 from deferred revenues amounts included in current liabilities atthe beginning of the period amounted to $3,651, $1,544 and $3,481 respectively. In certain arrangements, the Company receives payment from a customer either before or after the performanceobligation has been satisfied. The expected timing difference between the payment and satisfaction of performanceobligations for the Company’s contracts is one year or less; therefore, the Company applies a practical expedientand does not consider the effects of the time value of money. R.Research and Development Research and development costs are charged to operations as incurred. Amounts received or receivable from theGovernment of Israel through the Israeli Innovation Authority (“IIA”, formerly known as the Office of the ChiefScientist) or from the European Community as participation in certain research and development programs areoffset against research and development costs. The accrual for grants receivable is determined based on the termsof the programs, provided that the criteria for entitlement are expected to be met. Research and development grantsrecognized during the years ended December 31, 2021, 2020 and 2019 were $4,395, $5,645 and $6,932respectively. S.Income Taxes The Company accounts for income taxes utilizing the asset and liability method in accordance with ASC 740,“Income Taxes”. Current tax liabilities are recognized for the estimated taxes payable on tax returns for the currentyear. Deferred tax liabilities or assets are recognized for the estimated future tax effects attributable to temporarydifferences between the income tax bases of assets and liabilities and their reported amounts in the financialstatements, and for tax loss carryforwards. Measurement of current and deferred tax liabilities and assets is based on provisions of enacted tax laws, anddeferred tax assets are reduced, if necessary, by the amount of tax benefits, the realization of which is notconsidered more likely than not based on available evidence. ASC 740-10 requires a two-step approach to recognizing and measuring uncertain tax positions. The first step is toevaluate the tax position for recognition by determining if the weight of available evidence indicates that it is morelikely than not that the position will be sustained on audit, including resolution of related appeals or litigationprocesses, if any. The second step is to measure the tax benefit as the largest amount which is more than 50% likelyof being realized upon ultimate settlement. F - 17 NOVA LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(U.S. dollars in thousands, except share and per share data) NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.) T.Share-Based Compensation The Company accounts for equity-based compensation using ASC 718 “Compensation - Stock Compensation,”which requires companies to recognize the cost of employee services received in exchange for awards of equityinstruments based upon the grant-date fair value of those awards. Share Options Under ASC 718, the fair market value of each option grant is estimated on the date of grant using the “Black-Scholes option pricing” method with the following weighted-average assumptions: 2 0 2 1 2 0 2 0 2 0 1 9Risk-free interest rate0.89% 0.38% 1.87%Expected term of options4.97 years 5.08 years 4.69 yearsExpected volatility39.02% 36.61% 33.18%Expected dividend yield0% 0% 0% Expected volatility was calculated based on actual historical share price movements over a term that is equivalentto the expected term of granted options. The expected term of options granted is based on historical experience andrepresents the period of time that options granted are expected to be outstanding. The risk-free interest rate is basedon the yield from U.S. treasury bonds with an equivalent term. The Company has historically not paid dividendsand has no foreseeable plans to pay dividends. The Company recognizes compensation expenses for the value of awards granted, based on the accelerated method.The Company account for forfeitures as they occur. U.Earnings per Share Earnings per share are presented in accordance with ASC 260-10, “Earnings per Share”. Pursuant to which, basicearnings per share excludes the dilutive effects of convertible securities and is computed by dividing income (loss)available to ordinary shareholders by the weighted-average number of ordinary shares outstanding for the period,net of treasury shares. Diluted earnings per share reflect the potential dilutive effect of options and RSUs. Thenumber of potentially dilutive options and RSUs excluded from diluted earnings per share due to the anti-dilutiveeffect of out of the money options amounted to 336,857 in 2021, 492,963 in 2020, 438,999 in 2019. Additionally, 2,055,641 in 2021 (2,680,965 in 2020) shares underlying the conversion option of the ConvertibleSenior Notes are not considered in the calculation of diluted net income per share as the effect would be anti-dilutive. The Company intends to settle the principal amount of Convertible Senior Notes in cash and therefore willuse the treasury stock method for calculating any potential dilutive effect on diluted net income per share, ifapplicable. The conversion will have a dilutive impact on diluted net income per share when the average marketprice of an ordinary share for a given period exceeds the conversion price of $74.6 per share. V.Concentrations of Credit Risk Financial instruments that potentially subject the Company to concentrations of credit risk consist principally ofcash and cash equivalents, bank deposits, trade accounts receivable and foreign currency derivative contracts. The majority of the Company’s cash and cash equivalents and bank deposits are invested in dollar instruments withmajor banks in Israel. Management believes that the financial institutions that hold the Company's investments arecorporations with high credit standing. Accordingly, management believes that low credit risk exists with respect tothese financial investments. F - 18 NOVA LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(U.S. dollars in thousands, except share and per share data) NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.) The trade accounts receivable of the Company are derived from sales to customers located primarily in TaiwanR.O.C., Korea, China and USA. The management of the Company performed risk assessment on an ongoing basisand believes it bears low risk. The Company entered into options and forward contracts to hedge against the risk of overall changes in future cashflow from payments of payroll and related expenses as well as other expenses denominated in NIS. The derivativeinstruments hedge a portion of the Company's non-dollar currency exposure. Counterparty to the Company’sderivative instruments is major financial institution. W.Fair Value Measurements The fair values of the Company’s cash and cash equivalents, short-term interest-bearing bank deposits, tradeaccounts receivable, and accounts payable approximate their carrying amounts due to their short-term nature. The Company follows the provisions of ASC No. 820, “Fair Value Measurement” (“ASC 820”), which defines fairvalue as the price that would be received to sell an asset or paid to transfer a liability in an orderly transactionbetween market participants at the measurement date. In determining a fair value, the Company uses various valuation approaches. ASC 820 establishes a hierarchy forinputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use ofunobservable inputs by requiring that the most observable inputs be used when available. Observable inputs areinputs that market participants would use in pricing an asset or liability, based on market data obtained fromsources independent of the Company. Unobservable inputs are inputs that reflect assumptions that marketparticipants would use in pricing an asset or liability, based on the best information available under givencircumstances. The hierarchy is broken down into three levels, based on the observability of inputs and assumptions, as follows: Level 1 - Observable inputs obtained from independent sources, such as quoted prices for identical assets andliabilities in active markets. Level 2 - Other inputs that are directly or indirectly observable in the market place. Level 3 - Unobservable inputs which are supported by little or no market activity. In accordance with ASC 820, the Company measures its marketable securities, at fair value using the marketapproach valuation technique. Marketable securities are classified within Level 2 because these assets are valuedusing quoted market prices or alternative pricing sources and models utilizing market observable inputs. The estimated fair values of the derivative instruments are determined based on market rates to settle theinstruments. The fair value of the Company’s derivative contracts (including forwards and options) is determinedusing standard valuation models. The significant inputs used in these models are readily available in public marketsor can be derived from observable market transactions and, therefore, the Company’s derivative contracts havebeen classified as Level 2. Inputs used in these standard valuation models include the applicable spot, forward, and discount rates. Thestandard valuation model for the Company options contracts also includes implied volatility, which is specific toindividual options and is based on rates quoted from a widely used third-party resource. The Company’s cash and cash equivalents, Interest-bearing bank deposits and restricted interest-bearing bankdeposits are classified within level 1. Marketable securities, Derivative instruments and Convertible senior notesclassified within Level 2 (see Note 3, Note 16 and Note 10, respectively). F - 19 NOVA LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(U.S. dollars in thousands, except share and per share data) NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.) X.New Accounting Pronouncements Recently issued accounting pronouncements not yet adopted: In August 2020, the FASB issued Accounting Standards Update No. 2020-06, Debt—Debt with Conversion andOther Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (ASU 2020-06), whichsimplifies the accounting for certain financial instruments with characteristics of liabilities and equity, includingconvertible instruments and contracts on an entity’s own equity. This guidance also eliminates the treasury stockmethod to calculate diluted earnings per share for convertible instruments and requires the use of the if-convertedmethod. This guidance will be effective for fiscal years beginning after December 15, 2021, including interimperiods within those fiscal years. The Company will adopt this new guidance using the modified retrospective method as of January 1, 2022. Theadoption of this new guidance is estimated to result in an increase of approximately $12.1 million to short-termconvertible senior notes, in the consolidated balance sheets, to reflect the full principal amount of the convertiblenotes outstanding net of issuance costs, a reduction of approximately $13.8 million to additional paid-in capital, netof estimated income tax effects, to remove the equity component separately recorded for the conversion featuresassociated with the convertible notes, an increase to deferred tax assets, net of approximately $1.4 million, and acumulative-effect adjustment of approximately $3.1 million, net of estimated income tax effects, to the beginningbalance of retained earnings as of January 1, 2022. The adoption of this new guidance is anticipated to reduceinterest expense by approximately $3.1 million during the year ended December 31, 2022. In addition, the requireduse of the if-converted method by the new guidance in calculating diluted earnings per share is expected to increasethe number of potentially dilutive shares in 2022 by up to 2.1 million shares. In October 2021, the FASB issued ASU 2021-08, ASC Topic 805 “Business Combinations”. The standard create anexception to the general recognition and measurement principle for contract assets and contract liabilities fromcontracts with customers acquired in a business combination. Under this exception, an acquirer applies ASC 606,Revenue from Contracts with Customers, to recognize and measure contract assets and contract liabilities on theacquisition date. ASC 805 generally requires the acquirer in a business combination to recognize and measure theassets it acquires and the liabilities it assumes at fair value on the acquisition date. The standard will becomeeffective for fiscal years beginning after December 15, 2022. Early application of the amendments is permitted, andthe Company is currently assessing such early adoption. See also Note 18. In November 2021, the FASB issued ASU 2021-10, ASC Topic 832 “Disclosures by Business Entities aboutGovernment Assistance”. The standard require the following annual disclosures about transactions with agovernment that are accounted for by applying a grant or contribution accounting model by analogy: (1)Information about the nature of the transactions and the related accounting policy used to account for thetransactions (2) The line items on the balance sheet and income statement that are affected by the transactions, andthe amounts applicable to each financial statement line item (3) Significant terms and conditions of thetransactions, including commitments and contingencies. The standard will become effective for fiscal yearsbeginning after December 15, 2021. The Company is currently assessing the impact of the adoption of this standardon its consolidated financial statements. F - 20 NOVA LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(U.S. dollars in thousands, except share and per share data) NOTE 3 - MARKETABLE SECURITIES The following is a summary of marketable securities amortized cost, unrealized gains, unrealized losses and fairvalue as of December 31, 2021: Marketable securities AmortizedCost Unrealizedgains Unrealizedlosses* FairValue Matures within one year: Corporate bonds 53,238 - (67) 53,171 Governmental bonds 8,409 - (12) 8,397 61,647 - (79) 61,568 Matures after one year: Corporate bonds 122,701 - (1,138) 121,563 Governmental bonds 15,954 1 (103) 15,852 138,655 1 (1,241) 137,415 200,302 1 (1,320) 198,983 * All of the unrealized losses have been accumulated during 2021 and are for less than 12 months. Proceeds from maturity of available-for-sale marketable securities during the year ended December 31, 2021, were$12,862. The Company had no proceeds from sales of available-for sale, marketable securities during the year endedDecember 31, 2021, therefore no realized gains or losses from the sale of available for sale marketable securitieswere recognized. NOTE 4 - INVENTORIES A.Composition: As of December 31, 2 0 2 1 2 0 2 0 Raw materials 22,953 17,511 Service inventory 19,838 16,860 Work in process 19,125 16,364 Finished goods 16,749 10,999 78,665 61,734 B.In the years ended December 31, 2021, 2020 and 2019, the Company wrote down inventories in a total amount of$5,126, $5,664 and $4,435, respectively. NOTE 5 - OTHER CURRENT ASSETS As of December 31, 2 0 2 1 2 0 2 0 Governmental institutions 4,447 5,776 Prepaid expenses 4,412 3,331 Other 383 675 9,242 9,782 F - 21 NOVA LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(U.S. dollars in thousands, except share and per share data) NOTE 6 - PROPERTY AND EQUIPMENT, NET As of December 31, 2 0 2 1 2 0 2 0 Cost: Electronic equipment 48,604 43,671 Office furniture and equipment 5,006 4,828 Leasehold improvements 24,217 27,853 77,827 76,352 Accumulated depreciation: Electronic equipment 35,040 32,019 Office furniture and equipment 2,755 1,554 Leasehold improvements 5,572 8,611 43,367 42,184 Net book value 34,460 34,168 Depreciation expenses amounted to $6,475, $5,875 and $5,401 for the years ended December 31, 2021, 2020 and2019, respectively. NOTE 7 - INTANGIBLE ASSETS Intangible assets originated from the acquisition of ReVera on April 2, 2015. The following is a summary ofintangible assets as of December 31, 2021 and 2020: As of December 31, 2 0 2 1 2 0 2 0 Original amount: Technology 14,232 14,232 Customer relationships 5,191 5,191 19,423 19,423 Accumulated amortization: Technology 12,026 10,108 Customer relationships 4,796 4,256 16,822 14,364 Net book value 2,601 5,059 Amortization expenses amounted as following: Year ended December 31, 2 0 2 1 2 0 2 0 2 0 1 9 Technology 1,918 1,758 1,758 Customer relationships 540 745 867 2,458 2,503 2,625 F - 22 NOVA LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(U.S. dollars in thousands, except share and per share data) NOTE 7 - INTANGIBLE ASSETS (Cont.) Annual amortization expenses are expected as follows: Year ending December 31, 2022 1,378 2023 726 2024 497 2,601 NOTE 8 - OTHER CURRENT LIABILITIES A. Consists of: As of December 31, 2 0 2 1 2 0 2 0 Accrued salaries and fringe benefits 28,176 17,773 Accrued warranty costs (See B below) 8,287 4,839 Governmental institutions 12,372 5,758 Other 50 48 48,885 28,418 B. Accrued Warranty Costs:The Company provides standard warranty coverage on its systems. Parts and labor are covered under the terms ofthe warranty agreement. The Company accounts for the estimated warranty cost as a charge to costs of revenueswhen revenue is recognized.Accrued warranty costs presented in: As of December 31, 2 0 2 1 2 0 2 0 Other current liabilities 8,287 4,839 Other long-term liability 598 313 8,885 5,152 The following table provides the changes in the product warranty accrual for the fiscal years ended December 31,2021 and 2020: As of December 31, 2 0 2 1 2 0 2 0 Balance as of beginning of year 5,152 5,132 Services provided under warranty (8,798) (6,752)Changes in provision 12,531 6,772 Balance as of end of year 8,885 5,152 F - 23 NOVA LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(U.S. dollars in thousands, except share and per share data) NOTE 9 - LIABILITY FOR EMPLOYEE SEVERANCE PAY, NET Israeli law and labor agreements determine the obligations of the Company to make severance payments todismissed employees and to employees leaving employment under certain other circumstances. The obligation forseverance pay benefits, as determined by Israeli law, is based upon length of service and the employee’s mostrecent salary. The liability is partially covered through insurance policies purchased by the Company and depositsin a severance fund. The deposited funds include profits accumulated up to the balance sheet date. The deposited funds may bewithdrawn only upon the fulfillment of the obligation pursuant to Israel's Severance Pay Law, 1963 or laboragreements. Since July 2008, the Company's agreements with new Israeli employees are under Section 14 of the IsraeliSeverance Pay Law, 1963. The Company's contributions for severance pay have replaced its severance obligation. Upon contribution of the full amount of the employee's monthly salary for each year of service, no additionalcalculations are conducted between the parties regarding the matter of severance pay and no additional paymentsare made by the Company to the employee. Labor agreements in Taiwan determine the obligations of the Company to make severance payments to dismissedemployees and to employees leaving employment under certain other circumstances. The obligation for severancepay benefits is based upon length of service and the employee’s average salary. Severance pay expenses for the years ended December 31, 2021, 2020 and 2019, amounted to $818, $617 and$640, respectively (excluding the Company’s contributions for severance pay under section 14). NOTE 10 - CONVERTIBLE SENIOR NOTES, NET In October 2020, the Company issued $175,000 aggregate principal amount, 0% coupon rate, of convertible seniornotes due 2025 and an additional $25,000 aggregate principal amount of such notes pursuant to the exercise in fullof the over-allotment option of the initial purchasers (collectively, “Convertible Notes” or “Notes”). The Convertible Notes are convertible based upon an initial conversion rate of 13.4048 of the Company’s ordinaryshares per $1,000 principal amount of Convertible Notes (equivalent to a conversion price of approximately $74.60per ordinary share). The conversion rate will be subject to adjustment upon the occurrence of certain specifiedevents. The Convertible Notes are senior unsecured obligations of the Company. The Convertible Notes will mature on October 15, 2025, (the "Maturity Date"), unless earlier repurchased,redeemed or converted. Prior to July 15, 2025, a holder may convert all or a portion of its Convertible Notes onlyunder the following circumstances: 1.During any calendar quarter commencing after the calendar quarter ending on March 31, 2021 (and only duringsuch calendar quarter), if the last reported sale price of the Company’s ordinary shares for at least 20 tradingdays (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, thelast trading day of the immediately preceding calendar quarter is greater than or equal to 130% of theconversion price on each applicable trading day; 2.During the five business day period after any 10 consecutive trading day period (“measurement period”) inwhich the trading price, determined pursuant to the terms of the Convertible Notes, per $1,000 principal amountof Convertible Notes for each trading day of the measurement period was less than 98% of the product of thelast reported sale price of the ordinary shares and the conversion rate on each such trading day; 3.If the Company calls such Convertible Notes for redemption in certain circumstances, at any time prior to theclose of business on the second scheduled trading day immediately preceding the redemption date; or 4.Upon the occurrence of specified corporate events. On or after July 15, 2025 until the close of business on the second scheduled trading day immediately preceding theMaturity Date, a holder may convert its Convertible Notes at any time, regardless of the foregoing circumstances. F - 24 NOVA LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(U.S. dollars in thousands, except share and per share data) NOTE 10 - CONVERTIBLE SENIOR NOTES, NET (Cont.) Upon conversion, the Company can pay or deliver cash, ordinary shares or a combination of cash and ordinaryshares, at the Company’s election. The Company may not redeem the notes prior to October 20, 2023, except in the event of certain tax law changes.The Company may, at any time and from time to time, redeem for cash all or any portion of the notes, at theCompany's option, on or after October 20, 2023, if the last reported sale price of the Company`s ordinary shareshas been at least 130% of the conversion price then in effect for at least 20 trading days (whether or notconsecutive) during any 30 consecutive trading day period (including the last trading day of such period) endingon, and including, the trading day immediately preceding the date on which it delivers notice of redemption at aredemption price equal to 100% of the principal amount of the notes to be redeemed, (plus accrued and unpaidspecial interest (if any) to, but excluding, the redemption date). Upon the occurrence of a Fundamental Change as defined in the Indenture, holders may require the Company torepurchase for cash all or any portion of their Convertible Notes at a fundamental change repurchase price equal to100% of the principal amount of the Convertible Notes, (plus accrued and unpaid special interest payable undercertain circumstances set forth in the terms of the Convertible Notes (if any) to, but excluding, the fundamentalchange repurchase date). In addition, in connection with a make-whole fundamental change (as defined in theIndenture), or following our delivery of a notice of redemption, the Company will, in certain circumstances,increase the conversion rate for a holder who elects to convert its notes in connection with such a corporate eventor redemption, as the case may be. As of December 31, 2021, condition 1 as stated above has been met, as the Company share price exceeded theabovementioned threshold. The Notes are therefore convertible as of December 31, 2021 and are classified ascurrent liability. The net carrying amount of the liability and equity components of the Convertible Notes as of December 31, 2021and December 31, 2020 are as follows: As of December 31, Liability component: 2 0 2 1 2 0 2 0 Principal amount 200,000 200,000 Unamortized discount (12,032) (15,032)Unamortized issuance costs (4,931) (6,160)Net carrying amount 183,037 178,808 Equity component, net of issuance costs of $518 and deferred taxes of$1,878 13,770 13,770 Interest expense related to the Convertible Notes was as follows: Year endedDecember 31, 2 0 2 1 2 0 2 0 Amortization of debt discount 3,000 616 Amortization of debt issuance costs 1,229 252 Total financial expense recognized 4,229 868 As of December 31, 2021, the total estimated fair value of the convertible senior notes was approximately$390,000. The fair value of the convertible senior notes is considered to be Level 2 within the fair value hierarchyand was determined based on quoted price of the convertible senior notes in an over-the-counter market. F - 25 NOVA LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(U.S. dollars in thousands, except share and per share data) NOTE 11 - LEASES The Company has operating leases for facilities and vehicles. The Company recognized leased assets of $30,627and corresponding current liabilities of $4,452, and long-term liabilities of $33,450, as of December 31, 2021. TheCompany’s leases have remaining terms of 1 to 9 years, some of which include options to extend the leases for upto additional 10 years. The weighted average remaining lease term was 14.6 years and the weighted averagediscount rate was 4.5% as of December 31, 2021. Lease expenses amounted to $3,935, $4,654 and $5,166 for the years ended December 31, 2021, 2020 and 2019,respectively. The expected discounted and undiscounted lease payments under non-cancelable leases as ofDecember 31, 2021, excluding non-lease components, were as follows: Year 2022 4,508 2023 4,273 2024 4,248 2025 4,028 2026 3,661 2027 and thereafter 33,436 Total lease payments 54,154 Less imputed interest (16,252)Total 37,902 Operating cash flows for operating leases amounted to $4,134, $5,840 and $5,326 for the years ended December31, 2021, 2020 and 2019, respectively. NOTE 12 - COMMITMENTS AND CONTINGENCIESThe Company is obligated under certain agreements with its suppliers to purchase specified items of inventorywhich are expected to be utilized during the years 2022-2026. As of December 31, 2021, non-cancelable purchaseobligations were approximately $190,000. NOTE 13 - SHAREHOLDERS’ EQUITY A.Rights of Shares: Holders of ordinary shares are entitled to participate equally in the payment of cash dividends and bonus shares(stock dividends) and, in the event of the liquidation of the Company, in the distribution of assets after satisfactionof liabilities to creditors. Each ordinary share is entitled to one vote on all matters to be voted on by shareholders. B.Share Repurchase: On November 1, 2018, the Company announced $25,000 share repurchase program. In this framework, throughDecember 31, 2021, the Company repurchased 556,603 ordinary shares for an aggregate amount of $14,509. On October 11, 2020, as part of the authorization of the Senior Convertible Notes Offering (see note 10), theCompany’s board of directors approved and authorized a share repurchase for an aggregate amount of up to$20,000. In this framework, on October 14, 2020, the Company repurchased 170,910 ordinary shares for anaggregate amount of $10,000. All treasury shares have been canceled as of the end of each respective year. C.Equity Based Incentive Plans: The Company’s Board of directors approves, from time to time, equity-based incentive plans, the last of which wasapproved in August 2017. Equity-based incentive plans include stock options, restricted share units and restrictedstock awards to employees, officers and directors. F - 26 NOVA LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(U.S. dollars in thousands, except share and per share data) NOTE 13 - SHAREHOLDERS’ EQUITY (Cont.) Share-based compensation The following table summarizes the effects of share-based compensation resulting from the application of ASC 718included in the Statements of Operations as follows: Year ended December 31, 2 0 2 1 2 0 2 0 2 0 1 9 Cost of Revenues: Product 1,358 927 534 Service 802 437 469 Research and Development 3,994 2,556 2,206 Sales and Marketing 2,221 1,531 1,121 General and Administrative 2,113 1,498 762 Total 10,488 6,949 5,092 As of December 31, 2021, there was $610 of total unrecognized compensation cost related to non-vested employeeoptions and $21,231 of total unrecognized compensation cost related to non-vested employee RSUs. These costsare generally expected to be recognized over a period of four years. Shares Options Share options vest over four years and their contractual term may not exceed 10 years. The exercise price is themarket price at the date of each grant. The weighted average fair value (in dollars) of the options granted during 2021, 2020 and 2019, according toBlack-Scholes option-pricing model, amounted to $35.94, $15.46 and $8.18 per option, respectively. Summary of the status of the Company’s share option plans as of December 31, 2021, as well as changes during theyear then ended, is presented below: 2021 ShareOptions WeightedAverageExercisePrice Outstanding - beginning of year 797,279 22.29 Granted 9,615 102.35 Exercised (236,652) 18.76 Expired and forfeited (84,700) 23.85 Outstanding - year end 485,542 25.33 Options exercisable at year end 327,859 21.09 The aggregate intrinsic value represents the total intrinsic value (the difference between the Company's closingshare market price on the last trading day of the fiscal year and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised theiroptions on the last trading day of the fiscal year. This amount changes based on the fair market value of theCompany's shares. The total intrinsic value of options outstanding as of December 31, 2021 and 2020 was $58,835 and $38,514,respectively. The total intrinsic value of options exercisable as of December 31, 2021 and 2020 was $41,117 and$24,428, respectively. The total intrinsic value of options exercised during the years 2021, 2020 and 2019 was$18,571, $10,463 and $4,570 respectively. F - 27 NOVA LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(U.S. dollars in thousands, except share and per share data) NOTE 13 - SHAREHOLDERS’ EQUITY (Cont.) The following table summarizes information about share options outstanding as of December 31, 2021: Range ofExercisePrices NumberOutstanding WeightedAverageRemainingContractualLife WeightedAverageExercisePrice NumberExercisable WeightedAverageExercisePrice (USdollars) (in years) (US dollars) (USdollars) 10.24-20.00 134,047 1.12 11.53 134,047 11.53 20.01-35.00 309,054 3.61 26.59 185,815 26.85 35.01-50.00 28,635 5.43 46.08 6,948 46.27 50.01-70.00 4,191 5.63 54.67 1,049 54.67 70.01-102.35 9,615 5.48 102.35 - - 485,542 25.33 327,859 21.09 Restricted Share Units Restricted Share Units (“RSU”) grants are rights to receive shares of the Company's ordinary shares on a one-for-one basis and are not entitled to dividends or voting rights, if any, until they are vested. RSU’s vesting schedulesare 25% on each of the first, second, third and fourth anniversaries of the grant date, or, 33% on each of the first,second, and third anniversaries of the grant date. The fair value of such RSU grants is being recognized based onthe accelerated method over the vesting period. Performance based RSU grants vest over a period of 3 years andare subject to certain performance criteria; accordingly, compensation expense is recognized for such awards whenit becomes probable that the related performance condition will be satisfied. 2021 Numberof RSUs Weightedaveragegrantdate fairvalue(USD) Unvested - beginning of year 468,561 39.14 Granted 197,941 103.84 Vested (165,530) 35.88 Canceled (37,771) 41.55 Unvested at year end 463,201 67.79 The total intrinsic value of RSUs vested during the years 2021, 2020 and 2019 was $17,341, $6,344 and $3,513,respectively. NOTE 14 - INCOME TAXES A.Income Tax Regulations (Rules on Bookkeeping by Foreign Invested Companies and Certain Partnershipsand Determination of their Taxable Income), 1986: As a "Controlled Foreign Cooperation" (as defined in the Israeli Law for the Encouragement of CapitalInvestments-1959), the Company's management has elected to apply Income Tax Regulations (Rules forMaintaining Accounting Records of Foreign Invested Companies and Certain Partnerships and Determining TheirTaxable Income)-1986. Accordingly, its taxable income or loss is calculated in US Dollars. F - 28 NOVA LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(U.S. dollars in thousands, except share and per share data) NOTE 14 - INCOME TAXES (Cont.) B.Law for the Encouragement of Capital Investments-1959: Part of the Company’s investment in equipment has received approvals in accordance with the Law for theEncouragement of Capital Investments, 1959 (“Approved Enterprise” status) in three separate investment plans.The Company has chosen to receive its benefits through the “Alternative Benefits” track, and, as such, is eligiblefor various benefits. These benefits include accelerated depreciation of fixed assets used in the investment program,as well as a full tax exemption on undistributed income in relation to income derived from the first plan for a periodof 4 years and for the second and third plans for a period of 2 years. Thereafter a reduced tax rate of 25% will beapplicable for an additional period of up to 3 years for the first plan and 5 years for the second and third plans,commencing with the date on which taxable income is first earned but not later than certain dates. The benefitperiod of the second and third plan have commenced. On April 1, 2005, an amendment to the Investment Law came into effect (“the Amendment”) and has significantlychanged the provisions of the Investment Law. The Amendment limits the scope of enterprises which may beapproved by the Investment Center by setting criteria for the approval of a facility as a Privileged Enterprise, suchas provisions generally requiring that at least 25% of the Privileged Enterprise’s Income will be derived fromexport. Additionally, the Amendment enacted major changes in the manner in which tax benefits are awarded underthe Investment Law so that companies no longer require Investment Center approval in order to qualify for taxbenefits. However, the Investment Law provides that terms and benefits included in any certificate of approval alreadygranted will remain subject to the provisions of the law as they were on the date of such approval. Therefore, theIsraeli companies with Approved Enterprise status will generally not be subject to the provisions of theAmendment. The entitlement to the above benefits is conditional upon the Company fulfilling the conditions stipulated by theabove law, regulations published thereunder and the instruments of approval for the specific investments in"Approved Enterprises". In the event of failure to comply with these conditions, the benefits may be canceled, andthe Company may be required to refund the amount of the benefits, in whole or in part, including interest. In the event of distribution by the Company of a cash dividend out of retained earnings that were tax exempt due toits Approved Enterprise status, the Company would have to pay corporate tax of 10% - 25% on the income fromwhich the dividend was distributed based on the extent to which non-Israeli shareholders hold Company’s shares. A15% withholding tax may be deducted from dividends distributed to the recipients. On November 15, 2021 a new amendment of the Investment Law (“the Amendment’) was enacted (i) providing areduced corporate income tax on the Trapped Profits distributed within a year from such amendment. The reducedcorporate income tax is based on a certain formula and subject to reinvestment of certain amounts in enumeratedassets/activities; (ii) harshening the rules with respect to determining the profits from which a dividend wasdistributed and providing that part of any dividend distribution, will be deemed as distributed from the TrappedProfits, according to a certain formula. During December 2021, as part of the Tax Assessment audit for the years 2016-2019, the Company entered into anagreement with the Israeli Tax Authorities and opted-in with the new Amendment. The reduced corporate incometax on the Trapped Profits resulted in income tax expenses (net of reductions of uncertain tax positions provisions)of approximately $3.7M, and was included in the 2021 consolidated statements of operations. In 2008, the Company submitted a request to approve a new plan (fourth plan) as a Privileged Enterprise inaccordance with the Amendment to the Investment Law. The commencing year was 2010, and the expiration yearwas 2021. F - 29 NOVA LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS( U.S. dollars in thousands, except share and per share data) NOTE 14 - INCOME TAXES (Cont.) In 2011, new legislation amending to the Investment Law was adopted. Under this new legislation, a uniformcorporate tax rate will apply to all qualifying income of certain Industrial Companies (Requirement of a minimumexport of 25% of the company's total turnover), as opposed to the current law's incentives, which are limited toincome from Approved Enterprises during their benefits period. Under the new law, the uniform tax rate will be10% in areas in Israel designated as Development Zone A and 15% elsewhere in Israel during 2011-2012, 7% and12.5%, respectively, in 2013-2014, and 6% and 12%, respectively thereafter. The profits of these IndustrialCompanies will be freely distributable as dividends, subject to a 15% withholding tax (or lower, under anapplicable tax treaty). Under the transition provisions of the new legislation, the Company may decide to irrevocably implement the newlaw while waiving benefits provided under the current law or to remain subject to the current law. In August 2013 "The Arrangements Law" (hereinafter—"the Law") was officially published. The followingsignificant changes affecting taxation were approved: 1. The tax rate on a company in Development area A, effective January 1, 2014 is 9% (instead of 7% in 2014 and6% in 2015 and thereafter), and the tax rate for companies in all other areas will be 16% (instead of 12.5% in2014 and 12% in 2015 and thereafter). 