2019
Annual Report + 2020 Proxy
DEAR SHAREHOLDERS
The semiconductor industry plays an increasingly larger role in many of today’s most exciting megatrends.
Technological breakthroughs are happening all around us as machine learning is being facilitated by high-power
computing combined with high-bandwidth memory. Massive amounts of data are being generated and uploaded
to data centers with cloud computing consuming additional processors and memory. In parallel, the anticipated
5G communication channels are increasing data transfer speeds to satisfy the needs of infrastructure, industrial,
commercial and consumer systems that will all require more processing power, memory, and wireless (RF
systems. The increasing complexity and smaller sizes of all these devices requires inclusive, factory-wide
manufacturing controls to achieve higher yields and the long-term reliability that is needed today.
With this exciting backdrop, this past June, Nanometrics and Rudolph Technologies announced our intention to
merge as equal companies. We recognized that our complementary technologies and teams would accelerate
our ability to serve our markets as well as expand our opportunities with strategic customers. Our customers
now require a more collaborative and inventive supply chain to maintain their rapid pace of innovation. As our
name suggests, Onto Innovation is advancing manufacturing innovation by providing comprehensive solutions
to emerging process challenges across the semiconductor value chain.
Complementary Products: Throughout the Entire Semiconductor Process
ENDTOEND PROCESS CONTROL SOFTWARE
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NANOMETRICS PRODUCTS
RUDOLPH PRODUCTS
BOTH PRODUCTS
WAFER FAB
ADVANCED PACKAGING
Since the merger completed in late October, our integration has been progressing very well. We have already
identified and implemented $14 million in annualized cost synergies and we are confident in ending the year
with $20 million in annualized synergies two years ahead of our initial estimate. More importantly, by combining
our core competencies in software and optics we are now able to accelerate our pace of innovation and expand
our served available markets. As a result, our new product pipeline is currently expanding, and we expect to see
several exciting new product releases in 2020. Looking forward, we expect to significantly increase the total
available markets we will be able to address.
Given the more important role semiconductors are playing in helping to create a smarter, greener, and more
sustainable planet, we are also focused on our social responsibility and sustainability. We have formed an
environmental team to focus on raising awareness and implementing sustainable practices and measures at
each of our offices. Onto Innovation has already increased our human resources team and our focus on
employees, with employee benefits extending above the level of the two legacy companies. The result has
been an incredible amount of employee enthusiasm and inter-company collaboration as the two legacy teams
begin creating “best sustainable and responsible business practices” for Onto Innovation.
Amid the global pandemic of COVID19, our primary focus is ensuring our worldwide employee base and their
families are safe. Since the beginning of the year, we have implemented a number of global policies and
initiated a team to anticipate and react to the evolving situation. We have a strong customer-focused, innovative
team supported by a balance sheet of over $300 million in cash, which provides us with many options to
manage through this and position ourselves for continued growth both organically and inorganically.
Lastly, a sincere thank you and appreciation to our loyal shareholders, customers, employees, suppliers and all
who contributed to Onto Innovation’s success as we look forward to continued growth in 2020.
Sincerely,
Michael P. Plisinski
Chief Executive Officer
Christopher A. Seams
Chairman of the Board
SAFE HARBOR STATEMENT
This Annual Report contains forward-looking statements, including those regarding anticipated growth and trends in our businesses and
markets, industry outlooks, market share, technology transitions, our business, strategies and financial performance, our development of new
products, technologies and capabilities, and other statements that are not historical fact, and actual results could differ materially. Risk
factors that could cause actual results to differ are set forth in the “Risk Factors” section of, and elsewhere in, our 2019 Annual Report on Form
10K included in this report and other filings with the Securities and Exchange Commission. All forward-looking statements are based on
management’s estimates, projections and assumptions as of the date hereof, and Onto Innovation undertakes no obligation to update any
such statements.
1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
☒
☐
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from to
Commission File No. 001-39110
ONTO INNOVATION INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
94-2276314
(I.R.S. Employer
Identification Number)
16 Jonspin Road, Wilmington, MA 01887
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (978) 253-6200
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of Each Class
Common Stock, $0.001 par value per share
Trading Symbol
ONTO
Name of Exchange on Which Registered
New York Stock
Exchange (NYSE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. 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 Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such
files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and
“emerging growth company” in Rule 12b-2 of the Exchange Act.:
Large accelerated filer
Non-accelerated filer
☒
☐
Accelerated filer
Smaller reporting company
Emerging growth company
☐
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the registrant’s voting Common Stock held by non-affiliates of the registrant was approximately $811,997,653
based on the closing price of the Common Stock on the Nasdaq Global Select Market on June 28, 2019.
The number of shares of the registrant’s Common Stock outstanding as of February 6, 2020 was 50,282,160.
DOCUMENTS INCORPORATED BY REFERENCE
Items 10, 11, 12, 13 and 14 of Part III of this Annual Report on Form 10-K incorporate by reference information from the definitive proxy
statement for the registrant’s annual meeting of stockholders scheduled to be held on May 12, 2020.
TABLE OF CONTENTS
PART I
Business..............................................................................................................................................
Risk Factors ........................................................................................................................................
Unresolved Staff Comments...............................................................................................................
Properties............................................................................................................................................
Legal Proceedings ..............................................................................................................................
Mine Safety Disclosures.....................................................................................................................
PART II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities.........................................................................................................................................
Selected Financial Data ......................................................................................................................
Management’s Discussion and Analysis of Financial Condition and Results of Operations..............
Quantitative and Qualitative Disclosures About Market Risk ............................................................
Financial Statements and Supplementary Data...................................................................................
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..............
Controls and Procedures.....................................................................................................................
Other Information...............................................................................................................................
PART III
Directors, Executive Officers and Corporate Governance..................................................................
Executive Compensation ....................................................................................................................
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence....................................
Principal Accountant Fees and Services .............................................................................................
Exhibits and Financial Statement Schedule........................................................................................
PART IV
Item No.
1.
1A.
1B.
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4.
5.
6.
7.
7A.
8.
9.
9A.
9B.
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14.
15.
Signatures
Page
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Explanatory Note
On October 25, 2019, Onto Innovation Inc. (the “Company” or “Onto Innovation,” formerly known as Nanometrics
Incorporated (“Nanometrics”)) consummated its previously announced merger (the “Merger”) with Rudolph Technologies,
Inc. (“Rudolph”). Onto Innovation accounts for the Merger as a reverse acquisition using the acquisition method of accounting
in accordance with generally accepted accounting principles, with Rudolph being treated as the acquiring entity for accounting
purposes. Because Rudolph is treated as the accounting acquirer in the Merger, the financial statements filed with this annual
report on Form 10-K include the financial results of Rudolph for all periods presented and the financial results of the former
Nanometrics for the periods on or after October 26, 2019. As used in this report, unless the context suggests otherwise, the
terms “we,” “us” or “our” refer to (i) Rudolph and its consolidated subsidiaries for periods through October 25, 2019 and (ii)
Onto Innovation and its consolidated subsidiaries for periods on or after October 26, 2019. The terms the “Company” and
“Onto Innovation” refer to the combined company following the consummation of the Merger.
FORWARD-LOOKING STATEMENTS
Certain statements in this Annual Report on Form 10-K of Onto Innovation are forward-looking statements, including
those concerning our business momentum and future growth, acceptance of our products and services, our ability to deliver
both products and services consistent with our customers’ demands and expectations and to strengthen our market position,
our expectations of the semiconductor market outlook, future revenue, gross profits, research and development and engineering
expenses, selling, general and administrative expenses, product introductions, technology development, manufacturing
practices, cash requirements, our dependence on certain significant customers and anticipated trends and developments in and
management plans for our business and the markets in which we operate, our anticipated revenue as a result of acquisitions,
and our ability to be successful in managing our cost structure and cash expenditures and results of litigation. The statements
contained in this Annual Report on Form 10-K that are not purely historical are forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), and within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements
may be identified by words such as, but not limited to, “anticipate,” “believe,” “continue,” “estimate,” “expect,” “intend,”
“plan,” “should,” “may,” “could,” “will,” “would,” “forecast,” “project” and words or phrases of similar meaning, as they
relate to our management or us.
The forward-looking statements contained herein reflect our expectations with respect to future events and are subject
to certain risks, uncertainties and assumptions. Actual results may differ materially from those included in such forward-
looking statements for a number of reasons including, but not limited to, the following: variations in the level of orders which
can be affected by general economic conditions; seasonality and growth rates in the semiconductor manufacturing industry
and in the markets served by our customers; the global economic and political climates; difficulties or delays in product
functionality or performance; the delivery performance of sole source vendors; the timing of future product releases; failure
to respond adequately to either changes in technology or customer preferences; changes in pricing by us or our competitors;
our ability to manage growth; changes in management; risk of nonpayment of accounts receivable; changes in budgeted costs;
our ability to leverage our resources to improve our position in our core markets, to weather difficult economic environments,
to open new market opportunities and to target high-margin markets; the strength/weakness of the back-end and/or front-end
semiconductor market segments; the imposition of tariffs or trade restrictions and costs, burdens and restrictions associated
with other governmental actions; the ability to successfully integrate the businesses of Rudolph and Nanometrics promptly and
effectively and to achieve the anticipated synergies and value-creation contemplated by the Merger within the expected time
frame; unanticipated difficulties or expenditures relating to the Merger and integration of the Rudolph and Nanometrics
businesses; the response of business partners and retention as a result of the Merger; the diversion of management time in
connection with the integration; the effect of litigation related to the Merger; and the “Risk Factors” set forth in Item 1A. You
should carefully review the cautionary statements and “Risk Factors” contained in this Annual Report on Form 10-K. You
should also review any additional disclosures and cautionary statements and “Risk Factors” we include from time to time in
our quarterly reports on Form 10-Q, current reports on Form 8-K and other filings we make with the Securities and Exchange
Commission (the “SEC”). The forward-looking statements reflect our position as of the date of this report and we undertake
no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise,
except as required by law.
1
Item 1.
Business.
General
PART I
Onto Innovation is the new entity resulting from the completion on October 25, 2019 of the Merger between Nanometrics
and Rudolph, two long-time leaders in the semiconductor equipment industry that began operations in 1975 and 1940,
respectively. Onto Innovation has been publicly traded since October 2019 (NYSE: ONTO).
Onto Innovation is a worldwide leader in the design, development, manufacture and support of process control tools that
perform macro defect inspections and metrology, lithography systems, and process control analytical software used by
semiconductor wafer and advanced packaging device manufacturers. Our products are also used in a number of other high
technology industries including: silicon wafer substrates; light emitting diode (“LED”); vertical-cavity surface-emitting laser
(“VCSEL”); micro-electromechanical system (“MEMS”); CMOS image sensor (“CIS”); power device; RF filter; data storage;
and certain industrial and scientific applications. We have a combined installed base of over 9,000 systems in the majority of
advanced semiconductor device production factories worldwide.
We provide process and yield management solutions used in bare silicon wafer production and wafer processing facilities,
often referred to as “front-end” manufacturing and device packaging and test facilities (or “back-end” manufacturing),
respectively through a portfolio of standalone systems for macro-defect inspection, packaging lithography, probe card test and
analysis, as well as transparent and opaque thin film measurements. Our automated and integrated metrology systems measure
critical dimensions, device structures, topography, shape, and various thin film properties, including three-dimensional features
and film thickness, as well as optical, electrical and material properties. Our primary area of focus is products that provide
critical yield-enhancing information, which is used by microelectronic device manufacturers to drive down costs and to
decrease the time to market their devices. All Onto Innovation systems feature sophisticated software and production-worthy
automation. In addition, our advanced process control software portfolio includes powerful solutions for standalone tools,
groups of tools, factory-wide, and enterprise-wide suites to enhance productivity and achieve significant cost savings. Onto
Innovation’s systems are backed by worldwide customer service and applications support.
Nanometrics and Rudolph Merger
On October 25, 2019, Nanometrics and Rudolph consummated their previously announced Merger pursuant to the
agreement and plan of merger, dated as of June 23, 2019 (the “Merger Agreement”), by and among Nanometrics, Rudolph and
PV Equipment Inc. As a result of the Merger, Rudolph became a direct wholly-owned subsidiary of Nanometrics, which was
renamed “Onto Innovation Inc.” At the effective time of the Merger, each issued and outstanding share of common stock of
Rudolph, par value $0.001 per share (“Rudolph Common Stock”) (other than shares owned by Rudolph or Nanometrics), was
automatically converted into the right to receive 0.8042 (the “Exchange Ratio”) shares of Onto Innovation common stock, par
value $0.001 per share (“Onto Innovation Common Stock”), and cash in lieu of any fractional shares of Onto Innovation
Common Stock any former holder of Rudolph Common Stock would otherwise be entitled to receive. Immediately following
the effective time of the Merger, each of Nanometrics’ and Rudolph’s stockholders owned approximately 50% of the combined
company, Onto Innovation. Pursuant to the Merger Agreement, Onto Innovation accounts for the Merger as a reverse acquisition
using the acquisition method of accounting in accordance with generally accepted accounting principles, with Rudolph being
treated as the acquiring entity for accounting purposes.
Industry Background
We participate in the sale, design, manufacture, marketing and support of process control systems for optical critical
dimension metrology, thin film metrology, wafer inspection, 2D and 3D macro inspection and lithography tools for advanced
packaging as well as advanced analytical software for semiconductor manufacturing and certain industrial applications and
scientific research. Our principal market is semiconductors. Semiconductors, primarily packaged as integrated circuits within
electronic devices, include consumer electronics, server and enterprise systems, mobile computing (including smart phones
and tablets), data storage devices, and embedded automotive and control systems. Our core focus is the measurement and
control of the structure, composition, and geometry of the devices as they are fabricated on silicon wafers to improve device
performance and manufacturing yields. Our end customers manufacture many types of integrated circuits for a multitude of
applications, each having unique manufacturing challenges. This includes integrated circuits to enable information processing
and management (logic integrated circuits), memory storage (3D NAND and DRAM), analog devices (e.g., Wi-Fi and 5G radio
integrated circuits, power devices), MEMS sensor devices (accelerometers, pressure sensors, and microphones), image sensors,
and components for hard disk drives, LEDs, and power management.