2. The tax rate on dividend distributed, generated from "preferred income" or by a company that has an approvedenterprise increased effective January 1, 2014 from 15% to 20%. In 2016, most of the Company’s taxable income in Israel was attributable to Preferred Enterprises, with a relatedtax rate of 16%. In 2015 and 2014, most of the Company’s taxable income in Israel was attributable to ApprovedEnterprise programs with zero tax. C.The New Technological Enterprise Incentives Regime - Amendment 73 to the Investment Law In December 2016, the Economic Efficiency Law (Legislative Amendments for Applying the Economic Policy forthe 2017 and 2018 Budget Years), 2016 which includes Amendment 73 to the Law for the Encouragement ofCapital Investments ("the 2017 Amendment") was published. According to the 2017 Amendment, Technologicalpreferred enterprise, as defined in the Law for the Encouragement of Capital Investments, 1959 ("theEncouragement Law"), with total consolidated revenues of less than NIS 10 billion, shall be subject to 12% tax rateon income deriving from intellectual property (in development area A - a tax rate of 7.5%). Any dividends distributed deriving from income from the preferred technological enterprises will be subject to taxat a rate of 20%. The 2017 Amendment further provides that, in certain circumstances, a dividend distributed to aforeign corporate shareholder, would be subject to a 4% tax rate (if the percentage of foreign investors exceeds90%). The Company assessed the criteria for qualifying to a “Preferred Technological Enterprise,” status and concludedthat the Israeli entity is entitled to the above-mentioned benefits. The Company implemented the new incentives inits tax calculations starting 2017. D.The Tax Cuts and Jobs Act, 2017: On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (the “US Tax Act”) that instituted fundamentalchanges to the taxation of multinational corporations. The Tax Act includes significant changes to the U.S.corporate income tax system, including a Federal corporate rate reduction from 35% to 21%, adjustments to rulesrelating to limitations on the deductibility of interest expense and executive compensation, the transition of U.S.international taxation from a worldwide tax system to a territorial tax system, foreign derived intangible incomededuction, rules that impact the utilization of US NOLs and other corporate tax provisions. F - 30 NOVA LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS( U.S. dollars in thousands, except share and per share data) NOTE 14 - INCOME TAXES (Cont.) Foreign-Derived Intangible Income: The 2017 Tax Act provides tax incentives to U.S. companies to earn income from the sale, lease or license of goodsand services abroad (i.e., the portion of a domestic corporation’s intangible income that is derived from servingforeign markets) in the form of a deduction for foreign-derived intangible income (“FDII”). FDII is taxed at aneffective rate of 13.125% for taxable years beginning after December 31, 2017 and at an effective rate of 16.406%for taxable years beginning after December 31, 2025. The accounting for the deduction for FDII is similar to aspecial deduction and should be accounted for based on the guidance in ASC 740-10-25-37. The tax benefits forspecial deductions ordinarily are recognized no earlier than the year in which they are deductible on a tax return. E.Deferred Taxes: Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assetsand liabilities for financial reporting purposes and the amounts used for income tax purposes. Significantcomponents of the deferred tax assets are as follows: As of December 31, 2 0 2 1 2 0 2 0 Deferred tax assets: Net operating loss carryforwards 501 505 Tax credits carryforward 1,052 740 Reserve and allowances 8,692 5,504 Operating lease liabilities, net 328 344 Deferred tax assets before valuation allowance 10,573 7,093 Valuation Allowance (1,737) (1,311)Deferred tax assets after valuation allowance 8,836 5,782 Deferred tax liabilities: Convertible senior notes (1,444) (1,804)Intangible assets (578) (1,109)Reserve and allowances (653) - Deferred tax liabilities (2,675) (2,913) Deferred tax assets 6,161 2,869 Long-term deferred tax assets: Year endedDecember 31, 2 0 2 1 2 0 2 0 Domestic 3,414 2,011 Foreign 2,747 858 6,161 2,869 Under ASC 740-10, deferred tax assets are to be recognized for the anticipated tax benefits associated with netoperating loss and tax credits carry-forwards and deductible temporary differences; unless it is more-likely-than-notthat some or all of the deferred tax assets will not be realized. F - 31 NOVA LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS( U.S. dollars in thousands, except share and per share data) NOTE 14 - INCOME TAXES (Cont.) F.Income before taxes on income included in the consolidated statements of operations: Year ended December 31, 2 0 2 1 2 0 2 0 2 0 1 9 Domestic 76,400 42,164 25,803 Foreign (mainly US) 32,853 14,332 13,683 109,253 56,496 39,486 G.Income tax expenses (tax benefits) included in the consolidated statements of operations: Year ended December 31, 2 0 2 1 2 0 2 0 2 0 1 9 Domestic 12,297 7,238 4,482 Foreign (mainly US) 3,855 1,351 (167) 16,152 8,589 4,315 Current 19,311 9,620 3,340 Deferred (3,159) (1,031) 975 16,152 8,589 4,315 H.Tax Reconciliation: The following is a reconciliation of the theoretical tax expense, assuming that all income is taxed at the ordinarystatutory average corporate tax rate in Israel and the actual tax expense in the statement of operations, is as follows: Year ended December 31, 2 0 2 1 2 0 2 0 2 0 1 9 Income before taxes on income 109,253 56,496 39,486 Statutory tax expenses 13,110 6,780 5,042 Effect of non-benefited income New Technological orPreferred Enterprises statuses in Israel 88 130 144 Permanent differences, including difference between the basisof measurement of income reported for tax purposes and thebasis of measurement of income for financial reportingpurposes, net (448) (199) (131)Change in tax reserve for uncertain tax positions (713) 1,806 850 Effect of foreign operations taxed at various rates 3,249 1,381 1,173 Foreign Derived Intangible Income benefit (1,785) (526) (768)Tax credits (1,592) (1,526) (777)Trapped Profits agreement net effect 3,716 - - Adjustments for previous year’s tax (113) 249 (2,121)Change in valuation allowance 601 413 898 Other 39 81 5 3,042 1,809 (727)Actual tax expenses 16,152 8,589 4,315 F - 32 NOVA LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS( U.S. dollars in thousands, except share and per share data) NOTE 14 - INCOME TAXESNOTE (Cont.) I.Effective Tax Rates: The Company’s effective tax rates differ from the statutory rates applicable to the Company for tax year 2021,primarily due to stock-based compensation deductible expenses, tax credits and foreign derived intangible incomebenefit in the US. The Company’s effective tax rates differ from the statutory rates applicable to the Company for tax year 2020,primarily due to tax credits and foreign derived income benefit in the US. J.Tax Assessments: In December 2021 the Parent Company has received final tax assessments for the years 2016-2019 from the IsraeliTax Authorities. For the US subsidiary, with regards to any tax years starting 2015 and any tax attributes carryforwards from priorperiods remain subject to examination in future periods (under the standard US statute of limitation and subject totax filing). The other subsidiaries received final tax assessments through tax years 2012 until 2016. K.Undistributed earnings of foreign subsidiaries: The Company considers the earnings of certain subsidiaries to be indefinitely invested outside Israel on the basis ofestimates that future domestic cash generation will be sufficient to meet future domestic cash needs and theCompany’s specific plans for reinvestment of those subsidiary earnings. The Company has not recorded a deferredtax liability of approximately $18,381 related to the Israel income taxes of undistributed earnings of foreignsubsidiaries indefinitely invested outside Israel. Should the Company decide to repatriate the foreign earnings, theCompany would need to adjust the Company’s income tax provision in the period the Company determined that theearnings will no longer be indefinitely invested outside Israel. L.Uncertain Tax Positions: The taxation of the Company's business is subject to the application of multiple and sometimes conflicting tax lawsand regulations as well as multinational tax conventions. The application of tax laws and regulations is subject tolegal and factual interpretation, judgment and uncertainty. In addition, the Company classifies interest and penalties recognized in the financial statements relating touncertain tax position under the income taxes line item. Tax laws themselves are subject to change as a result of changes in fiscal policy, changes in legislation and theevolution of regulations and court rulings. Consequently, taxing authorities may impose tax assessments orjudgments against the Company that could materially impact its tax liability and/or its effective income tax rate. The Company believes that it has adequately provided for any reasonably foreseeable outcomes related to taxaudits and settlement. The final tax outcome of its tax audits could be different from that which is reflected in theCompany’s income tax provisions and accruals. Such differences could have a material effect on the Company’sincome tax provision and net income in the period in which such determination is made. The following table summarizes the changes in uncertain tax positions: As of December 31, 2 0 2 1 2 0 2 0 Balance at the beginning of the year 11,080 7,738 Increase related to prior year tax positions 271 1,950 Decrease related to prior year tax positions (4,403) (622)Increase related to current year tax positions 1,187 2,014 Balance at the end of the year* 8,135 11,080 F - 33 NOVA LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS( U.S. dollars in thousands, except share and per share data) NOTE 14 - INCOME TAXES (Cont.) * The amount for the year ended December 31, 2021 and 2020 includes $2,412 and $2,280 unrecognized taxbenefits, respectively, which are presented as a reduction from deferred tax assets, see Note 14e. The Company recognizes interest and penalties related to unrecognized tax benefits as a component of income taxexpenses. M.Income from Other Sources in Israel: Income not eligible for benefits under the New Technological Enterprise Laws mentioned in ”C” above are taxed atthe corporate tax rate of 23%. NOTE 15 - GEOGRAPHIC AREAS AND MAJOR CUSTOMERS A.Sales by Geographic Area (as Percentage of Total Sales): Year ended December 31, 2 0 2 1 2 0 2 0 2 0 1 9 % % % Taiwan, R.O.C. 37 33 37 USA 23 23 25 China 21 19 18 Korea 11 17 9 Other 8 8 11 Total 100 100 100 Revenues are attributed to countries based on the geographic location of the customer. B.Sales by Major Customers (as Percentage of Total Sales): Year ended December 31, 2 0 2 1 2 0 2 0 2 0 1 9 % % % Customer A 31 26 27 Customer B 21 24 16 Customer C 9 8 13 C.Long-lived assets by geographic location: As of December 31, 2 0 2 1 2 0 2 0 % % Israel 74 75 US 19 20 Other 7 5 Total long-lived assets (*) 100 100 (*) Long-lived assets are comprised of property and equipment, net and operating lease right-of-use assets. F - 34 NOVA LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS( U.S. dollars in thousands, except share and per share data) NOTE 16 - FINANCIAL INSTRUMENTS A.Hedging Activities The Company enters into forward contracts, and currency options to hedge its balance sheet exposure as well ascertain future cash flows in connection with certain operating expenses (mainly payroll expense) and forecasttransactions which are expected to be denominated mainly in New Israeli Shekel ("NIS"). The Company is exposedto losses in the event of non-performance by counterparties to financial instruments; however, as the counterpartiesare major Israeli banks, credit risk is considered immaterial. The Company does not hold or issue derivatives fortrading purposes. The notional amounts of the hedging instruments as of December 31, 2021 and December 31,2020 were $32,590, and $17,675 respectively. The terms of all of these currency derivatives are less than one year. B.Derivative Instruments The fair value of derivative contracts as of December 31, 2020 and December 31, 2019 was as follows: Derivative AssetsReported in OtherCurrent Assets DerivativeLiabilities Reportedin Other CurrentLiabilities December 31, December 31, 2 0 2 1 2 0 2 0 2 0 2 1 2 0 2 0 Derivatives designated as hedging instruments incash flow hedge 249 644 - - The impact of derivative instrument on total operating expenses in the year ended December 31, 2021, 2020 and2019 was: Year ended December 31, 2 0 2 1 2 0 2 0 2 0 1 9 Loss (gain) on derivative instruments $453 $796 $33 NOTE 17 - FINANCIAL INCOME (EXPENSE), NET Year ended December 31, 2 0 2 1 2 0 2 0 2 0 1 9 Interest income 2,194 4,057 4,605 Financial expense related to the Convertible Senior Notes(Note 10) (4,229) (868) - Exchange rate loss, net (948) (2,172) (1,428)Bank charges (150) (91) (99)Total (3,133) 926 3,078 NOTE 18 - SUBSEQUENT EVENTS On January 25, 2022, the Company completed its acquisition of all of the outstanding common stock of ancosysGmbH, a provider of chemical analysis and metrology solutions for advanced semiconductor manufacturing. TheCompany’s total consideration is expected to be approximately $90 million in cash including a performance basedcontingent consideration of $10 million. During the year ended December 31, 2021 the Company recognized $999 of acquisition-related costs in theconsolidated statements of operations under general and administrative expenses. F - 35 EXHIBIT INDEX NumberDescription1.1Amended and Restated Articles of Association (filed herewith)2.1Description of Securities (filed herewith)4.22007 Incentive Plan, as amended (incorporated by reference to Exhibit 4.2 to the Company’s Annual Report on Form20-F filed with the Securities and Exchange Commission on February 25, 2015)4.32017 Share Incentive Plan (incorporated by reference to Exhibit 99.1 to the Company’s Registration Statement on FormS-8 filed with the Securities and Exchange Commission on August 25, 2017 (File No. 333-220158)4.4Form of Indemnification Agreement between the Company and its present and future directors and officers (filedherewith)4.5Share Purchase Agreement dated November 16, 2021 by and among Nova Ltd., Nova Measuring Instruments GmbH,ancosys GmbH, and the Representative (named therein) (filed herewith) Portions of this exhibit have been redacted incompliance with SEC regulations4.6Summary of lease agreement dated May 28, 2000, as amended and supplemented (incorporated by reference to Exhibit4.4 to the Company’s Annual Report on Form 20-F filed with the Securities and Exchange Commission on March 3,2017)4.7Compensation Policy for Executive Officers and Directors (incorporated by reference to Exhibit 4.6 to the Company’sAnnual Report on Form 20-F filed with the Securities and Exchange Commission on March 1, 2020)4.8Summary of lease agreement dated May 3, 2018, by and between the Company and Bayside Land Corporation Ltd.(incorporated by reference to Exhibit 4.7 to the Company’s Annual Report on Form 20-F filed with the Securities andExchange Commission on February 28, 2019).8.1List of Subsidiaries (filed herewith).12.1Certification required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended (filed herewith).12.2Certification required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended (filed herewith).13.1Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).13.2Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).15.1Consent of Kost Forer Gabbay & Kasierer (filed herewith).101.INSInline XBRL Instance Document—the instance document does not appear in the Interactive Data File as its XBRL tagsare embedded within the Inline XBRL document101.SCHInline XBRL Taxonomy Extension Schema101.CALInline XBRL Taxonomy Extension Calculation Linkbase101.DEFInline XBRL Taxonomy Extension Definition Linkbase101.LABInline XBRL Taxonomy Extension Label Linkbase101.PREInline XBRL Taxonomy Extension Presentation Linkbase104Cover page formatted as Inline XBRL and contained in Exhibit 101 107 SIGNATURES The registrant hereby certifies that it meets all of the requirements for filing on Form 20‑F and has duly caused and authorizedthe undersigned to sign this Annual Report on its behalf. NOVA LTD. By: /s/ Eitan OppenhaimEitan OppenhaimPresident and Chief Executive Officer Date: March 1, 2022 108Exhibit 1.1NOVA LTD.AMENDED AND RESTATED ARTICLES OF ASSOCIATIONAs Last Amended: June 24, 2021TABLE OF CONTENTSINTERPRETATION1NAME OF THE COMPANY2PURPOSE2PUBLIC COMPANY2LIMITED LIABILITY2CAPITAL, SHARES AND RIGHTS3SHARE CERTIFICATES3REGISTERED HOLDER3TRANSFER OF SHARES3TRANSMISSION OF SHARES4ALTERATIONS OF THE REGISTERED CAPITAL4MODIFICATION OF CLASS RIGHTS5BORROWING POWERS5GENERAL MEETINGS5Notice of General Meetings6PROCEEDINGS AT GENERAL MEETINGS6Quorum6Chairman of the General Meeting6VOTE OF SHAREHOLDERS6DIRECTORS7Powers, Number of Directors, Composition & Election7Remuneration8Chairman of the Board8PROCEEDINGS OF THE DIRECTORS8Quorum8Methods of Attending Meetings8Alternate Director9Committees9Records & Validity of Acts9Chief Executive Officer10INSURANCE, EXCULPATION, AND INDEMNITY10Insurance of Office Holders10Indemnity of Office Holders10Advance Indemnity10Retroactive Indemnity11Exculpation11Insurance, Exculpation and Indemnity – General11APPOINTMENT OF AN AUDITOR11INTERNAL AUDITOR12MERGER AND REORGANIZATION12SIGNATORIES12DISTRIBUTIONS12REDEEMABLE SECURITIES12DONATIONS12NOTICES13JURISDICTION13 AMENDED AND RESTATED ARTICLES OF ASSOCIATION of NOVA LTD. INTERPRETATION1.In these Articles the following terms shall bear the meanings set opposite to them, unless inconsistent with the subject or context:ArticlesThese Amended and Restated Articles of Association as may be amended from time to time.AuditorAs defined under the Law.BoardThe Board of Directors of the Company.CEOChief Executive Officer, also referred to under the Law as the general manager.Class MeetingA meeting of the holders of a class of shares.ChairmanChairman of the Board.CompanyNova Ltd.Companies RegulationsAll regulations promulgated from time to time under the Companies Law.DistributionAs defined under the Law.External DirectorAs defined under the Law.The Law or the Companies LawThe Israeli Companies Law, 5759 - 1999 and the Companies Regulations.NISNew Israeli ShekelThe OfficeThe registered office of the Company as may be re-located from time to time.Office HolderAs defined under the Law.Ordinary SharesThe Company’s Ordinary Shares, with no par value.RegisterShareholders Register maintained by or on behalf of the Company.ShareholderAs defined under the Law.1Simple MajorityA majority of more than fifty percent (50%) of the votes cast by those Shareholders present and voting, not takinginto consideration abstaining votes.The StatutesThe Law, the Israeli Companies Ordinance (New Version) 1983, the Securities Law, 5738 - 1968 (the “SecuritiesLaw”) and all applicable laws and regulations applicable in any relevant jurisdiction (including without limitationU.S. Federal laws and regulations), and rules of any stock market in which the Company’s shares are registered fortrading as shall be in force from time to time and to the extent applicable to the Company.Except as otherwise provided above or elsewhere under these Articles, any word or expression mentioned herein shall have the meaning ascribed to them underthe Law, and if not applicable, the meaning ascribed to them under the Companies Regulations, and if not applicable, the meaning ascribed to them under theSecurities Law, and if not applicable, the meaning ascribed to them under the Securities Regulations promulgated under the Securities Law (herein the"Securities Regulations"), and if not applicable, the meaning ascribed to them under any other applicable law - in all cases if the meaning set forth therein doesnot contradict the purpose or the context of the relevant provision.2.Words importing the singular shall include the plural, and vice-versa. Words importing the masculine gender shall include the feminine gender; andwords importing persons shall include corporate bodies. Any provision or part thereof of these Articles, prohibited by applicable law, shall be ineffective, without invalidating any other part of these Articles. Articles 3,4,5,6 and 7 of these Articles shall be deemed to be the Memorandum of Association of the Company. NAME OF THE COMPANY3.The name of the Company is Nova Ltd. PURPOSE4.The purposes of the Company shall be to engage in the types of pursuits specified below:4.1.To invent, design, plan, develop, manufacture, market and trade in the field of measuring instruments in electronics, micro-electronics,medicine, chemistry, metallurgy, ceramics, and any other field. 4.2.To initiate, participate, manage, execute, import and export any kind of project within the boarders of the State of Israel and/or outsideIsrael. 4.3.To register patents, trademarks, trade names, intellectual property rights marketing rights and any other right of any kind whatsoever, both inIsrael and abroad.4.4.To engage in any legal activity, both in Israel and abroad.All purposes above shall be in addition to one another and none shall derogate from the other.4A.The Company’s headquarters shall be located in Israel, unless the Board shall otherwise resolve, by a resolution approved by at least 75% of themembers of the Board then in office. PUBLIC COMPANY5.The Company is a public company pursuant to the Companies Law. LIMITED LIABILITY6.The liability of each Shareholder for the Company's debts is limited to the full payment of the original issue price of the shares first allotted to suchShareholder or his predecessors. Once such price is paid by the original owner of shares, there is no further liability of the holder and such holder’stransferees for the Company’s debts. 2 CAPITAL, SHARES AND RIGHTS7.The registered share capital of the Company shall consist of 60,000,000 (sixty million) Ordinary Shares with no par value. 8.All issued and outstanding shares of the Company of the same class are of equal rights between them for all intents and purposes concerning the rightsset forth below. 9.Each issued Ordinary Share entitles its holder to the rights as described below: 9.1.The equal right to participate in and vote at the Company's general meetings, whether ordinary meetings or special meetings, and each of theshares in the Company shall entitle the holder thereof, who is present at the meeting and participating in the vote, whether in person, or byproxy, to one vote. 9.2.The equal right to participate in any Distribution.9.3.The equal right to participate in the distribution of assets available for distribution in the event of liquidation of the Company. 10.If two or more persons are registered as joint holders of any shares, any one of such persons may give effectual receipts for any dividend or other moniesin respect of such share and his or her confirmation will bind all holders of such share. 11.[Reserved]. 12.A Shareholder shall not be entitled to rights as a Shareholder, including the right to dividends, unless said Shareholder fully paid all sums in accordancewith the conditions of the allocation, including interest, linkage and expenses, if any, and all unless otherwise determined in the conditions of theallocation. SHARE CERTIFICATES13.A shareholder who is registered in the Register is entitled to receive from the Company, without payment and at such shareholder’s request, within aperiod of three months after the allocation or registration of the transfer, one share certificate with respect to all the shares registered in his name, whichshall specify the aggregate number of the shares held by such shareholder. In the event of a jointly held share, the Company shall issue one sharecertificate for all the joint holders of the share, and the delivery of such certificate to one of the joint holders shall be deemed to be delivery to all ofthem. Every certificate shall bear the Company’s seal or a facsimile copy thereof and be signed by two Office Holders of the Company, or one directorand the Company's secretary or by any other person appointed by the Board for such purpose. 14.The Company may issue a new certificate in lieu of a certificate that was issued and was lost, defaced, or destroyed, on the basis of such proof andguarantees as the Company may require, and after payment of an amount that shall be prescribed by the Company, and the Company may also replaceexisting certificates with new certificates, free of charge, subject to such conditions as the Company shall stipulate. REGISTERED HOLDER15.Except as otherwise provided in these Articles, the Company shall be entitled to treat the registered holder of any share as the absolute owner thereof,and, accordingly, shall not, except as ordered by a court of competent jurisdiction, or as required by statute, be bound to recognize any equitable or otherclaim to, or interest in such share on the part of any other person. 16.To the extent required by the Law a trustee must inform the Company of the fact that such trustee is holding shares of the Company in trust for anotherperson at such time as may be required by the Law. The Company shall register that fact in the Register in respect of such shares. The trustee shall bedeemed to be the sole holder of said shares. TRANSFER OF SHARES17.Subject to the Statutes, and subject to any applicable agreements or undertakings of any specific shareholder, the shares shall be freely transferable. 18.Transfer of registered shares shall be made in writing or any other manner, in a form specified by the Board or the transfer agent appointed by theCompany, and such transfer form should be signed by both the transferee and the transferor and delivered to the Office or to such transfer agent, togetherwith the certificates of the shares due to be transferred, if such certificates have been issued. The transferee shall be deemed to be the shareholder withrespect to the transferred shares only from the date of registration of his name in the Register.19.The Board may close the Register and suspend the registration of transfers for such period of time as the Board shall deem fit, provided that the period ofclosure of any such book shall not exceed 30 days each year. The Company shall notify the shareholders of such decision. 3TRANSMISSION OF SHARES20.In the case of the death, liquidation, bankruptcy, dissolution, winding-up or a similar occurrence of a Shareholder, the legal successors of suchShareholder shall be the only persons recognized by the Company as having any title to such shares, but nothing herein contained shall release the estateof the predecessor from any liability in respect of such shares. 21.The legal successors may, upon producing such evidence of title as the Board shall require, be registered themselves as holders of the shares, or subjectto the provisions as to transfers herein contained, transfer the same to some other person. ALTERATIONS OF THE REGISTERED CAPITAL22.(a) Subject to the Statutes, a general meeting of shareholders may from time to time resolve to: (1)Alter or add classes of shares that shall constitute the Company's authorized capital, including shares with preference rights, deferredrights, conversion rights or any other special rights or limitations. (2)Increase the Company's registered share capital by creating new shares either of an existing class or of a new class. (3)Consolidate and/or split all or any of its share capital. (4)Cancel any registered shares not yet allocated, provided that the Company has made no commitment to allocate such shares. (5)Reduce the Company’s share capital and any reserved fund for redemption of capital. (b) In executing any resolution adopted according to Article 22(a) above, the Board may, at its discretion, resolve any related issues. (c) If as a result of a consolidation or split of shares authorized under these Articles, fractions of a Share will stand to the credit of any Shareholder,the Board is authorized at its discretion, to act as follows: (1)Determine that fractions of shares that do not entitle their owners to a whole Share, will be sold by the Company and that theconsideration for the sale be paid to the beneficiaries, on terms the Board may determine; (2)Allot to every Shareholder, who holds a fraction of a Share resulting from a consolidation and/or split, shares of the class that existed priorto the consolidation and/or split, in a quantity that, when consolidated with the fraction, will constitute a whole Share, and such allotmentwill be considered valid immediately prior to the consolidation or split; (3)Determine the manner for paying the amounts to be paid for shares allotted in accordance with Article 22(c)(2) above, including onaccount of bonus shares; and/or (4)Determine that the owners of fractions of shares will not be entitled to receive a whole Share in respect of a Share fraction. 23.Except as otherwise provided by or pursuant to these Articles or by the conditions of issue, any new share capital shall be considered as part of theoriginal share capital, and shall be subject to the same provisions of these Articles with reference to payment of calls, lien, transfer, transmission,forfeiture and otherwise, which applies to the original share capital.4 MODIFICATION OF CLASS RIGHTS24.If at any time the share capital is divided into different classes of shares, any change to the rights and privileges of the holders of any such class of sharesshall require the approval of a Class Meeting of such class of shares by a Simple Majority (unless otherwise provided by the Statutes or by the terms ofissue of the shares of that class). 25.The rights and privileges of the holders of any class of shares shall not be deemed to have been altered by creating or issuing shares of any class,including a new class (unless otherwise provided by the terms of issue of the shares of that class). BORROWING POWERS26.The Company may, by resolution of the Board, from time to time, raise or borrow or secure the payment of any sum or sums of money for the purposesof the Company. The Company, by resolution of the Board, may also raise or secure the payment or repayment of such sum or sums in such manner andupon such terms and conditions in all respects as it deems fit, and in particular by the issue of debentures or debenture stock of the Company chargedupon all or any part of the property of the Company (both present and future) including its unissued and/or its uncalled capital for the time being.Issuance of any series of debentures shall require Board approval. GENERAL MEETINGS27.Annual general meetings shall be held at least once a calendar year, at such place and time as determined by the Board, but not later than fifteen (15)months after the last annual general meeting. Such general meetings shall be called "Annual Meetings" and all other general meetings of the Companyshall be called "Special Meetings". The Annual Meeting shall review the Company's financial statements and shall transact any other business requiredpursuant to these Articles or to the Law, and any other matter as shall be determined by the Board. Annual Meetings and Special Meetings shall beconvened in Israel, unless the Company’s headquarters shall have been transferred to another country in accordance with the provisions of these Articles. 28.The Board may convene a Special Meeting by its resolution, and is required to convene a Special Meeting should it receive a request, in writing, from aperson or persons entitled, under the Companies Law, to request such meeting. Any request for convening a meeting must specify the purposes for which the meeting is to be called, shall be signed by the persons requesting themeeting, and shall be delivered to the Company's registered offices. 29.In addition, subject to the Law, the Board may accept a request of a shareholder holding not less than 1% of the voting rights at the general meeting toinclude a subject in the agenda of a general meeting, provided that such subject is a proper subject for action by shareholders under the Law and theseArticles and only if the request also sets forth: (a) the name and address of the Shareholder making the request; (b) a representation that the Shareholderis a holder of record of shares of the Company, holding not less than 1% of the voting rights at the general meeting and intends to appear in person or byproxy at the meeting; (c) a description of all arrangements or understandings between the Shareholder and any other person or persons (naming suchperson or persons) in connection with the subject which is requested to be included in the agenda; and (d) a declaration that all the information that isrequired under the Law and any other applicable law to be provided to the Company in connection with such subject, if any, has been provided. Inaddition, if such subject includes a nomination to the Board in accordance with the Articles, the request shall also set forth the consent of each nomineeto serve as a director of the Company if so elected and a declaration signed by each nominee declaring that there is no limitation under the Law for theappointment of such nominee. Furthermore, the Board, may, in its discretion to the extent it deems necessary, request that the Shareholders making therequest provide additional information necessary so as to include a subject in the agenda of a general meeting, as the Board may reasonably require. 30.Subject to applicable law, the Board shall determine the agenda of any general meeting.5 Notice of General Meetings31.Unless otherwise required by the Law and these Articles, the Company is not required to give notice under section 69 of the Companies Law.PROCEEDINGS AT GENERAL MEETINGSQuorum32.No business shall be transacted at any general meeting of the Company unless a quorum of Shareholders is present at the opening of the Meeting. Except as provided in the following Article with regard to an adjourned Meeting, the quorum for any general meeting shall be the presence of at leasttwo Shareholders in person or by proxy (including by voting deed) holding 33 1/3% or more of the voting rights in the Company. For this purpose,abstaining shareholders shall be deemed present at the Meeting. 33.If within half an hour from the time appointed for the holding of a general meeting a quorum is not present, the general meeting shall stand adjournedone day thereafter at the same time and place or to such other day, time and place as the Board may indicate in a notice to the Shareholders. At suchadjourned Meeting any number of Shareholders shall constitute a quorum for the business for which the original Meeting was called. Chairman of the General Meeting34.The Chairman shall preside as the chairman at every general meeting, but if there shall be no such Chairman or if at any meeting the Chairman shall notbe present within fifteen (15) minutes after the time appointed for holding the same, or shall be unwilling to act as chairman, then the Board memberspresent at the meeting shall choose one of the Board members as chairman of the meeting and if they shall not do so then the Shareholders present shallchoose a Board member, or if no Board member be present or if all the Board members present decline to take the chair, they shall choose any otherperson present to be chairman of the meeting. 35.The chairman may, with the consent of a general meeting at which a quorum is present, and shall if so directed by the general meeting, adjourn anymeeting, discussion or the resolution with respect to a matter that is on the agenda, from time to time and from place to place as the meeting shalldetermine. Except as may be required by the Law, no Shareholder shall be entitled to any notice of an adjournment or of the business to be transacted atan adjourned meeting. No business shall be transacted at any adjourned meeting other than the business which might have been transacted at the meetingfrom which the adjournment took place. 36.A vote in respect of the election of the chairman of the meeting or regarding a resolution to adjourn the meeting shall be carried out immediately. Allother matters shall be voted upon during the meeting at such time and order as decided by the chairman. VOTE OF SHAREHOLDERS37.All resolutions proposed at any general meeting will require a Simple Majority, unless otherwise required by the Statutes or these Articles. Except asotherwise required by the Statues or these Articles, alteration or amendment of these Articles shall require a Simple Majority. Notwithstanding anythingin these Articles to the contrary, the provisions of Articles 4A, 27 (last sentence), 37, 50, 60(i) and 94 may only be amended by a resolution at the generalmeeting of the Company, provided however, that such amendment was also approved by a resolution of at least 75% of the members of the Board then inoffice, at a session of the Board which has taken place prior to the general meeting. 38.A declaration by the chairman of the meeting that a resolution has been carried, or has been carried unanimously or by a particular majority, or rejected,or not carried by a particular majority and an entry to that effect in the minutes of the meeting shall be prima facie evidence thereof. 39.The chairman of the meeting will not have a second and/or a casting vote. If the vote is tied with regard to a certain proposed resolution such proposalshall be deemed rejected. 40.If two or more persons are jointly entitled to a share, the vote of the senior one who tenders a vote, whether in person or by proxy, shall be accepted tothe exclusion of the votes of the other registered holders of the share, and for this purpose seniority shall be determined by the order in which the namesstand in the Register. 6 41.A proxy need not be a Shareholder of the Company. 42.The instrument appointing a proxy shall be in writing signed by the appointer or of his attorney-in-fact duly authorized in writing. A corporate entityshall vote by a representative duly appointed in writing by such entity. Any instrument appointing a proxy or a representative of a corporate entity (whether for a specified meeting or otherwise) shall be in a form satisfactoryto the Company. 43.Unless otherwise determined by the Board, the instrument of appointment must be submitted to the Office no later than 48 hours prior to the first generalmeeting to be attended by such proxy or representative. The instrument of appointment shall automatically terminate and cease to be of any force oraffect on the anniversary (12 months) of the date of the instrument of appointment, unless such instrument sets out a different expiry date. 44.A proxy may be appointed in respect of only some of the shares held by a Shareholder, and a Shareholder may appoint more than one proxy, eachempowered to vote by virtue of a portion of the shares. 45.A Shareholder being of unsound mind or pronounced to be unfit to vote by a competent court of law may vote through a legally appointed guardian orany other representative appointed by a court of law to vote on behalf of such Shareholder. 46.A Shareholder entitled to vote may signify in writing his approval of, or dissent from, or may abstain from any resolution included in a proxy instrumentfurnished by the Company. A proxy instrument may include resolutions pertaining to such issues which are permitted to be included in a proxyinstrument according to the Statutes, and such other issues which the Board may decide, in a certain instance or in general, to allow voting through aproxy. A Shareholder voting through a proxy instrument shall be taken into account in determining the presence of a quorum as if such Shareholder ispresent at the meeting. 47.The chairman of the general meeting shall be responsible for recording the minutes of the general meeting and any resolution adopted. 48.The provisions of these Articles relating to general meetings shall, mutatis mutandis, apply to Class Meetings. DIRECTORS Powers, Number of Directors, Composition & Election49.The Board shall have and execute all powers and/or responsibilities allocated to the Board by the Statutes and these Articles, including setting theCompany’s policies and supervision over the execution of the powers and responsibilities of the CEO. The Board may execute any power of theCompany that is not specifically allocated by the Statutes or by these Articles to another organ of the Company. 50.The number of directors on the Board shall be no less than five (5) but no more than nine (9) and, to the extent required under applicable law, shallinclude at least two External Directors. The majority of the members of the Board shall be residents of Israel, unless the Company’s headquarters shallhave been transferred to another country in accordance with the provisions of these Articles. 51.The directors of the Company shall be elected at each Annual Meeting by a Simple Majority and shall hold office until the end of the next AnnualMeeting and so long as an Annual Meeting is not convened, unless their office is vacated prior thereto in accordance with the provisions of these Articlesand the Law. This Article shall not apply to the election and tenure of External Directors, in respect of whom the provisions of the Law shall apply. 52.As long as the number of directors serving on the Board is less than the maximal number of directors under Article 50, the Board can act to appointdirectors to the Board. 753.Should a director cease serving the remaining directors may continue to act, provided that their number shall be not less than the minimal number ofdirectors mentioned under Article 50 above. In the event the number of directors is less than the minimal number, the directors can act to appoint directors so the number of directors in officeshall be equal to or higher than the minimal number mentioned under Article 50 above or alternatively can act to call a Special Meeting to electdirectors. 54.The appointment of a director by the Board shall be in effect until the next Annual Meeting or until he or she shall cease serving in office pursuant to theprovisions of these Articles. 55.The term of office of a director shall commence on the date of such director’s election by the general meeting or by the Board or on a later date, shouldsuch date be determined in the resolution of appointment of the general meeting or of the Board. Remuneration56.The Company shall determine the remuneration of the directors, if any, in accordance with the Law. Chairman of the Board57.The Board shall appoint one of its members to serve as the Chairman and may replace the Chairman from time to time. The Chairman shall preside atmeetings of the Board, but if at any meeting the Chairman is not present within fifteen (15) minutes after the time appointed for holding the meeting, thepresent directors shall choose a present director to be chairman of such meeting. PROCEEDINGS OF THE DIRECTORS58.The directors shall meet together for the dispatch of business, adjourn and otherwise regulate their meetings as they deem fit, subject to these Articles. Unless otherwise determined by the Board, written notice of any meeting of the Board and the agenda setting out the matters to be discussed at suchmeeting, shall be given to all directors at least seventy two (72) hours (or such shorter notice as all the directors may agree) before the meeting. Inurgent cases, a majority of the members of the Board may decide to hold a meeting without such notice. Quorum59.No business shall be transacted at any meeting of the Board unless a quorum of directors is present when a meeting is called to order. A quorum shall bedeemed to exist when there are present personally or represented by an alternate director at least half of the directors then in office. If a quorum is not present at the meeting of the Board within half an hour after the time scheduled for the meeting, the meeting may be adjourned toanother time as shall be decided by the Chairman, or in his absence, the directors present at the meeting, provided that notice of twenty four (24) hoursin advance shall be given to all the directors of the time of the adjourned meeting. The quorum for the commencement of the adjourned meeting shall bethree members of the Board. Methods of Attending Meetings60.(i) A majority of the sessions of the Board (not including sessions held by use of means of communication) each year, but not less than four (4) sessionseach year, shall be convened in Israel, unless the Company’s headquarters shall have been transferred to another country in accordance with theprovisions of these Articles; (ii) without derogating from sub-section (i) of this Article, some or all of the directors may attend meetings of the Boardthrough computer network, telephone or any other media of communication, enabling the directors to communicate with each other, in the deemedpresence of all of them, provided that due prior notice detailing the time and manner of holding a given meeting is served upon all the directors. Thedirectors may waive the necessity of such notice either beforehand or retrospectively. Any resolution adopted by the Board in such a meeting, pursuant to the provisions of these Articles, will be recorded in writing and signed by theChairman (or in his absence by the chairman of the meeting), and shall be valid as if adopted at a meeting of the Board duly convened and held.861.A resolution in writing signed by all of the directors eligible to participate in the discussion and vote on such resolution, or in respect of which all suchdirectors have agreed (in writing by mail, fax or electronic mail) not to convene, shall be as valid and effective for all purposes as if passed at a meetingof the Board duly convened and held. Any such resolution may consist of several counterparts, each signed by one or more directors. Such resolution in writing shall be effective as of the lastdate appearing on the resolution, or if the resolution is signed in two or more counterparts, as of the last date appearing on the counterparts. 62.While exercising his/her voting right, each director shall have one vote. Resolutions of the Board will be decided by a simple majority of the directorspresent and voting, not taking into consideration abstaining votes, except as otherwise provided in these Articles or by the Statutes. In the event the voteis tied, the Chairman of the Board shall not have a casting vote, and such resolution shall be deemed rejected. Alternate Director63.Subject to the Law, a director shall be entitled at any time and from time to time to appoint in writing any person who is qualified to serve as a director,to act as his/her alternate and to terminate the appointment of such person. The appointment of an alternate director does not negate the responsibility ofthe appointing director and such responsibility shall continue to apply to such appointing director - taking into account the circumstances of theappointment. Alternate directors shall be entitled, while holding office, to receive notices of meetings of the Board and to attend and vote as a director at any meetingsat which the appointing director is not present and generally to exercise all the powers, rights, duties and authorities and to perform all functions of theappointing director. The document appointing an alternate director must be submitted to the Chairman of the Board at least 48 hours before the opening of the first Boardmeeting to be attended by such alternate director. Committees64.The Board may set up committees and appoint members to these committees subject to the Statutes. A resolution passed or an act done by such acommittee pursuant to an authority granted to such committee by the Board shall be treated as a resolution passed or act done by the Board, unlessexpressly otherwise prescribed by the Board or the Statutes for a particular matter or in respect of a particular committee. 65.Meetings of committees and proceedings thereat (including the convening of the meetings, the election of the chairman and the votes) shall be governedby the provisions herein contained for regulating the meetings and proceedings of the Board so far as the same are applicable thereto and unlessotherwise determined by the Board, including by an adoption of a charter governing the committee proceedings. 66.[Reserved] Records & Validity of Acts67.The resolutions of the Board shall be recorded in the Company's Minutes Book, as required under the Statutes, signed by the Chairman or the chairmanof a certain meeting. Such signed minutes shall be deemed prima facie evidence of the meeting and the resolutions resolved therein. 68.All acts done bona fide by any meeting of the Board or of a committee of the Board or by any person acting as a director, shall, notwithstanding it beafterwards discovered that there was some defect in the appointment of any such director or person acting as aforesaid, or that they or any of them weredisqualified, be as valid as if every such person had been duly appointed and was qualified to be a director.9 Chief Executive Officer69.The Board shall appoint at least one CEO, for such period and upon such terms as the Board deems fit. 70.The CEO shall have all managing and execution powers within the policies and guidelines set forth by the Board, and shall be under the supervision ofthe Board. The CEO may delegate any of his powers to his subordinates, subject to the approval of the Board; (ii)INSURANCE, EXCULPATION, AND INDEMNITY Insurance of Office Holders71.The Company may insure the liability of an Office Holder, to the fullest extent permitted under the Statutes. 72.Without derogating from the aforesaid, the Company may enter into a contract to insure the liability of an officer therein for an obligation imposed onhim in consequence of an act done in his capacity as an Office Holder, in any of the following cases: 72.1.A breach of the duty of care vis-a-vis the Company or vis-a-vis another person; 72.2.A breach of the fiduciary duty vis-a-vis the Company, provided that the Office Holder acted in good faith and had a reasonable basis tobelieve that the act would not harm the Company, or in connection with a financial sanction; 72.3.A monetary obligation imposed on him in favor of another person; 72.4.Any other matter in respect of which it is permitted or will be permitted under applicable law to insure the liability of an Office Holder in theCompany, including, without limitation, matters referenced in Section 56H(b)(1) of the Securities Law. Indemnity of Office Holders73.The Company may indemnify an Office Holder, to the fullest extent permitted under the Statutes. Without derogating from the aforesaid, the Companymay indemnify an Office Holder for a liability or expense imposed on him in consequence of an act done in his capacity as an Office Holder in theCompany, as follows: 73.1.A monetary obligation imposed on him or incurred by him in favor of another person pursuant to a judgment, including a judgment given insettlement or a court approved settlement or arbitrator's award; 73.2.Reasonable legal fees, including attorney’s fees, incurred by an Office Holder in consequence of an investigation or proceeding filed againsthim by an authority that is authorized to conduct such investigation or proceeding, provided that such investigation or proceeding (i)concludes without the filing of an indictment against the Office Holder or (ii) concluded with the imposition of a monetary payment on theOffice Holder in lieu of criminal proceedings, but the criminal offense in question does not require the proof of criminal intent, all within themeaning of the Law. 73.3.Reasonable litigation costs, including attorney’s fees, incurred by an Office Holder or which he is ordered to pay by a court, in proceedingsfiled against him by the Company or on its behalf or by another person, or in a criminal charge of which he is acquitted, or in a criminalcharge of which he is convicted of an offence that does not require proof of criminal intent. 73.4.Any other obligation or expense in respect of which it is permitted or will be permitted under the Statutes to indemnify an Office Holder,including, without limitation, matters referenced in Section 56H(b)(1) of the Securities Law. Advance Indemnity 74.The Company may give an advance undertaking to indemnify an Office Holder therein in respect of the following matters: 74.1.Matters as detailed in Article 73.1, provided however, that the undertaking is restricted to events, which in the opinion of the Board, areanticipated in light of the Company’s activities at the time of granting the obligation to indemnify and is limited to a sum or measurementdetermined by the Board as reasonable under the circumstances. The indemnification undertaking shall specify such events and sum ormeasurement. 74.2.Matters as detailed in Articles 73.2, 73.3 and 73.4. 10Retroactive Indemnity75.The Company may indemnify an Office Holder retroactively with respect of the matters as detailed in Article 73, subject to any applicable law. Exculpation76.The Company may exempt an Office Holder in advance for all or any of his liability for damage in consequence of a breach of the duty of care vis-a-visthe Company, to the fullest extent permitted under the Statutes. However, the Company may not exempt a director in advance from his liability towardthe Company due to the breach of his duty of care in the event of a Distribution, as defined in the Statutes. Insurance, Exculpation and Indemnity - General77.The above provisions with regard to insurance, exemption and indemnity are not and shall not limit the Company in any way with regard to its enteringinto an insurance contract and/or with regard to the grant of indemnity and/or exemption in connection with a person who is not an Office Holder of theCompany, including employees, contractors or consultants of the Company, all subject to any applicable law. 78.Articles 71 through 76 shall apply mutatis mutandis in respect of the grant of insurance, exemption and/or indemnification for persons serving on behalfof the Company as Office Holders in companies controlled by the Company, or in which the Company has an interest. 79.An undertaking to insure, exempt and indemnify an Office Holder in the Company as set forth above shall remain in full force and effect even followingthe termination of such Office Holder's service with the Company. APPOINTMENT OF AN AUDITOR80.Subject to the Statutes, the Annual Meeting shall appoint an Auditor for a period ending at the next Annual Meeting, or for a longer period, but no longerthan until the third Annual Meeting after the meeting at which the Auditor has been appointed. The same Auditor may be reappointed. Subject to the Statutes, the terms of service of the Auditor for the audit services shall be determined by the Board, at its discretion, or a committee ofthe Board if such determination was delegated to a committee, including undertakings or payments to the Auditor. The Board shall report the fees ofthe Auditor to the Annual Meeting. 11 INTERNAL AUDITOR81.So long as the Company is a public company, the Board shall appoint an Internal Auditor pursuant to the recommendation of the Audit Committee. 82.The organizational superior of the Internal Auditor shall be the Chairman. The Internal Auditor shall submit a proposed annual or periodic work plan tothe Audit Committee, which will approve such plan with changes as it deems fit, at its discretion.MERGER AND REORGANIZATION83.Notwithstanding the provisions of section 327(a) of the Companies Law, the majority required for the approval of a merger by the general meeting or bya class meeting shall be an ordinary majority of the votes of the shareholders entitled to vote and voting themselves. SIGNATORIES84.Signatory rights on behalf of the Company shall be determined from time to time by the Board. DISTRIBUTIONS85.The Board may decide on a Distribution, subject to the provisions set forth under the Law and these Articles. 86.The Board will determine the method of payment of any Distribution. The receipt of the person whose name appears on the record date on the Registeras the owner of any share, or in the case of joint holders, of any one of such joint holders, shall serve as confirmation with respect to all the paymentsmade in connection with that share and in respect of which the receipt was received. All dividends unclaimed after having been declared may be investedor otherwise used by the Directors for the benefit of the Company until claimed, provided however that the Company shall not be required to accept anyclaim made following the 7th anniversary of the declaration date, or an earlier date as may be determined by the Board. No unpaid dividend shall bearinterest or accrue linkage differentials. 87.For the purpose of implementing any resolution concerning any Distribution, the Board may settle, as it deems fit, any difficulty that may arise withrespect to the Distribution, including determining the value for the purpose of the said Distribution of certain assets, and deciding that payments in cashshall be made to the Shareholders based on the value so determined, and determining provisions with respect to fractions of shares or with respect to thenon-payment of small sums. REDEEMABLE SECURITIES88.The Company shall be entitled to issue redeemable securities which are, or at the option of the Company may be, redeemed on such terms and in suchmanner as shall be determined by the Board. Redeemable securities shall not constitute part of the Company's capital, except as provided in the Law. DONATIONS89.The Company may make donations of reasonable amounts of money for purposes which the Board deems to be worthy causes, even if the donations arenot made in relation to business considerations for increasing the Company's profits. 12 NOTICES90.Subject to the Statutes, notice or any other document which the Company shall deliver and which it is entitled or required to give pursuant to theprovisions of these Articles and/or the Statutes shall be delivered by the Company to any person, in any one of the following manners as the Companymay choose: in person, by mail, transmission by fax or by electronic form. Any notice or other document which shall be sent shall be deemed to have reached its destination on the third day after the day of mailing if sent byregistered mail or regular mail, or on the first day after transmission if delivered in person, transmitted by fax or electronic form. Should it be required to prove delivery, it shall be sufficient to prove that the notice or document sent contains the correct mailing, e-mail, or fax detailsas registered in the Register or any other address which the Shareholder submitted in writing to the Company as the address and fax or e-mail details forthe submission of notices or other documents.Notwithstanding anything to the contrary contained herein and subject to the provisions of the Statutes, a notice to a Shareholder may be served, asgeneral notice to all Shareholders, in accordance with applicable rules and regulations of any stock market upon which the Company’s shares are listed. In cases where it is necessary to give advance notice of a particular number of days or notice which shall remain in effect for a particular period, the daythe notice was sent shall be excluded and the scheduled day of the meeting or the last date of the period shall be included in the count. Subject to the Statutes, the Company shall not be required to send notices to any Shareholder who is not registered in the Register or has not providedthe Company with accurate and sufficient mailing details. 91.Any notice to be given to the Shareholders shall be given, with respect to joint shareholders, to the person whose name appears first in the Register as theholder of the said share, and any notice so given shall be sufficient notice for all holders of the said share. 92.Any notice or other document served upon or sent to any Shareholder in accordance with these Articles shall, notwithstanding that he be then deceasedor bankrupt, and whether the Company received notice of his death or bankruptcy or not, be deemed to be duly served or sent in respect of any sharesheld by him (either alone or jointly with others) until some other person is registered in his stead as the holder or joint holder of such shares, and suchservice or sending shall be a sufficient service or sending on or to his heirs, executors, administrators or assigns and all other persons (if any) interestedin such share. 93.The accidental omission to give notice to any Shareholder or the non-receipt of any such notice shall not cancel or annul any action made in reliance onthe notice. JURISDICTION94.(a) Unless the Company consents in writing to the selection of an alternative forum, with respect to any causes of action arising under the U.S. SecuritiesAct of 1933 as amended, against any person or entity, including such claims brought against the Company, its directors, officers, employees, advisors,attorneys, accountants or underwriters, the federal district courts of the United States of America shall be the exclusive forum for the resolution of anycomplaint asserting a cause of action arising under the U.S. Securities Act of 1933, as amended; and (b) unless the Company consents in writing to theselection of an alternative forum, the competent courts in Tel Aviv, Israel shall be the exclusive forum for (i) any derivative action or proceeding broughton behalf of the Company, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of the Companyto the Company or the Company’s shareholders, or (iii) any action asserting a claim arising pursuant to any provision of the Companies Law or theSecurities Law. Any person or entity purchasing or otherwise acquiring or holding any interest in shares of the Company shall be deemed to have noticeof and consented to these provisions. This Article 94 shall not apply to causes of action arising under the U.S. Exchange Act of 1934, as amended. 13Exhibit 2.1Description of SecuritiesNova Ltd., an Israeli corporation (the “Company,” “we,” or “our”), currently has one class of securities registered under Section 12 of the SecuritiesExchange Act of 1934, as amended, the Company’s ordinary shares. The following is a summary of some of the terms of our ordinary shares based on ourarticles of association, as may be amended and restated from time to time, and Israeli law. The following summary is not complete and is subject to, and is qualified in its entirety by reference to, the provisions of our articles of association andIsraeli law. Name of exchange on which registered: Our ordinary shares began trading on Nasdaq on April 11, 2000 under the symbol “NVMI”. Our ordinary shareswere registered for trading on the Tel Aviv Stock Exchange Ltd. in 2002 under the symbol “הבונ”. Restrictions on Securities: The ownership or voting of ordinary shares by non-residents of Israel is not restricted in any way by our articles of associationor the laws of the State of Israel, except for anti-terror legislation and except that citizens of countries which are in a state of war with Israel may not berecognized as owners of ordinary shares. Registration. The Company was incepted and registered with the Israeli Registrar of Companies on May 17, 1993, under registration number 51-181-246-3. Purpose of the Company. The purposes of the Company, as provided by Article 4 of our Articles, are (a) to invent, design, plan, develop, manufacture,market and trade in the field of measuring instruments in electronics, micro-electronics, medicine, chemistry, metallurgy, ceramics and any other field, (b) toinitiate, participate, manage, execute, import and export any kind of project within the borders of the State of Israel and/or outside Israel, (c) to register patents,trademarks, trade names, intellectual property rights, marketing rights and any other right of any kind whatsoever, both in Israel and abroad and (d) to engage inany legal activity, both in Israel and abroad. Share Capital. Our authorized share capital consists of 60,000,000 ordinary shares. All of our issued and outstanding shares are validly issued, fully paid and non-assessable. Our ordinary shares are not redeemable and do not have any preemptive rights. The Company currently has one class of ordinary shares. The Articles provide that the board of directors may decide on a distribution, subject to theprovisions set forth under the Israeli Companies Law, 5759-1999 (the “Companies Law”) and the Articles. Under the Companies Law, dividends may be paidout of net earnings, as calculated under that law, for the two years preceding the distribution of the dividend and retained earnings, provided that there is noreasonable concern that the dividend will prevent the company from satisfying its existing and foreseeable obligations as they become due. For moreinformation, see the Company’s balance sheet and the statement of shareholders’ equity in the financial statements. Each ordinary share entitles its holder to the following rights: •the equal right to participate in and vote at general meetings of the shareholders, and each share entitles its holder thereof, who is present andparticipating in the vote, whether in person or by proxy, to one vote; •the equal right to participate in any distribution; and •the equal right to participate in the distribution of assets available for distribution in the event of liquidation of the company. Transferring Shares According to the Articles, our shares may be freely transferred, unless the transfer is restricted or prohibited by another agreement, undertaking or anyapplicable law. Changes of Rights of Holders of the Shares. According to the Articles, any change in the rights and privileges of the holders of any class of shares requires the approval of a class meeting of suchclass of shares by a simple majority (unless otherwise provided by the Companies Law or the regulations thereto or by the terms of issue of the shares of thatclass). Amendments to the Articles of Association. Our Articles may be amended by a simple majority vote of our shareholders. The amendment of certain provisions requires however the approval of atleast 75% of the members of our board of directors to be obtained prior to the approval of our shareholders. These provisions provide that (i) the Company’sheadquarters be located in Israel; (ii) our company’s annual and special meetings of the shareholders be convened in Israel, and that a majority, and not less thanfour, of the Company’s board of director sessions be convened in Israel; (iii) a majority of the members of our board of directors must be residents of Israel; and(iv) unless otherwise consented to in writing by us, the courts of the State of Israel will be the sole and exclusive forum for (a) any derivative action orproceeding on behalf of our company, (b) any action related to claims of breach of a fiduciary duty or other wrongdoing by a director, officer of other employeeof our company; (c) any action arising pursuant to any provisions of the Companies Law or the Articles; or (d) any action to interpret, apply, enforce ordetermine the validity of the Articles. Shareholders Meetings. An annual meeting should be convened at least once every calendar year, and no later than 15 months after the preceding annual meeting, to review theCompany’s financial statements and to transact any other business required pursuant to the Articles or to the Companies Law, and any other matter which theboard of directors places on the agenda of the annual meeting, at a time and place that the board of directors will determine. A special meeting may be called bythe board of directors and at the demand of any of the following: two directors or one-quarter of the directors then serving; one or more shareholders who holdat least five percent of the issued and outstanding capital stock and at least one percent of the voting rights in the Company; or one or more shareholders whohold at least five percent of the voting rights in the Company. According to the Articles, the quorum required for an ordinary meeting of shareholders is at least two shareholders present in person or by proxy whotogether hold or represent in the aggregate 33 1/3 % or more of the voting power. A meeting adjourned for lack of a quorum is reconvened one day thereafter atthe same time and place or to such other day, time and place as our board of directors may indicate in a notice to the shareholders. At the reconvened meeting,the required quorum consists of any number of members present in person or by proxy, regardless of the number of shares represented. The Companies Lawand regulations determine that prior notice of no less than 21 days should be given to the company’s shareholders, prior to convening a meeting. In the eventthat the issue to be resolved is an issue subject to the Israeli proxy rules, a notice of no less than 35 days should be given to the company’s shareholders. Insome cases, a prior notice of not less than 14 days may be given to the company’s shareholders. - 2 -Changes in Capital. Our share capital may be increased or decreased by a vote of our shareholders in accordance with the Companies Law, either by creating new shares ofan existing class or of a new class. Furthermore, and subject to applicable law, our shareholders may resolve to make the following changes to our share capital: •alter or add classes of shares, including shares with preference rights, deferred rights, conversion rights or any other special rights orlimitations; •consolidate and/or split all or any of its share capital into shares of larger or smaller par value than the existing shares; •cancel any registered shares not yet allocated, provided we have made no commitment to allocate such shares; and •reduce our share capital and any reserved fund for redemption of capital. Modification of Rights According to our Articles, if our share capital is divided into different classes of shares, any change to the rights and privileges of the holders of suchclass will require the approval of a meeting of such class of shares by a simple majority vote. Borrowing Powers Pursuant to the Companies Law and our articles of association, our board of directors may exercise all powers and take all actions that are not requiredunder law or under our articles of association to be exercised or taken by a certain organ of the Company, including the power to borrow money for companypurposes. Acquisition of a Controlling Stake. According to the Companies Law, an acquisition pursuant to which a purchaser will hold a “controlling stake”, that is defined as 25% or more of thevoting rights if no other shareholder holds a controlling stake, or an acquisition pursuant to which such purchaser will hold more than 45% of the voting rightsof the company if no other shareholder owns more than 45% of the voting rights, may not be performed by way of market accumulation, but only by way of aspecial tender offer (as defined in the Companies Law) made to all of the company’s shareholders on a pro rata basis. A special tender offer may not beconsummated unless a majority of the shareholders who announced their stand on such offer have accepted it (in counting the total votes of such shareholders,shares held by the controlling shareholders, shareholders who have personal interest in the offer, shareholders who own 25% or more of the voting rights in thecompany, relatives or representatives of any of the above or the bidder and corporations under their control, shall not be taken into account). A shareholder maybe free to object to such an offer without such objection being deemed as a waiver of his right to sell its respective shares if the transaction is approved by amajority of the company’s shareholders despite his objection. Shares purchased not in accordance with those provisions will become “dormant shares” and willnot grant the purchaser any rights so long as they are held by the purchaser.