2
Current Trends
Advanced Nodes refer to leading edge integrated circuits in which the feature sizes of transistors and other
features continue to shrink in specified steps, or nodes measured in nanometers (nm). Demand for our products continues to
be driven by our customers’ desire for higher overall chip performance without increasing the chip size, while
improving power efficiency, logic processing capability, data storage volume and manufacturing yield. To achieve these
goals, our customers have increased their use of more complex materials and processing methods in their manufacturing
flow. The primary paths for performance gains are geometric scaling, known as node shrinks, or scaling in three dimensions.
In some cases, our customers are implementing new materials and methods in high volume manufacturing, including
materials and device architectures to reduce power consumption, and stacked devices. To scale NAND memory a
new 3D stacking architecture has been implemented with as many as 128 device layers in production. Additional
innovation continues in Data Storage, Power Devices, MEMS, and Image Sensors. We believe the use of these new materials
and manufacturing methods has increased demand for our products such as the Atlas III+ that is capable of measuring these
advanced nodes as certain features shrink to 7nm, 5nm and 3nm.
To shrink features, new methods, including multiple patterning lithography and extreme ultra-violet (“EUV”)
lithography, have been developed. The EUV process is driving significantly higher requirements for the silicon wafers that
are entering the EUV chamber. Small particles on the backside of the wafer measuring a few micrometers (microns) can
distort the images being projected onto the top side. Our NovusEdge inspection tool has been installed at major silicon
wafer manufacturers to detect backside contamination and edge cracking as a final quality control mechanism before
wafers are shipped to the semiconductor fabrication manufacturers. The top side of these wafers must also be scanned
for any impurities contained in the silicon. This compositional analysis is measured using Onto Innovation’s Fourier
Transform Infrared (“FTIR”) systems.
Advanced Packaging refers to a variety of technologies that enable the miniaturization of electronic products, such as
portable consumer devices, including smartphones, watches, and tablets. In electronics manufacturing, integrated
circuit packaging is the final stage of semiconductor device fabrication, in which a single circuit made from semiconducting
material (a die or chip) is encased in a molded package that provides external connections to a printed circuit board and
also prevents physical damage to the chip and corrosion. Advanced Packaging refers to the conductors and other structures
that often connect multiple die, feed them with electric power and create signal paths to and from the PC board, dissipate
their heat, and protect them from damage. Today, the drive to pack more functions into a small space and reduce their
power requirements demands that chip packages do much more than ever before to combine multiple chips and functions
into a single molded package.
One example of the technology used in Advanced Packaging is the 3D integration of semiconductors and other
devices. The technology involves stacking individual die in one integrated package. Through-silicon vias (“TSVs”) are
vertical copper interconnects that are embedded from the bottom surface of a die to the top surface, which allows power
and communication to be shared among the individually stacked components. The processes required for 3D integration vary
from one manufacturer to another and many continue to be optimized for yield and to ensure the functioning of individual
stacked chips.
Fan-out wafer level packages are another advanced packaging technology using copper pillars/bumps to
vertically connect a wide variety of stacked die and are considered the next disruptive technology for several reasons. First,
fan-out wafer level packages significantly reduce the space needed inside an electronic device, such as a smartphone, by
combining multiple chips/functions into a single package, often called a System-in-Package (“SIP”). Next, it improves the
system’s performance by reducing power and signal conductor lengths, which previously were routed from package to
package through a printed circuit (“PC”) board. Using thin redistribution layers (“RDLs”) to “fan out” power and signal
connections to the larger contacts on the PC board eliminates the need for a ceramic or laminated substrate, which accounts
for 35 percent of the packaging cost. As a result of the small overall form factor, fan-out wafer level packages provide the
functionality needed in high-end mobile and wearable products. We believe the growth of advanced packaging has
increased demand for our products such as the Dragonfly G2 System that is capable of inspecting two-dimensional (2D)
features to find flaws/defects and detect unwanted residual residue as well as measuring and reporting vertical attributes of
3D pillars and bumps.
Panel Manufacturing. The current process to manufacture advanced packaging involves attaching known good die to
a 300mm wafer, used as a temporary carrier when adding components such as RDLs and copper pillars. SIP packages can
often contain side-by-side die, meaning the package can be large and limit the number of packages being placed on a
reconstituted wafer. In order to meet the growing demand at reduced average selling prices, manufacturers are looking to
scalable technology. Advanced packaging facilities looking to improve cost of ownership and increase productivity are
transitioning from round 300mm wafers to large rectangular panels, which can be as large as 600mm x 600mm. This
larger size and shape enables companies manufacturing large area packages to efficiently increase the number of devices
being processed at each step as they are no longer limited to operating within the constraints of a round wafer. By responding
to market opportunities and addressing the stringent demands of customers’ technical roadmaps, we believe that Onto
Innovation is optimally positioned to capitalize on the emerging market of high-volume panel manufacturing. For example,
the JetStep® S lithography system is designed for processing RDLs on both glass and organic laminate panels in the
semiconductor Advanced Packaging market. The Firefly™S Series, designed for high resolution inspection, can provide
metrology and location information to the JetStep S tool for each
3
die, which greatly improves lithography throughput using Onto Innovation’s exclusive StepFAST™ process. The Firefly also
delivers a combination of defect detection and substrate flexibility in a single platform, reducing capital investment
requirements and providing a reliable pathway to transition from wafer to panel-based processes.
Technology
We believe that our expertise in our core technologies of optics and software and our combined investment in research
and development will enable us to rapidly develop new technologies and products in order to quickly respond to emerging
industry trends and competitive challenges. The breadth of our technology enables us to offer a diverse combination of process
control products and solutions. Unique features have been designed into our lithography systems to meet our customers’
changing process requirements. Our metrology and inspection technologies provide process control for the majority of wafers
processed today in a semiconductor wafer fab. In front-end processes, optical critical dimension (“OCD”) metrology, thin film
metrology, wafer stress metrology and macro defect detection and classification technologies allow yield enhancement for
critical processes such as photolithography, diffusion, etch, chemical mechanical planarization (“CMP”) and outgoing quality
control. Within the final manufacturing (back-end) processes, our 2D/3D advanced macro defect inspection provides our
customers with critical quality assurance and process information. Defects may be created during probing, bumping, dicing,
assembly processes (RDLs, TSVs, copper pillars, etc.) or general handling and can have a major impact on device and process
quality. Lastly, we turn all of the data gathered into useful knowledge for our customers to make yield-enhancing decisions,
which lower their cost of goods sold (“COGS”) and improve their margins.
Onto Innovation’s Products
Metrology
Automated Metrology Systems. Our automated systems primarily consist of fully automated metrology systems that are
employed in semiconductor production environments. The Atlas® family of products represents our line of high-performance
metrology systems providing OCD and thin film metrology and wafer stress metrology for transistor and interconnect
metrology applications. The thin film and OCD technology in the Atlas is supported by our NanoCD suite of solutions including
our NanoDiffract® software, SpectraProbe™ software and NanoGen™ scalable computing engine that enables visualization,
modeling, and analysis of complex structures. Additionally, the S3000SX™ System is used for ultra-thin transparent films
metrology in advanced semiconductor fabrication applications for advanced nodes.
NanoDiffract® is a modeling, visualization and analysis software that takes signals from the metrology systems,
providing critical dimension, thickness, and optical properties from in-line measurements. The software has an intuitive three-
dimensional modeling interface to provide visualization of today’s advanced and complex semiconductor devices. There are
proprietary fitting algorithms in NanoDiffract that enable very accurate and very fast calculations for signal processing for high
fidelity model-based measurements. SpectraProbe is a model-less fitting engine that enables fast time to solution for in-line
excursion detection and control. SpectraProbe complements the high-fidelity modeling of NanoDiffract with a simple machine
learning interface for rapid recipe deployment. The software is supported by NanoGen, an enterprise scale computing hardware
system that is deployed to run the computing intensive analysis software. NanoGen leverages commercial server chips and
networking architecture and is optimized to support the workload of NanoDiffract and SpectraProbe analysis.
Integrated Metrology Systems. Our integrated metrology (“IM”) systems are installed directly onto wafer processing
equipment to provide near real-time measurements for improved process control and maximum throughput. Our IM systems
are sold directly to end user customers. The IMPULSE family of products includes the latest technology for OCD, and thin
film metrology, and have been successfully qualified on numerous independent Wafer Fabrication Equipment Suppliers’
platforms. Our NanoCD suite of software solutions including NanoDiffract and SpectraProbe, is sold in conjunction with our
IMPULSE systems.
Opaque Film Metrology. The MetaPULSE® systems allow customers to simultaneously measure the thickness and
other properties of metal or non-metallic opaque film layers in a non-destructive manner without physically contacting product
wafers. PULSE Technology is used in copper or aluminum interconnect processes, as well as various layers in 3D NAND chips
and thick advanced packaging interconnect applications. PULSE technology is expanding into new process applications such
as RF filters and modules, driven by the need for on-product metrology as feature sizes decrease and pattern densities increase.
Inspection & Yield Management
Silicon Wafer All-surface Inspection/Characterization. All-surface refers to inspection of the wafer frontside, edge,
and backside as well as the locator notch on the wafer. The AWX and NovusEdge tools utilize optical scattering and imaging
technology to inspect these surfaces. A primary reason for all-surface wafer inspection is to detect and contain any
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contamination that may spread throughout the wafer fab. For instance, it is critical that the wafer backside be free of defects
prior to the EUV lithography process to prevent focus and exposure problems on the wafer frontside.
Epitaxial Thickness and Composition. Our materials characterization products include systems that are used to monitor
the physical, optical, electrical and material characteristics of discrete electronic industry, opto-electronic, HB-LED (high
brightness LEDs), solar PV (solar photovoltaics), compound semiconductor, strained silicon and silicon-on-insulator devices,
including composition, crystal structure, layer thickness, dopant concentration, contamination and electron mobility. Our
portfolio of products for materials characterization includes photoluminescence mapping in the RPM Blue and Vertex, and
Fourier Transform Infrared (“FTIR”) spectroscopy in the QS Family (QS1200, QS2200, QS4300) systems for substrate quality
and epitaxial thickness metrology.
Macro Defect Inspection. Chip manufacturers deploy advanced macro defect inspection throughout the production line
to monitor key process steps, gather process-enhancing information and ultimately, lower manufacturing costs. Field-
established tools such as the F30™, NSX®, and the latest Dragonfly G2 inspection systems are found in wafer fab (front-end)
and packaging (back-end) facilities around the world. These high-speed tools incorporate features such as wafer-less recipe
creation, tool-to-tool correlation and multiple inspection resolutions. Using Discover® yield management software, the vast
amounts of data gathered through automated inspection can be analyzed and classified to determine trends and locate root
causes that directly affect yield.
Automated Defect Classification and Pattern Analysis. Automating the defect detection and classification process is
best done by a system that can mimic, or even extend, the response of the human eye, but at a much higher speed, with higher
resolution and more consistency. Our TrueADC software performs this rapid comparison and classification enabling yield
improvement across facilities with consistent results.
Yield Analysis. Using wafer maps, charts and graphs, the massive amounts of data gathered through automated
inspection can be analyzed to determine trends across bumps, die, wafers and lots. Discover Yield and other tools in the
Discover suite enable enterprise-wide analysis. This analysis may determine where a process variation or deviation has
occurred, allowing process engineers to make corrections or enhancements to increase yields. Defect data analysis is performed
to identify, analyze and locate the source of defects and other manufacturing process excursions. Using either a single wafer
map or a composite map created from multiple wafer maps, this analysis enables identification of defect patterns and
distribution. When combined with inspection data from strategically placed inspection points, this analysis may pinpoint the
source of the defects so corrective action can be taken.
Industrial, Scientific, and Research Markets: 4D Technology. In November of 2018, Nanometrics acquired 4D
Technology Corporation, based in Tucson Arizona. The 4D business unit offers a line of interferometry systems for the
measurement and inspection of high precision surfaces. End markets include high precision optics surfaces and components,
aerospace and defense components, automotive and powertrain systems, and unique research and scientific instrumentation
that requires the unique high-speed results of the 4D systems.
Lithography
Advanced Packaging Lithography. Our lithography steppers from the JetStep product family, use projection optics to
expose circuit patterns from a mask or reticle onto a substrate to expose images with optimal fidelity. The JetStep systems are
used principally for package level interconnect and bump layer patterning. Our JetStep systems have been specifically designed
for these layer applications. The JetStep W Series is designed for wafers and other round substrates while the JetStep S Series
is designed for rectangular substrates (panels). Both systems boast a large printable field to maximize throughput while not
limiting resolution. High-fidelity optics are able to image the fine features required while at the same time managing the non-
flatness that is typical for advanced packaging applications.
Flat Panel Display Lithography. In addition to semiconductor device applications with the JetStep S and W products,
the JetStep G Series is engineered to address the needs of the flat panel display market. The JetStep G is principally used in
Gen 4 and Gen 5 panels for displays used in high resolution, smaller form factor devices, such as smart phones and smart
watches.