- 3 - Acquisition. A person wishing to acquire shares or a class of shares of an Israeli public company and who would, as a result, own more than 90% of the targetcompany’s issued and outstanding share capital or of certain class of its shares, is required by the Companies Law to make a full tender offer (as defined in theCompanies Law) to all of the company’s shareholders for the purchase of all of the issued and outstanding shares of the company or class of shares. If either (i)the shareholders who do not accept the offer hold, in the aggregate, less than 5% of the issued and outstanding share capital of the company or of the applicableclass, and more than half of the shareholders who do not have a personal interest in the offer accept the offer, or (ii) the shareholder who do not accept the offerhold less than 2% of the issued and outstanding share capital of the company or of the applicable class, then all of the shares that the acquirer offered topurchase will be transferred to the acquirer by operation of law. However, a shareholder that had its shares so transferred, whether or not it accepted the tenderoffer (unless otherwise provided in the offering memorandum), may, within six (6) months from the date of acceptance of the tender offer, petition the court todetermine that the tender offer was for less than fair value and that the fair value should be paid as determined by the court. If the shareholders who did notaccept the tender offer hold at least 5% of the issued and outstanding share capital of the company or of the applicable class of shares, the acquirer may notacquire shares of the company that will increase its holdings to more than 90% of the company’s issued and outstanding share capital or of the applicable classfrom shareholders who accepted the tender offer. The Companies Law provides that corporate mergers require the approval of both companies’ boards of directors and shareholders. In the event,however, that shares of the target company are held by the acquiring company or by a person holding 25% or more of any type of controlling means of theacquiring company, the merger will not be approved if a majority of the shareholders of the target company attending and voting at the meeting at which themerger is considered (without taking into account, for that purpose, the shares held by the acquiring company or by a person holding 25% or more of any typeof controlling means of the acquiring company) object to and do not vote in favor of the merger. If a person holds 25% or more of any type of controllingmeans of more than one merging company, the same provisions shall apply with regard to the shareholders’ vote with respect to each such company. Upon therequest of a creditor of either party to the proposed merger, the court may delay or prevent the merger if the court concludes that there exists a reasonableconcern that as a result of the merger the surviving company will be unable to satisfy the target company’s obligations. Furthermore, a merger may not closeunless at least 30 days have passed from the time that the general meeting of each of the merging companies was held and at least 50 days have passed from thedate on which the merger proposal was sent to the Israeli Registrar of Companies.- 4 -Exhibit 4.4 Date: Ms.\Mr. I.D: Letter of Indemnification 1.The Company hereby undertakes to indemnify you for any obligation imposed on you or expense spent by you as a result of your capacity as an Officer ofthe Company, as defined under the Israeli Companies Law 5759-1999 (the “Companies Law”) (hereinafter: the “Officer”), subject to the applicable law, theCompany’s Amended and Restated Articles of Association and as follows: 1.1.A monetary obligation imposed on you or incurred by you in favor of another person pursuant to a judgment, including a judgment given insettlement or a court approved settlement or arbitrator’s award, subject to Section 1.6 below. 1.2.Reasonable litigation expenses, including attorney’s fees, incurred by you in consequence of an investigation or proceeding conducted or filed againstyou by an authority that is authorized to conduct such investigation or proceeding, provided that such investigation or proceeding: (i) concludeswithout the filing of an indictment against you and without imposition of a monetary liability in lieu of criminal proceedings; (ii) concludes with theimposition of a monetary payment on you in lieu of criminal proceedings, but the criminal offense in question does not require the proof of criminalintent; or (iii) in connection with a monetary sanction. 1.3.Reasonable litigation expenses, including attorney’s fees, incurred by you or which you were obligated to pay by a court, in proceedings filed againstyou by the Company or on its behalf or by another person, or in a criminal charge of which you were acquitted, or in a criminal charge of which youwere convicted of an offense that does not require proof of criminal intent. 1.4.Any monetary obligation imposed on you in favor of all the injured parties by a breach in an Administrative Procedure, as stated in Section 52(54)(a)(1)(a) to the Securities Law, 5728-1968 (the “Securities Law”). The term “Administrative Procedure” shall have the following meaning: a procedureaccording to Chapter 8C (Financial Sanctions), 8D (Administrative Enforcement Measures Imposition by the Administrative EnforcementCommittee) or 9A (Arrangement for Avoidance from or Cessation of Procedures) to the Securities Law, as amended from time to time. 1.5.Expenses expended by you with respect to an Administrative Procedure (as defined in Section 1.4 above) relating to you, including reasonablelitigation expenses, which include attorneys’ fees. 1.6.With regards to Section 1.1, this obligation to indemnify is limited to the events detailed in Annex A which according to the Board of Directors’opinion, are foreseen in light of the Company’s actual activities, and which shall not exceed the Maximum Indemnification Amount, as detailed belowin Section 1.7. The Board of Directors has determined that such amounts and criteria set by the Board of Directors are reasonable under thecircumstances. 1.7.The aggregate indemnification amount that the Company will pay to all of its Officers, whether in advance or post factum, under all theindemnification letters that shall be issued by the Company pursuant to this Letter of Indemnification, shall not exceed the greater of (a) twenty-fivepercent (25%) of the Company’s total shareholders’ equity according to the Company’s most recent financial statements as of the time of the actualpayment of indemnification; (b) US$200 million; (c) ten percent (10%) of the Company Total Market Cap (which shall mean the average closingprice of the Company’s ordinary shares over the 30 trading days prior to the actual payment of indemnification multiplied by the total number ofissued and outstanding shares of the Company as of the date of actual payment); and (d) in connection with or arising out of a public offering of theCompany’s securities, the aggregate amount of proceeds from the sale by the Company and/or any shareholder of Company’s securities in suchoffering (hereinafter the “Maximum Indemnification Amount”). 1.8.In the event the indemnification amount the Company is required to pay its Officers, as set forth above, exceeds the Maximum IndemnificationAmount or its remaining balance (as existing at that time), the Maximum Indemnification Amount or its remaining balance will be divided among theOfficers entitled to indemnification, so that the amount of indemnification each of them will actually receive will be calculated in accordance with theratio between the amount for which each individual may be indemnified and the aggregate amount for which all the relevant Officers may beindemnified. 1.9.For the avoidance of doubt, it is hereby clarified that nothing contained in this Letter of Indemnification or in the above resolutions derogatefrom the Company’s right, subject to Board of Directors approval, to indemnify you post factum for any amounts which you may beobligated to pay as set forth in Section 1 above without the limitations set forth in Section 1.7 above. The aforesaid shall however not beconstrued as an obligation of the Company to indemnify you after the fact. 2.The Company shall act according to this Letter of Indemnification as detailed above in regards to any other company controlled, directly or indirectly, bythe Company (a “Subsidiary”) with respect to the periods such other company is a Subsidiary or in your capacity as a director, or observer at board ofdirector meetings, of a company not controlled by the Company but where your appointment as a director or observer results from the Company’s holdingsin such company (“Affiliate”). 3.Notwithstanding the above, in no event will the Company indemnify you for the following events: 3.1.a breach of fiduciary duty, except for a breach of a fiduciary duty to the Company, a Subsidiary or an Affiliate while acting in good faith and havingreasonable cause to assume that such act would not harm the Company’s interests; 3.2.a reckless or intentional breach of duty of care that was not done negligently; 3.3.an action taken with the intent of making personal gain unlawfully; 3.4.a fine, civil fine, a monetary sanction or forfeit imposed upon you for an offense; 3.5.a counterclaim made by the Company or in its name in connection with a claim against the Company filed by you. 4.The Company will make available all amounts needed in accordance with section 1 above on the date on which such amounts are first payable by you. 5.The Company shall advance to you all expenses incurred by you in connection with a claim on the date on which such amounts are first payable, but has noduty to advance payments within less than fourteen (14) days following delivery of a written request therefor. The foregoing shall not apply incircumstances where the Company shall take upon itself to manage the proceedings as provided herein below. 6.As part of the aforementioned undertaking and subject to Sections 1.1 – 1.5 above, the Company will make available to you any security or guarantee thatyou may be required to post in accordance with an interim decision given by a court or an arbitrator, including for the purpose of substituting liens imposedon your assets. 7.The Company will indemnify you, in accordance with this Letter of Indemnification, even if at the relevant time of indebtedness you are no longer anOfficer of the Company or of a Subsidiary or a director or board observer of an Affiliate, provided that the obligations are in respect of actions taken byyou while you were an Officer and/or board observer, as aforesaid, and in such capacity, including if taken prior to the above resolutions. - 2 -8.No payment hereunder shall be made to you in connection with any event for which payment is actually paid to you under a valid and collectible insurancepolicy or under a valid and enforceable indemnity clause or agreement (excluding this Letter of Indemnification), except in respect of any excess beyondthe payment under such insurance, clause or agreement. 9.Additionally, it is emphasized that this Letter of Indemnification is not to be construed as an agreement for the benefit of any third party, including anyinsured party, and it is not transferable, and no insurer will have the right to request that the Company participate in any payment for which the insurer isobligated under any insurance agreement to which it is a party, other than a deductible that is specified in such agreement. 10.Subject to this Letter of Indemnification, the indemnification will, in each case, cover all sums of money (100%) that you will be obligated to pay, in thosecircumstances for which indemnification is permitted under law and under this Letter of Indemnification. 11.The Company will be entitled to any amount collected from a third party in connection with liabilities indemnified hereunder. 12.Indemnification by the Company as detailed in this Letter of Indemnification will also be subject to fulfilling the following procedures: 12.1.You will inform the Company of every legal or administrative proceeding that may be brought against you in connection with any event that mayentitle you to indemnification, and of every warning made to you in writing, regarding legal or administrative proceedings that may becommenced against you, and this will be done in a timely manner, immediately after you first become aware of such, and you will provide to theCompany or to whom the Company will instruct you, all documents in connection with such proceedings. Similarly, you must advise the Company on an ongoing and current basis concerning all events which you suspect may give rise to the initiationof legal or administrative proceedings against you. 12.2.The Company will, within a reasonable period of time (or within a shorter period of time if the matter requires filing a statement of defense or aresponse to a proceeding), take upon itself the handling of your defense in the legal proceeding and/or entrust such handling to any prominentattorney the Company may select at its discretion for this purpose, subject to the fulfillment of all the following conditions: (a) you haveinformed the Company as provided in Section 12.1 above; and (b) the legal proceedings against you solely involves a claim for monetarydamages. The Company and/or the above-mentioned attorney will be entitled to act within their exclusive discretion to bring the proceeding to aclose; the appointed attorney will owe his/her duty of loyalty to the Company and to you. In the event that a conflict of interests arises betweenyou and the Company, the attorney will so inform the Company of any such conflict and you, subject to the Company’s approval, which approvalnot to be unreasonably withheld, will have the right to appoint an attorney on your behalf, and the provisions of this Letter of Indemnificationwill apply to expenses you may incur as a result of such appointment. If the Company decides to settle or arbitrate a monetary obligation, theCompany will be entitled to do so, as long as the lawsuit or the threat of a lawsuit against you will be fully withdrawn. At the request of theCompany you will sign any document that will empower the Company and/or attorney as mentioned above, to act on your behalf with regard toyour defense in the above-mentioned proceedings and to represent you in all matters relating to these proceedings, as set forth above. Withoutderogating from the above provision with respect to a conflict of interests, in any event where, on reasonable grounds, the attorney chosen by theCompany is unacceptable to you, you shall be entitled to appoint your own attorney and the provisions of this Letter of Indemnification willapply to expenses you may incur as a result, provided, however, that the proposed appointment of such attorney including the identity and termsof engagement of such attorney be brought immediately to the attention of the Company for its prior written approval, which approval not to beunreasonably withheld. - 3 -12.3.You will cooperate with the Company and/or with any attorneys as set forth above in every reasonable manner required of you by any of them inconnection with the handling of such legal proceedings, all subject to this Letter of Indemnification. 12.4.Whether or not the Company acts as specified in Section 12.2 above, the Company will cover all other expenditures and payments that arementioned in this Letter of Indemnification, so that you will not be required to pay or to finance them yourself. 12.5.Your indemnification in connection with any legal proceeding against you, as set forth in this Letter of Indemnification, will not be enforceable inconnection with amounts you may be required to pay as a result of a settlement or arbitration unless the Company agrees in writing to thesettlement or to the entering into the arbitration proceeding, as the case may be. If required by law, the Company’s authorized organs will consider the request for indemnification and the amount thereof and will determine ifyou are entitled to indemnification and the amount thereof. 12.6.If, for any reason, the Company has decided not to appoint an attorney, as detailed in Section 12.2 above, you will have the right to appoint anattorney of your choice, provided that the proposed appointment of such attorney including the identity and terms of engagement of such attorneybe brought immediately to the attention of the Company for its prior written approval, which approval not to be unreasonably withheld. If you donot inform the Company regarding your choice of attorney in compliance with the above, the Company will have the right in its discretion toappoint an attorney on your behalf. 13.This Letter of Indemnification is issued after receipt by the Company of all required approvals under law and the Amended and Restated Articles ofAssociation of the Company. Should any additional approval be required, the Company will exert its best effort to obtain such approval. 14.If the Company pays to you, or on your behalf, any amount in connection with a legal proceeding as provided in this Letter of Indemnification, andthereafter it is determined that you are not entitled to such indemnification from the Company as detailed in this Letter of Indemnification, the sums paidby the Company will be considered a loan that was extended to you by the Company, which will be linked to the Consumer Price Index plus interest at therate established in the Income Tax Regulations (Establishment of Interest Rates) – 1985, as may be in effect from time to time, and you will be required torepay these sums to the Company when requested to do so in writing by the Company and in accordance with a payment schedule that the Companydetermines. 15.In order to remove any doubt, in the event of death, this Letter of Indemnification will apply to your heirs. 16.No waiver, omission or grant of extension by the Company or by you will be interpreted in any manner as a waiver of rights pursuant to this Letter ofIndemnification or under applicable law, and will not prevent either party from taking all legal and other measures in order to enforce such rights. 17.If any undertaking included in this Letter of Indemnification is held invalid or unenforceable, such invalidity or unenforceability will not affect any of theother undertakings which will remain in full force and effect. Furthermore, if such invalid or unenforceable undertaking may be modified or amended soas to be valid and enforceable as a matter of law, such undertakings will be deemed to have been modified or amended, and any competent court orarbitrator are hereby authorized to modify or amend such undertaking, so as to be valid and enforceable to the maximum extent permitted by law.Notwithstanding the above, if this Letter of Indemnification shall be declared or found void for any reason whatsoever then any previous undertaking of theCompany for indemnification towards you, which this Letter of Indemnification is intended to replace, shall remain in full force and effect. 18.The terms contained in this Letter of Indemnification will be construed in accordance with the Companies Law, and in the absence of any definition in theCompanies Law, pursuant to the Securities Law. - 4 -19.This Letter of Indemnification and the agreement herein shall be governed by and construed and enforced in accordance with the laws of the State of Israel.You should be aware, however, that, insofar as indemnification for liabilities arising under the United States Securities Act of 1933, as amended (the“Securities Act”) may be permitted to the Officers of the Company, the Company has been advised that in the opinion of the U.S. Securities and ExchangeCommission (the “SEC”) such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event of aclaim for such indemnification (other than the payment by the Company of expenses incurred or paid by an Officer in the successful defense of any action,suit or proceeding), the Company will (in accordance with an undertaking given to the SEC), unless in the opinion of its counsel the matter has been settledby controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification is against public policy as expressed in theSecurities Act and will be governed by the final adjudication of such issue. 20.Notwithstanding anything herein to the contrary, the Company shall have no obligation to provide indemnity hereunder if a court of competent jurisdictiondetermines that such indemnification is not lawful. 21.This Letter of Indemnification will enter into affect upon your signature in the space provided below and return of the signed copy to the Company. 22.This Letter of Indemnification replaces and substitutes any previous undertaking of the Company for indemnification, to the extent granted. Respectfully, Eitan Oppenhaim President & Chief Executive Officeron behalf ofNova Ltd.Dror DavidChief Financial OfficerI accept the terms and conditions of the above. I am aware that my agreement to accept this Letter of Indemnification constitutes my irrevocable agreement thatthis Letter of Indemnification replaces and substitutes any previous undertaking of the Company for indemnification, to the extent granted to me.Notwithstanding, the above, if this Letter of Indemnification shall be void for any reason whatsoever than any previous undertaking of the Company forindemnification towards me shall remain in force. ____________________Name: _______________Date: ________________- 5 - Annex A Subject to any provision of law, the events are as follows: 1.The issuance of securities including, but not limited to the public according to a prospectus, a private offering, sales offering, the issuance of bonus shares,issuance of securities and/or any other manner of security offering and also tender offers for securities, the Company’s purchase of its own and itsubsidiaries’ securities, as well as any action relating to any of the above. 2.A “Transaction” or “Activity” as defined in Article 1 of the Companies Law, including among others a negotiation regarding such Transaction and/orActivity, transfer, sale and/or purchase of assets and/or liabilities, including securities and/or the granting and/or receiving of any right in any of the above,including among others, the acquisition, sale or merger of entities and/or any action connected directly or indirectly with such a Transaction. 3.The filing of a report and/or announcement required by the Companies Law and/or Securities Law, or U.S. Securities Laws, including the regulationspertaining to these laws, and/or according to rules and/or regulations adopted by the Tel-Aviv Stock Exchange or The NASDAQ or any other stockexchange and/or any law of any other country pertaining to these issues and/or the failure to file such a report and/or announcement. 4.Any decision regarding a Distribution, as defined in the Companies Law including a Distribution pursuant to a court order. 5.Preparation of financial statements of the Company and its Subsidiaries and approval of such financials. 6.A change in the Company’s structure and/or a reorganization of the Company, including any arrangement between the Company and its shareholdersand/or creditors according to the Companies Law, and/or any decision relating to these issues including, but not limited to, a merger, a demerger, a changein the Company’s capital, the establishment of subsidiaries and/or their liquidation or sale, and/or all allotments or distributions. 7.Expressions, announcements, statements, including a position taken, and/or an opinion made in good faith by an Officer in the course of and/or inconnection with his/her duties, including during negotiations and contracting with suppliers, consultants and consumers and/or during a meeting of theCompany’s management, Board of Directors and/or one of its committees. 8.An action made in good faith in contradiction to the Memorandum of Incorporation and/or the Amended and Restated Articles of Association. 9.An Action and/or decision relating to employer-employee relations including employment agreements, negotiations regarding employment agreements,salary and/or other employee benefits, including employee stock option plans and/or option distributions to employees. 10.An action and/or decision relating to work safety and/or working conditions and/or employee activities and/or any event relating thereto. 11.An action or decision relating to insurance matters and/or risk management of the Company. 12.Actions relating to the Company’s commercial relations, including with employees, outside contractors, customers, suppliers, and service providers. 13.Preparation of work plans, including pricing, marketing, distribution, and instructions to employees, to customers and to suppliers and to cooperativearrangements, including with competitors. 14.Actions relating to product development, to the conduct of product testing, approvals, sales, distribution of licensing in their regard. 15.Decisions and/or actions relating to environmental compliance, including pollution, contamination, and hazardous materials. A - 116.Granting of liens on Company assets and granting guarantees on behalf of the Company. 17.Compliance with various governmental requirements in Israel and outside Israel, including a Ministry of Defense, Antitrust Authority, Securities Authority,Environmental Compliance Agency and Tax Authorities. 18.Investigations conducted against you by any governmental or quasi-governmental authority. 19.Establishment and management of financial policy, including credit policies, hedging against changes in currency exchange rates and utilization of cashreserves. 20.Actions taken (or alleged omissions) pursuant to or in accordance with the policies and procedures of the Company, its subsidiaries and/or its affiliates,whether such policies and procedures are published or not. 21.Causing damages, including bodily injury and property damage, partial or comprehensive loss, loss of use or disability, during any action or omissionrelating to the Company, or relating to its employees, agents or others who act or are purported to act on behalf of the Company. 22.An event resulting from the Company being a publicly traded company or due to its shares being issued to the public. 23.Transfer of information required or permitted to be transferred under applicable law to an interested party of the Company. 24.An act that may be considered as an infringement of the intellectual property rights of a third party, or an act relating to the Company’s intellectualproperty, inter alia, by taking action and filing lawsuits. Also, any action taken against Nanometrics, Inc., in regards to protection of intellectual property. 25.Any of the above specified events relating to an activity of an entity controlled by the Company or an entity affiliated with the Company or pursuant to theOfficer’s position in an affiliated entity and/or in an entity controlled by the Company. 26.The Company’s follow-on public offering completed in 2010. 27.Any other actions which can be anticipated for companies of the type of the Company, and which the Board of Directors may deem appropriate. 28.Any indemnifiable event and/or action pursuant to the Efficiency of Enforcement Procedures in the Securities Authority Law (Legislation Amendments),2011. 29.Any of the above specified events, whether occurring in Israel or occurring outside of Israel. A - 2 Exhibit 4.5Certain identified information has been excluded from this exhibit because it is both not materialand would be competitively harmful if publicly disclosed___________________________________________________Project ApolloShare Sale and Purchase Agreement___________________________________________________Table of Contents Table of ContentsIIIndex of DefinitionsIIIIndex of SchedulesIVRecitals21Corporate Structure22Sale and Assignment of the Shares; Right to Profits33Purchase Price; Conditions of Payment44Commercial effect135Cooperation and Conduct of Business until Closing136Closing Conditions; Long Stop Date157Closing178Sellers Guarantees199Remedies3210Taxes3711Purchaser Guarantees4112Additional Obligations of the Parties post-Closing4213Escrow4314Parent Undertaking4415Confidentiality and Press Releases4416Power of Attorney in Favour of the Purchaser4517Assignment of Rights and Transfer of Obligations4518Transfer Taxes and Costs4519Appointment of Representative4620Notices4621Miscellaneous48* * * Page IITerm PageAccounting Principles7Accounts Receivable21Adjustment Amount10Affiliate14Agreement1AWV15Base Amount4BGB4BMWi15Business Day48Business Know-How22Clearance15Closing15Closing Actions18Closing Conditions15Closing Date19Closing Date Balance Sheet7Closing Date Cash6Closing Date Financial Debt6Closing Date Necessary Liquidity6Closing Date Statement7Closing Date Working Capital6Closing Memorandum18Company2Company Privacy Commitments30Damages32Data Room34Deductible33Disputed Amount5Earn-out Financial Statements11Earn-out Financial Statements Part 110Earn-out Financial Statements Part 211Earn-out Payment10Environmental Contamination31Environmental Laws31Escrow Account10Escrow Agent18Escrow Agreement18Escrow Amount10Estimate Notice5Excess Cash Distribution Costs4Exchange Rate12FDI Requests16Final Closing Date Statement9Financial Statements20Fundamental Guarantees33GDPR30German FDI Clearance Certificate15German GAAP21Governmental Authority20Group3Group Companies3Group Company3Group Company Shares3Hazardous Materials31Indemnifiable Taxes37TermPageInformation Technology24IP Rights22Key Customers26Key Employees27Know-How23Leased Real Estate22Liability Cap33Long Stop Date17Material Adverse Change15Material Agreements24Neutral Auditor8Neutral Auditor Firm8Notices46Objection Statement7Open Source Software24Overall Deductible33Owned IP Rights22Owned Real Estate22Owned Registered IP22Party/ies1Paying Agent’s Account12Permits28Privacy Laws30Pro-Forma Consolidated Financial Statements21Purchase Price5Purchase Price Estimate5Reference Pro-Forma Balance Sheet7Registered IP Rights23Related Person14Representative46(-------)4Review Period7Scheduled Closing Date17Seller1Sellers1Sellers Guarantee(s)19Sellers' Knowledge32Shares3Signing Date1Software23South Korean Subsidiary3Subsidiaries3Subsidiary3Taiwanese Subsidiary3Tax Authority37Tax Guarantee(s)37Tax Indemnification Claim38Taxes37Third Party Claim35Total Purchase Price5Transaction2USA Subsidiary3VAT12VAT Option Right12Withdrawing Party17Working Capital Adjustment Amount6Index of Definitions The following terms shall have the meanings as defined on the specified pages: * * * Page IIIIndex of Schedules − Schedule 2.2.1Declarations of consent to the sale of the Shares by the Company− Schedule 2.2.2Declarations of consent to the sale of the Shares by the Sellers' spouses− Schedule 3.1Sample Calculation of Purchase Price− Schedule 3.3Definition of Closing Date Cash, Closing Date Financial Debts, Closing DateNecessary Liquidity, Closing Date Working Capital− Schedule 3.4.1 b)Reference Pro-Forma Balance Sheet as of 31 December 2020− Schedule 3.6.2 b)Definition of the Group's EBITDA− Schedule 3.7Principles for allocation of the Purchase Price− Schedule 3.8Paying Agent's Account− Schedule 7.2b)Escrow Agreement− Schedule 7.2d)Confirmation of each Seller regarding payment obligations towards any GroupCompany and claims against any Group Company− Schedule 7.2e)Confirmation of Jürg Stahl on behalf of all Sellers that no Material Adverse Changehas occurred− Schedule 7.4Closing Memorandum− Schedule 8.1.1a)Copies of articles of association of all Group Companies− Schedule 8.1.2a)(Audited) Financial Statements of the Group Companies 2018-2020 and Pro-FormaConsolidated Financial Statements of the Group 2019-2020− Schedule 8.1.2e)-1Accounts Receivables as of 31 December 2020 not collected or not collectible− Schedule 8.1.2e)-2Accounts Receivables after 31 December 2020 not collected or not collectible− Schedule 8.1.2e)-3List of encumbrances, discount or agreement for deduction regarding AccountReceivables− Schedule 8.1.4a)Real Estate owned by the Group Companies− Schedule 8.1.4b)Real Estate leased-in by the Group Companies− Schedule 8.1.5a)List of IP-Rights and Technical Know How of the Group Company− Schedule 8.1.5c)List of pending judicial or regulatory proceedings regarding IP Rights− Schedule 8.1.5f)List of Software and scope of SoftwarePage IV− Schedule 8.1.5g)List of employee inventors under German Law− Schedule 8.1.7a)List of not completely fulfilled material agreements between a Group Company anda third party− Schedule 8.1.7b)List of contracts that will terminate because of the Agreement− Schedule 8.1.7c)List of key customers (sales > EUR 500,000)− Schedule 8.1.7d)List of countries for which external distribution persons are used− Schedule 8.1.8List of contracts regarding arrangements with Sellers or Sellers' affiliates− Schedule 8.1.9a)-1List of employees− Schedule 8.1.9a)-2List of leased employees− Schedule 8.1.9a)-3List of freelancers− Schedule 8.1.9b)Standard employment agreement− Schedule 8.1.9e)List of managing directors and employees entitled to remuneration more thanEUR 100,000 p.a.− (-------)(-------)− (-------)(-------)− (-------)(-------)− (-------)(-------)− (-------)(-------)− (-------)(-------)− (-------)(-------)− (-------)(-------)* * * Page VShare Sale and Purchase Agreement(Agreement)dated 16th November 2021 (Signing Date) by and between(1)Arnold Cziurlok, (-------) – Seller 1–,(2)Dr. Ursula Tinner, (-------) – Seller 2–,(3)Nikolaus Maser, (-------) – Seller 3–,(4)Glück-Industrie-Elektronik GmbH,a limited liability company (Gesellschaft mit beschränkter Haftung) incorporated under the laws of Germanywith registered business address Im Kalten Brunnen 29, 72666 Neckartailfingen, Germany, registered with the commercial register (Handelsregister)of the local court of Stuttgart under HRB 223119, – Seller 4–,(5)Carsten Wagner, (-------) – Seller 5–,(6)Jürg Stahl, (-------) – Seller 6–,(7)Brigitta Stahl, (-------) – Seller 7–,- Seller 1 to Seller 7 hereinafter each a Seller and together as the Sellers -and(8)Nova Measuring Instruments GmbH, a limited liability company (Gesellschaft mit beschränkter Haftung) incorporated under the laws of Germanywith registered business address Gebäude Ensemble Deutsche Werkstätten Hellerau, Bruno-Paul-Haus, 1 OG, Moritzburger Weg 67, 01109 Dresden,Germany, registered with the commercial register (Handelsregister) of the local court of Dresden under HRB 32966, – Purchaser–,- each Seller and the Purchaser hereinafter a Party and collectively Parties - and(9)Nova Ltd., 5 David Fikes Street, 10th Floor P.O. Box 266, Rehovot 7610201, Israel– Parent– Page 1 of 50Recitals ancosys GmbH (Company) is active in the field of development, manufacturing and distribution of equipment, tools, and software for automated onlineprocess control in chemical-based manufacturing with a focus on semiconductors. The Purchaser is engaged in pre-sales and service support for advanced metrology solutions installed in Europe for semiconductor process control. The Parentis engaged in the field of development, manufacturing, and distribution of advanced metrology solutions for semiconductor manufacturing. The Sellers intend to sell and assign to the Purchaser all shares in the Company. The Purchaser intends to purchase and acquire these shares (Transaction). NOW, THEREFORE, the Parties agree as follows: 1Corporate Structure 1.1Corporate Structure of the Company 1.1.1The Company is a limited liability company (Gesellschaft mit beschränkter Haftung) incorporated under the laws of Germany and registered withthe commercial register (Handelsregister) of the local court of Stuttgart under number HRB 382195, having its registered seat in Pliezhausen, andwith registered business address at Siemensstraße 8, 72124 Pliezhausen, Germany. 1.1.2The registered share capital (Stammkapital) of the Company equals EUR 131,210.00 (in words: one hundred thirty-one thousand two hundred teneuros) and is divided into the following shares: a)one share with a par value (Nennbetrag) of EUR 13,000.00 (in words: thirteen thousand euros) (consecutive no. 1 of the shareholder listfiled with the commercial register of the Company dated 10 July 2015), held by Seller 1; b)one share with a par value (Nennbetrag) of EUR 8,000.00 (in words: eight thousand euros) (consecutive no. 2 of the shareholder list filedwith the commercial register of the Company dated 10 July 2015), held by Seller 2; c)one share with a par value (Nennbetrag) of EUR 14,000.00 (in words: fourteen thousand euros) (consecutive no. 3 of the shareholder listfiled with the commercial register of the Company dated 10 July 2015) held by Seller 3; d)one share with a par value (Nennbetrag) of EUR 13,350.00 (in words: thirteen thousand three hundred fifty euros) (consecutive no. 4 of theshareholder list filed with the commercial register of the Company dated 10 July 2015) held by Seller 4; e)one share with a par value (Nennbetrag) of EUR 8,000.00 (in words: eight thousand euros) (consecutive no. 5 of the shareholder list filedwith the commercial register of the Company dated 10 July 2015) held by Seller 5; Page 2 of 50 f)one share with a par value (Nennbetrag) of EUR 28,000.00 (in words: twenty eight thousand euros) (consecutive no. 6 of the shareholderlist filed with the commercial register of the Company dated 10 July 2015) and one share with a par value (Nennbetrag) of EUR 10,000.00(in words: ten thousand euros) (consecutive no. 8 of the shareholder list filed with the commercial register of the Company dated 10 July2015) both held by Seller 6; and g)one share with a par value (Nennbetrag) of EUR 36,860.00 (in words: thirty-six thousand eight hundred sixty euros) (consecutive no. 7 ofthe shareholder list filed with the commercial register of the Company dated 10 July 2015) held by Seller 7. 1.1.3In this Agreement, all shares which the Sellers hold in the Company, are collectively referred to as the Shares, regardless of whether the number,nominal amounts and consecutive numbering of the shares or the registered share capital of the Company correspond to the aforementioned details. 1.2Subsidiaries and branch 1.2.1The Company holds directly all shares (on a fully diluted basis) in the following companies: a)Ancosys Instrument Taiwan Ltd, having its legal seat at Rm. 2, 10F, No 8, Ziqiang S. Road, Zhubei City, Hsinchu County, Taiwan(Taiwanese Subsidiary), which has a registered share capital of TWD 1,500,000, divided into 150,000 shares, b)ancosys Inc, having its registered office at 874 Walker Road, Suite C, City of Dover, County of Kent, Delaware 19904, USA (USASubsidiary), which has a registered share capital of USD 150,000, divided into 150 shares, c)ancosys Korea LLC, having its principal office at Yongin-si, Gyeonggi-do, South Korea (South Korean Subsidiary), which has a registeredshare capital of KRW 100,000,000 divided into 20,000 shares, (the Taiwanese Subsidiary, the USA Subsidiary and the South Korean Subsidiary each a Subsidiary and together Subsidiaries; theCompany and the Subsidiaries together the Group or the Group Companies and each a Group Company; the Shares and the shares in theSubsidiaries together the Group Company Shares). 1.2.2The USA Subsidiary operates a branch (Zweigniederlassung) in Taiwan with business address No 33, 7th Floor, Sec 1 Zhong Xiao West End, 100Taipei, Taiwan. 2Sale and Assignment of the Shares; Right to Profits 2.1Sale and Assignment of the Shares; Right to Profits 2.1.1Subject to the terms and conditions of this Agreement, the Sellers hereby sell (verkaufen), and subject to the condition precedent (aufschiebendeBedingung) of the payment of the Preliminary Purchase Price to the Paying Agent and the Escrow Amount to the Escrow Account assign (abtreten)to the Purchaser the Shares. The Purchaser accepts such sale and assignment of the Shares. Page 3 of 502.1.2The sale of the Shares shall include any and all rights associated with, or otherwise pertaining to, the Shares as of the Closing Date, including therights to any undistributed profits for the current business year and for any prior business years of the Company. 2.2Consent of the Company; Consent of spouses 2.2.1The Company and the meeting of shareholders of the Company have already consented to the sale and assignment of the Shares. A copy of thedeclaration of consent of the Company and of the shareholders' resolution of the Company, also containing a waiver by each of the Sellers on anyrights of first refusal and all other pre-emptive rights or similar rights, including drag and tag along rights such Sellers might have in relation to theShares held by the other Sellers, are attached hereto as Schedule 2.2.1. 2.2.2By way of precaution, the spouses of each Seller who lives in the German property regime of community of accrued gains (Güterstand derZugewinngemeinschaft) have consented to the sale and transfer of the respective Shares in the Company in accordance with Section 1365 GermanCivil Code (Bürgerliches Gesetzbuch – BGB). Copies of the respective declarations of consent are attached as Schedule 2.2.2. 3Purchase Price; Conditions of Payment 3.1Purchase Price The purchase price to be paid by the Purchaser as consideration for the Shares shall amount to a)the balance of the following amounts: (i)A fixed amount of EUR 75,000,000 (in words: seventy-five million euros) (the Base Amount) (ii)minus the aggregate amount of the Closing Date Financial Debt; (iii)plus the amount of the Closing Date Cash; (iv)minus the Necessary Liquidity Adjustment Amount, if any; (v)minus the Working Capital Adjustment Amount, if any; (vi)minus an amount of (-------); (vii)minus an amount of 5% of the Excess Cash Amount (the Excess Cash Distribution Costs); Page 4 of 50(collectively the Purchase Price) b)plus the Earn-out (if and to the extent applicable) (together with the Purchase Price the Total Purchase Price). A sample calculation of the Total Purchase Price is attached hereto as Schedule 3.1. 3.2Preliminary purchase price 3.2.1The preliminary purchase price for the Shares to be paid by the Purchaser on the Closing (the Preliminary Purchase Price) shall amount to thebalance of (i)the Base Amount; (ii)plus the estimated Closing Date Cash; (iii)minus the estimated Closing Date Financial Debt; (iv)minus the estimated Necessary Liquidity Adjustment Amount, if any; (v)minus the estimated Working Capital Adjustment Amount, if any; (vi)minus(-------); (vii)minus the Excess Cash Distribution Costs; and (viii)minus the Escrow Amount, which shall be paid by the Purchaser to the Escrow Account at Closing. 3.2.2No later than ten (10) Business Days prior to the Scheduled Closing Date, Sellers shall deliver to Purchaser a notice (the Estimate Notice) that setsforth Sellers’ good faith estimate of the Preliminary Purchase Price, together with all required supporting documentation (including, but not limitedto, bank statements supporting the estimated Closing Date Cash) (the Purchase Price Estimate). The Purchaser may raise objections to the PurchasePrice Estimate within five (5) Business Days after receipt of the Estimate Notice by providing the Sellers with a written statement of objectionsspecifying the relevant items, sufficient reasons for each objection and the amounts in dispute in reasonable detail. If and to the extent Parties are notable to settle the disagreement until the end of the second (2nd) Business Day prior to the Scheduled Closing Date, a)and if the Disputed Amount amounts to not more than EUR 2,500,000 (in words: two million five hundred thousand euros), the Purchasershall deduct the amount in dispute (the Disputed Amount) from the Preliminary Purchase Price (which shall therefore be reducedaccordingly) to be paid to the Paying Agent at Closing and pay such Disputed Amount to the Escrow Account instead. The Disputed Amountpaid to the Escrow Account, if any, shall (i) not be part of the Escrow Amount and (ii) be released to the respective Party as per clause 3.4.5. Page 5 of 50 b)and if the Disputed Amount exceeds EUR 2,500,000 (in words: two million five hundred thousand euros), the Scheduled Closing Date shallbe deferred until the Purchase Price Estimate and accordingly the Preliminary Purchase Price has become final and binding between theParties according to clause 3.4.3 and 3.4.4, which shall apply mutadis mutandis (whereby the following shortened deadlines shall apply forthe purpose of this clause 3.2.2b): the Parties shall have five (5) Business Days to agree on the Preliminary Purchase Price and, if applicable,five (5) further Business Days to agree on the Neutral Auditor and the Neutral Auditor shall have thirty (30) Business Days to determine thePreliminary Purchase Price). In this case, the Purchaser shall, at Closing, pay to the Paying Agent the Preliminary Purchase Price determinedby the Neutral Auditor, without paying any amount (in addition to the Escrow Amount) to the Escrow Account. The Long Stop Date shall bepostponed for as many calendar days as the procedure to determine the Preliminary Purchase Price according to this clause 3.2.2b) isrunning. 3.3Closing Date Cash, Closing Date Financial Debt, Necessary Liquidity Amount 3.3.1For the purpose of this Agreement a)Closing Date Cash means the consolidated amount of cash and cash equivalents of the Group Companies that can be converted into cashwithin a period of three (3) months after the Closing Date, including in any case the line items set forth in Schedule 3.3 under the heading“Closing Date Cash”, all in euro as per the Closing Date, as determined on the basis of the Final Closing Date Balance Sheet. b)Closing Date Financial Debt means the consolidated amount of the line items set forth in Schedule 3.3, in euro as per the Closing Date, asdetermined on the basis of the Final Closing Date Balance Sheet. c)Closing Date Necessary Liquidity means the Group Companies’ cash on bank accounts as set forth in Schedule 3.3 (however, for theavoidance of doubt, without deducting the Closing Date Financial Debt) which the Group Companies need to run their operations in theordinary course of business for five (5) Business Days after the Closing Date. d)Necessary Liquidity Adjustment Amount means the amount (if any) by which, as per the Closing Date each of the Group Companies’cash on bank accounts falls short of the Closing Date Necessary Liquidity. e)Closing Date Working Capital means the consolidated amount of the line items set forth in Schedule 3.3 under the heading “ClosingDate Working Capital” of the Group Companies in euro as per the Closing Date, as determined on the basis of the Final Closing DateBalance Sheet. f)The Working Capital Adjustment Amount shall be the amount by which the Closing Date Working Capital falls below EUR 8,727,000 (inwords: eight million seven hundred twenty-seven thousand euros). Page 6 of 50 g)The Excess Cash Amount shall be the amount by which the Closing Date Cash exceeds the Closing Date Necessary Liquidity. 3.4Purchase Price Adjustment 3.4.1Preparation of the Closing Date Balance Sheet a)After the Closing Date, the Purchaser shall prepare a consolidated balance sheet of the Group based on the individual balance sheet of theCompany according to German GAAP (as defined below) and the individual balance sheets of the Subsidiaries as per the relevant localGAAPs, all as applied for the establishment of the respective financial statements 2020 (together Accounting Principles) as of the ClosingDate showing all balance sheet items required for the determination of the Closing Date Cash, the Closing Date Financial Debt, the ClosingDate Necessary Liquidity and the Closing Date Working Capital (the Closing Date Balance Sheet). b)The Closing Date Balance Sheet shall be prepared in the English language on a going concern basis in the same format as the pro-formabalance sheet as of 31 December 2020 attached as Schedule 3.4.1 b) (Reference Pro-Forma Balance Sheet); applying the AccountingPrinciples. Amounts in foreign currency shall be converted into euro with the Exchange Rate (as defined below). c)The Purchaser shall deliver the Closing Date Balance Sheet together with a calculation of the Purchase Price and the Adjustment Amountderived therefrom (together the Closing Date Statement) to the Sellers within forty (40) Business Days after the Closing Date. Upon theSellers' reasonable request, the Purchaser shall make available to the Sellers copies of the documents reasonably required for the review ofthe Closing Date Balance Sheet. 3.4.2Review by the Sellers a)The Sellers shall be entitled to review the Closing Date Statement within a period of twenty (20) Business Days after the receipt from thePurchaser (Review Period). The review of the Closing Date Statement shall be limited to the compliance of the Closing Date Statementwith this Agreement and, in particular, the provisions of clause 3.4.1. The Sellers shall notify to the Purchaser in writing any objection theymay have against the Closing Date Statement, specifying the relevant items, the reasons for their objections and the amounts in dispute inreasonable detail (Objection Statement). b)If and to the extent the Sellers do not submit an Objection Statement in accordance with lit. a) above, the Sellers shall be deemed to haveagreed to the positions set forth in the Closing Date Statement and the Closing Date Statement shall become final and binding on suchpositions upon the Parties upon expiry of the Review Period. Page 7 of 503.4.3Expert Proceeding a)If and to the extent the Sellers have submitted an Objection Statement in accordance with clause 3.4.2, the Parties shall discuss the disputeditems in order to reach an agreement. b)If and to the extent the Sellers and the Purchaser cannot settle the disagreement within twenty (20) Business Days after the Purchaser hasreceived the Objection Statement, the Sellers or the Purchaser may present the matter to a neutral auditor (Neutral Auditor) who is apartner of PwC, Deloitte, KPMG or BDO and must be in sufficient command of the English language (such firm the Neutral AuditorFirm), which firm shall be jointly designated by the Sellers and the Purchaser. If the Sellers and the Purchaser cannot agree on the NeutralAuditor Firm within fifteen (15) Business Days after the respective request for such designation, the Neutral Auditor Firm and the NeutralAuditor shall be appointed by the Chairman of the Board of German Institute of Public Accountants (Vorsitzer des Vorstandes des Institutder Wirtschaftsprüfer in Deutschland e. V.) at the request of the Sellers or the Purchaser after consideration of the proposals and commentsby the Sellers and the Purchaser; the Neutral Auditor to be appointed must satisfy the following criteria: (i) The Neutral Auditor must havefifteen (15) years of professional experience in the area of audit services; (ii) the Neutral Auditor must have been a partner of the NeutralAuditor Firm for a period of at least five (5) years; and (iii) the Neutral Auditor must confirm that he and his firm are not conflicted fromaccepting the assignment and have the necessary resources to perform the required services in a timely manner. If and to the extent theParties have not reached an agreement pursuant to lit. a) and neither Party requests that the matter in dispute is to be decided by the NeutralExpert in accordance with and within the time limit set forth in sentence 1, clause 3.4.2 b) shall apply mutatis mutandis. c)The Sellers and the Purchaser shall jointly instruct the Neutral Auditor Firm to decide the issues in dispute in accordance with the provisionsof this clause 3.4.3. To that end, the Sellers and the Purchaser agree to use commercially reasonable efforts to formalize the engagement ofthe Neutral Auditor Firm as promptly as practicable. The Parties in particular agree to execute, if requested by the Neutral Auditor Firm, anengagement letter with the Neutral Auditor Firm reflecting the terms of this Agreement and otherwise containing reasonable terms. d)Unless instructed otherwise by the Sellers and the Purchaser jointly, the Neutral Auditor shall limit his decisions to the issues in dispute, butshall on the basis of such decisions and the undisputed parts of the Closing Date Statement determine the definitive content of the ClosingDate Statement and in particular the definitive amount of the Purchase Price. In respect of the issues in dispute the decisions of the NeutralAuditor shall be limited to, and may not fall beyond or outside, the positions taken by the Sellers and the Purchaser. To the extent necessaryfor the decisions, the Neutral Auditor shall also be entitled to decide on the interpretation of this Agreement, but not upon legal issues(unless such legal issues specifically pertain to the applicable accounting and valuation standards and principles). The Neutral Auditor shallact as an expert (Schiedsgutachter) and not as an arbitrator (Schiedsrichter). e)Before making the decision, the Neutral Auditor shall grant the Sellers and the Purchaser the opportunity to present their positions inwriting. Page 8 of 50f)The Neutral Auditor shall use best efforts to deliver its written opinion with reasons for the decisions as soon as reasonably practical andshall endeavor to do so not later than sixty (60) Business Days after the issues in dispute have been referred to the Neutral Auditor. g)Subject to Section 319 BGB, the Neutral Auditor’s decision and the Closing Date Statement as determined by the Neutral Auditor shall befinal and binding upon the Parties. h)The Neutral Auditor shall decide upon the allocation of its costs and expenses between the Parties by applying the principles of Sections 91et seqq. German Code of Civil Procedures (ZPO). 3.4.4Final Closing Date Statement The Closing Date Statement shall be final and binding on the Parties for the purpose of determining the Purchase Price, a)in accordance with clause 3.4.2, if and to the extent the Sellers have not submitted an Objection Statement within the time period set forththerein; b)if and to the extent the Sellers and the Purchaser have reached an agreement concerning the disputed items; c)in accordance with clause 3.4.3 b), if and to the extent the Parties have not reached an agreement and neither Party requests within the timelimit set forth in clause 3.4.3 b) that the matter in dispute shall be decided by the Neutral Auditor; and d)in accordance with clause 3.4.3 g), if and to the extent the Neutral Auditor has decided about the unresolved disputed items; (the so-determined final and binding Closing Date Statement is referred to herein as Final Closing Date Statement). 3.4.5Adjustment Amount If, on the basis of the Final Closing Date Statement, the Purchase Price deviates from the Preliminary Purchase Price, the following shall apply: a)if and to the extent the Purchase Price falls short of the Preliminary Purchase Price: (i)if any Disputed Amount remains on the Escrow Account, the Parties shall jointly instruct the Escrow Agent to release the amount fromthe Disputed Amount to the Purchaser; and (ii)if, taking into account the initially deposited Disputed Amount, any difference by which the Purchase Price falls short of the PreliminaryPurchase Price remains, the Sellers shall pay to the Purchaser an amount equal to such difference; or Page 9 of 50 b)if and to the extent the Purchase Price exceeds the Preliminary Purchase Price: (i)if any Disputed Amount remains on the Escrow Account, the Parties shall jointly instruct the Escrow Agent to release (i) an amountequal to the portion of the Disputed Amount by which the Purchase Price exceeds the Preliminary Purchase Price to the Sellers and (ii)an amount equal to the remaining portion of the amount equal to the Disputed Amount, if any, to the Purchaser; and (ii)if, taking into account the initially deposited Disputed Amount, any difference by which the Purchase Price exceeds the PreliminaryPurchase Price remains, the Purchaser shall pay to the Sellers an amount equal to such difference (any such amount, the Adjustment Amount). The Adjustment Amount payable by the Sellers or the Purchaser pursuant to lit. a) respectively b) shall become due on the fifth (5th) Business Dayafter the Closing Date Statement has become final and binding on the Parties. 3.5Escrow Amount Seven percent (7%) of the Preliminary Purchase Price (the Escrow Amount) shall not be paid to the Sellers at the Closing, but to an escrowaccount by the acting notary designated by the notary to Purchaser prior to the Scheduled Closing Date (the Escrow Account). The funds in theEscrow Account shall serve as collateral for the Purchaser with respect to any claims of the Purchaser against the Sellers arising out of or inconnection with this Agreement. The Purchaser shall have the right to use any amounts in the Escrow Account to satisfy any of its claims under orin connection with this Agreements against the Sellers. The Escrow Amount shall be released in accordance with, and subject to the conditions andlimitations of, clause 13 and the Escrow Agreement. 3.6Earn-out 3.6.1Earn-out Payment In addition to the Purchase Price, the Purchaser shall pay to the Sellers an additional earn-out consideration of EUR 8,500,000 (in words: eightmillion five hundred thousand euros) in cash (Earn-out Payment) if all conditions and thresholds as provided in clause 3.6.2 are met. Thethresholds shall be calculated a)with respect to clause 3.6.2a) and b), based on the Group Companies' pro-forma consolidated financial statements for the calendar year2021, which in turn shall be based on and consolidate (i) the Company's audited financial statements for the calendar year 2021 and (ii) thefinancial statements of all Subsidiaries for the calendar year 2021 (Earn-out Financial Statements Part 1), and b)with respect to clause 3.6.2c), based on the Group Companies' pro-forma consolidated interim financial statements as per 30 June 2022,which in turn shall be based on and consolidate (i) the Company's interim financial statements as per 30 June 2022 and (ii) the interimfinancial statements of all Subsidiaries as per 30 June 2022 (Earn-out Financial Statements Part 2; Earn-out Financial Statements Parts 1and 2 together Earn-out Financial Statements), Page 10 of 50The relevant financial statements as well as their consolidation shall be established as set forth in clause 3.4.1b) and, in particular, by applying theAccounting Principles. However, a)(-------) under clause 12.2, or b)intragroup fees or charges paid or owed (for the period until 31 December 2021) by any Group Company to any Affiliate of the Purchaser(excluding the Group Companies) if and to the extent such intragroup fees or charges exceed (i) any existing intragroup fees or chargesand/or (ii) any fees or costs for external services received by Group Companies in the past and which are substituted by services rendered orcontracted by the Purchaser or Affiliates of the Purchaser, shall be disregarded when calculating the EBITDA for the purpose of computing the Earn-out Financial Statements. Further, in case the GroupCompanies become subject to an intra-group (i.e. with Purchaser’s group) merger or a de-merger or transfer a substantial part of their assets orbusiness activities to the Purchaser or an Affiliate of the Purchaser in the period until 30 June 2022, the Purchaser undertakes to keep a separatebookkeeping for the Group Companies and any negative effects from such measures on the EBITDA and the revenues shall be disregarded for thepurpose of computing the Earn-out Financial Statement.Seven percent (7%) of the Earn-out Payment shall not be paid to the Sellers, but will be paid into the Escrow Account. It shall be released inaccordance with, and subject to the conditions and limitations of, clause 13 and the Escrow Agreement. 3.6.2Conditions for the Earn-out Payment The Earn-out Payment is subject to achievement of all of the following conditions and thresholds: a)The Group's consolidated revenues for calendar year 2021 amount to (-------) or more; and b)The Group's EBITDA (as defined in Schedule 3.6.2b)) constitutes more than 19% of such calendar year 2021 revenues; and c)The Group's consolidated revenues for the first half of calendar year 2022 amount to (-------) or more. For the avoidance of doubt, partial completion of any of the thresholds set forth above in lit. a) through lit. c) shall not entitle the Sellers to any partof the Earn-out Payment. Page 11 of 503.6.3Review by the Sellers, Expert Proceedings Clauses 3.4.2, 3.4.3 and 3.4.4 shall apply mutatis mutandis. However, the Purchaser shall provide the Sellers with the Earn-out FinancialStatements by 31 August 2022. The Sellers shall then have twenty (20) Business Days to review both the Earn-out Financial Statements afterreceipt from the Purchaser. 3.7Allocation of the Purchase Price and Total Purchase Price The Purchase Price and the Total Purchase Price shall be allocated between the Sellers as per the principles set forth under Schedule 3.7. 3.8Payment Terms 3.8.1Payments by the Purchaser to the Sellers based on this Agreement must, except as otherwise provided in this Agreement, be paid by the Purchaserin USD via bank transfer to be credited on the same day, free of charges and fees, with same day value to the account of MLL MeyerlustenbergerLachenal Froriep AG (Paying Agent's Account) as specified in Schedule 3.8 with debt discharging effect (mit schuldbefreiender Wirkung) towardseach of the Sellers. Payments by the Purchaser shall be deemed to have been timely made only upon the irrevocable and unconditional crediting ofthe amount payable to the Paying Agent's Account or the Escrow Account, as the case may be, on the relevant date with a value date(Wertstellungsdatum) as of the same date. 3.8.2Any payment under in connection with this Agreement, although expressed in euros in this Agreement, shall be paid in the equivalent amount ofUnited States Dollars. The respective amount shall be converted into United States Dollars at a fixed exchange rate of USD 1.19 per 1 euro (theExchange Rate). 3.9No Set-Off The Purchaser’s right to set-off against and/or to withhold the payment of the Preliminary Purchase Price, the Earn-out Payment or the AdjustmentAmount due to the Sellers, as well as the Sellers' right to set-off against and/or to withhold the payment of any Adjustment Amount due to thePurchaser, are hereby expressly waived and excluded except for claims which have been accepted by the other Party in writing or have beenawarded to the respective Party by a court (including arbitral tribunal) without further recourse (rechtskräftig). 3.10Value Added Tax The Parties commonly understand that all transactions contemplated under this Agreement including the sale and assignment of the Shares areeither not subject to or exempt from value-added tax (or comparable foreign tax) (VAT). The Sellers herewith undertake not to waive the VATexemption pursuant to Section 9 German VAT Act (Umsatzsteuergesetz) (or comparable foreign tax) (VAT Option Right) and exercise any rightthe Sellers might have to ensure the transactions contemplated in this Agreement are not subject to VAT or exempt from VAT. Accordingly, theSellers will not issue an invoice and this Agreement is not an invoice in the meaning of Sections 14 et seqq. German VAT Act. In the event that,against the common understanding of the Parties, VAT should arise without the Sellers exercising any VAT Option Right, such VAT shall increasethe Purchase Price and, if applicable, the Earn out Payment, to the extent the Purchaser is entitled to a corresponding input VAT refund and thePurchaser shall pay such VAT to the Sellers after receipt of a proper invoice by the Purchaser from the Sellers. Page 12 of 504Commercial effect The sale of the Shares and the rights associated therewith shall have economic effect as of the Closing Date. 5Cooperation and Conduct of Business until Closing 5.1Conduct in ordinary course From the Signing Date until the Closing Date, and except for transactions contemplated by this Agreement, the Sellers shall procure (stehen dafürein) that the Group Companies conduct their business operations until the Closing Date, in all material respects, only in the ordinary course ofbusiness as presently conducted and consistent with past practice, unless the Purchaser has consented to the specific measure or activity in writing. 5.2Specific measures and activities outside ordinary course Without prejudice to the generality of clause 5.1, the Sellers shall in particular procure (stehen dafür ein) that the Group Companies do not take anyof the following measures or activities unless the Purchaser has consented to the specific measure or activity in writing or not objected to it by theend of the fifth (5th) Business Days after having received a respective request from the Sellers via e-mail to Dror David: (-------) with a copy toLeeat Peleg: (-------): a)Sale, purchase, transfer or acquisition of any shares or any other equity interests in companies, including the Subsidiaries; b)Disposal of, in whole or in material parts, the business operations of the Group Companies; c)Opening of new divisions, branches of business or regional offices, or closure of existing divisions and/or permanent establishments; d)Entering into or amending of any loan agreements or any other agreement resulting in financial debt exceeding a principal amount of EUR100,000 (in words: hundred thousand euros) in the individual case; e)Making of any capital expenditures in excess of EUR 200,000 (in words: two hundred thousand euros) in the individual case; f)Sale, purchase or encumbrance of any real property or rights similar to real property (grundstücksgleiche Rechte); Page 13 of 50 g)Entering into, termination or amendment of Material Agreements other than in the ordinary course of business; h)Assignment or transfer for security purposes, pledge, encumbering or otherwise burden tangible and intangible fixed assets (Gegenständedes Anlagevermögens) – whether to be shown in the balance sheet or not – in each case except (i) in the fulfilment of respective obligationsentered into before the Signing Date and or (ii) in the ordinary course of business and consistent with past practice; i)Entering into, assumption of, indemnification from, any guarantee, indemnity or other agreement to secure any obligation of a third party orcreation of any encumbrance over any assets – in each case except (i) in the fulfilment of respective obligations entered into before theSigning Date and or (ii) in the ordinary course of business and consistent with past practice; j)Entering into, amending or termination of any agreement with a labor union or collective bargaining agreement; k)Entering into any agreement or transaction with any Sellers or any affiliate in the meaning of Sections 15 et seqq. German StockCorporation Act (Aktiengesetz - AktG) (Affiliate) or related person in the meaning of Section 138 German Insolvency Code(Insolvenzordnung) of a Seller (Related Person); l)(i) Making, changing or rescinding any Tax election; (ii) amending any Tax return, except as required by applicable law, (iii) changing anymethod of accounting for Tax purposes, (iv) change any annual Tax accounting period or (v) entering into a contractual obligation or requestany binding ruling in respect of Taxes with any Governmental Authority; m)Entering into, amending or terminating any employment, service or consultancy contracts providing for an annual gross base salary orremuneration (excluding bonus payments) exceeding EUR 80,000 (in words: eighty-thousand euros) in the individual case. 5.3Corporate measures outside ordinary course The Sellers shall not take any of the following corporate measures in relation to the Company between the Signing Date and the Closing Date andprocure that none of the corporate measures in relation to the Subsidiaries are taken between the Signing Date and the Closing Date, in each caseunless the Purchaser has consented to the specific corporate measure in writing: a)Sell, purchase, transfer, encumber or otherwise dispose of any shares; b)Resolution of any change in the articles of association or any other material shareholder resolution, including with respect to areorganization, dissolution or liquidation; Page 14 of 50 c)Creation or issuance of any shares (including any options, warrants or conversion rights with respect to such shares); d)Repurchase or redemption (Einziehung) of any shares; e)Enter into company agreements within the meaning of Sections 291 et seqq. of the German Stock Corporation Act (AktG) or similaragreements; f)Appointment or dismissal of managing directors (Geschäftsführer), except for dismissal for cause (aus wichtigem Grund). 