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Enterprise Software Solutions
Process Control Software. We provide a wide range of advanced process control solutions, all designed to improve
factory profitability, including run-to-run control, fault detection, classification and tool automation. Our Advanced Process
Control solutions are sold under the Discover™ brand and include Discover Enterprise, Discover Run-to-Run and other
solutions. Discover software can automatically detect or predict tool failure (fault detection) as well as calculate recipe settings
for a process that will drive the yielded output to meet and exceed the target, despite variations in the incoming material and
minor instabilities within the process equipment. These process control software solutions enable the factory to increase
capacity and yield while decreasing rework and scrap.
Yield Management Software. Semiconductor manufacturers use yield management software to obtain valuable process
yield and equipment productivity information. Our Discover Yield, Discover Enterprise, and Discover Patterns software enables
fab wide and enterprise wide (multiple factory) yield management based on data analytics from a broad range of sources. These
data sources include wafer fab inspection and metrology systems, tool sensors, tool recipes, electrical tests and the fab
environment. The Discover platform utilizes machine learning, advanced analytics, and other analysis and visualization to
enable yield management and excursion prevention, and to maximize productivity across the entire semiconductor
manufacturing value chain.
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Products
WAFER AND CHIP MANUFACTURING
Market
Applications
Products
Bare wafer edge and backside inspection
Unpatterned Silicon
Wafer
Epitaxial Thickness and Composition / Impurity Detection
OCD Metrology
Leading-edge 3D chip manufacturing
NovusEdge™ Wafer System
AWX™ Series
QS1200 System
QS2200 System
QS4300 System
RPM Blue & Vertex Systems
Atlas III+ System
IMPULSE+ System
Metal Film
Metrology
Transparent Film
Metrology
Macro Defect
Inspection
Opaque metal and semi-transparent film metrology system
MetaPULSE G System
Transparent thin film metrology system
Front-side macro defect inspection system
ADVANCED PACKAGING
Atlas III+ System
IMPULSE+ System
S3000™ System
DragonFly G2 System
F30™ Inspection Module
NSX® Inspection Systems
Market
Applications
System-in-Package
Inspection
2D/3D Advanced Packaging inspection and bump
metrology
Products
Dragonfly™G2 System
NSX® Systems
Sub-micron defect panel inspection
Firefly™ Systems
Fan-out Panel Level
Packaging
2x reduction step and repeat system for advanced packaging
lithography on square or rectangular substrates up to
Gen 3.5 size
JetStep® X700 System
Alignment metrology and lithography optimization
StepFAST Software
INTEGRATED SOFTWARE SOLUTIONS
Market
Applications
Products
Enterprise / Fabwide
Data
Management
Tool Centric
Analytics
Fabwide yield management system
Tool-centric yield management system
Discover® Enterprise Software
Discover Yield Software
Discover Defect Software
TrueADC® Enterprise Software
Discover® Run-to-Run Software
Discover Patterns Software
Automatic defect classification software
Discover Review Software
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Customers
Over 150 microelectronic device manufacturers have purchased Onto Innovation tools and software for installation at
multiple sites. We support a diverse customer base in terms of both geographic location and type of device manufactured. Our
customers are located in over 20 countries.
In 2019, sales to Taiwan Semiconductor Manufacturing Co. Ltd. and SK Hynix Inc. accounted for 13.4% and 13.1%,
respectively, of our revenue. In 2018, sales to SK Hynix Inc. accounted for 12.2% of our revenue. No individual end user
customer accounted for more than 10% of our revenue in 2017. We do not have purchase contracts with any of our customers
that obligate them to continue to purchase our products.
Sales, Customer Service and Application Support
We believe that the capability for direct sales and support is beneficial for developing and maintaining close customer
relationships and for rapidly responding to changing customer requirements. We provide local direct sales, service and
application support through our worldwide offices located in the United States, South Korea, Japan, Taiwan, China, Singapore
and Europe, and work with selected dealers and sales representatives on a more limited basis in various countries. Our
applications team is composed of technically experienced sales engineers who are knowledgeable in the use of metrology
systems generally and the unique features and advantages of our specific products. Supported by our technical applications
team, our sales and support teams work closely with our customers to offer cost-effective solutions to complex measurement
and process problems. As of December 31, 2019, we employed 647 sales and marketing, service and applications support
personnel.
We believe that customer service and technical support for our systems are crucial factors that distinguish us from our
competitors and are essential to building and maintaining close, long-term relationships with our customers. We generally
provide a warranty for our products which range from twelve to fourteen months to cover defects in material and workmanship.
We provide system support to our customers through factory technical support and globally deployed field service personnel.
The factory technical support operations provide customers with telephonic technical support access, direct training programs,
operating manuals and other technical support information to enable effective use of our metrology and measurement
instruments and systems. We have field service operations based in various locations throughout the United States, South Korea,
Taiwan, China, Japan, Singapore, Israel, and European locations.
Manufacturing
Our manufacturing operations are in Milpitas California, Tucson Arizona, Wilmington Massachusetts, Bloomington
Minnesota, and at various contract manufacturers around the world. It is our strategy to outsource all assemblies that do not
contain elements that we believe lead to a direct competitive advantage. Most of our automated and integrated products are
currently manufactured at our Milpitas and Bloomington facilities. We currently do not expect our manufacturing operations
to require additional major investments in capital equipment.
We manufacture key modular assemblies and integrated tools and make reasonable efforts to ensure that externally
purchased parts or raw materials are available from multiple suppliers, if possible. Certain components, subassemblies and
services necessary for the manufacture of our systems are obtained either from a sole supplier or limited group of suppliers.
We also have long-term supply agreements with strategic suppliers for the supply of key assemblies for use in our products.
We rely on a number of limited source suppliers for certain parts and subassemblies. This reliance creates a potential
inability to obtain an adequate supply of required components, and reduced control over pricing and time of delivery of
components. An inability to obtain adequate supplies would require us to seek alternative sources of supply or might require
us to redesign our systems to accommodate different components or subassemblies. To date, we have not experienced any
significant delivery delays. However, if we were forced to seek alternative sources of supply, manufacture such components or
subassemblies internally, or redesign our products, this could prevent us from shipping our products to our customers on a
timely basis, which could have a material adverse effect on our operations. As of December 31, 2019, we employed 184
manufacturing personnel.
Research and Development
We continue to invest in research and development to provide our customers with products that add value to their
manufacturing processes and that provide a better and differentiated solution than our competitors so that our products stay in
the forefront of current and future market demands. Whether it is for an advancement of current technology, yield and
manufacturing improvement, enabling new end device technology, or the development of a new application in our core or
emerging markets, we are committed to product excellence and longevity.
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The markets for equipment and systems for manufacturing semiconductor devices and for performing OCD metrology,
macro-defect inspection, advanced packaging lithography and thin film transparent and opaque process control metrology are
characterized by continuous technological development and product innovations. We believe that the rapid and ongoing
development of new products and enhancements to existing products is critical to our success. Accordingly, we devote a
significant portion of our technical, management and financial resources to research and development programs. As of
December 31, 2019, we employed 376 engineering personnel in research and development.
Intellectual Property
We believe that our success will depend to a great degree upon innovation, technological expertise and our ability to
adapt our products to new technology. As a result, we have a policy of seeking patents on inventions governing new products
or technologies as part of our ongoing research, development, and manufacturing activities. As of December 31, 2019, we have
been granted, or hold exclusive licenses to, 484 U.S. and foreign patents. The patents we own, jointly own or exclusively license
have expiration dates ranging from 2020 to 2038. We also have 85 pending regular and provisional applications in the U.S. and
other countries. Our patents and applications principally cover various aspects of metrology, macro-defect detection and
classification, altered material characterization, lithography techniques and automation.
Our pending patents may never be issued, and even if they are, these patents, our existing patents and the patents we
license may not provide sufficiently broad protection to protect our proprietary rights, or they may prove to be unenforceable.
To protect our proprietary rights, we also rely on a combination of copyrights, trademarks, trade secret laws, contractual
provisions and licenses and non-disclosure agreements. There can be no assurance (i) that any patents issued to or licensed by
us will not be challenged, invalidated or circumvented, (ii) that the rights granted thereunder will provide us with a competitive
advantage or (iii) that we will be able to fully protect our technology. Additionally, others may obtain patents and assert them
against us. From time to time, we receive communications from third parties asserting that our systems may contain design
features that such third parties claim may infringe upon their proprietary rights.
The laws of some foreign countries do not protect our proprietary rights to the same degree as do the laws of the United
States, and many U.S. companies have encountered substantial infringement problems in protecting their proprietary rights
against infringement in such countries, some of which are countries in which we have sold and continue to sell products. There
is a risk that our means of protecting our proprietary rights may not be adequate. For example, our competitors may
independently develop similar technology or duplicate our products. If we fail to adequately protect our intellectual property,
it would be easier for our competitors to sell competing products.
Competition
We offer various products for various semiconductor manufacturing process steps, and several of our products extend
across the same process flow. However, for process control of each of these process steps, we have multiple established and
potential competitors, some of which may have greater financial, research, engineering, manufacturing and marketing resources
than we have. We may also face future competition from new market entrants from other overseas and domestic sources. We
expect our competitors to continue to improve the design and performance of their current products and processes, and to
introduce new products and processes with improved price and performance characteristics. In order to remain competitive, we
believe that we will require significant financial resources to offer a broad range of products, and to maintain customer service
and support centers worldwide, and to invest in product research and development.
In every market in which we participate, the global semiconductor equipment industry is intensely competitive, and
driven by rapid technological adoption cycles. Our ability to effectively compete depends upon our ability to continually
improve our products, applications and services, and our ability to develop new products, applications and services that meet
constantly evolving customer requirements.
In automated systems for the semiconductor industry, our principal competitors are KLA Corporation (“KLA”) and Nova
Measuring Instruments Ltd. (“Nova”) for thin film and critical dimension OCD metrology. Our principal competitor for
advanced packaging inspection is Camtek Ltd. (“Camtek”). While the advanced packaging lithography market is served by
various competitors, our primary competitors are Veeco Instruments, Inc. (“Veeco Instruments”) and, to a lesser extent, Nikon
Corporation (“Nikon”). Our primary competitor for integrated metrology systems for the semiconductor industry is Nova. The
opto-electronics, discrete device and industrial and scientific markets are addressed primarily by our material characterization
and 4D business unit systems, served by numerous competitors, of which no single competitor or group of competitors has
established a majority position.
We believe that our competitive position in each of our markets is based on the ability of our products and services to
address customer requirements related to numerous competitive factors. Competitive selections are based on many factors
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involving technological innovation, productivity, total cost of ownership of the system, including impact on end of line yield,
price, product performance and throughput capability, quality, reliability and customer support.
Backlog
We schedule production of our systems based upon order backlog and informal customer forecasts. We use the term
“backlog” to refer to only those orders to which the customer has been assigned a purchase order number and for which delivery
is anticipated within 12 months. Because shipment dates may be changed and customers may cancel or delay orders with little
or no penalty, our backlog as of any particular date may not be a reliable indicator of actual sales for any succeeding period. At
December 31, 2019, we had a backlog of approximately $71.7 million compared with a backlog of approximately $62.7 million
at December 31, 2018.
Employees
At December 31, 2019, we employed a total of 1,340 persons worldwide with sales, applications and service support in
key geographic areas aligned with our customer locations. None of our employees are represented by a union and we have
never experienced a work stoppage because of union actions. We consider our employee relations to be good. Many of our
employees have specialized skills that are of value to us. Our future success will depend in large part upon our ability to attract,
retain and motivate highly skilled scientific, technical and managerial personnel, who are in great demand in our industry.
Environmental Matters
Our operations are subject to various federal, state and local environmental protection regulations governing the use,
storage, handling and disposal of hazardous materials, chemicals, and certain waste products. We believe that compliance with
federal, state and local environmental protection regulations will not have a material adverse effect on our capital expenditures,
earnings and competitive and financial position.
If we fail to comply with such laws and regulations, we could be liable for damages, penalties and fines. We further
discuss the impact of environmental regulation under the risk factor, “We are subject to various environmental laws and
regulations that could impose substantial costs upon us and may harm our business, operating results and financial condition.”
in Item 1A.
Available Information
Our Internet website address is http://www.ontoinnovation.com. The information on our website is not incorporated into
this Annual Report. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K
(and any amendments to those reports) are made available free of charge, on or through our Internet website, as soon as
reasonably practicable after such material is electronically filed with or furnished to the SEC. All filings we make with the SEC
are also available free of charge via EDGAR through the SEC’s website at http://www.sec.gov. In addition, the historic reports
and materials that were filed by Nanometrics and Rudolph with the SEC are available at our investor relations website at
https://investors.ontoinnovation.com. These filings may also be obtained through the SEC’s website. Documents that are not
available through the SEC’s website may also be obtained by submitting an online request to the SEC at http://www.sec.gov.
We also make available, free of charge, through our investor relations website, our corporate governance summary, Code
of Business Conduct and Ethics, charters of the committees of our Board of Directors, and other information and materials,
including information about how to contact our Board of Directors.
Investors and others should also note that we announce material financial information to our investors using our investor
relations website, SEC filings, press releases, public conference calls and webcasts. We use these channels as well as social
media to communicate with the public about the Company, our products and services and other matters. It is possible that the
information we post on social media could be deemed to be material information. Therefore, we encourage investors, the media,
and others interested in the Company to review the information we post on the social media channels listed on our investor
relations website.
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Item 1A. Risk Factors.
Risks Related to Our Business
Our operating results have varied and will likely continue to vary significantly from quarter to quarter in the future,
causing volatility in our stock price.
Our quarterly operating results have varied in the past and will likely continue to vary significantly from quarter to quarter
in the future, causing volatility in our stock price. Some of the factors that may influence our operating results and subject our
stock to extreme price and volume fluctuations include:
•
•
•
•
•
•
changes in customer demand for our systems, which is influenced by economic conditions in the semiconductor
device industry, demand for products that use semiconductors, market acceptance of our systems and products of
our customers and changes in our product offerings;
seasonal variations in customer demand;
the timing, cancellation or delay of customer orders, shipments and acceptance;
the gain or loss of a key customer or significant changes in the financial condition of one or more key customers;
product development costs, including increased research, development, engineering and marketing expenses
associated with our introduction of new products and product enhancements; and
the levels of our fixed expenses, including research and development costs associated with product development,
relative to our revenue levels.