5.4General cooperation between the Parties The Parties shall use their respective best efforts and exchange the necessary information to ensure that the Closing Conditions shall be met as soonas possible after the Signing Date. 6Closing Conditions; Long Stop Date 6.1Closing Conditions The obligations of the Parties to take the Closing Actions (Closing) pursuant to clause 7 shall be subject to the fulfillment or waiver of thefollowing conditions precedent (aufschiebende Bedingungen) pursuant to Section 158 (1) BGB (Closing Conditions): a)The Purchaser has received a compliance certificate pursuant to Section 58 (1) German Foreign Trade and Payments Ordinance(Außenwirtschaftsverordnung, AWV) or, to the extent applicable, an approval (Freigabe) pursuant to Section 58a (1) AWV or anotherbinding decision of the German Federal Ministry for Economic Affairs and Energy (Bundesministerium für Wirtschaft und Energie, BMWi)confirming that the transactions contemplated in this Agreement do not raise concerns with respect to the public order or security of theFederal Republic of Germany, another European Union member state or with regard to projects or programs of union interest (the GermanFDI Clearance Certificate), or (ii) a German FDI Clearance Certificate is deemed to have been issued pursuant to Section 58 (2) or Section58a (2) AWV or restrictions (Beschränkungen) and obligations (Handlungspflichten) cannot be imposed anymore due to the expiry of thetime periods set out in Section 14a German Foreign Trade and Payments Act (Außenwirtschaftsgesetz - AWG), in each case because therelevant time periods have expired without the BMWi initiating a formal foreign investment control review or imposing restrictions orobligations, or (iii) the BMWi has, within the time period set out in Section 14a AWG, issued binding orders (Anordnungen) or any otherrestrictions or obligations in relation to the transactions contemplated in this Agreement without prohibiting them and Purchaser has agreed,without being obliged to, to accept such orders, restrictions or obligations in writing and after having consulted the Sellers (Clearance). Page 15 of 50b)No Material Adverse Change has occurred. Material Adverse Change shall mean an event or series of events which are negativelyaffecting the Group Companies, taken as a whole, and lead to damages (including, for the avoidance of doubt, costs and losses) of at leastEUR 5,000,000 (in words: five million euros), such as a major industrial accident on their premises, but excluding events arising out of,resulting from, or attributable to, the Covid-19 pandemic, changes in general economic conditions, changes in conditions in the financialmarkets, credit markets or capital markets, general changes in conditions in the industries in which the Group Companies conduct business,changes in regulatory, legislative or political conditions, any geopolitical conditions, outbreak of hostilities, acts of war, sabotage, terrorismor military actions, earthquakes, hurricanes, tsunamis, tornadoes, floods, mudslides, wild fires or other natural disasters, weather conditions,changes or proposed changes in any GAAP applicable to any Group Company; provided that the above carve-outs shall be taken intoaccount to assess if a Material Adverse Change occurred, if and to the extent the Group Companies, taken as a whole, are specifically anddirectly affected by such events. c)No Governmental Authority or other Person has commenced any legal action in front of any competent court, arbitration tribunal orGovernmental Authority seeking to prohibit or limit the exercise of any material right pertaining to the ownership by the Purchaser of theShares or by the Company of the shares in the Subsidiaries and no respective order or decision issued by any competent court, arbitrationtribunal or Governmental Authority shall be in effect. 6.2Cooperation with respect to FDI filing a)The Purchaser has, before the Signing Date, proceeded to any filings, requests or notifications required to obtain the Clearance (togetherFDI Requests) with the competent Governmental Authorities. The Parties shall cooperate to answer any questions from, and to provide anyfurther documents and information which need to be provided to, the competent Governmental Authorities regarding the FDI Requests. b)In particular, the Sellers shall and shall procure that the Group Companies cooperate with the Purchaser for the purpose of the Clearance byproviding the relevant information concerning the Group Companies as may be requested by the BMWi and/or as reasonably requested byPurchaser. 6.3Notification with respect to fulfilment or definitive failure of any Closing Condition The Parties shall notify each other of the fulfillment or the definitive failure (endgültiger Nichteintritt) of any Closing Condition without unduedelay (unverzüglich) after obtaining knowledge thereof, and shall include in such notifications all relevant evidencing documents. 6.4Waiver of Closing Conditions The Closing Conditions may be waived by the Purchaser only. Any waiver of a Closing Condition may be made in full or in part. The effect of awaiver of a Closing Condition shall be limited to eliminating the need that such Closing Condition be fulfilled and, unless otherwise agreed, shallnot limit or prejudice any claims that a waiving Party may have with respect to any circumstances relating to such Closing Condition not havingbeen fulfilled. Page 16 of 506.5Long Stop Date The Sellers, acting through the Representative, and the Purchaser shall, until Closing has occurred, be entitled to withdraw from (zurücktreten) thisAgreement by written notice, if (i) the Closing Conditions can no longer be fulfilled and are not duly waived or (ii) if the closing condition inclause 6.1 a) is not fulfilled or duly waived until 28 February 2022 (Long Stop Date). However, if the Closing Condition provided in clause 6.1 a)is not fulfilled until ten (10) Business Days before the Long Stop Date, the Representative, or the Purchaser shall have the right to postpone theLong Stop Date by a maximum of two (2) months by written notice to the other Party/Parties. The Sellers, acting through the Representative, on the one side and Purchaser on the other side shall also, until Closing has occurred, be entitled towithdraw from (zurücktreten) this Agreement (each a Withdrawing Party) by written notice to the respective other Party if the respective otherParty (i.e. the Purchasers in case of the Sellers and one of the Sellers in case of the Purchaser) has not fulfilled all of the Closing Action(s) (asdefined below) in breach (schuldhafte Pflichtverletzung) of the terms and conditions of this Agreement, provided that the Withdrawing Party is atthe same time not in breach of its obligations under this Agreement to fulfil its Closing Action(s), and such breach by the respective other Party hasnot been remedied within ten (10) Business Days after having been notified by the Withdrawing Party in writing of such breach. 6.6Withdrawal In the event of a withdrawal (Rücktritt) of a Party, none of the Parties shall have any obligation or incur any liability towards any of the otherParties provided that (i) the obligation of a Party to pay damages for willful or gross negligent breach (schuldhafte Pflichtverletzung) of thisAgreement prior to the date of withdrawal, if any, and (ii) the provisions in clauses 19 and 21 below shall in each case survive and remain in fullforce and effect. 7Closing 7.1Scheduled Closing Date Provided that the Closing Condition provided in clause 6.1 a) has been fulfilled or duly waived (i) prior to 31 December 2021, the Closing shalloccur on the 3 January 2022; or (ii) after 31 December 2021, the Closing shall occur at such date as the Parties have agreed upon, but in no caselater than fifteen (15) Business Days after the day on which the aforementioned Closing Condition has been fulfilled or duly waived, at the officesof Gleiss Lutz, Dreischeibenhaus 1, 40211 Düsseldorf, Germany, at 10:00 a.m. local time provided that the Closing Conditions provided inclause 6.1 b) to c) are still fulfilled or duly waived at such date. The date on which the Closing is scheduled to occur according to the foregoingsentence shall be referred to as the Scheduled Closing Date. Page 17 of 507.2Closing Actions On the Scheduled Closing Date, the Parties shall take or, if applicable, cause to be taken, concurrently (Zug um Zug) the following actions (ClosingActions): a)Purchaser shall pay the Preliminary Purchase Price to the Paying Agent’s Account, as evidenced by a confirmation from the Paying Agent'sbank. b)The Parties shall execute the Escrow Agreement substantially in the form attached hereto as Schedule 7.2b) duly signed by the escrowagent appointed by the Parties (Escrow Agent). c)Purchaser shall pay the Escrow Amount to the Escrow Agent, as evidenced by a confirmation from the Escrow Agent's bank. d)Each Seller shall deliver to the Purchaser a confirmation substantially in the form set out in Schedule 7.2d) confirming that (i) there are nopayment obligations of any Group Company to such Seller due and unpaid and (ii) that such Seller has no claims against any GroupCompany, subject to employment or consultancy agreements in force on the Closing Date. e)Seller 6 or the Representative shall, on behalf of all Sellers, deliver a written confirmation that no Material Adverse Change has occurreduntil the Scheduled Closing Date, substantially in the form set out in Schedule 7.2e). 7.3Waiver of Closing Actions The Closing Actions in clauses 7.2d) to 7.2e) may be waived by the Purchaser. The other Closing Actions may only be waived by mutualagreement of the Parties, such agreement to be made in writing. Any waiver of a Closing Action may be made in full or in part. The effect of awaiver of a Closing Action shall be limited to eliminating the need that such Closing Action be taken at the Closing and, unless otherwise agreed,shall not limit or prejudice any claims that a waiving Party may have with respect to any circumstances relating to such Closing Action not havingbeen taken at the Closing. 7.4Closing Memorandum Immediately after all Closing Actions have been duly taken or waived, the Parties shall confirm in a written document jointly executed by theParties and substantially in the form as attached hereto as Schedule 7.4 (Closing Memorandum) that (i) the Closing Conditions have been dulyfulfilled or waived, (ii) the Closing Actions have been duly taken or waived, and, therefore, (iii) the Closing has occurred. Immediately uponexecution of the Closing Memorandum, the Sellers or the Purchaser shall provide the acting notary with a written copy thereof. Upon receipt of thecopy of the Closing Memorandum, the acting notary shall submit a revised shareholder list (Gesellschafterliste) for the Company which reflects thetransfer of all of the Shares to the Purchaser to the commercial register together with the certification (Bescheinigung) pursuant to Section 40 (2)sentence 2 German Limited Liability Companies Act (GmbHG). Page 18 of 507.5Closing Date The day on which all Closing Actions have been duly taken or waived is herein referred to as the Closing Date. 8Sellers Guarantees 8.1Form and Scope of Sellers Guarantees The Sellers hereby, with respect to the Sellers Guarantees in clause 8.1.1b) and c), which are only given by each Seller in relation to himself/herselfand the Shares held by such Sellers in the Company, and with respect to all other Sellers Guarantees as several debtors (Teilschuldner – pro rata totheir holding of Shares) guarantee to the Purchaser, by way of independent promises of guarantee (selbständige Garantieversprechen) within themeaning of Section 311 (1) BGB and subject to the requirements and limitations provided in this Agreement, that the following statements arecorrect and complete as of the Signing Date and also as of the Closing Date, unless it is specifically provided that a statement is made as of adifferent or additional date or dates, in which case such Sellers Guarantee shall be correct as of such different or additional date or dates. TheSellers and the Purchaser agree and explicitly confirm that the guarantees in clause 8.1 (Sellers Guarantees) shall not be qualified or construed asquality guarantees concerning the object of the purchase (Garantien für die Beschaffenheit der Sache) within the meaning of Sections 443, 444BGB or agreements on quality (Beschaffenheitsvereinbarungen) within the meaning of Section 434 (1) sentence 1 BGB, and that Section 444 BGBshall not and does not apply to the Sellers Guarantees. 8.1.1Corporate Status and Authority of the Sellers a)The statements in clause 1 regarding the Group and the Group Companies are correct and complete. The Group Companies have been dulyestablished and validly exist under their laws of incorporation. Schedule 8.1.1 a) contains correct and complete copies of the articles ofassociation of the Group Companies. The Group Companies have all requisite (corporate or other) power and authority to conduct theirbusiness as currently conducted. No Group Company holds any interest in any company or entity other than provided in clause 1. b)The Group Company Shares were validly issued, the contributions (Einlagen) thereon have been paid in full, either in cash or in kind, andwere not repaid, neither in full nor in part, or otherwise returned and (there are no obligations to make further contributions regarding theGroup Company Shares and/or the Group Companies (keine Nachschusspflichten). The Group Company Shares are free and clear of anyencumbrances or other third party rights. There are no pending assignments, enterprise agreements (Unternehmensverträge), trustarrangements (Treuhandverträgen), silent partnership agreements (stillen Beteiligungen), subparticipations (Unterbeteiligungen), rights offirst refusal, pre-emptive rights, option, voting arrangements or other rights of third parties to acquire any of the Group Company Shares,and there are no agreements or commitments obligating any Seller or the Company (with respect to the shares in the Subsidiaries) to createany of the aforementioned rights, in each case except under statutory law or under the articles of association. Page 19 of 50c)The Sellers are entitled without restriction to dispose of the Shares without thereby infringing the rights of a third party. This Agreement hasbeen duly executed by the Sellers and constitutes legal, valid, and binding obligations of the Sellers, enforceable against the Sellers inaccordance with its terms. The Sellers are fully authorized to execute this Agreement and to perform their obligations hereunder. Subject tothe Clearance being obtained, (i) no Seller requires an approval or consent or waiver from any Governmental Authority to enter into thisAgreement and to consummate the Transaction, (ii) the execution and consummation of this Agreement by the Sellers and the performanceof the Transaction do not violate any judicial or governmental order (gerichtliche oder behördliche Verfügung) by which any Seller isbound. There are no proceedings or investigations pending or, to the Sellers’ Knowledge, threatened against any Seller which seek toprevent or materially delay the consummation of the Transaction. Governmental Authority means any: (i) nation, state, commonwealth,province, territory, county, municipality, district or other jurisdiction of any nature, (ii) federal, state, local, municipal, foreign or othergovernment, (iii) governmental authority of any nature (including any governmental division, department, agency, commission,instrumentality, official, ministry, fund, foundation, center, organization, unit, body or entity, and any court or other tribunal), or (iv) entityto whom a Governmental Authority has assigned or delegated any authority or oversight responsibilities. d)No Seller or Group Company is required under the applicable law to take any action as a result of being illiquid (zahlungsunfähig), nor tothe Sellers' Knowledge threatened by illiquidity (drohend zahlungsunfähig) or overindebted (überschuldet). No insolvency proceedings havebeen applied for or initiated against any of the Sellers or Group Company. To the Sellers` Knowledge there are no circumstances that wouldrequire a petition for the institution of insolvency proceedings, nor are there any circumstances which would justify any actions seeking tovoid or challenge this Agreement. 8.1.2Financial Statements a)The audited financial statements of the Company and the non-audited financial statements of the Subsidiaries for the fiscal years 2018, 2019and 2020 (Financial Statements), certified with an unqualified audit opinion, as well as pro-forma consolidated financial statements of theGroup for the fiscal years 2019 and 2020 (Pro-Forma Consolidated Financial Statements) are attached as Schedule 8.1.2 a). b)The Financial Statements present, considering the principles of proper accounting, a true and fair view of the assets and liabilities, thefinancial position and the results of business operations (vermitteln unter Beachtung der Grundsätze ordnungsgemäßer Buchführung ein dentatsächlichen Verhältnissen entsprechendes Bild der Vermögens-, Finanz- und Ertragslage) of the Group Companies. Page 20 of 50c)The Financial Statements for the Company were prepared in accordance with the German generally accepted accounting principles (GoB)(German GAAP). The Financial Statements for the Subsidiaries were prepared in accordance with local GAAP. d)The Group Companies have no liabilities of any nature other than (i) those set forth or adequately shown in the Financial Statements and (ii)those incurred in the conduct of the business since the 31 December 2020 in the ordinary course of business consistent with past practice atarms’ length terms. Except for liabilities reflected in the Financial Statements, the Group Companies have no off-balance sheet liability ofany nature to, or any financial interest in, any third parties or entities, the purpose or effect of which is to defer, postpone, reduce orotherwise avoid or adjust the recording of expenses incurred by the Group Companies under the applicable local GAAP. e)The accounts receivable of the Group Companies (the Accounts Receivable) as reflected in the Financial Statements arose in the ordinarycourse of business and represent bona fide claims against debtors for sales and other charges. Except as disclosed in Schedule 8.1.2 e)-1 theAccounts Receivables as reflected in the Financial Statements have been collected or to the Sellers’ Knowledge are in all material respectscollectible in the book amounts, less an amount not in excess of the allowance for doubtful accounts provided for in the FinancialStatements. The Accounts Receivable arising after 31 December 2020 and until the Signing Date arose in the ordinary course of businessand represent bona fide claims against debtors for sales and other charges. Except as disclosed in Schedule 8.1.2 e)-2 the AccountsReceivables arising after 31 December 2020 until the Signing Date have been collected or to the Sellers’ Knowledge are in all materialrespects collectible in the book amounts, less allowances for doubtful accounts and warranty returns determined in accordance with relevantlocal GAAP consistently applied and the Group Companies’ past practice that are or shall be sufficient to provide for any losses that may besustained on realization of the applicable Accounts Receivable. To the Sellers` Knowledge and except as disclosed in Schedule 8.1.2 e)-3 noperson has any encumbrance on any Accounts Receivable, and no agreement for deduction or discount has been made with respect to anysuch Accounts Receivable. 8.1.3Other Assets The Group Companies are the legal and beneficial owner of all fixed assets (Gegenstände des Anlagevermögens) and of all current assets(Gegenstände des Umlaufvermögens) which have been included in the Financial Statements as of 31 December 2020, except for such fixedor current assets (i) which have been disposed of, processed or substituted since the Financial Statements 2020 in the ordinary course ofbusiness, or (ii) which are subject to a retention of title (Eigentumsvorbehalt) of a supplier or a similar right in favor of a third party. To theSellers' Knowledge, the physical assets owned by the Group Companies have in all material respects been properly maintained and are ingood working order and repair except for normal wear and tear and are in a condition and quantity sufficient to run the business as currentlyconducted. Page 21 of 508.1.4Real Estate a)Schedule 8.1.4 a) contains a complete and accurate list of all real estate owned by the Group Companies (Owned Real Estate). To theSellers` Knowledge the Owned Real Estate is free of any charges and encumbrances as well as rights of third parties of any kind, except asregistered in the respective sections of the respective land registers. b)Schedule 8.1.4 b) contains a list of all real estate leased-in (gemietet) by the Group Companies that has an annual net rental fee in excess ofEUR 25,000 (in words: twenty-five thousand euros) in the individual case (exclusive of any ancillary costs and VAT) (Leased Real Estate). c)Each Group Company is the unrestricted legal owner of the Owned Real Estate as set out in Schedule 8.1.4 a) and to the Sellers` Knowledgeno Owned Real Estate is (i)subject to any encumbrances or other third party rights except as set out in Schedule 8.1.4 a); (ii)subject to any priority notices (Vormerkungen), any unregistered or otherwise pending conveyance (Auflassung) or other disposal; (iii)subject to any lease. d)The Owned Real Estates and the Leased Real Estates, the premises, constructions and fixtures thereon are free of material defects in term ofconstruction or condition, expect for wear and tear due to normal use. 8.1.5Intellectual Property Rights a)Schedule 8.1.5 a) contains a list of all Registered IP Rights owned or co-owned by and registered on behalf of any Group Company (OwnedRegistered IP) and a list of all technical Know-How owned or co-owned by any Group Company which is material for the conduct of thebusiness (Business Know-How), together with the Owned Registered IP, the Owned IP Rights)), specifying as to each Owned IP Right: (x)the type, nature and subject matter of such Owned IP Right, (y) the legal and commercial owner(s) of such Owned IP Right, and (z) ifapplicable, the jurisdictions in which such Owned IP Right has been registered, or in which an application for such issuance or registrationhas been filed, and the registration or application numbers (as the case may be). IP Rights means any patents, utility models(Gebrauchsmuster), registered designs (eingetragene Designs), other design rights or design patents (whether registered or not), trademarks,trade names, service marks, copyrights, internet domains and applications for any of the foregoing rights and renewals of such rights, rightsin unpatented technical and other Know-How (whether patentable or not), any other intellectual or industrial property rights of any naturewhatsoever in any part of the world, whether registered or unregistered. For the purpose of this definition, Know-How shall include anyinvention, discovery, development, data, information, process, method, technique, trade secret, composition of matter, formulation, article ofmanufacture or other know-how, and any physical (including electronic) embodiments of any of the foregoing, in each case unless part ofthe public domain. Registered IP Rights means all IP Rights which are registered in an appropriate register anywhere in the world,including applications for such registrations (such as, for example, registered patents and patent applications). Page 22 of 50b)The Group Companies are the full and unrestricted owners of the Owned IP Rights and these rights are not subject to any pledges or othersecurity rights of any third party. No Group Company has granted an exclusive license with respect to any IP Rights to any third party (otherthan to any other Group Company). c)To the Sellers’ Knowledge, except as set out in Schedule 8.1.5 c), the IP Rights are not subject to any pending judicial or regulatoryproceedings in which the validity of the IP Rights is being challenged and which could adversely affect the business operations of any of theGroup Companies. To the Sellers' Knowledge, all fees necessary to maintain, protect and enforce the Owned Registered IP have been paid,all necessary applications for renewal have been filed. d)To the Sellers' Knowledge, there is no infringement, misuse, or other violation by any third party of any IP Rights, and no Group Companyhas made any claim, whether for infringement, damages or otherwise, against any third party regarding the use of IP Rights. No GroupCompany infringes any third party's rights in IP Rights. There has been no, and there are no litigation, opposition, cancellation or revocationproceedings, challenge, claims or actions pending or, threatened in writing against any Group Company relating to IP Rights of any thirdparty which relates to the operation of the business of the Group Companies as formerly or currently conducted. To the Sellers` Knowledgeno opposition, cancellation or revocation proceedings are pending against any Group Company with regard to any Owned Registered IP. Nothird party has challenged any Owned IP Right in writing towards the Company. e)No Group Company has granted, and is not obliged to grant, any licence, assignment or, to the Sellers' Knowledge, other right in respect ofany IP Rights, and to the Sellers` Knowledge is not obliged to disclose any IP Rights to any person. f)The Group Companies have obtained exclusive, sublicensable, transferrable, worldwide, perpetual and unrestricted rights of use andexploitation with respect to the software listed and with a scope as disclosed in Schedule 8.1.5 f) (Software) from its (current and former)shareholders, directors, employees, freelancers, service providers, contractors or any other third parties, to the extent that the foregoingpersons were involved in the development of the Software. The preceding sentence does not apply to Open Source Software (as definedbelow), and legally mandatory rights, which remain with the above persons due to mandatory law. To Sellers' Knowledge, the Software doesnot contain any third-party components, except for Open Source Software. Open Source Software means any software – including itssource code – which is freely available to the public under license conditions which permit any person to use, copy, study, improve, modifyor change such software – in modified or unmodified form. To the Sellers' Knowledge, the Software does not contain any Open SourceSoftware components in a way that the current use of the Software would (a) impose a requirement or condition that the Software or anyproprietary portion thereof be (i) disclosed, distributed, or made available in source code form; (ii) licensed for the purpose of makingmodifications or derivative works; or (iii) redistributable at no charge; or (b) otherwise impose any other material limitation, restriction, orcondition on the right or ability of the Group Companies to use the Software. Page 23 of 50g)Schedule 8.1.5 g) contains a complete list of individuals that would qualify as employee inventors under German law. 8.1.6Information Technology a)Each Group Company either owns or holds valid leases and/or licenses to all computer hardware, software, networks and other informationtechnology (collectively Information Technology) which is used by or necessary for the respective Group Company to conduct itsbusiness. b)During the last thirty-six (36) months prior to the Signing Date, there have been no material interruptions, data losses, malfunctions orsimilar incidents attributable to the Information Technology owned or used by such Group Company. To the Sellers` Knowledge theInformation Technology is in usable condition and no material service or maintenance work outside the ordinary course of business isrequired. 8.1.7Material Agreements a)Schedule 8.1.7 a) contains a list of all material agreements between a Group Company and a third party (i.e., intra-group agreements shallnot qualify as Material Agreements) which have not been completely fulfilled (the Material Agreements): (i)agreements relating to the acquisition or sale of shares or interests in other companies or any business (Betrieb) or parts thereof(Betriebsteil); (ii)joint venture agreements, cooperation agreements, partnership agreements or similar agreements that has involved, or is reasonablyexpected to involve, a sharing of revenues, profits, cash flows, expenses or losses with any other party or a payment of royalties toany other party; (iii)loan agreements, bonds, notes or any other instruments of debt with any Group Company as borrower or lender, in each case withoutstanding amount (including interest accrued) in excess of EUR 100,000 (in words: one hundred thousand euros); (iv)guarantees, suretyships (Bürgschaften), indemnities, letters of comfort (Patronatserklärungen), performance or warranty bonds orsimilar instruments (x) issued by any of the Group Companies or (y) issued by any third party securing to any liability of any GroupCompany; (v)any service, purchase or other agreements (not including purchase orders) with any customer or supplier providing for payments(whether fixed, contingent or otherwise) by or to any of the Group Companies in an aggregate annual amount of EUR 100,000 (inwords: one hundred thousand euros); Page 24 of 50(vi)rental and lease agreements relating to assets or real estate with a Group Company as lessor or lessee which provide for annual rentalpayments (without ancillary costs) in excess of EUR 50,000 (in words: fifty thousand euros)) per annum in the individual case andwhich cannot be terminated within twelve (12) months; and (vii)other long-term agreements (Dauerschuldverhältnisse) which cannot be terminated within twelve (12) months and provide forobligations of a Group Company in excess of EUR 100,000 (in words: one hundred thousand euros) per annum in the individualcase. (viii)any contract (i) relating to an indemnity of any managing director (Geschäftsführer) of the Group Companies, (ii) relating to theengagement by any of the Group Companies of any consultant or contractor or any other type of contract with any of its consultantsthat is not terminable within three (3) months as of the Signing Date by the Group Companies without cost or other liability andhaving total future annual payment commitments of EUR 25,000 (in words: twenty five thousand euros) or more, (iii) requiring anyof the Group Companies to make a payment to any current or former managing director (Geschäftsführer), employee, consultant orcontractor on account of the purchase of the Shares. (ix)any contract between any of the Group Companies and their managing directors (Geschäftsführer) or shareholders or any of theirAffiliates or a Related Person. (x)any contract pursuant to which any of the Group Companies has (i) acquired a business or entity, or assets of a business or entity, or(ii) disposed of any material assets or properties, in each case whether by way of merger, purchase of stock, purchase of assets orotherwise; or (xi)any contract under which a Group Company’s entering into this Agreement or the consummation of the transactions under thisAgreement shall give rise to, or trigger the application of, any rights of any third party or any obligations of any of the GroupCompanies that would come into effect upon the consummation of the transactions under this Agreement. b)Except as disclosed in Schedule 8.1.7 b), no Material Agreement will terminate solely as a result of the execution or performance of thisAgreement or the Transaction (change of control) and no party to any Material Agreement (other than the Group Companies) is entitled toterminate or materially amend any Material Agreement solely as a result of the execution or performance of this Agreement or theTransaction (change of control). Each of the Material Agreements is in full force and effect. To the Sellers’ Knowledge, there exists nomaterial default or event of default or event, occurrence, condition or act, with respect to the Group Companies. In the last thirty-six (36)months prior to the Signing Date, the Group Companies have not received any written notice regarding any actual material breach or defaultunder, or intention to cancel or modify, any Material Agreement. Page 25 of 50c)Schedule 8.1.7 c) sets forth the customers with which the Group Companies generated sales in the financial year ended on 31 December2020 of no less than EUR 500,000 (in words: five hundred thousand euros) (the Key Customers). d)Schedule 8.1.7 d) correctly and completely lists all countries for which the Group Companies use external distribution persons (i.e. agents,dealers, distributors, etc.), including the name of the respective distribution person, the territory and information on exclusivityarrangements, if any. 8.1.8Arrangements with Sellers or Sellers' Affiliates a)There are no services necessary for the conduct of the business in the ordinary course as presently conducted which have been provided by aSeller or any of its Affiliates to any Group Company, other than as set out in Schedule 8.1.8. b)No Group Company is under any obligation to make any payments of any kind, including, but not limited to, management charges, to anySeller or its Affiliates or any Related Person, save for payments under agreements or arrangements made on an arm's length basis andidentified in Schedule 8.1.8. c)There are no agreements or arrangements between any Group Company (on the one hand) and Sellers or their Affiliates (on the other hand),other than as set out in Schedule 8.1.8. d)None of the Group Companies has granted an indemnification and/or hold harmless to the Sellers for claims based on the respective Seller’scapacity as shareholder, managing director or employee of the Group Companies. 