In light of these factors and the cyclical nature of the semiconductor industry, we expect to continue to experience
significant fluctuations in quarterly and annual operating results. Moreover, many of our expenses are fixed in the short-term
which, together with the need for continued investment in research and development, marketing and customer support, limits
our ability to reduce expenses quickly. As a result, declines in net sales could harm our business and the price of our common
stock could substantially decline.
Our largest customers account for a substantial portion of our revenue, and our revenue and cash flows could decline
considerably if one or more of these customers were to purchase significantly fewer of our systems or delay or cancel a
large order.
Sales to end user customers that individually represent at least five percent of our revenue typically account for, in the
aggregate, a considerable amount of our revenue. We operate in the highly concentrated, capital-intensive semiconductor device
manufacturing industry. Historically, a substantial portion of our revenue in each quarter and year has been derived from sales
to relatively few customers, and this trend is expected to continue. If any of our key customers were to purchase significantly
fewer of our systems in the future, or if they delay or cancel a large order, our revenue and cash flows could meaningfully
decline. We expect that we will continue to depend on a small number of large customers for a sizable portion of our revenue.
In addition, as large semiconductor device manufacturers seek to establish closer relationships with their suppliers, we expect
that our customer base will become even more concentrated.
Our customers may be unable to pay us for our products and services.
Our customers include some companies that may, from time to time, encounter financial difficulties. If a customer’s
financial difficulties become severe, the customer may be unwilling or unable to pay our invoices in the ordinary course of
business, which could adversely affect collections of both our accounts receivable balance and unbilled services. The
bankruptcy of a customer with a substantial account balance owed to us could have a material adverse effect on our financial
condition and results of operations. In addition, if a customer declares bankruptcy after paying us certain invoices, a court may
determine that we are not properly entitled to that payment and may require repayment of some or all of the amount we received,
which could adversely affect our financial condition and results of operations.
Variations in the amount of time it takes for us to sell our systems may cause fluctuations in our operating results, which
could cause our stock price to decline.
Variations in the length of our sales cycles could cause our revenue and cash flows, and consequently, our business,
financial condition, operating results and cash flows to fluctuate widely from period to period. This variation could cause our
stock price to decline. Our customers generally take a long time to evaluate our inspection and/or film metrology systems and
many people are involved in the evaluation process. We expend significant resources educating and providing information to
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our prospective customers regarding the uses and benefits of our systems in the semiconductor fabrication process. The length
of time it takes for us to make a sale depends upon many factors, including, but not limited to:
•
•
•
•
•
the efforts of our sales force;
the complexity of the customer’s fabrication processes;
the internal technical capabilities and sophistication of the customer;
the customer’s budgetary constraints; and
the quality and sophistication of the customer’s current metrology, inspection or lithography equipment.
Because of the number of factors influencing the sales process, the period between our initial contact with a customer
and the time when we recognize revenue from that customer and receive payment, if ever, varies widely in length. Our sales
cycles, including the time it takes for us to build a product to customer specifications after receiving an order to the time we
recognize revenue, typically range from three to twenty-four months. Sometimes our sales cycles can be much longer,
particularly with customers in Asia. During these cycles, we commit substantial resources to our sales efforts in advance of
receiving any revenue, and we may never receive any revenue from a customer despite our sales efforts. If we do make a sale,
our customers often purchase only one of our systems, the performance of which they then evaluate for a lengthy period before
purchasing any more of our systems. The number of additional products a customer purchases, if any, depends on many factors,
including the customer’s capacity requirements. The period between a customer’s initial purchase and any subsequent purchases
can vary from three months to a year or longer, and variations in the length of this period could cause further fluctuations in
our operating results and, possibly, in our stock price.
We are subject to order and shipment uncertainties. Our profitability will decline if we fail to accurately forecast
customer demand when managing inventory.
We typically plan production and inventory levels based on internal forecasts of customer demand, which can be highly
unpredictable and can fluctuate substantially, which could lead to excess inventory write-downs and resulting negative impacts
on gross margin and net income. We have limited visibility into our customers' inventories, future customer demand and the
product mix that our customers will require, which could adversely affect our production forecasts and operating margins. In
addition, innovation in our industry could render significant portions of our inventory obsolete. If we overestimate our
customers' requirements, we may have excess inventory, which could lead to obsolete inventory and unexpected costs.
Conversely, if we underestimate our customers' requirements, we may have inadequate inventory, which could lead to foregone
revenue opportunities, loss of potential market share and damage to customer relationships as product deliveries may not be
made on a timely basis, disrupting our customers' production schedules. In response to anticipated long lead times to obtain
inventory and materials from outside suppliers and foundries, we periodically order materials in advance of customer demand.
This advance ordering has in the past and may in the future result in excess inventory levels or unanticipated inventory write-
downs if expected orders fail to materialize, or other factors make our products less saleable. In addition, any significant future
cancellation or deferral of product orders could adversely affect our revenue and margins, increase inventory write-downs due
to obsolete inventory, and adversely affect our operating results and stock price.
Most of our revenue has been derived from customers outside of the United States, subjecting us to operational, financial
and political risks, such as unexpected changes in regulatory requirements, tariffs, political and economic instability,
outbreaks of hostilities, natural disasters, climate change and difficulties in managing foreign sales representatives and
foreign branch operations, as well as risks associated with foreign currency fluctuations.
Due to the significant level of our international sales, we are subject to a number of material risks, including:
Compliance with foreign laws. Our business is subject to risks inherent in doing business internationally, including
compliance with, inconsistencies among, and unexpected changes in, a wide variety of foreign laws and regulatory
environments with which we are not familiar, including, among other issues, with respect to employees, protection of our
intellectual property, and a wide variety of operational regulations and trade and export controls under domestic, foreign, and
international law.
Unexpected changes in regulatory requirements including tariffs and other market barriers. The semiconductor device
industry is a high-visibility industry in many of the European and Asian countries in which we sell our products. Because the
governments of these countries have provided extensive financial support to our semiconductor device manufacturing
customers in these countries, we believe that our customers could be disproportionately affected by any trade embargoes, excise
taxes, tariffs or other restrictions imposed by their governments on trade with United States companies such as ourselves,
particularly with respect to the ongoing trade negotiations between the United States and China. As of January 2020, trade
12
delegations from the United States and China reached partial agreement over tariffs on certain products, but if the United States
and China do not continue negotiations and reach agreement on a trade policy, tariffs imposed by China may result in lower
sales to customers in China as the costs of our products become more expensive to such customers. In addition, tariffs imposed
by the United States will increase the cost of raw materials that we import from China. Any restrictions of these types could
result in a reduction in our sales to customers in these countries. In addition, given the relatively fluid regulatory environment
in China, there could be additional tax or other regulatory changes in the future. Such actions in the future, as well as other
changes in Chinese laws and regulations, including actions in furtherance of China’s stated policy of reducing its dependence
on foreign semiconductor manufacturers, could increase the cost of doing business in China, foster the emergence of Chinese-
based competitors, decrease the demand for our customers’ products in China, or reduce the supply of critical materials for our
customers’ products, which could have a material adverse effect on our business and results of operations.
Political and economic instability. We are subject to various global risks related to political and economic instabilities in
countries in which we derive sales. If terrorist activities, armed conflict, civil or military unrest or political instability occurs
outside of the U.S., these events may result in reduced demand for our products. There is considerable political instability in
Taiwan related to its disputes with China and in South Korea related to its disputes with North Korea. In addition, several Asian
countries, particularly Japan, have experienced significant economic instability. An outbreak of hostilities or other political
upheaval in China, Taiwan or South Korea, or an economic downturn in Japan or other countries, would likely harm the
operations of our customers in these countries. The effect of these types of events on our revenue and cash flows could be
material because we derive substantial revenue from sales to semiconductor device foundries in Taiwan such as Taiwan
Semiconductor Manufacturing Company Ltd., from memory chip manufacturers in South Korea such as Samsung Electronics
Co., Ltd., and from semiconductor device manufacturers in Japan such as Toshiba Corporation.
Natural disasters and climate change. Natural disasters, changes in climate and geo-political events could materially
adversely affect our worldwide operations (or those of our business partners). The occurrence of one or more natural disasters
such as hurricanes, tropical storms, fires, cyclones, earthquakes, tsunamis, flooding, typhoons, volcanic eruptions and weather
conditions such as major or extended winter storms, droughts and tornadoes, whether as a result of climate change or otherwise,
may disrupt manufacturing or other operations. For example, our Milpitas operations are located near major earthquake fault
lines in California. There may also be conflict or uncertainty in the countries in which we operate, including public health issues
(for example, an outbreak of a contagious disease such as 2019-Novel Coronavirus (2019-nCoV) as described below, avian
influenza, measles or Ebola), safety issues, natural disasters, fire, disruptions of service from utilities, nuclear power plant
accidents or general economic or political unrest, including war, civil unrest or terrorist attacks.
Our financial and operating performance may be adversely affected by epidemics. Our business and financial and
operating performance could be materially and adversely affected by the outbreak of epidemics including but not limited to
2019-Novel Coronavirus (2019-nCoV). As a result of the ongoing Novel Coronavirus, the operations of our customers in China
and Taiwan are expected to experience a slowdown or temporary suspension in production. Our business could be materially
and adversely affected in the event that the slowdown or suspension continues for a long period of time. During such epidemic
outbreak, China and Taiwan may adopt certain hygiene measures, including quarantining visitors from places where any of the
contagious diseases were rampant. Those restrictive measures may adversely affect and slow down economic development
during that period. Any prolonged restrictive measures in order to control the contagious disease or other adverse public health
developments in China and Taiwan may have a material adverse effect on our business, financial condition and results of
operations.
Difficulties in staffing and managing foreign branch operations. During periods of tension between the governments of
the United States and certain other countries, it is often difficult for United States companies such as us to staff and manage
operations in such countries. Language and other cultural differences may also inhibit our sales and marketing efforts and create
internal communication problems among our U.S. and foreign research and development teams, increasing the difficulty of
managing multiple remote locations performing various development, quality assurance, and yield ramp analysis projects.
Currency fluctuations as compared to the U.S. Dollar. A substantial portion of our international sales are denominated in
U.S. dollars. As a result, if the dollar rises in value in relation to foreign currencies, our systems will become more expensive
to customers outside the United States and less competitive with systems produced by competitors outside the United States.
These conditions could negatively impact our international sales. Foreign sales also expose us to collection risk in the event it
becomes more expensive for our foreign customers to convert their local currencies into U.S. dollars. Additionally, in the event
a larger portion of our revenue becomes denominated in foreign currencies, we would be subject to a potentially significant
exchange rate risk.
FCPA and Other Anti-Corruption Laws. We are subject to the Foreign Corrupt Practices Act of 1977 ("FCPA"), and other
laws that prohibit improper payments or offers of payments to foreign governments and their officials and political parties by
U.S. persons and issuers as defined by the statute, for the purpose of obtaining or retaining business. Also, similar worldwide
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anti-bribery laws, such as the U.K. Bribery Act and Chinese anti-corruption laws, generally prohibit companies and their
intermediaries from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business. Some
of our distribution partners are located in parts of the world that have experienced governmental corruption to some degree
and, in certain circumstances, strict compliance with anti-bribery laws may conflict with local customs and practices. The
policies and procedures we have implemented to discourage these practices by our employees, our existing safeguards and any
future improvements may prove to be less than effective, and our employees, consultants, sales agents or distributors may
engage in conduct for which we might be held responsible. Violations of the FCPA or international anti-corruption laws may
result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could negatively affect our business,
operating results and financial condition. In addition, the U.S. government may seek to hold us liable for successor liability
FCPA violations committed by companies in which we invest or that we acquire. We cannot assure you that our internal control
policies and procedures will protect us from reckless or negligent acts committed by our employees, distributors, partners,
consultants or agents.
If we deliver systems with defects, our credibility will be harmed and the sales and market acceptance of our systems
will decrease.
Our systems are complex and have occasionally contained errors, defects and bugs when introduced. Defects may be
created during probing, bumping, dicing or general handling, and can have a major impact on device and process quality. When
this occurs, our credibility and the market acceptance and sales of our systems could be harmed. Further, if our systems contain
errors, defects or bugs, computer viruses or malicious code as a result of cyber-attacks to our computer networks, we may be
required to expend significant capital and resources to alleviate these problems. Defects could also lead to product liability as
a result of product liability lawsuits against us or against our customers. We have agreed to indemnify our customers under
certain circumstances against liability arising from defects in our systems. Our product liability insurance policy currently
provides $2.0 million of aggregate coverage, with an overall umbrella limit of $14.0 million. In the event of a successful product
liability claim, we could be obligated to pay damages significantly in excess of our product liability insurance limits.
If we are not successful in developing new and enhanced products for the semiconductor device manufacturing industry,
we will lose sales and market share to our competitors.
We operate in an industry that is highly competitive and subject to evolving industry standards, rapid technological
changes, rapid changes in consumer demands and the rapid introduction of new, higher performance systems with shorter
product life cycles. To be competitive in our demanding market, we must continually design, develop and introduce in a timely
manner new lithography, inspection and metrology process control systems that meet the performance and price demands of
semiconductor device manufacturers. We must also continue to refine our current systems so that they remain competitive. We
expect to continue to make significant investments in our research and development activities. We may experience difficulties
or delays in our development efforts with respect to new systems, and we may not ultimately be successful in our product
enhancement efforts to improve and advance products or in responding effectively to technological change, as not all research
and development activities result in viable commercial products. In addition, we cannot provide assurance that we will be able
to develop new products for the most opportunistic new markets and applications. Any significant delay in releasing new
systems could cause our products to become obsolete, adversely affect our reputation, give a competitor a first-to-market
advantage or cause a competitor to achieve greater market share.
Some of our competitors have greater financial, engineering, manufacturing, research and development, marketing and
customer support resources than we do. As a result, our competitors may be able to respond more quickly to new or emerging
technologies or market developments by devoting greater resources to the development, promotion and sale of products, which
could impair sales of our products. Moreover, there has been merger and acquisition activity among our competitors and
potential competitors. These transactions by our competitors and potential competitors may provide them with a competitive
advantage over us by enabling them to rapidly expand their product offerings and service capabilities to meet a broader range
of customer needs. Many of our customers and potential customers in the semiconductor industry are large companies that
require global support and service for their metrology systems. Some of our larger or more geographically diverse competitors
might be better equipped to provide this global support and service.
In addition, our competitors may provide innovative technology that may have performance advantages over systems we
currently offer or may offer in the future. They may be able to develop products comparable or superior to those that we offer
or may adapt more quickly to new technologies or evolving customer requirements. In particular, while we currently are
developing additional product enhancements that we believe will address future customer requirements, we may fail in a timely
manner to complete the development or introduction of these additional product enhancements successfully, or these product
enhancements may not achieve market acceptance or be competitive.
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Further, customers that may otherwise desire to purchase our products from us and purchase other products from our
competitors may nevertheless purchase competing products from our competitors rather than purchase our products due to a
variety of reasons, including to gain favor or volume pricing from our competitors.
If new products developed by us do not gain general market acceptance, we will be unable to generate revenue and
recover our research and development costs.
Inspection, lithography and metrology product development is inherently risky because it is difficult to foresee
developments in semiconductor device manufacturing technology, coordinate technical personnel, and identify and eliminate
system design flaws. Further, our products are complex and often the applications to our customers’ businesses are unique. Any
new systems we introduce may not achieve or sustain a significant degree of market acceptance and sales.
We expect to spend a significant amount of time and resources developing new systems and refining our existing systems.
In light of the long product development cycles inherent in our industry, these expenditures will be made well in advance of
the prospect of deriving revenue from the sale of those systems. Our ability to commercially introduce and successfully market
new systems are subject to a wide variety of challenges during the development cycle, including start-up bugs, design defects,
and other matters that could delay introduction of these systems. In addition, since our customers are not obligated by long-
term contracts to purchase our systems, our anticipated product orders may not materialize, or orders that are placed may be
canceled. As a result, if we do not achieve market acceptance of new products, we may be unable to generate sufficient revenue
and cash flow to recover our research and development costs and our market share, revenue, operating results or stock price
would be negatively impacted.
Even if we are able to develop new products that gain market acceptance, sales of these new products could impair our
ability to sell existing products.
Competition from our new systems could have a negative effect on sales of our existing systems and the prices that we
could charge for these systems. We may also divert sales and marketing resources from our current systems in order to
successfully launch and promote our new or next generation systems. This diversion of resources could have a further negative
effect on sales of our current systems and the value of inventory.
Our integrated metrology systems are integrated with systems sold independently by Wafer Fabrication Equipment
Suppliers, and a decrease in sales by these suppliers, or the development of competing systems by these suppliers,
could harm our business.
We believe that sales of integrated metrology systems will continue to be an important source of our net revenues. Sales
of our integrated metrology systems depend upon the ability of a small number of Wafer Fabrication Equipment Suppliers to
sell semiconductor manufacturing equipment products that are compatible with our metrology systems as components. If these
suppliers, such as Applied Materials, Inc., Ebara Corporation, Lam Research Corporation and Tokyo Electron, are unable to
sell such products, if they choose to focus their attention on products that do not integrate our systems, or if they choose to
develop competing systems, our business could suffer.
If our relationships with our large customers deteriorate, our product development activities could be adversely
affected.
The success of our product development efforts depends on our ability to anticipate market trends and the price,
performance and functionality requirements of semiconductor device manufacturers. In order to anticipate these trends and
ensure that critical development projects proceed in a coordinated manner, we must continue to collaborate closely with our
largest customers. Our relationships with these and other customers provide us with access to valuable information regarding
trends in the semiconductor device industry, which enables us to better plan our product development activities. If our current
relationships with our large customers are impaired, or if we are unable to develop similar collaborative relationships with
important customers in the future, our product development activities could be adversely affected.
We may fail to adequately protect our intellectual property and, therefore, lose our competitive advantage.
Our future success and competitive position depend in part upon our ability to obtain and maintain proprietary technology
for our principal product families, and we rely, in part, on patent and trade secret law and confidentiality agreements to protect
that technology. If we fail to adequately protect our intellectual property, it will give our competitors a significant advantage.
We own or have licensed a number of patents relating to our transparent and opaque thin film metrology, lithography and
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macro-defect inspection systems, and have filed applications for additional patents. Any of our pending patent applications
may be rejected, and we may be unable to develop additional proprietary technology that is patentable in the future.
In addition, the patents that we do own or that have been issued or licensed to us may not provide us with competitive
advantages and may be challenged by third parties. Further, third parties may also design around these patents. In addition to
patent protection, we rely upon trade secret protection for our confidential and proprietary information and technology. We
routinely enter into confidentiality agreements with our employees and other third parties. Even though these agreements are
in place, there can be no assurances that trade secrets and proprietary information will not be disclosed, that others will not
independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade
secrets, or that we can fully protect our trade secrets and proprietary information. Violations by others of our confidentiality
agreements and the loss of employees who have specialized knowledge and expertise could harm our competitive position and
cause our sales and operating results to decline as a result of increased competition. Costly and time-consuming litigation might
be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret
protection might adversely affect our ability to continue our research or bring products to market.
Protection of our intellectual property rights, or the efforts of third parties to enforce their own intellectual property
rights against us, may result in costly and time-consuming litigation, substantial damages, lost product sales and/or the
loss of important intellectual property rights.
We may be required to initiate litigation in order to enforce any patents issued to or licensed by us or to determine the
scope or validity of a third party’s patent or other proprietary rights. Any litigation, regardless of outcome, could be expensive
and time consuming and could subject us to significant liabilities or require us to re-engineer our products or obtain expensive
licenses from third parties. There can be no assurance that any patents issued to or licensed by us will not be challenged,
invalidated or circumvented, or that the rights granted thereunder will provide us with a competitive advantage.
In addition, our commercial success depends in part on our ability to avoid infringing or misappropriating patents or
other proprietary rights owned by third parties. From time to time, we receive communications from third parties asserting that
our products or systems infringe, or may infringe, on the proprietary rights of these third parties. These claims of infringement
may lead to protracted and costly litigation, which could require us to pay substantial damages or have the sale of our products
or systems stopped by an injunction. Infringement claims could also cause product or system delays or require us to redesign
our products or systems, and these delays could result in the loss of substantial revenue. We may also be required to obtain a
license from the third party or cease activities utilizing the third party’s proprietary rights. We may not be able to enter into
such a license or such a license may not be available on commercially reasonable terms. Accordingly, the loss of important
intellectual property rights could hinder our ability to sell our systems or to make the sale of these systems more expensive.
Our efforts to protect our intellectual property may be less effective in certain foreign countries where intellectual
property rights are not as well protected as in the United States.
The laws of some foreign countries, including China, Japan, South Korea and Taiwan, where we do business, do not
protect our proprietary rights to as great an extent as do the laws of the United States, and many U.S. companies have
encountered substantial problems in protecting their proprietary rights against infringement abroad. For example, Taiwan is not
a signatory of the Patent Cooperation Treaty, which is designed to specify rules and methods for defending intellectual property
internationally. The publication of a patent in Taiwan prior to the filing of a patent in Taiwan would invalidate the ability of a
company to obtain a patent in Taiwan. Similarly, in contrast to the United States where the contents of patents remain
confidential during the patent application process, in Taiwan, the contents of a patent are published upon filing, which provides
competitors an advance view of the contents of a patent application prior to the establishment of patent rights. Similarly, China’s
protection of intellectual property rights historically has been less stringent and robust compared to other countries such as the
United States, and consequently intellectual property rights and confidentiality protections in China may not be as effective as
in the United States or other countries. Monitoring and preventing unauthorized use are also difficult and the measures we take
to protect our intellectual property rights may not be adequate. Accordingly, infringement of our intellectual property rights
poses a serious risk of doing business in China. Consequently, there is a risk that we may be unable to adequately protect our
proprietary rights in certain foreign countries. If this occurs, it would be easier for our competitors to develop and sell competing
products in these countries.
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Some of our current and potential competitors have significantly greater resources than we do, and increased
competition could impair sales of our products or cause us to reduce our prices.
The market for semiconductor capital equipment is highly competitive. We face substantial competition from established
companies in each of the markets we serve. We principally compete with KLA Corporation, Nova Measuring Instruments,
Camtek and Veeco Instruments. We compete to a lesser extent with Nikon. Each of our products also competes with products
that use different metrology, inspection or lithography techniques. Some of our competitors have greater financial, engineering,
manufacturing and marketing resources, broader product offerings and service capabilities and larger installed customer bases
than we do. As a result, these competitors may be able to respond more quickly to new or emerging technologies or market
developments by devoting greater resources to the development, promotion and sale of products, which, in turn, could impair
sales of our products. Further, there may be significant merger and acquisition activity among our competitors and potential
competitors, which, in turn, may provide them with a competitive advantage over us by enabling them to rapidly expand their
product offerings and service capabilities to meet a broader range of customer needs.
Many of our customers and potential customers in the semiconductor device manufacturing industry are large companies
that require global support and service for their semiconductor capital equipment. We believe that our global support and service
infrastructure is sufficient to meet the needs of our customers and potential customers. However, some of our competitors have
more extensive infrastructures than we do, which could place us at a disadvantage when competing for the business of global
semiconductor device manufacturers. Many of our competitors are investing heavily in the development of new systems that
will compete directly with our systems. We have, from time to time, selectively reduced prices on our systems in order to
protect our market share, and competitive pressures may necessitate further price reductions. We expect our competitors in
each product area to continue to improve the design and performance of their products and to introduce new products with
competitive prices and performance characteristics. These product introductions would likely require us to decrease the prices
of our systems and increase the level of discounts that we grant our customers. Price reductions or lost sales as a result of these
competitive pressures would reduce our total revenue and could adversely impact our financial results.
Because of the high cost of switching equipment vendors in our markets, it is sometimes difficult for us to win new
customers from our competitors even if our systems are superior to theirs.
We believe that once a semiconductor device manufacturer has selected one vendor’s capital equipment for a production-
line application, the manufacturer generally relies upon that capital equipment and, to the extent possible, subsequent
generations of the same vendor’s equipment for the life of the application. Once a vendor’s equipment has been installed in a
production line application, a semiconductor device manufacturer must often make substantial technical modifications and may
experience production-line downtime in order to switch to another vendor’s equipment. Accordingly, unless our systems offer
performance or cost advantages that outweigh a customer’s expense of switching to our systems, it will be difficult for us to
achieve significant sales to that manufacturer once it has selected another vendor’s capital equipment for an application.
We must attract and retain experienced senior executives and other key personnel with knowledge of semiconductor
device manufacturing and inspection, metrology or lithography equipment and related software to help support our
future growth, and competition for such personnel in our industry is high.
Our success depends, to a significant degree, upon the continued contributions of our key executive management,
engineering, sales and marketing, customer support, finance and manufacturing personnel. The loss of any of these key
personnel through resignations, retirement or other circumstances, each of whom would be extremely difficult to replace, could
harm our business and operating results. Although we have employment and noncompetition agreements with key members of
our senior management team, these individuals or other key employees may still leave us, which could have a material adverse
effect on our business. We do not have key person life insurance on any of our executives. In addition, to support our future
growth, we will need to attract and retain additional qualified employees. Competition for such personnel in our industry is
intense, and we may not be successful in attracting and retaining qualified employees.
In order to attract and retain executives and other key employees, the Company must provide a competitive compensation
package, including cash and stock-based compensation. If the anticipated value of the Company’s stock-based incentive awards
does not materialize so that they cease to be viewed as valuable, if the Company’s profits decrease, or if the Company’s total
compensation package is not viewed as competitive, the Company’s ability to attract, retain and motivate executives and key
employees could be weakened.
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We obtain some of the components and subassemblies included in our systems from a limited group of suppliers, and
the partial or complete loss of one of these suppliers could cause production delays and a substantial loss of revenue.
We obtain some of the components and subassemblies included in our systems from a limited group of suppliers and do
not have long-term contracts with many of our suppliers. Our dependence on limited source suppliers of components and our
lack of long-term contracts with many of our suppliers expose us to several risks, including a potential inability to obtain an
adequate supply of components, price increases, late deliveries and poor component quality. Disruption or termination of the
supply of these components could delay shipments of our systems, damage our customer relationships and reduce our sales.
From time to time in the past, we have experienced temporary difficulties in receiving shipments from our suppliers. The lead-
time required for shipments of some of our components can be as long as six months. In addition, the lead time required to
qualify new suppliers for lasers and certain optics could be as long as a year, and the lead time required to qualify new suppliers
of other components could be as long as nine months. If we are unable to accurately predict our component needs, or if our
component supply is disrupted, we may miss market opportunities by not being able to meet the demand for our systems.
Further, a significant increase in the price of one or more of these components or subassemblies could seriously harm our results
of operations and cash flows.
Any prolonged disruption in the operations of our manufacturing facilities could have a material adverse effect on our
revenue.