8.1.9Employment Matters a)Schedule 8.1.9 a)-1 contains for each Group Company an anonymized list all of employees (Arbeitnehmer) as well as managing directorsand officers employed by the respective Group Company as of 31 October 2021 on the basis of full time equivalents (FTEs), setting out thestart date of the relevant employment or service agreement, the position of the relevant employee, the fixed term (if any), the annual grossbase salary (including bonus payments at target), part-time status, special protection from dismissal and old age part time agreement(Altersteilzeitvertrag). Schedule 8.1.9 a)-2 contains an anonymized list of all temporary employees (Leiharbeitnehmer) currently deployedby the Group Companies, setting forth the department, provider, fees and services rendered. Schedule 8.1.9 a)-3 contains an anonymized listof all freelancers who are currently active for the Group Companies, setting out the monthly fees and service rendered. There are no andhave not been in the last five (5) years prior to the Signing Date temporary employees (Leiharbeitnehmer) or freelancers carrying outresearch and development in any of the Group Companies. All temporary employees (Leiharbeitnehmer) have been engaged in compliancewith the respective labour laws. b)Schedule 8.1.9 b) contains the standard employment agreements of the Group Companies. Page 26 of 50c)No Group Company has a works council (Betriebsrat) or similar employee representation body (including a labor union in the UnitedStates), and, to the Sellers’ Knowledge, no Group Company is in the process of establishing a works council or similar employeerepresentation body in any of the Group Companies where none exists. d)None the Group Companies is bound by any collective bargaining agreements or other material agreements with unions, works councils andsimilar organizational bodies. e)Schedule 8.1.9 e) contains a complete and accurate list of all managing directors and employees of the Group Companies who are entitled toan annual remuneration (gross salary including bonus and further salary components, but excluding social security contributions) in excessof EUR 100,000 (in words: one hundred thousand euros) (all such employees listed in Schedule 8.1.9 e), the Key Employees). To theSellers` Knowledge and except as set forth in Schedule 8.1.9 e), no Key Employee has given notice of termination of his or her employment.No Key Employee is entitled to (i) receive any payment as a result of the transaction contemplated herein from a Group Company or (ii)terminate his/her employment solely as a result of the transaction contemplated herein (Sonderkündigungsrecht). No Group Company hasterminated the employment relationship with any Key Employee and no Key Employee has given written notice of termination. f)Until the Signing Date, to and except as set forth in Schedule 8.1.9 f), the Group Companies are and have at all time in the last five (5) yearsbeen in compliance in all material aspects with all applicable laws as well as any national, industry or company collective agreement, orderor award, employment, pension and social security (including as required by severance deposits and pension funds), employment practices,terms and conditions of employment (including individual employment agreements), wages and hours and workplace safety and fair laborpractices. Every person employed or engaged by the Company has current and appropriate permission to work in Germany and to theSellers' Knowledge, every person employed or engaged by any other Group Companies has current and appropriate permission to work inthe country in which he/she is employed. g)During the past five (5) years there have not been any legal disputes, strikes, work stoppages, work slowdowns, lockouts or other similarlabour activities and no such activities or disputes are pending or, to the Sellers’ Knowledge, threatened against or involve any of the GroupCompanies. h)No employee or consultant engaged in the business is or will be entitled to any compensation, bonus, severance pay or any other benefits orentitlements on account of or resulting from any action taken by any of the Group Companies in connection with any of the transactionscontemplated under this Agreement except as set forth in Schedule 8.1.9 h). i)Except as set forth in Schedule 8.1.9 i), no Group Company is bound by any contracts or has entered into other forms of commitmentsregarding pensions (betriebliche Altersversorgung. Page 27 of 50j)No Group Company has implemented or been subject to, at any time, an employee stock option or similar plan, whether with respect tovirtual or actual shares. 8.1.10Insurance Policies The insurance policies listed in Schedule 8.1.10 are valid and in full force. To the Sellers’ Knowledge all premiums due on the above policies havebeen duly paid up until the Signing Date and, to the Sellers’ Knowledge, there are no facts or circumstances that could render any such policyunenforceable. 8.1.11Legal Disputes There are no judicial, arbitral or regulatory proceedings, which are pending and involve in any one case an amount in dispute of more than EUR50,000 (in words: fifty thousand euros) to which any of the Group Companies is a party (i.e., has been notified in writing), be it as plaintiff,defendant or otherwise. To the Sellers’ Knowledge, no such proceedings have been threatened in writing against the Company. 8.1.12Conduct of Business Since 1 January 2021 until the Signing Date, the business operations of the Group Companies have been conducted in the ordinary course ofbusiness and substantially in the same manner as before, and there have been no material adverse changes with respect to the business operations asa whole. Specifically, the Group Companies have not conducted or been subject to any measure pursuant to clause 5.2 and/or 5.3 above. 8.1.13Permits and Compliance a)The Company and the Subsidiaries have obtained all governmental approvals, licenses, permits and other governmental authorizations thatare required by applicable law for the business (Permits). To the Sellers' Knowledge, the business is conducted and, in the last three (3)years prior to the Signing Date, has been conducted in accordance with the Permits. To the Sellers' Knowledge, all Permits are in full forceand effect (bestandskräftig) and there are no indications of a withdrawal, revocation, expiration, restriction or subsequent alteration of anyPermit. b)To the Sellers` Knowledge the Group Companies are not subject to any pending administrative or criminal investigation regarding allegedinfringements of applicable laws. c)The Group Companies are, and have in the last three (3) years been, in compliance with and have operated their respective business in allmaterial respects in compliance with all applicable laws relevant to conduct their business. d)In particular, the business of the Group Companies is currently, and has been within the last three (3) years prior to the Signing Date,conducted, in accordance with sanctions and export control laws. Page 28 of 50e)None of the Group Companies or the Sellers nor any of their employees, has (i) taken any action directly or indirectly in furtherance of anoffer, payment, promise to pay, or authorization or approval of any contribution, gift, bribe, rebate, payoff, influence payment, kickback, orother payment to any person (including any Governmental Authority (or employee or representative thereof), government owned orcontrolled enterprise, public international organization, political party and candidate for public office) private or public, regardless of whatform, whether in money, or services (α) to obtain favorable treatment for business or a contracts, (β) to pay for favorable treatment forbusiness or contracts secured, (γ) to obtain special concessions or for special concessions already obtained, (δ) to improperly influence orinduce any act or decision, (ε) to secure any improper advantage, or (ζ) in violation of applicable law, or (ii) established or maintained anyfund or asset that has not been accurately recorded in the books and records of the Group Companies. The Group Companies have inparticular complied with the provisions of the United States Foreign Corrupt Practices Act (FCPA) and the UK Bribery Act. f)None of the Group Companies, nor any of its advisory board members, managing directors , or to the Sellers’ Knowledge, other employees:(i) has been or is designated on the OFAC Specially Designated Nationals and Blocked Persons List, Commerce’s Denied Persons List orEntity List, and the State Department’s Debarred List, United Nations Security Council Consolidatred List, EU Sanctions List and HMTreasury Sanctions List or other similar lists maintained by applicable jurisdictions, (ii) has participated in any transaction involving suchdesignated person or entity, or any country subject to an embargo or substantial restrictions on trade under the United States sanctionsadministered by OFAC, or (iii) has exported (including deemed exportation) or re-exported, directly or indirectly, any commodity, software,technology, or services in violation of any applicable export control legislation of the European Union (or any state thereof) or the UnitedStates, or (iv) has participated in any transaction connected with any purpose prohibited by United States or European Union (or any statethereof) export control and economic sanctions laws, including, without limitation, support for international terrorism and nuclear, chemical,or biological weapons proliferation. The Group Companies have conducted its export transactions in accordance in all respects withapplicable provisions of all applicable export and re-export controls in all countries in which the Group Companies conduct business.Without limiting the foregoing: (a) the Group Companies have obtained all material export and import licenses, license exceptions and othermaterial consents, notices, waivers, approvals, orders, authorizations, registrations, declarations and filings with any GovernmentalAuthority required for the export, import and re-export of products, services, software and technologies in context with the GroupCompanies’ business (collectively, “Export Approvals”), (b) to the Sellers` Knowledge the Group Companies are in compliance with theterms of all applicable Export Approvals. The foregoing statements of this Section 8.1.13f), to the extent they relate to the Signing Date orthe time thereafter, shall not be represented and warranted to the extent the representation and warranty of, or compliance with, suchstatements, inevitably results in a violation of, conflict with, or liability under, EU Regulation (EC) 2271/96, Section 7 AWV (each asamended from time to time) or any other similar applicable anti-boycott laws or regulations. Page 29 of 50g)to the Sellers` Knowledge the Group Companies are and have always been in compliance, with Privacy Laws including as they relate to thecollection, storage, processing and transfer of personal data related to the use of the products or services collected by the Group Companies.The Group Companies provide adequate notice of privacy practices in their privacy policies. A list of the policies (and the periods thepolicies have been in effect) is attached as Schedule 8.1.13 g) to the Sellers` Knowledge the Group Companies’ privacy practices conformand has conformed at all times to its privacy policies. To the Sellers` Knowledge the Group Companies have been and are in compliancewith all contracts pursuant to which the Group Companies process or have processed personal data of end users of the products or servicesof the Group Companies (the Company Privacy Commitments). In addition, to the Sellers` Knowledge where and when required byPrivacy Laws, the Group Companies have provided all notices and obtained any necessary consents from data subjects required for theprocessing of personal data as conducted by or for the Group Companies. To the Sellers` Knowledge the execution of this Agreement willnot cause, constitute, or result in a breach or violation of any Privacy Laws or Company Privacy Commitments. No claims have beenasserted or, to the Sellers’ Knowledge, are threatened against the Group Companies by any person alleging a violation of such person’sprivacy, personal or confidentiality rights under the privacy policies of the Group Companies. With respect to the security of personal datacollected, received or processed by the Group Companies, the Group Companies have taken and take all steps reasonably necessary(including implementing and monitoring compliance with adequate technical and organizational measures) to ensure that the information isprotected against loss and against unauthorized access, use, modification, disclosure or other misuse. To the Sellers’ Knowledge, there hasbeen no unauthorized access to or other misuse of that information. Privacy Laws shall mean all laws applicable to the Group Companiesthat relate to personal data, including, without limitation, related to data or information security, data transfer (including cross-bordertransfer), the protection or processing of personal data, data breach notification; laws regarding unsolicited email, telephone, or text messagecommunications, and the European Union General Data Protection Regulation (GDPR) and European Union member state implementinglaws and regulations related to the GDPR. 8.1.14Environmental Matters a)The Company is and has been in compliance in all material aspects with German Environmental Laws relating to it or to any of its property,activity or asset currently or formerly owned, leased, operated, carried out or used by or in connection with its business. EnvironmentalLaws means all applicable German laws and, to the extent that they are legally binding, German ordinances, rules, orders (Bescheide),public law agreements (öffentlich-rechtliche Verträge) relating to environmental matters, which are matters relating to pollution orcontamination or protection of the soil, subsurface, air, groundwater, surface water, soil vapor, land surface (including constructions,facilities and buildings and remains thereof) or human life or human health (including occupational safety). An on-site inspection in thisregard by the Reutlingen District Office ("Landratsamt Reutlingen") took place on 10 November 2021, as recorded in Schedule 8.14a). Page 30 of 50b)The Group Companies have not received any order (bestandskräftiger Bescheid) from any public authority imposing investigation(Untersuchungsmaßnahmen), remediation (Sanierungsmaßnahmen), securing (Sicherungsmaßnahmen) or protective containment measures(Schutz- und Beschränkungsmaßnahmen) regarding an environmental contamination, and (ii) to the Sellers` Knowledge no legal oradministrative proceeding is pending against any of the Group Companies that alleges a violation of any Environmental Law. To the Sellers`Knowledge no Environmental Contamination exists on any of the Owned Real Estate or Leased Real Estate. EnvironmentalContamination means any Hazardous Materials that exist in the soil, groundwater or surface water. Hazardous Materials means anypollutant, contaminant or other substance identified or designated as hazardous radioactive or toxic, including solid or hazardous wasteincluding any admixture or solution thereof, and including petroleum and all derivatives thereof or synthetic substitutes and asbestos orasbestos-containing materials, which may contaminate inter alia groundwater and soil, under applicable law. 8.1.15Finders’ Fee No Group Company has any obligation or liability to pay any fees, commissions or to make any other payments of any similar nature to any broker,finder or agent with respect to this Agreement or the consummation of the Transaction. No Group Company has any obligation or liability to payany bonus, fee or to make any other payments of any similar nature to any director, officer or employee of any Group Company with respect to thisAgreement or the preparation or consummation of the Transaction. 8.1.16Public Subsidies Schedule 8.1.16 contains a list of the public grants (Zuschüsse), allowances (Zulagen), subsidies (Subventionen) or other aids within the meaning ofArticle 107 of the Treaty on the Functioning of the European Union granted to any of the Group Companies by public authorities during the five(5) years preceding the Signing Date. To the Sellers` Knowledge no circumstances exist that would justify a revocation (Widerruf), reduction(Reduzierung) or withdrawal (Rücknahme) of a subsidy and no subsidy can be revoked or withdrawn as a consequence of the transactionscontemplated herein. In case subsidies above EUR 100,000 (in words: one hundred thousand euros) already paid-out to the any of the GroupCompanies will be reclaimed by the respective authorities within twenty-one (21) months from the Closing Date, the Sellers will reimburse therespective Group Company for such amount exceeding EUR 100,000 (in words: one hundred thousand euros). For the avoidance of doubt, thepreceding sentence does not constitute a Sellers Guarantee and any limitation explicitly applicable to breaches of Sellers Guarantee shall not apply,except for Clause 9.6, which shall apply mutatis mutandis. Page 31 of 508.1.17Data Room Accuracy To the Sellers' Knowledge, none of the information disclosed in the Data Room renders any of the Sellers' Guarantees incorrect. 8.2No other Sellers Guarantees 8.2.1The Purchaser explicitly acknowledges to purchase and acquire the Shares and the business associated therewith in the condition they are in on theClosing Date based upon its own inspection and assessment of all the facts and circumstances, and to undertake the purchase based upon its owndecision, inspection and assessment without reliance upon any express or implied representations, warranties or guarantees of any nature made bythe Sellers, except for the guarantees expressly provided by the Sellers under this Agreement. 8.2.2Without limiting the generality of the foregoing, the Purchaser acknowledges that the Sellers give no representation, warranty or guarantee withrespect to a)any projections, estimates or budgets delivered or made available to the Purchaser regarding future revenues, earnings, cash flow, the futurefinancial condition or the future business operation of the Company or the Group; b)any other information or documents that were delivered or made available to the Purchaser or its counsel, accountants or other advisors withrespect to the Company or its business operation, except as expressly set forth in this Agreement; or c)any Tax matters, except as provided for in clause 10. 8.3Sellers’ Knowledge In this Agreement, the Sellers’ Knowledge shall encompass only the positive, actual knowledge (positive Kenntnis) of the Sellers, as of the SigningDate. 9Remedies 9.1Recoverable Damages 9.1.1In the event that a Sellers Guarantee is breached, the Sellers shall be obligated to put the Purchaser or, at the election of the Purchaser, the relevantGroup Company or Group Companies in such position as the Purchaser, respectively the Group Company, would have been in, had the SellersGuarantee not been breached (restitution in kind – Naturalrestitution). If the Sellers are unable to achieve such restitution in kind within four (4)weeks after having been notified by the Purchaser of the breach or if restitution in kind is either impossible, not permitted by nature or not suitableto compensate the loss, then the Purchaser may claim monetary damages with the meaning of Sections 249 et seqq. BGB (Schäden) to be paid tothe Purchaser or, at the election of the Purchaser, to the relevant Group Company. Nevertheless, such compensation for damages shall cover onlythe actual damages incurred by the Purchaser or any Group Company, including (i) reasonably foreseeable consequential damages (Folgeschäden),(ii) reasonably foreseeable indirect damages (mittelbare Schäden) (ii) reasonably foreseeable loss of profits (entgangener Gewinn), and willspecifically not cover the internal administrative or overhead costs, and the Purchaser may not claim that the Total Purchase Price was calculatedbased on incorrect assumptions (the damages potentially to be compensated pursuant to this clause 9.1.1 the Damages). Page 32 of 509.1.2The Sellers shall not be liable for, and the Purchaser shall not be entitled to claim for, any breach of a Sellers Guarantee, if and to the extent that: a)the fact upon which the claim is based, (i) is covered by any specific provision, specific reserve or specific valuation allowance made in theFinancial Statements for the calendar year 2020 or (ii) has reduced the Purchase Price; and / or b)either any of the Group Companies and/or the Purchaser actually recovers such claim from third parties, including insurance carriers; if andto the extent, the Sellers are held liable, the Purchaser and/or relevant Group Company shall (i) assign to the Representative any relevantclaims against third parties, including insurance carriers, and (ii) use commercially best efforts to assist the Sellers in pursuing such claims. 9.2Deductible; Overall-Deductible The Purchaser is entitled to claims for breaches of Sellers Guarantees only if an individual claim exceeds an amount of (-------) (Deductible) andthe aggregate amount of all such individual claims exceeds (-------) (Overall Deductible). In the event that the Deductible and the OverallDeductible are exceeded, the Purchaser can claim the entire amount and not only the amount exceeding the Deductible and the Overall Deductible. 9.3Overall Scope of the Sellers' Liability pursuant to this Agreement The aggregate liability for breach of any of the Sellers Guarantees pursuant to clause 8.1, except for the Sellers Guarantees under Section 8.1.1 (theFundamental Guarantees), shall be limited to (-------) of the definitive Total Purchase Price (Liability Cap). The overall liability of each Sellerunder or in connection with this Agreement, except for Fundamental Guarantees, shall be capped at (-------) of the portion of the Total PurchasePrice paid-out to and received by such Seller. The overall liability of each Seller for any breaches of Fundamental Guarantees shall be limited tohundred percent (100%) of the portion of the Purchase Price actually received by such Seller, whereby (i) each Seller shall, for any amountexceeding the Escrow Amount, only be liable severally, but not jointly with any other Seller, for breaches of Fundamental Guarantees pertaining toits Shares and (ii) any liability of each Seller arising under or in relation to this Agreement for any other reason that a breach of a FundamentalGuarantee shall also be counted towards the mentioned liability cap of hundred percent (100%). Subject to the preceding paragraph, (i) the Sellers shall be severally and jointly (gesamtschuldnerisch) liable in an amount equal to the EscrowAmount and (ii) for any amounts exceeding the Escrow Amount, (a) with respect to Fundamental Guarantees, each Seller shall be the exclusivedebtor for claims raised with respect to the Shares sold by him or her and (b) with respect to all other claims under or in connection with thisAgreement, each Seller's liability shall be severally (teilschuldnerisch) in proportion to the numbers of Shares sold by him. Page 33 of 509.4Exclusion of Certain Provisions Sections 442 BGB and 377 German Commercial Code (HGB) are, to the extent legally permissible, expressly excluded. 9.5Exclusion of Claims due to Purchaser`s Knowledge The Purchaser shall not be entitled to bring any claim under clause 8 if the underlying facts or circumstances to which the claim relate were knownto the Purchaser, taking into account that the Purchaser, prior to entering into this Agreement, has been given the opportunity to conduct a thoroughreview of the condition and status of the Company and their respective business from a commercial, financial and legal perspective. Subject toClause 8.1.17 being true and correct, facts and circumstances that were (x) fairly disclosed (i.e. (i) in such a manner and in a context where areasonably experienced purchaser could expect such information and (ii) with sufficient details on the face of such disclosure for a reasonablyexperienced purchaser to understand and evaluate the nature and scope of the matter and its likely impact (including its magnitude, without needingto consider or request any other information or documents)) in the documents made accessible to the Purchaser and its advisors in the virtual dataroom operated by Ansarada from 9 June 2020 until 29 July 2020 as well as 23 September 2021 until 11 November 2021 (the Data Room), or (y) inthis Agreement or (z) its Schedules are deemed to be known by the Purchaser. The documents contained in the Data Room have been stored on anelectronic data storage medium, a read-only copy of which, together with a copy of a letter of assurance by Ansarada, will be provided to the actingnotary without undue delay after the Signing Date with the instruction to keep it in custody for a period of five (5) years from the Closing Date.Two (2) read-only copies of the data storage medium, together with a copy of letter of assurance by Ansarada, will be handed over to the Purchaserwithout undue delay and two (2) read-only copies of the data storage medium, together with a copy of letter of assurance by Ansarada, will behanded over to the Sellers without undue delay. The acting notary is not obliged to check whether the documents on the data storage medium arecorrect and complete in the required form. The acting notary is not obliged to provide technical equipment to enable the inspection of the datastorage medium. The notary is instructed to hand over the data storage medium to the Party which is named by the Sellers and the Purchaserunanimously or if such notification is not made to destroy the data storage medium after expiry of the custody period. 9.6Notification to Sellers; Procedure in Case of Third Party Claims 9.6.1In the event of an actual or potential breach of a Sellers Guarantee, the Purchaser shall, without undue delay after becoming aware of the matter,provide the Sellers with written notice of such alleged breach, describing the potential claim in reasonable detail and, to the extent practical, statingthe estimated amount of such claim and shall give the Sellers the opportunity to cure the breach within the period of time indicated in clause 9.1.1. 9.6.2Furthermore, if, in connection with a breach of a Sellers Guarantee, any claim or demand of a third party is asserted against the Purchaser or any ofthe Group Companies (Third Party Claim), then the Purchaser shall make available to the Sellers a copy of the Third Party Claim or demand andof all time-sensitive documents. Page 34 of 509.6.3If the Sellers generally accept the full responsibility for the Third Party Claim in question (Anspruch dem Grunde nach anerkannt), the Purchasershall give the Sellers the opportunity to defend the Purchaser or the relevant Group Company against the Third Party Claim. In such case, to theextent this does not have a materially detrimental effect on the Group Companies or their business, the Sellers will have the right to defend againstthe claims by instituting all appropriate proceedings and will have the sole power to direct and control such defense, in particular, the Sellers havethe unconditional right to a)participate in and lead all negotiations and correspondence with the third party, b)appoint and instruct legal counsel to act for and on behalf of the Purchaser or the Company, and c)request that a claim be litigated or settled out of court in accordance with the Sellers` instructions. The Sellers shall conduct such proceedings in good faith with reasonable regard to the concerns of the Purchaser. 9.6.4If the Sellers do not elect to defend a Third Party Claim in accordance with the process set forth in clause 9.6.3, the Purchaser shall (i) afford theSellers and their representatives the opportunity to comment on and review any reports and documents and to participate in all relevant audits, courthearings and any meetings (including video or telephone conference), (ii) deliver to the Sellers and their representatives without undue delay(unverzüglich) copies of all relevant orders (Bescheide), decisions, filings, motions and other documents of any court or party to the conflict ordispute, and (iii) diligently conduct the defense in order to mitigate the losses. 9.6.5In no event shall the Purchaser or the Company be entitled to acknowledge or settle a claim or permit any such acknowledgement or settlementwithout the Sellers` prior written consent (not to be unreasonably withheld or delayed), to the extent that such claims may result in the Sellers’liability under this Agreement. The Purchaser and the Company shall cooperate with the Sellers in the defense of any third party claim, provide theSellers and their representatives (including their advisory) reasonable access to the relevant business records and documents reasonably required,and permit the Sellers and its representatives to reasonably consult with the directors, officers, employees and representatives of the Purchaser orthe Company. To the extent that the Sellers are in breach of a Sellers Guarantee, all costs and expenses incurred by the Sellers in defending suchclaim shall be borne by the Sellers. If it later emerges that the Sellers were not in breach, then any costs and expenses reasonably incurred by theSellers in connection with the defense (including advisors’ fees) shall be borne by the Purchaser and the Company. The Purchaser shall ensure thatthe Company fully complies with its obligations under this clause 9.5. 9.6.6The Sellers shall not be liable under clause 8 if and to the extent the Purchaser has not complied with its obligations under clause 9.6 and if and tothe extent such incompliance has (i) caused or increased the Damages of the Purchaser, or (ii) materially affected the Sellers’ ability to defendagainst the Third Party Claim . Page 35 of 509.7Mitigation The Purchaser is obliged to prevent the occurrence of any damages and to limit the scope of any damages incurred in accordance with Section 254BGB. 9.8Time Limits All claims for any breach of Sellers Guarantees pursuant to clause 8 shall become time-barred eighteen (18) months after the Closing Date, exceptfor claims for any breach of the Sellers Guarantee in clauses 8.1.1, 8.1.5 and 8.1.6, which shall become time-barred five (5) years after the ClosingDate. 9.9Exclusion of Further Remedies To the extent permitted by law and unless expressly provided otherwise in this Agreement, any further claims and remedies with respect to a breachof a Sellers Guarantee – irrespective of their nature, amount or legal basis – are hereby expressly waived, including without limitation claims forbreach of a pre-contractual duty, claims based on a breach of duty in an obligation relationship, claims based on statutory warranty provisions andliability in tort as well as any and all other claims which could, due to a rescission, action for avoidance, reduction of the Total Purchase Price orother reasons, result in the termination, invalidity or a winding-up or restitution ex tunc of this Agreement, in an amendment of its content or in arefund or reduction of the Total Purchase Price, except if and to the extent that any such claim is based on intent or on fraudulent misrepresentationof the Seller. 9.10No Double Dip Where one and the same set of facts (Sachverhalt) qualifies under more than one provision entitling the Purchaser to any claim, for damages or forother reasons, under or in connection with this Agreement, there shall be only a one time consideration respectively compensation for the entiretyof such claim and/or damage. For the avoidance of doubt, the “no double counting” principle set forth in this Section 9.10 shall apply mutatismutandis with respect to any advantages, savings or benefits taken into account with respect to any claim under or in connection with thisAgreement. 9.11Treatment of Payments Any payments made by the Sellers pursuant to clause 9 shall be considered a reduction of the Total Purchase Price as between the Sellers and thePurchaser. 9.12Intent; Fraudulent Misrepresentation Any limitation of the Sellers liability pursuant to this clause 9 shall not apply if the claim is due to intent (Vorsatz) or fraudulent misrepresentation(arglistige Täuschung) by one of the Sellers. Page 36 of 5010Taxes 10.1Definitions In this Agreement, Taxes means (i) any taxes (Steuern) and auxiliary levies (steuerliche Nebenleistungen) as defined in Section 3 of the German Fiscal Code(Abgabenordnung) and equivalent taxes and levies under foreign law, (ii) any other levies or duties (Abgaben) under German or foreign law,including (but not limited to) customs duties and social security contributions, (iii) any obligation to repay public allowances (Zulagen) or subsidies(Beihilfen), (iv) administrative fines, (v) secondary liability (Haftungsschulden) for any of the aforementioned items, (vi) any liability for paymentof amounts referred to in clauses (i) through (v), in particular as a result of any tax sharing, tax indemnity or tax allocation agreement and (vii) ineach case together with any interest, penalty, fine or addition thereto; and Indemnifiable Taxes means any (i) Taxes and damages arising from a breach of any Tax Guarantee and (ii) Taxes imposed on or payable by theGroup Companies and relating to the time period (Zeitraum) prior to and including the Closing Date or resulting from actions taken on or prior tothe Closing Date; and Tax Authority means any competent Governmental Authority in charge of imposing or collecting any Tax. 10.2Tax Guarantees The Sellers represent and warrant to the Purchaser in the form of independent guarantees pursuant to Section 311 (1) BGB (Tax Guarantees) that,except as otherwise disclosed in Schedule 10.2, as of the date hereof and as of the Closing Date, a)all Tax returns required to be filed with any Tax Authority by or on behalf of the Group Companies have been duly prepared, have been filedwhen due (considering all extensions granted) and are to Sellers’ Knowledge true and correct; b)the Group Companies have timely paid when due all Taxes owed by it; c)as of the date hereof, no Tax audit, investigation, dispute or other proceeding is pending in respect of the Group Companies, and the GroupCompanies have not been notified in writing by any Tax Authority that such authority intends to commence any such proceeding; d)the Group Companies have not obtained a binding ruling and have not entered into any agreements, waivers or arrangements with any TaxAuthority; e)the Group Companies keep books of accounts as required by applicable law, and the application thereof by the competent Tax Authority, andhave sufficient records (including and required transfer pricing documentation) relating to past events during all times prior to and includingthe Closing Date and any Tax-related records, files and documents, including electronically stored data, which are under any applicable Taxlaw required to be available, have been stored on the respective Group Company's premises and are readily accessible in a manner asrequired under, and in full compliance with, all applicable Tax laws. Page 37 of 50 f)To Sellers’ Knowledge the Group Companies have not taken any measures or entered into any transaction which may be regarded asresulting in a constructive dividend (verdeckte Gewinnausschüttung) (or comparable instrument in any jurisdiction other than Germany) bythe relevant Taxing Authorities, or which could result in adjustments pursuant to Section 1 Foreign Tax Act (Außensteuergesetz), and alltransactions entered into by the Group Companies with each other and the Sellers or any other person (as applicable) have been carried outat arm’s length terms and have been properly and timely documented in accordance with applicable law. g)No written claim has ever been made by a Governmental Authority in a jurisdiction where any Group Company does not pay Taxes or fileTax Returns asserting that the respective Group Company is or may be subject to Taxes assessed by such jurisdiction or required to file aTax Return in such jurisdiction. In addition, no Group Company has or had employees or premises in any jurisdiction other than itsjurisdiction of incorporation. h)No Group Company has written down any asset to its going concern value (keine Teilwertabschreibung), has been involved in anyreorganization that could lead to blocking periods (Haltefristen) or any other restrictions including without limitation those contained in theformer Section 8b(4) Corporate Income Tax Act (Körperschaftsteuergesetz, KStG), Sections 6(5) and 16(3) Personal Income Tax Act(Einkommensteuergesetz, EStG), Sections 15(2) and 22 Reorganization Tax Act (Umwandlungssteuergesetz, UmwStG) or in the formerSections 21(2) and 26 UmwStG. i)The Group Companies have obtained the required exemption certificates (Freistel-lungsbescheinigungen) to execute payments (including,without limitation, dividends, interest payments or royalties) prior to Closing Date without withholding Tax or at a lower withholding Taxrate as provided for in the applicable Income Tax Treaty. 