We produce the majority of our systems in our manufacturing facilities located in Milpitas, California and Bloomington,
Minnesota. We use contract manufacturers in China, Israel, Japan and the United States. Our manufacturing processes are
highly complex and require sophisticated and costly equipment and a specially designed facility. As a result, any prolonged
disruption in the operations of our manufacturing facilities, such as those resulting from acts of war, terrorism, political
instability, health epidemics, fire, earthquake, flooding or other natural disaster could seriously harm our ability to satisfy our
customer order deadlines. If we cannot timely deliver our systems, our results from operations and cash flows could be
materially and adversely affected.
We may outsource select manufacturing activities to third-party service providers, which decreases our control over the
performance of these functions and may result in lower quality and functionality of our products.
We may outsource product manufacturing to third-party service providers. Outsourcing reduces our control over the
performance of the outsourced functions. Dependence on outsourcing may also adversely affect our ability to bring new
products to market. If we do not effectively manage our outsourcing strategy or if third party service providers do not perform
as anticipated, we may experience operational difficulties, increased costs, manufacturing interruptions or inefficiencies in the
operation of our supply chain, any or all of which could delay our delivery of products to our customers, and materially and
adversely affect our business, financial condition, and results of operations.
If our network security measures are breached and unauthorized access is obtained to a customer's data, to our data,
or to our information technology systems, we may incur significant legal and financial exposure and liabilities.
As part of our business, we store our data and certain data about our customers, vendors and employees in our information
technology system. While we have security measures in place that are designed to protect this information and prevent data
loss and other security breaches, if these measures are breached as a result of third-party action, employee error, malfeasance,
break-ins or otherwise, and someone obtains unauthorized access to our customers’, vendors’ or employees’ data, we could
face loss of business, regulatory investigations or court orders, our reputation could be severely damaged, we could be required
to expend significant capital and other resources to alleviate the problem, as well as incur significant costs and liabilities,
including due to litigation, indemnity obligations, damages for contract breach, penalties for violation of applicable laws or
regulations, and costs for remediation and other incentives offered to customers.
Cyber-attacks and other malicious internet-based activities continue to increase. Because the techniques used to obtain
unauthorized access or sabotage systems change frequently and generally are not identified until they are launched against a
target, we may be unable to anticipate these techniques or to implement adequate preventative measures. In addition, third
parties may attempt to fraudulently induce employees or users to disclose information to gain access to our data or our
customers’ data. If any of these events occur, our or our customers’ and vendors’ information could be accessed or disclosed
improperly. Any or all of these issues could negatively affect our ability to attract new customers, cause existing customers to
choose to purchase from our competitors, result in reputational damage or subject us to third-party lawsuits, regulatory fines or
other action or liability, which could adversely affect our operating results.
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The General Data Protection Regulation (GDPR) is a regulation in European Union (EU) law on data protection and
privacy for all individuals within the EU and the European Economic Area (EEA). It also addresses the export of personal data
outside the EU and EEA areas. We need to put in appropriate technical and organizational measures to implement these data
protection principles. The GDPR requirements have been reviewed and are in the process of being implemented. We may also
be subject to other data privacy laws in the United States and the other countries in which we operate.
Failure to adjust our orders for parts and subcomponents in an accurate and timely manner in response to changing
market conditions or customer acceptance of our products could adversely affect our financial position and results of
operations.
Our earnings could be negatively affected and our inventory levels could materially increase if we are unable to predict
our inventory needs in an accurate and timely manner and adjust our orders for parts and subcomponents in the event that our
needs increase or decrease materially due to unexpected increases or decreases in demand for our products. Any material
increase in our inventories could result in an adverse effect on our financial position, while any material decrease in our ability
to procure needed inventories could result in an inability to supply customer demand for our products, thus adversely affecting
our revenue.
Our ability to fulfill our backlog may have an effect on our long-term ability to procure contracts and fulfill current
contracts.
Our ability to fulfill our backlog may be limited by our ability to devote sufficient financial and human capital resources
and may be limited by available material supplies. If we do not fulfill our backlog in a timely manner, we may experience
delays in product delivery, which would postpone receipt of revenue from those delayed deliveries. Additionally, if we are
consistently unable to fulfill our backlog, this may be a disincentive to customers to award large contracts to us in the future
until they are comfortable that we can effectively manage our backlog.
If we do not manage our supply chain effectively, our operating results may be adversely affected.
We need to continually evaluate our global supply chains and assess opportunities to reduce costs. We must also enhance
quality, speed and flexibility to meet changing demand for our products and product mix and uncertain market conditions. Our
success also depends in part on refining our cost structure and supply chains so that we have flexibility and can maintain and
improve profitability. Although the current tariff environment has not had a material adverse effect on our costs to date, further
deterioration in the tariff environment, or changes in suppliers, may cause our costs to increase, which if we are not able to
offset by charging higher sales prices, will cause a decline in our margins. To improve our margins on a product, we will need
to establish high volume supply agreements with our vendors. We cannot be certain that we will be able to timely negotiate
vendor supply agreements on improved terms and conditions, or at all. Failure to achieve the desired level of cost reductions
could adversely affect our financial results. Despite our efforts to control costs and increase efficiency in our facilities, changes
in demand could still cause us to realize lower operating margins and profitability.
We may choose to acquire new and complementary businesses, products or technologies instead of developing them
ourselves, and we may be unable to complete these acquisitions or may not be able to successfully integrate an acquired
business in a cost-effective and non-disruptive manner.
Our success depends on our ability to continually enhance and broaden our product offerings in response to changing
technologies, customer demands and competitive pressures. To this end, we have, from time to time, engaged in the process of
identifying, analyzing and negotiating possible acquisition transactions, and, from time to time, acquiring one or more
businesses, and we expect to continue to do so in the future. We may choose to acquire new and complementary businesses,
products, technologies and/or services instead of developing them ourselves. We may, however, face competition for acquisition
targets from larger and more established companies with greater financial resources, making it more difficult for us to complete
acquisitions. We cannot provide any assurance that we will be successful in consummating future acquisitions on favorable
terms or that we will realize the benefits that we anticipate from one or more acquisitions that we consummate. Integrating any
business, product, technology or service into our current operations could be expensive and time-consuming and/or disrupt our
ongoing business. Further, there are numerous risks associated with acquisitions and potential acquisitions, including, but not
limited to:
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diversion of management’s attention from day-to-day operational matters and current products and customers;
lack of synergy or the inability to successfully integrate the new business or to realize expected synergies;
failure to commercialize the new technology or business;
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failure to meet the expected performance of the new technology or business;
failure to retain key employees and customer or supplier relationships;
lower-than-expected market opportunities or market acceptance of any new products; and
unexpected reduction of sales of existing products as a result of the introduction of new products.
Our inability to consummate one or more acquisitions on favorable terms, or our failure to realize the intended benefits
from one or more acquisitions, could have a material adverse effect on our business, liquidity, financial position and/or results
of operations, including as a result of our incurrence of indebtedness and related interest expense and our assumption of
unforeseen contingent liabilities. We might need to raise additional funds through public or private equity or debt financings to
finance any acquisition. In that event, we could be forced to obtain financing on terms that are not favorable to us and, in the
case of equity financing, that result in dilution to our stockholders. In addition, any impairment of goodwill or other intangible
assets, amortization of intangible assets, write-down of other assets or charges resulting from the costs of acquisitions and
purchase accounting could harm our business and operating results.
If we cannot effectively manage growth, our business may suffer.
Over the long-term, we intend to grow our business by increasing our sales efforts and completing strategic acquisitions.
To effectively manage growth, we must, among other things:
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engage, train and manage a larger sales force and additional service personnel;
expand the geographic coverage of our sales force;
expand our information systems;
identify and successfully integrate acquired businesses into our operations; and
administer appropriate financial and administrative control procedures.
Growth of our business will likely place a significant strain on our management, financial, operational, technical, sales
and administrative resources. Any failure to effectively manage our growth may cause our business to suffer and our stock price
to decline.
Risks Related to Tax Laws, Financial Markets and the Environment
Changes in tax rates or tax liabilities could affect results.
As a global company, we are subject to taxation in the United States and various other countries. Significant judgment is
required to determine and estimate worldwide tax liabilities. Our future annual and quarterly tax rates could be affected by
numerous factors, including changes in the (1) applicable tax laws; (2) composition of earnings in countries with differing tax
rates; or (3) recoverability of our deferred tax assets and liabilities. In addition, we are subject to regular examination of our
income tax returns by the Internal Revenue Service and other tax authorities. We regularly assess the likelihood of favorable or
unfavorable outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. Although
we believe our tax estimates are reasonable, there can be no assurance that any final determination will not be materially
different from the treatment reflected in our historical income tax provisions and accruals, which could materially and adversely
affect our results of operations.
The Organization for Economic Co-operation and Development (“OECD”), released guidance covering various topics,
including country-by-country reporting, definitional changes to permanent establishment and Base Erosion and Profit Shifting
(“BEPS”), an initiative that aims to standardize and modernize global tax policy. Depending on the final form of guidance
adopted by OECD members and legislation ultimately enacted, if any, there may be significant consequences for us due to our
international business activities, including, but not limited to, an increase in our tax uncertainty and adverse effects on our
provision for income taxes.
Turmoil or fluctuations in the credit markets and the financial services industry may negatively impact our business,
results of operations, financial condition or liquidity, and our factoring arrangements may expose us to additional risks.
In the past, global credit markets and the financial services industry have experienced a period of unprecedented turmoil
and upheaval characterized by the tightening of the credit markets, the weakening of the global economy and an unprecedented
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level of intervention from the United States and other governments. Adverse economic conditions, such as sustained periods
of economic uncertainty or a crisis in the financial markets may have a material adverse effect on our liquidity and financial
condition if our ability to obtain credit from the capital financial markets, or from trade creditors was impaired. In addition, a
worsening economy or an economic crisis could also adversely impact our customers’ ability to finance the purchase of systems
from us or our suppliers’ ability to provide us with product, either of which may negatively impact our business and results of
operations. In addition, we enter into factoring arrangements with certain financial institutions to sell a certain portion of our
trade receivables. If we were to stop entering into these factoring arrangements, our operating results, financial condition and
cash flows could be adversely impacted by delays or failure to collect the trade receivables. However, by entering into these
arrangements, we are exposed to additional risks. If any of these financial institutions experiences financial difficulties or is
otherwise unable to honor the terms of our factoring arrangements, we may experience material financial losses due to the
failure of such arrangements, which could have an adverse impact upon our operating results, financial condition and cash
flows.
We are subject to various environmental laws and regulations that could impose substantial costs upon us and may
harm our business, operating results and financial condition.
Some of our operations use substances regulated under various federal, state, local, and international laws governing
the environment, including those relating to the storage, use, discharge, disposal, labeling, and human exposure to hazardous
and toxic materials. We could incur costs, fines and civil or criminal sanctions, third-party property damage or personal
injury claims, or could be required to incur substantial investigation or remediation costs, if we were to violate or become
liable under environmental laws. Liability under environmental laws can be joint and several and without regard to
comparative fault. Compliance with current or future environmental laws and regulations could restrict our ability to expand
our facilities or require us to acquire additional expensive equipment, modify our manufacturing processes, or incur other
significant expenses. We may unintentionally violate environmental laws or regulations in the future as a result of human
error, equipment failure or other causes.
Risks Related to Our Recently Completed Merger
Combining the businesses of Rudolph and Nanometrics may be more difficult, costly or time-consuming than expected
and we may fail to realize the anticipated benefits of the Merger, which may adversely affect our business results and
negatively affect the value of our common stock.
The success of the Merger depends on, among other things, our ability to combine the businesses of Rudolph and
Nanometrics in a manner that realizes cost savings and facilitates growth opportunities.
In addition, we must achieve the anticipated growth and cost savings without adversely affecting current revenues and
investments in future growth. If we are not able to successfully achieve these objectives, the anticipated benefits of the Merger
may not be realized fully, or at all, or may take longer to realize than expected.
An inability to realize the full extent of the anticipated benefits of the Merger, as well as any delays encountered in the
integration process, could have an adverse effect upon our revenues, level of expenses and operating results, which may
adversely affect the value of our common stock.
In addition, the integration may result in additional and unforeseen expenses, and the anticipated benefits of the
integration plan may not be realized. Actual growth and cost savings, if achieved, may be lower than what we expect and may
take longer to achieve than anticipated. If we are not able to adequately address integration challenges, we may be unable to
realize the anticipated benefits of the integration of Rudolph and Nanometrics.
The failure to successfully integrate the businesses and operations of Rudolph and Nanometrics in the expected time
frame may adversely affect our future results.
Prior to completion of the Merger, Rudolph and Nanometrics operated independently. There can be no assurances that
their businesses can be integrated successfully. It is possible that the integration process could result in the loss of key Rudolph
employees or key Nanometrics employees, the loss of customers, the disruption of our ongoing businesses, inconsistencies in
standards, controls, procedures and policies, unexpected integration issues, higher than expected integration costs or an overall
post-completion integration process that takes longer than originally anticipated. Specifically, the following issues, among
others, must be addressed in integrating the operations of Rudolph and Nanometrics in order to realize the anticipated benefits
of the Merger so we perform as expected:
21
• combining the companies’ operations and corporate functions;
• combining the businesses of Rudolph and Nanometrics and meeting our capital requirements, in a manner that permits
us to achieve any cost savings or revenue synergies anticipated to result from the Merger, the failure of which would
result in the anticipated benefits of the Merger not being realized in the time frame currently anticipated or at all;
• integrating personnel from the two companies;
• integrating and unifying the offerings and services available to customers;
• harmonizing the companies’ operating practices, employee development and compensation programs, internal
controls and other policies, procedures and processes;
• maintaining existing agreements with customers, distributors, providers and vendors and avoiding delays in entering
into new agreements with prospective customers, distributors, providers and vendors;
• addressing possible differences in business backgrounds, corporate cultures and management philosophies;
• consolidating the companies’ administrative and information technology infrastructure;
• coordinating distribution and marketing efforts; and
• coordinating geographically dispersed organizations.
In addition, at times the attention of certain members of management and resources may be focused on the integration of
the businesses of the two companies and diverted from day-to-day business operations or other opportunities that may have
been beneficial, which may disrupt our business.
We may not be able to retain customers or suppliers, or customers or suppliers may seek to modify contractual
obligations with us, which could have an adverse effect on our business and operations. Third parties may terminate or
alter existing contracts or relationships with Rudolph or Nanometrics.
As a result of the Merger, we may experience impacts on relationships with customers and suppliers that may harm our
business and results of operations. Certain customers, licensors, business partners or suppliers may seek to terminate or modify
contractual obligations whether or not contractual rights were triggered as a result of the Merger. There can be no guarantee
that customers and suppliers of Rudolph or Nanometrics will remain with or continue to have a relationship with us or do so
on the same or similar contractual terms to those they had with Rudolph or Nanometrics prior to the Merger. If any customers
or suppliers seek to terminate or modify contractual obligations or discontinue the relationship with us, then our business and
results of operations may be harmed. Furthermore, we do not have long-term arrangements with many of our significant
suppliers. If our suppliers were to seek to terminate or modify an arrangement with us, then we may be unable to procure
necessary supplies from other suppliers in a timely and efficient manner and on acceptable terms, or at all. Any of the
aforementioned disruptions could limit our ability to achieve the anticipated benefits of the Merger.
We may be exposed to increased litigation due to the Merger, which could have an adverse effect on our business and
operations.
We may be exposed to increased litigation from stockholders, customers, suppliers, consumers and other third parties
due to the combination of Rudolph’s business and Nanometrics’ business. Such litigation may have an adverse impact on our
business and results of operations or may cause disruptions to our operations.
We may be unable to retain former Rudolph and Nanometrics personnel successfully.
The success of the Merger will depend in part on our ability to retain the talents and dedication of the professionals
previously separately employed by Rudolph and Nanometrics. It is possible that these employees may decide not to remain
with us. If key employees terminate their employment, or if an insufficient number of employees are retained to maintain
effective operations, our business activities may be adversely affected and management’s attention may be diverted from
successfully integrating Rudolph and Nanometrics to hiring suitable replacements, all of which may cause our business to
suffer. In addition, we may not be able to locate suitable replacements for any key employees that leave the Company or offer
employment to potential replacements on reasonable terms.
22
Risks Related to the Global Economy and Semiconductor Industry
Cyclicality in the semiconductor device industry has led to substantial decreases in demand for our systems and may,
from time to time, continue to do so.
Our operating results are subject to significant variation due to global economic conditions and the cyclical nature of the
semiconductor device industry. Our business depends upon the capital expenditures of semiconductor device manufacturers,
which, in turn, depend upon the current and anticipated market demand for semiconductors and products using semiconductors.
The timing, length and severity of the up-and-down cycles in the semiconductor equipment industry are difficult to predict. In
recent years, the industry has experienced significant downturns, generally in connection with declines in economic conditions.
This cyclical nature of the industry in which we operate affects our ability to accurately predict future revenue and, thus, future
expense levels. When cyclical fluctuations result in lower than expected revenue levels, operating results may be adversely
affected, and cost reduction measures may be necessary in order for us to remain competitive and financially sound. During a
down cycle, we must be in a position to adjust our cost and expense structure to prevailing market conditions and to continue
to motivate and retain our key employees. In addition, during periods of rapid growth, we must be able to increase
manufacturing capacity and personnel to meet customer demand. We can provide no assurance that these objectives can be met
in a timely manner in response to industry cycles. If we fail to respond to industry cycles, our business could be seriously
harmed.
In addition, demand for our products is highly inelastic which means we have little ability to control product revenues
created by customer demand for more capacity. The market for our products is characterized by constant and rapid technological
change, price erosion, product obsolescence, evolving standards, short product life cycles and significant volatility in supply
and demand. Due to the inelastic nature of demand in the semiconductor industry, we may need to take actions to reduce costs
in the future, which could reduce our ability to significantly invest in research and development at levels we believe are
necessary. If we are unable to effectively align our cost structure with prevailing market conditions, our business, financial
condition and results of operations may be materially and adversely affected.
We may also experience supplier or customer issues as a result of adverse macroeconomic conditions. If our customers
have difficulties in obtaining capital or financing, this could result in lower sales. Customers with liquidity issues could also
result in an increase in bad debt expense. These conditions could also affect our key suppliers, which could affect their ability
to supply parts and result in delays of our customer shipments.
Our future rate of growth is highly dependent on the development and growth of the market for microelectronic device
inspection, lithography and metrology equipment.
We target our products to address the needs of microelectronic device manufacturers for defect inspection, metrology
and lithography. If for any reason the market for microelectronic device inspection, lithography or metrology equipment fails
to grow in the long term, we may be unable to maintain current revenue levels in the short term and maintain our historical
growth in the long term. Growth in the inspection market is dependent to a large extent upon microelectronic manufacturers
replacing manual inspection with automated inspection technology. Growth in the metrology market is dependent to a large
extent upon new chip designs and capacity expansion of microelectronic manufacturers. Growth in the lithography market is
dependent on the development of cost-effective packaging with high fine pitch RDLs, ultimately migrating to multi-die, large,
form-factor packages. There can be no assurance that manufacturers will undertake these actions at the rate we expect.
Risks Related to our Stock
Provisions of our charter documents and of Delaware law could discourage potential acquisition proposals and/or delay,
deter or prevent a change in control of our company.
Provisions of our certificate of incorporation and by-laws may inhibit changes in control of our company not approved
by our Board of Directors. These provisions also limit the circumstances in which a premium can be paid for our common stock
and in which a proxy contest for control of our board may be initiated. These provisions provide for:
•
•
•
•
a prohibition on stockholder actions through written consent;
a requirement that special meetings of stockholders be called only by our chief executive officer or Board of
Directors;
advance notice requirements for stockholder proposals and director nominations by stockholders;
limitations on the ability of stockholders to amend, alter or repeal our by-laws; and
23
•
•
the authority of our board to issue, without stockholder approval, preferred stock with such terms as the board may
determine; and
The authority of our board, without stockholder approval, to adopt a stockholder rights plan.
We are also entitled to avail ourselves of the protections of Section 203 of the Delaware General Corporation Law, which
could inhibit changes in control of the Company.
Our stock price is volatile.
The market price of our common stock has fluctuated widely. Consequently, the current market price of our common
stock may not be indicative of future market prices, and we may be unable to sustain or increase the value of an investment in
our common stock. Factors affecting our stock price may include:
•
•
•
•
•
•
•
•
variations in operating results from quarter to quarter;
changes in earnings estimates by analysts or our failure to meet analysts’ expectations;
changes in the market price per share of our public company customers;
market conditions in the semiconductor and other industries into which we sell products;
general economic conditions;
political changes, hostilities or natural disasters such as hurricanes and floods;
low trading volume of our common stock; and
the number of firms making a market in our common stock.
In addition, the stock market has experienced periods of significant price and volume fluctuations. These fluctuations
have particularly affected the market prices of the securities of high technology companies like ours. Any such market
fluctuations in the future could adversely affect the market price of our common stock.
There are various risks related to the legal and regulatory environments in which we perform our operations and
conduct our business that may expose us to risk.
We are faced with various risks that may be associated with our compliance with existing, new, different, inconsistent or
conflicting laws, regulations and rules enacted by governments and/or their regulatory agencies in the countries in which we
operate as well as rules and policies implemented at our customer sites. These laws, regulations, rules and policies could relate
to any of an array of issues including, but not limited to, environmental, tax, intellectual property, trade secrets, product liability,
contracts, antitrust, employment, securities, import/export and unfair competition. In the event that we fail to comply with or
violate U.S. or foreign laws or regulations or customer policies, we could be subject to civil or criminal claims or proceedings
that may result in monetary fines, penalties or other costs against us or our employees, which may adversely affect our operating
results, financial condition, customer relations and ability to conduct our business.
Item 1B. Unresolved Staff Comments.
None.
24
Item 2.
Properties.
Our principal executive office building is located at 16 Jonspin Road in Wilmington, Massachusetts. We own our Milpitas
and Richardson facilities and lease facilities for corporate, engineering, manufacturing, sales and service-related purposes in
the United States and six other countries - China, Japan, South Korea, Singapore, Taiwan and France. The following table
indicates the location, the general purpose and the square footage of our material facilities. Our leases expire at various times
through July 1, 2029.
Location
Wilmington, Massachusetts .....
Milpitas, California..................
Budd Lake, New Jersey ...........
Bend, Oregon...........................
Bloomington, Minnesota .........
Hillsboro, Oregon ....................
Richardson, Texas....................
Snoqualmie, Washington .........
Tucson, Arizona .......................
Taiwan .....................................
China........................................
South Korea .............................
Japan ........................................
Singapore .................................
Facility Purpose
Corporate Headquarters, Engineering, Manufacturing and Service
Corporate, Engineering, Manufacturing and Service ............
Corporate, Engineering and Service......................................
Engineering and Service........................................................
Engineering, Manufacturing and Service ..............................
Engineering and Service........................................................
Engineering ...........................................................................
Engineering and Service........................................................
Engineering, Manufacturing and Service ..............................
Sales and Service...................................................................
Sales, Service and Engineering .............................................
Sales and Service...................................................................
Sales and Service...................................................................
Sales and Service...................................................................
Approximate
Square
Footage
50,000
134,000
49,000
19,000
98,500
20,000
21,000
20,500
19,000
43,500
37,500
34,000
20,500
12,000
We also lease office space for other smaller sales and service offices in several locations throughout the world.
We believe that our existing facilities and capital equipment are adequate to meet our current requirements and that
suitable additional or substitute space is available on commercially reasonable terms if needed.
Item 3.
Legal Proceedings.
The information set forth under Note 10, “Commitments and Contingencies” to the Consolidated Financial Statements
is incorporated herein by reference.
Item 4. Mine Safety Disclosures.
None.
25
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities.
Our common stock is quoted on the New York Stock Exchange (“NYSE”) under the symbol “ONTO.” Prior to the
Merger, Nanometrics’ common stock was quoted on the Nasdaq Global Select Market under the symbol “NANO” and
Rudolph’s common stock was quoted on the NYSE under the symbol “RTEC.” Set forth below is a line graph comparing the
annual percentage change in the cumulative return to the stockholders of the Company’s common stock with the cumulative
return of the NYSE Composite Index, the Nasdaq Composite Index and the industry specific index, PHLX Semiconductor
Index, for the period commencing on December 31, 2014 and ending on December 31, 2019. Historical data for Onto
Innovation in the line graph for the period commencing on December 31, 2014 and ending on October 25, 2019 reflects the
cumulative return to the stockholders of Nanometrics.
The information contained in the performance graph shall not be deemed to be “soliciting material” or to be “filed” with
the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act or the Exchange
Act, except to the extent that the Company specifically incorporates it by reference into such filing.
The graph assumes that $100 was invested on December 31, 2014 in the Company’s common stock and in each index.
No cash dividends have been declared or paid on the Company’s common stock. Stockholder returns over the indicated period
should not be considered indicative of future stockholder returns.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Onto Innovation Inc., the NYSE Composite Index,
the NASDAQ Composite Index, and the PHLX Semiconductor Index
$350
$300
$250
$200
$150
$100
$50
$0
12/14
12/15
12/16
12/17
12/18
12/19
Onto Innovation Inc.
NASDAQ Composite
NYSE Composite
PHLX Semiconductor
*$100 invested on 12/31/14 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31.
Onto Innovation Inc......................................
NYSE Composite..........................................
NASDAQ Composite ...................................
PHLX Semiconductor...................................
12/14
100.00
100.00
100.00
100.00
12/15
90.01
95.91
106.96
98.41
12/16
148.99
107.36
116.45
137.10
12/17
148.16
127.46
150.96
192.69
12/18
162.49
116.06
146.67
181.04
12/19
217.24
145.66
200.49
295.57
26
As of February 3, 2020, there were 153 stockholders of record of our common stock and approximately 16,358 beneficial
stockholders.
We have never declared or paid a cash dividend on our common stock. The declaration of any future dividends by us is
within the discretion of our Board of Directors and will be dependent on our earnings, financial condition and capital
requirements as well as any other factors deemed relevant by our Board of Directors.
Following the Merger, we assumed the share repurchase authorization approved on March 14, 2019, by the former
Nanometrics Board of Directors. This share repurchase authorization allows us to purchase up to $80.0 million worth of shares
of our common stock. Under the terms of this share repurchase authorization, shares may be repurchased through open market
or privately negotiated transactions. No shares have been repurchased under this repurchase authorization as of December 31,
2019.
For further information, see Note 18 in the accompanying Notes to the Consolidated Financial Statements included in
this Annual Report on Form 10-K.
In addition to our share repurchase program, we withhold common stock shares associated with net share settlements to
cover tax withholding obligations upon the vesting of restricted stock unit awards and stock option exercises under the
Company’s equity incentive program. During the three and twelve months ended December 31, 2019, we withheld 51 thousand
and 78 thousand shares through net share settlements, respectively. For the three and twelve month periods ended December
31, 2019, net share settlements cost $1.8 million and $2.5 million, respectively. Please refer to Note 12 of the Notes to the
Consolidated Financial Statements included in this Annual Report on Form 10-K for further discussion regarding our equity
incentive plan.
The following table provides details of common stock purchased during the three month period ended December 31,
2019 (in thousands, except per share data):
Period
October 1, 2019 to October 31, 2019..............................