10.3Tax Indemnity The Sellers shall pay to the Purchaser an amount equal to any Indemnifiable Tax (the Tax Indemnification Claim), provided that the Sellers shallnot be liable vis-à-vis the Purchaser (and the Tax Indemnification Claim shall be reduced accordingly) if and to the extent: a)the respective Tax has been paid until the Closing Date; b)a specific liability (Verbindlichkeit) or provision (Rückstellung) for the Indemnifiable Tax is included in the Final Closing Date Statementand has reduced the Total Purchase Price; Page 38 of 50 c)the Group Companies or the Purchaser realizes a concrete cash effective Tax saving in the form of "reversal effect" as a direct consequenceof the respective Tax or the circumstances underlying such Tax, respectively (e.g., resulting from the lengthening of any amortization ordepreciation periods, higher depreciation allowances, a step up in the Tax basis of assets, the non-recognition of generally tax deductibleliabilities or provisions (Phasenverschiebungen)). In such case the claim of the Purchaser pursuant to clause 10.3 will be reduced by the netpresent value of the respective Tax saving which shall be calculated as a lump sum on the basis of (i) a presumed uniform tax rate of 30%,(ii) a discount factor of three (3)% p.a. and (iii) the assumption that it will have been realized within five (5) years from the Closing Date; d)Tax results from (i) any change in the accounting practices of the Group Companies introduced after the Closing Date or (ii) from anychange in the exercise of any Tax election rights introduced after the Closing Date or (iii) a measure under the German Reorganization TaxAct (Umwandlungssteuergesetz) or equivalent laws under foreign jurisdictions initiated and implemented after the Closing Date, provided ineach case of (i) – (iii) that the change or measure has a direct impact under statutory Tax law on the Pre-Closing-Date-Period and unlesssuch change is requested by the Tax Authorities, made with Sellers’ written consent or required under mandatory Law. e)the amount of the respective Tax has been recovered by the Group Companies from a third party, or f)the respective Tax is directly caused by the Purchaser's non-compliance with its obligations set forth in clauses 10.4 and 10.5. Any amounts payable to the Purchaser under this clause 10.3 shall be payable and due within five (5) Business Days prior to the day on which therespective Tax is due for payment by any of the Group Companies to the competent Tax Authority, even if the assessment does not yet have bindingeffect (formelle Bestandskraft). For the avoidance of doubt, any indemnification payment on the basis of a preliminary Tax return which is laterrevoked must be reimbursed to the Sellers within ten (10) Business Days after receipt of the respective repayment amount (by way of cashpayment, set-off or deduction). 10.4Tax Returns after the Signing Date The Sellers shall prepare and file, or cause the Group Companies to prepare and file, all Tax returns for the Group Companies required to be filedby or on behalf of the Group Companies before the Closing Date. The Purchaser shall prepare and file, or cause the Group Companies to prepareand file, all Tax returns required to be filed by or on behalf of the Company after the Closing Date, but – in the case of Tax returns for the periodending prior to the Closing Date (excluding monthly tax filings) only after a review and written approval from the Sellers (which may not beunreasonably withheld or delayed). All Tax return filings for periods up to and including the Closing Date shall be prepared in consistence withthose prepared for prior Tax assessment periods, unless a change is requested by tax authorities or required pursuant to mandatory law. ThePurchaser shall procure that (i) any Tax return which must be reviewed and approved by the Sellers, is furnished to the Sellers no later than thirty(30) Business Days prior to the due date of such Tax filing and (ii) no Tax return of the Group Companies relating to any period ending prior to oron the Closing Date will be filed, amended or changed by the Purchaser or the Group Companies without prior written approval of the Sellers (suchapproval not being unreasonably withheld or delayed by the Sellers). Page 39 of 5010.5Cooperation 10.5.1After the Closing Date, the Purchaser and the Sellers shall reasonably cooperate, and shall cause their representatives to reasonably cooperate, witheach other in connection with all Tax matters relating to any Taxes payable by the Group Companies for any period ending on or before the ClosingDate, including the preparation and filing of any Tax return or the conduct of any Tax audits, investigations or other proceedings. Following theClosing Date, the Purchaser shall without undue delay notify the Sellers of any Tax audits or administrative or court proceedings that areannounced or commenced and that might constitute a basis for a Tax Indemnification Claim under this clause 10 (Tax Disputes). Such notice shallbe made in writing and shall describe the object of the Tax Dispute or the asserted Tax liability and shall include copies of any notice or otherdocuments received from the Tax Authority or the courts in respect of any such Tax Dispute or asserted Tax liability. The Purchaser shall furtherensure that the respective Group Company allows the Sellers to participate in such Tax Disputes and keeps the Sellers fully informed about suchTax Dispute. 10.5.2The Purchaser shall procure, upon written request of the Sellers and at Sellers’ expense, that objections are filed, and legal proceedings areinstituted and conducted against any Tax assessment notices or judgments, in each case, if and to the extent relating to Indemnifiable Taxes, inaccordance with the Sellers’ reasonable directions. The Sellers shall bear all fees of external counsel and other external costs of the relevantproceeding, e.g., costs of the Tax court etc. Otherwise, the Purchaser or the respective Group Company may pay, settle or formally challenge thevalidity of such asserted Tax liability. 10.5.3If and to the extent that the Purchaser or its legal successor reasonably require information or documents for tax purposes from the Sellers or legalsuccessors in connection with the Tax matters of one of the Group Companies, in particular but not limited to section 20 et seq. of the GermanReorganization Tax Act (UmwStG), Section 4h of the German Income Tax Act (EStG) or Section 8a of the German Corporate Income Tax Act(KStG), the Sellers shall procure that on written request of the Purchaser or one of the Group Companies such information or documents will beprovided to them without undue delay. The Purchaser shall bear all reasonable fees of external counsel and other reasonable external costs whichincur in connection with the provision of such information or documents. 10.6Tax Refund If any Group Company receives a Tax refund relating to any period prior to the Closing Date, the Purchaser shall pay to the Sellers the amount ofthe Tax refund net of any taxes payable by the Group Companies and the Purchaser on such Tax refund and its distribution to Purchaser. ThePurchaser shall without undue delay notify the Sellers of any such Tax refund relating to any period prior to the Closing Date. 10.7As-If-Agreement; Pro-Rata Share and Treatment of Payments, Miscellaneous Page 40 of 5010.7.1In the event Taxes relate to a Tax period beginning before the Closing Date and ending thereafter such Tax period shall deemed to be split in oneTax period ending on the Closing Date and another Tax period starting after the Closing Date and to the extent not reasonably feasible based on apro rata temporis basis for the purpose of determining claims under this clause 10. 10.7.2All payments to be made by the Sellers to the Purchaser or by the Purchaser to the Sellers under clauses 9, 10, 11 and 12 shall constitute a reductionor an increase of the Purchase Price for Tax purposes, as the case may be. If and to the extent payments are made by the Sellers directly to theGroup Companies, such payments shall be construed and deemed as contributions (Einlagen) made by the Purchaser into the Group Companiesand shall be treated as a reduction of the Purchase Price as between the Parties. 10.7.3Clause 9.2, 9.3, 9.5, 9.10, 9.12 shall apply to the Tax Guarantees accordingly; otherwise clause 9 shall not apply to the Tax Guarantees. For theavoidance of doubt, except for claims based on a breach of the Tax Guarantees, clause 9 shall not apply to claims under this clause 10. 10.8Time Limits All claims of the Purchaser under this clause 10 shall be time-barred six (6) months after the final and binding assessment (formelle und materielleBestandskraft nach Ablauf aller Ablaufhemmungen) of the relevant Taxes. Any claim of the Sellers under clause 10.6 shall become time-barred six(6) months after the Sellers have been notifying in writing by the Purchaser. 11Purchaser Guarantees 11.1Purchaser Guarantees The Purchaser hereby guarantees, by way of an independent promise of guarantee (selbständiges Garantieversprechen) pursuant to Section 311 (1)BGB, as follows: 11.1.1The Purchaser is duly incorporated and validly existing under the laws of Germany. 11.1.2The Purchaser has all requisite corporate power and authority and has been duly authorized by all necessary corporate actions to enter into andperform this Agreement and the legal transactions (Rechtsgeschäfte) contemplated herein. 11.1.3Subject to the Clearance being obtained, the execution and performance by the Purchaser of this Agreement and the consummation of the legaltransactions contemplated herein do not violate the Purchaser’s articles of association, by-laws or internal rules of management and do not violateany applicable statutory provision, judgment, injunction or other rule binding upon the Purchaser, and there are no legal, investigation or otherproceedings pending against, or to the Purchaser’s knowledge threatened against, the Purchaser before any court, arbitration tribunal orGovernmental Authority which in any manner challenges or seeks to prevent, alter or delay the legal transaction contemplated in this Agreement. Page 41 of 5011.1.4Based on its due diligence exercise, the Purchaser is not aware of any facts or circumstances that could give rise to claims against the Sellerspursuant to clause 8 through 10. 11.1.5The Purchaser has sufficient, immediately available funds or binding financing commitments to pay the Total Purchase Price and to make all otherpayments required to be made under or in connection with this Agreement. 11.2Indemnification If the Purchaser breaches any guarantee pursuant to clause 11.1, the Purchaser shall indemnify and hold harmless the Sellers from and against anydamages incurred by the Sellers. All claims of the Sellers arising under this clause 11 shall become time-barred five (5) years after the ClosingDate. 12Additional Obligations of the Parties post-Closing 12.1Access to Financial Information Subject to clause 15.2, which shall apply, the Purchaser shall ensure that after the Closing Date, the Sellers and their representatives are given, atreasonable request and upon reasonable advance notice during the normal business hours, access to, and are allowed to make copies of, the booksand accounts of the Group Companies for fiscal years up to and including 2021, as long as and to the extent reasonably necessary to the Sellers inconnection with any audit, investigation, dispute (except as under or in connection with this Agreement against the Purchaser), tax return or audit oranother, objectively justified reason. 12.2(-------) 12.3Non-Compete Until the second (2nd) anniversary of the Closing Date, the Sellers shall not, directly or indirectly, compete with the Group Companies in thespecific regions where the Group Companies operate at the Closing Date. The Sellers shall, in particular, not form, acquire or invest in anycompany which competes, either directly or indirectly, with the Group Companies, except for the acquisition of participations in publicly tradedcompanies of less than two percent (2 %) of the capital of the relevant company for capital investment purposes. 12.4Non-Solicit Until the second (2nd) anniversary of the Closing Date, the Sellers shall not, directly or indirectly, (i) influence or attempt to influence anycustomers, suppliers, employees, consultants, distributors, salespersons, agents or other material business partners of the Group Companies toterminate or otherwise discontinue their business relationship with the Group Companies, or to reduce the volume of goods or services provided orreceived, as the case may be, thereunder or (ii) solicit or attempt to solicit the service or employment of any current or future managing director oremployee of the Group Companies. Page 42 of 5012.5Renaming Ancosyslab Seller 6 undertakes that the company ancosyslab GmbH, which is incorporated under the laws of the Swiss Confederation, changes its name to acompany name not containing the phrase “ancosys” or any similar wording, without undue delay, but in no event later than four (4) weeks after theClosing Date. 12.6Indemnification for Third Party Claims If, after the Signing Date, a third party raises against one or more Sellers a claim which is based on the respective Seller’s former capacity asshareholder, managing director or employee of the Company and the period until the Closing Date (except for claims based intentional offraudulent behaviour and to the extent the claim relates to actions taken in the best interest of the Group Companies and in good faith), then thePurchaser shall indemnify and hold harmless the respective Seller(s) from and against any such claim. All claims of the Sellers arising under thisclause 12.6 shall be limited to a total amount of EUR 250,000 (in words: two hundred fifty thousand euros) and become time-barred two (2) yearsafter the Closing Date. 12.7Shareholders' meetings The Purchaser shall, immediately after the registration of the Purchaser as new owner of the Shares in the commercial register, carry-out ashareholders' meeting of the Company and, to the extent legally permissible, grant full discharge (Entlastung) to Seller 6 as managing director ofall relevant Group Companies, until and including the Closing Date. The Purchaser shall again grant such discharge (Entlastung) at the Company'sordinary shareholders meeting for the business year 2021, to be held in 2022. 12.8Indemnification The Sellers shall indemnify and hold harmless the Company from and against any and all costs, liabilities, taxes, claims, demands, assertions ofliability, assessments directly or indirectly arising out of, resulting from the social security and tax status and treatment of external consultants inthe period until and including the Closing Date. Any claims under or in connection with this clause 12.8 shall become time-barred five (5) yearsafter the Closing Date. Clause 9.2 (provided, however, that only the Deductible, but not the Overall-Deductible shall be applicable for purpose ofthis clause 12.8), 9.3, 9.10 and 10.5.2 shall apply to the indemnity obligation under this clause 12.8 accordingly; otherwise clause 9 shall not applyto the indemnity obligation under this clause 12.8. 13Escrow The Sellers and the Purchaser shall instruct the Escrow Agent to release funds in the Escrow Account (including accrued interest thereon and lessnegative interest thereon as well as outstanding fees and expenses of the Escrow Agent, as the case may be) or any portion thereof only a)According to a concurrent (übereinstimmenden) written instruction of the Purchaser and the Representative, Page 43 of 50b)According to a final, non-appealable (rechtskräftig) decision of a competent court, an enforceable award (für vollstreckbar erklärt gemäß§ 1060 German Code of Civil Procedures) of an arbitration tribunal or a definitive expert decision, or c)To the Sellers if, twenty one (21) months after the Closing Date, the Purchaser has not initiated arbitration proceedings according to clause21.2 against the Sellers for breaches of this Agreement by the Sellers (whereby if the Purchaser has initiated such arbitration proceedings,the amount in dispute shall be deducted from the amount to be released to the Sellers and released upon resolution of the claims subject tothe arbitration proceedings). Any payment from the Escrow Account shall reduce the Escrow Amount and the Sellers shall not be obliged to make any (additional) payments tothe Escrow Account. 14Parent Undertaking The Parent shall be, together with the Purchaser, jointly and severally liable for the fulfilment of all of the Purchaser's payment obligations under,and as per the terms of, this Agreement. The Sellers shall have the right to raise any respective payment claims directly against the Parent withouthaving to raise any such claims against the Purchaser first. 15Confidentiality and Press Releases 15.1Confidentiality The Parties mutually undertake to keep the existence and the contents of this Agreement and any confidential information regarding the otherParties obtained in connection with the negotiation, execution or performance of this Agreement and the transactions contemplated herein secretand confidential vis-à-vis any third party except to the extent that the relevant facts have become into the public domain or the disclosure of whichis required by law (including securities law and regulations), for the enforcement of claims under this Agreement, by the rules of any securitiesexchange on which the Purchaser or any of its Affiliates is traded or by a final or immediately enforceable court or governmental order. In the lattercase, the Parties shall, however, if and to the extent legally permitted, inform each other prior to such disclosure and shall limit any disclosure tothe minimum required by statute or the authorities. No press release or other public announcement concerning the Agreement shall be made byeither Party unless the form and text of such announcement has first been approved by the other Parties, except that – if a Party is required by lawor by the applicable stock exchange regulations to make an announcement (such as reporting and announcement obligations of Purchaser vis-à-visthe United States Securities and Exchange Commission (SEC)) – it may do so. 15.2Post-Closing confidentiality After Closing, the Sellers shall keep confidential and not disclose to any third party any information about the Group and their businesses andassets. Page 44 of 5016Power of Attorney in Favour of the Purchaser The Sellers and the Purchaser are aware that the Purchaser is not entitled to exercise the shareholder rights against the Company until theshareholders’ list in which the Purchaser is named as new shareholder is entered into the commercial register of the Company. In such periodbetween the Closing Date and the inclusion of the new shareholders’ list, the Sellers undertake not to act as shareholders of the Company. Subject to the condition precedent of the consummation of the Closing, the Sellers hereby agree to grant to the Purchaser, who shall be releasedfrom the restrictions of Section 181 BGB and shall be entitled to grant sub-powers of attorney, a power of attorney to represent the Sellers in suchpowers and rights as shareholder of the Company for which the Purchaser may require such power of attorney. Any such power of attorney expiresupon inclusion of a new shareholders’ list showing the Purchaser as new shareholder of the Company. 17Assignment of Rights and Transfer of Obligations No rights and obligations under this Agreement may be assigned or transferred, either in whole or in part, without the prior written consent of theother Parties. 18Transfer Taxes and Costs 18.1Transfer Taxes and Costs All registration, stamp and transfer taxes and duties (including any fees of any authorities) that are payable as a result of the transactionscontemplated by this Agreement and the costs for formally notarizing this Agreement shall be borne by the Purchaser. Provided however that thetransaction expenses of the Company shall be paid prior to the Closing Date, and as a rule, such transaction expenses of the Company shall beborne by the Sellers. 18.2Costs of Advisors Otherwise, each Party shall bear its own costs and expenses in connection with the preparation, conclusion, and performance of this Agreement,including any professional fees, charges and expenses of its respective legal, accounting, and banking advisors. Page 45 of 5019Appointment of Representative Each Seller hereby irrevocably appoints and approves the designation of and designates Seller 6 (the Representative) as the true, exclusiverepresentative of the Sellers and as the attorney-in-fact and lawful agent for and on behalf of such Seller with respect to this Agreement and Dr.Alexander Vogel, MLL Meyerlustenberger Lachenal Froriep AG, Schiffbaustrasse 2, 6340 Baar, Switzerland, as his substitute (the Substitute), andfurther approves the taking by the Representative or the Substitute, if applicable, of any and all actions and the making of any and all decisionsrequired or permitted to be taken by the Representative or the Substitute, if applicable, under this Agreement. Each Seller authorizes and empowersthe Representative or the Substitute, if applicable,to act on behalf of such Seller with respect to the disposition, settlement or other handling of allclaims under this Agreement, and all rights or obligations arising under this Agreement. Each Seller shall be bound by all actions and decisionstaken and consents and instructions given by the Representative or the Substitute, if applicable, in connection with this Agreement, and thePurchaser shall be entitled to rely on, and shall be relieved from any liability to any person for any acts done by them in accordance with, any suchaction, decision, consent or instruction of the Representative or the Substitute, if applicable. Notices or communications to or from theRepresentative or the Substitute, if applicable, shall constitute notice to or from each of the Sellers. 20Notices 20.1Form of Notices All legally binding statements and other notices in connection with this Agreement (collectively Notices) shall be made in writing unless a formalnotarization or another specific form is required by law. The written form requirement shall be satisfied through transmission by e-mail. 20.2Notices to the Sellers Any Notices to be delivered to the Sellers hereunder shall be addressed to the Representative to the following address: Seller 6: (-------)with a copy to their advisor for information purposes only: Meyerlustenberger Lachenal LtdDr. Alexander VogelSchiffbaustrasse 2Post Box 17658031 ZurichSwitzerlandEmail: alexander.vogel@mll-legal.comand Dentons Europe LLPThomas StrassnerJungfernturmstraße 280333 MunichGermanyEmail: Thomas.Strassner@dentons.comPage 46 of 5020.3Notices to the Purchaser and the Parent Any Notices to be delivered to the Purchaser and the Parent hereunder shall be addressed as follows: Nova Measuring Instruments GmbHDror DavidGebäude Ensemble Deutsche Werkstätten HellerauBruno-Paul HausMoritzburger Weg 6701109 GermanyDeutschlandEmail: (-------) with copies to their advisors for information purposes only to: Meitar l Law OfficesShachar Hadar16 Abba Hillel Silver Rd.Ramat GanIsraelEmail: shacharh@meitar.com and Gleiss Lutz Hotz Hirsch PartmbBDr Alexander SchwarzDreischeibenhaus 140211 DüsseldorfGermanyEmail: alexander.schwarz@gleisslutz.com 20.4Change of Address The Parties shall without undue delay give written Notice to the other Party of any changes in the addresses set forth in clauses 20.2 to 20.3 above.In the absence of such communication, the address stated above shall remain in place. 20.5Language Any communication to be made by one Party to another under or in connection with this Agreement shall be in English or, if in any other language,accompanied by a translation into English. Page 47 of 5021Miscellaneous 21.1Governing Law This Agreement shall be governed by the laws of the Federal Republic of Germany, excluding the United Nations Convention on Contracts for theInternational Sale of Goods (CISG) and all conflict of law provisions. 21.2Arbitration 21.2.1All disputes or claims arising out of or in connection with this Agreement shall be finally settled under the rules of the German Institution ofArbitration (Deutsche Institution für Schiedsgerichtsbarkeit e.V. – DIS) by three (3) arbitrators appointed in accordance with such rules. 21.2.2The place of arbitration is Frankfurt am Main, Germany. 21.2.3The language of the arbitral proceedings is English. Documents already existing in the German language may be submitted without an Englishtranslation. 21.3Business Day For the purposes of this Agreement, Business Day means a day on which banks are open for general business (except online-banking) in Tel-Aviv,Israel, and Pliezhausen, Germany. 21.4Interest Except as otherwise provided in this Agreement, any Party must pay interest on any amounts due and payable to the other Party under thisAgreement, for the period beginning on the day following the day on which the payment is due (or the day otherwise stipulated herein as the dayon which interest shall begin to accrue) and ending on (and including) the day when payment is made. The interest rate shall be three percent (3%)basis points above the rate at which euro interbank term deposits for period of one month are being offered by one prime bank to another within theEMU zone (for the purposes of this Agreement, such rate shall at least be zero (0)), published on the corresponding page of the Reuters screen at11am CET on the date on which the interest under sentence 1 hereof begins to accrue (EURIBOR). The interest accrual shall be calculated on thebasis of the days lapsed and a 360-day year. The right to claim default interest (Verzugszinsen) and more extensive default-related damages(Verzugsschaden) shall remain unaffected. 21.5Amendments to this Agreement Any amendment of or supplement to this Agreement, including any modification of this clause, shall be valid only if made in writing, unless morestringent form requirements (e.g. notarisation) must be satisfied under applicable law. Clause 20.1 sentence 2 shall apply mutatis mutandis. 21.6Headings; References to Clauses Page 48 of 5021.6.1The headings and sub-headings of the clauses and sub-clauses and Schedules contained in this Agreement are for convenience and referencepurposes only. They shall be disregarded for purposes of interpreting or construing this Agreement. 21.6.2Any reference made in this Agreement to any clauses without further indication of a law or an agreement shall mean the clauses of this Agreement. 21.7Schedules All Schedules to this Agreement form an integral part of this Agreement. 21.8Entire Agreement This Agreement constitutes the final, complete expression of agreement between the Parties with respect to the subject matter covered herein andsupersedes any and all previous agreements and understandings, whether written or verbal, between the Parties with respect to the subject matter ofthis Agreement or parts thereof. There are no side agreements to this Agreement. 21.9Severability Should any provision of this Agreement be or become, either in whole or in part, void, ineffective or unenforceable, then the validity, effectivenessand enforceability of the other provisions of this Agreement shall remain indisputably (unwiderlegbar) unaffected thereby. Any such invalid,ineffective or unenforceable provision shall, to the extent permitted by law, be deemed replaced by such valid, effective and enforceable provisionas most closely reflects the economic intent and purpose of the invalid, ineffective or unenforceable provision regarding its subject-matter, scale,time, place and scope of application. The aforesaid rule shall apply mutatis mutandis to fill any unintentional gap that may be found to exist in thisAgreement. 21.10Instructions of the notary The notary instructed the persons appearing as follows: -The acting notary is obliged to submit an amended list of shareholders to the Commercial Register without undue delay after the transfer ofthe Shares has become effective. -The buyer of a share assumes the unlimited liability, if any, (jointly with his legal predecessor in the share) for contributions on shares notfully paid up, for differences between the nominal value of contributions in kind theron and for repayment of contributions on shares. -The Sellers shall be secondarily liable for any non-fulfilled contribution obligations of excluded shareholders who are the Sellers legalsuccessors. Page 49 of 50-The acting notary has not reviewed the economic and tax-related consequences of the above agreements and has not provided any advice inthis respect. The persons appearing were advised of the possibility to have the agreements reviewed by a tax adviser in advance. -The notary is obliged pursuant to section 54 German Income Tax Implementation Ordinance (EStDV) to submit one copy of this deed to thetax authorities. -The parties are jointly liable for the costs of this deed, regardless of the provisions therein. * * * This Deed was read aloud by the notary to the persons appearing, approved by them and signed by them and the notary in their own hands as follows: Page 50 of 50Exhibit 8.1 LIST OF SUBSIDIARIES As of the end of 2021:Name of SubsidiaryCountry of IncorporationNova Measuring Instruments, Inc.Delaware, U.S.Nova Measuring Instruments K.K.JapanNova Measuring Instruments Taiwan Ltd.TaiwanNova Measuring Instruments Korea Ltd.KoreaNova Measuring Instruments GmbHGermanyNova Measuring Instruments (Shanghai) Co., LtdChina Added in January 2022:ancosys GmbH*Germanyancosys Korea LLC**Koreaancosys Instruments Taiwan Ltd**TaiwanAncosys Inc.**Delaware * Wholly owned by Nova Measuring Instruments GmbH.** Wholly owned by ancosys GmbH Exhibit 12.1CERTIFICATIONI, Eitan Oppenhaim, certify that:1.I have reviewed this Annual Report of Nova Ltd. 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a materialfact necessary to make the statements made, in light of the circumstances under which such statements were made,not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairlypresent in all material respects the financial condition, results of operations and cash flows of the company as of, andfor, the periods presented in this report; 4.The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to bedesigned under our supervision, to ensure that material information relating to the company, including itsconsolidated subsidiaries, is made known to us by others within those entities, particularly during the period inwhich this report is being prepared; b)Designed such internal control over financial reporting, or caused such internal control over financial reportingto be designed under our supervision, to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordance with generallyaccepted accounting principles; c)Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this reportour conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the periodcovered by this report based on such evaluation; and d)Disclosed in this report any change in the company’s internal control over financial reporting that occurredduring the period covered by the annual report that has materially affected, or is reasonably likely to materiallyaffect, the company’s internal control over financial reporting; and5.The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal controlover financial reporting, to the company’s auditors and the audit committee of company’s board of directors (orpersons performing the equivalent function):a)All significant deficiencies and material weaknesses in the design or operation of internal control overfinancial reporting which are reasonably likely to adversely affect the company’s ability to record, process,summarize and report financial information; and b)Any fraud, whether or not material, that involves management or other employees who have a significant rolein the company’s internal control over financial reporting.Date: March 1, 2022/s/ Eitan OppenhaimEitan OppenhaimPresident and Chief Executive OfficerExhibit 12.2 CERTIFICATIONI, Dror David, certify that:1.I have reviewed this Annual Report of Nova Ltd.2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a materialfact necessary to make the statements made, in light of the circumstances under which such statements were made,not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairlypresent in all material respects the financial condition, results of operations and cash flows of the company as of, andfor, the periods presented in this report;4.The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have: a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to bedesigned under our supervision, to ensure that material information relating to the company, including itsconsolidated subsidiaries, is made known to us by others within those entities, particularly during the period inwhich this report is being prepared; b)Designed such internal control over financial reporting, or caused such internal control over financial reportingto be designed under our supervision, to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordance with generallyaccepted accounting principles;c)Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this reportour conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the periodcovered by this report based on such evaluation; andd)Disclosed in this report any change in the company’s internal control over financial reporting that occurredduring the period covered by the annual report that has materially affected, or is reasonably likely to materiallyaffect, the company’s internal control over financial reporting; and5.The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal controlover financial reporting, to the company’s auditors and the audit committee of company’s board of directors (orpersons performing the equivalent function):a)All significant deficiencies and material weaknesses in the design or operation of internal control overfinancial reporting which are reasonably likely to adversely affect the company’s ability to record, process,summarize and report financial information; andb)Any fraud, whether or not material, that involves management or other employees who have a significant rolein the company’s internal control over financial reporting.Date: March 1, 2022/s/ Dror DavidDror DavidChief Financial OfficerExhibit 13.1 CERTIFICATION PURSUANT TO SECTION 906OF THE SARBANES-OXLEY ACT OF 2002 I, Eitan Oppenhaim, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,to my knowledge, that: 1.This Annual Report on Form 20-F of Nova Ltd. (the “Company”) for the period ended December 31, 2021 (the“Report”) fully complies with the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, asamended; and 2.The information contained in the Report fairly presents, in all material respects, the financial condition and results ofoperations of the Company. Date: March 1, 2022 /s/ Eitan OppenhaimEitan OppenhaimPresident and Chief Executive OfficerExhibit 13.2 CERTIFICATION PURSUANT TO SECTION 906OF THE SARBANES-OXLEY ACT OF 2002 I, Dror David, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to myknowledge, that: 1. This Annual Report on Form 20-F of Nova Ltd. (the “Company”) for the period ended December 31, 2021 (the“Report”) fully complies with the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, asamended; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition andresults of operations of the Company. Date: March 1, 2022 /s/ Dror DavidDror DavidChief Financial OfficerExhibit 15.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in Registration Statement (Forms S-8 Nos. 333-147140, 333-184585, 333-202550 and333-220158) pertaining to the 2007 Incentive Plan and 2017 Share Incentive Plan of Nova Ltd. of our reports dated March 1, 2022,with respect to the consolidated financial statements of Nova Ltd. and the effectiveness of internal control over financial reporting ofNova Ltd., included in this Annual Report (Form 20-F) for the year ended December 31, 2021. /s/ Kost Forer Gabbay & KasiererKost Forer Gabbay & KasiererA member of Ernst & Young Global Tel Aviv, IsraelMarch 1, 2022

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