November 1, 2019 to November 30, 2019......................
December 1, 2019 to December 31, 2019.......................
Three Months Ended December 31, 2019 ......................
1 Includes shares withheld through net share settlements.
Total Number
of Shares
Purchased (1)
42 $
$
7
2
$
51
Average
Price
Paid per
Share
35.56
33.44
33.54
Total Number
of Shares
Purchased as
Part of Publicly
Announced
Program
Maximum
Approximate
Dollar Value of
Shares that
May Yet Be
Purchased Under
the Program
— $
— $
— $
—
80,000
80,000
80,000
27
Item 6.
Selected Financial Data.
The following selected financial data should be read in conjunction with our Consolidated Financial Statements and the
related Notes thereto appearing elsewhere in this Annual Report on Form 10-K, and Item 7. “Management’s Discussion and
Analysis of Financial Condition and Results of Operations.” The Merger has been accounted for as a reverse acquisition under
which Rudolph was considered the accounting acquirer. As such, the selected financial data below comprises the operating
results of Rudolph and its consolidated subsidiaries for periods through October 25, 2019 and Onto Innovation and its
consolidated subsidiaries for periods on or after October 26, 2019. The balance sheet data as of December 31, 2019 and 2018
and the statement of operations data for the years ended December 31, 2019, 2018 and 2017 set forth below were derived from
our audited Consolidated Financial Statements included elsewhere in this Form 10-K. The balance sheet data as of December
31, 2017, 2016 and 2015, and the statement of operations data for the years ended December 31, 2016 and 2015 were derived
from our audited consolidated financial statements not included herein.
Statement of Operations Data:
Revenue .................................................................
Cost of revenue......................................................
Gross profit ............................................................
Operating expenses:
Research and development...............................
Sales and marketing .........................................
General and administrative...............................
Amortization.....................................................
Patent litigation income....................................
Total operating expenses........................................
Operating income (loss).........................................
Interest income (expense), net ...............................
Other income (expense), net ..................................
Income (loss) before provision (benefit) for income
taxes ...................................................................
Provision (benefit) for income taxes......................
Net income.............................................................
Earnings per share:
Basic.................................................................
Diluted..............................................................
Weighted average shares outstanding:
Basic.................................................................
Diluted..............................................................
Balance Sheet Data:
Cash and cash equivalents ....................................
Marketable securities ............................................
Working capital.....................................................
Total assets............................................................
Convertible senior notes .......................................
Accumulated deficit..............................................
Total stockholders’ equity .....................................
2019 (1)
2018 (2)
Year Ended December 31,
2016 (2)
2017 (2)
(In thousands, except per share data)
2015 (2)
$ 305,896
170,868
135,028
$ 273,784
125,505
148,279
$ 255,098
120,503
134,595
$ 232,780
109,229
123,551
$ 221,690
102,284
119,406
48,358
28,251
53,017
10,445
—
140,071
(5,043)
3,666
780
(597)
(2,507)
1,910
0.06
0.06
29,729
30,007
$
$
$
$
$
$
39,953
22,010
33,698
1,534
—
97,195
51,084
2,206
56
53,346
8,250
45,096
1.77
1.74
25,470
25,895
37,694
20,795
27,878
1,940
(13,000)
75,307
59,288
971
(457)
59,802
26,893
32,909
1.30
1.27
25,325
25,865
$
$
$
35,797
18,816
28,913
2,320
(14,643)
71,203
52,348
(2,834)
354
49,868
12,916
36,952
1.48
1.45
25,033
25,566
$
$
$
32,689
17,047
34,732
2,145
—
86,613
32,793
(5,688)
(293)
26,812
8,856
17,956
0.71
0.69
25,258
25,868
$
$
$
2019 (1)
2018
2017
2016
2015
December 31,
$
$
$ 130,673
189,563
555,921
1,448,580
—
(4,863)
1,264,026
$ 112,388
62,684
305,916
418,040
—
(6,773)
361,888
67,770
109,589
279,775
385,922
—
(51,869)
333,154
37,859
87,872
226,668
338,699
—
(84,706)
293,735
$
44,554
116,924
197,266
379,563
57,846
(121,658)
270,678
(1) Selected financial data includes the operating results of the former Nanometrics subsequent to the closing of the Merger on October 25,
2019.
(2) Statement of Operations data reflects a reclassification within the categories of operating expenses. Applications engineering expenses
were reclassified from Research and development to Sales and marketing. Sales and marketing expenses were disaggregated from General
and administrative expenses.
28
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Overview
We are a worldwide leader in the design, development, manufacture and support of process control tools that perform
macro-defect inspection and metrology, lithography systems, and process control analytical software used by semiconductor
and advanced packaging device manufacturers. We deliver comprehensive solutions throughout the semiconductor fabrication
process with our families of proprietary products that provide critical yield-enhancing information, enabling microelectronic
device manufacturers to drive down costs and time to market of their devices. We provide process and yield management
solutions used in both wafer processing facilities, often referred to as “front-end” and device packaging and test facilities, or
“back-end” manufacturing, through a portfolio of standalone systems for macro-defect inspection, lithography, probe card test
and analysis, and transparent and opaque thin film measurements. All of our systems feature sophisticated software and
production-worthy automation. In addition, our advanced process control software portfolio includes powerful solutions for
standalone tools, groups of tools, or factory-wide suites to enhance productivity and achieve significant cost savings. Our
systems are backed by worldwide customer service and applications support.
Our business is affected by the annual spending patterns of our customers on semiconductor capital equipment. The
amount that our customers devote to capital equipment spending depends on a number of factors, including general worldwide
economic conditions as well as other economic drivers such as personal computers, mobile devices, data centers, artificial
intelligence and automotive sales. Current forecasts by industry analysts for the semiconductor device manufacturing industry
project capital equipment spending to increase approximately 5% to 8% for 2020 as compared to 2019. Our revenue and
profitability tend to follow the trends of certain segments within the semiconductor market.
Historically, a significant portion of our revenue in each quarter and year has been derived from sales to relatively few
customers, and we expect this trend to continue. For the years ended December 31, 2019, 2018 and 2017, aggregate sales to
customers that individually represented at least five percent of our revenue accounted for 42.7%, 18.3%, and 27.2% of our
revenue, respectively.
Merger
On June 23, 2019, Rudolph and Nanometrics, a provider of advanced process control metrology and software analytics,
entered into the Merger Agreement to combine in an all-stock merger of equals transaction. The Merger was completed on
October 25, 2019. As a result of the Merger, Rudolph became a direct wholly-owned subsidiary of Nanometrics, which was
renamed “Onto Innovation Inc.” upon the consummation of the Merger. Shares of common stock of Rudolph (NYSE: RTEC)
ceased trading on the New York Stock Exchange as of market close on October 25, 2019. Onto Innovation (NYSE: ONTO)
shares began trading on the NYSE on October 28, 2019. At the effective time of the Merger, each issued and outstanding share
of Rudolph Common Stock was converted into the right to receive 0.8042 shares of Onto Innovation Common Stock (NYSE:
ONTO). Immediately following the effective time of the Merger, each of Nanometrics’ and Rudolph’s stockholders owned
approximately 50% of the combined company, Onto Innovation. Pursuant to the Merger Agreement, Onto Innovation accounts
for the Merger as a reverse acquisition using the acquisition method of accounting in accordance with generally accepted
accounting principles, with Rudolph being treated as the acquiring entity for accounting purposes. As such, the results of
operations data below comprise the operating results of Rudolph and its consolidated subsidiaries for periods through October
25, 2019 and Onto Innovation and its consolidated subsidiaries for periods on or after October 26, 2019. See Note 3 to the
Consolidated Financial Statements set forth elsewhere in this Annual Report on Form 10-K for additional information regarding
the Merger.
29
Results of Operations
The following table sets forth, for the periods indicated, our results of operations as percentages of our revenue. Our
results of operations are reported as one business segment.
Revenue ............................................................................................
Cost of revenue.................................................................................
Gross profit..................................................................................
Operating expenses:
Research and development..........................................................
Sales and marketing ....................................................................
General and administrative..........................................................
Amortization................................................................................
Patent litigation income...............................................................
Total operating expenses........................................................
Operating income (loss)....................................................................
Interest income, net...........................................................................
Other income (expense), net .............................................................
Income (loss) before provision (benefit) for income taxes..........
Provision (benefit) for income taxes.................................................
Net income........................................................................................
Results of Operations for 2019, 2018 and 2017
2019
Year Ended December 31,
2018
2017
100.0%
55.9%
44.1%
15.8%
9.2%
17.4%
3.4%
—%
45.8%
(1.7)%
1.2%
0.3%
(0.2)%
(0.8)%
0.6%
100.0%
45.8%
54.2%
14.6%
8.0%
12.3%
0.6%
—%
35.5%
18.7%
0.8%
—%
19.5%
3.0%
16.5%
100.0%
47.2%
52.8%
14.8%
8.1%
10.9%
0.8%
(5.1)%
29.5%
23.3%
0.4%
(0.2)%
23.5%
10.6%
12.9%
Revenue. Our revenue is derived from the sale of our systems and software, spare parts, and services. Our revenue was
$305.9 million, $273.8 million and $255.1 million for the years ended December 31, 2019, 2018 and 2017, respectively. This
represents an increase of 11.7% from 2018 to 2019 and an increase of 7.3% from 2017 to 2018. The increase in revenue from
2018 to 2019 was primarily due to the inclusion of revenue from legacy Nanometrics business for the period from October 25,
2019, the effective date of the Merger, through December 31, 2019. This year-over-year increase in revenue was partially offset
by overall spending declines in the semiconductor capital equipment industries. The increase in revenue from 2017 to 2018
was primarily due to an increase in capital spending by front-end memory manufacturers.
The following table lists, for the periods indicated, the different sources of our revenue in dollars (thousands) and as
percentages of our total revenue:
Systems and software .........................................................
Parts ....................................................................................
Services...............................................................................
Total revenue............................................................
2019
$255,723
34,892
15,281
$305,896
Year Ended December 31,
2018
2017
84% $234,241
11% 28,658
5% 10,885
100% $273,784
86% $216,884
10% 27,143
4% 11,071
100% $255,098
85%
11%
4%
100%
Total systems and software revenue increased $21.5 million for the year ended December 31, 2019 as compared to the
year ended December 31, 2018 primarily due to the inclusion of revenue from legacy Nanometrics for the period from the
effective date of the Merger. The year-over-year change in systems revenue was driven by an increase of $29.9 million in
process control systems revenue due to inclusion of $56.0 million of revenue from legacy Nanometrics for the period from the
effective date of the Merger. This increase was partially offset by decreased demand for our products in both advanced
packaging and front-end systems. Software licensing, support and maintenance revenue decreased $4.0 million, primarily due
to a decrease in revenue from our process control and yield management software. The year-over-year increase in parts and
services revenue in absolute dollars from 2018 to 2019 was primarily due to the inclusion of $10.3 million of parts and service
revenue from legacy Nanometrics for the period from the effective date of the Merger. Parts and services revenue is generated
from part sales, maintenance service contracts, system upgrades, as well as time and material billable service calls.
Total systems and software revenue increased for the year ended December 31, 2018 as compared to the year ended
December 31, 2017 due to increased demand for our products in front-end process control systems. The year-over-year
increases in process control systems revenue totaled $12.9 million, primarily due to higher metrology system sales in the 2018
period. Lithography system revenue increased $0.7 million, primarily due to the shipment of a JetStep G system offset by
lower shipments of our JetStep W systems in 2018. Licensing revenue from software increased $3.7 million primarily due to
30
an increase in revenue from our process control and yield management software. The year-over-year increase in parts and
services revenue in absolute dollars from 2017 to 2018 was primarily due to increased spending by our customers on repairs of
existing systems. Parts and services revenue is generated from part sales, maintenance service contracts, system upgrades, as
well as time and material billable service calls.
Gross Profit. Our gross profit has been and will continue to be affected by a variety of factors, including inventory step-
up from purchase accounting, manufacturing efficiencies, provision for excess and obsolete inventory, pricing by competitors
or suppliers, new product introductions, production volume, customization and reconfiguration of systems, international and
domestic sales mix, system and software product mix, and parts and services margins. Our gross profit was $135.0 million,
$148.3 million and $134.6 million for the years ended December 31, 2019, 2018 and 2017, respectively. Our gross profit
represented 44.1%, 54.2% and 52.8% for the years ended December 31, 2019, 2018 and 2017, respectively. The decrease in
gross profit as a percentage of revenue from 2018 to 2019 was primarily due to charges to cost of goods sold including a $15.4
million charge for the sale of inventory written-up to fair value upon the Merger and $7.8 million in additional charges related
to excess and obsolete inventory. The increase in gross profit as a percentage of revenue from 2017 to 2018 was primarily due
to a change in our systems and software product sales mix and the sale of a lithography system that had previously been partially
written down.
Operating Expenses
Our operating expenses consist of:
•
•
•
•
Research and Development. The process control defect inspection and metrology, advanced packaging lithography,
and data analysis systems and software market is characterized by continuous technological development and
product innovations. We believe that the rapid and ongoing development of new products and enhancements of
existing products, including the transition to copper and low-k dielectrics, wafer level packaging, the continuous
shrinkage in critical dimensions, and the evolution of ultra-thin gate process control is critical to our success.
Accordingly, we devote a significant portion of our technical, management and financial resources to research and
development programs. Research and development expenditures consist primarily of salaries and related expenses
of employees engaged in research, design and development activities. They also include consulting fees, the cost
of related supplies and legal costs to defend our patents. Our research and development expenses were $48.4
million, $40.0 million and $37.7 million in 2019, 2018 and 2017, respectively. The year-over-year dollar increase
from 2018 to 2019 was primarily due to increased compensation resulting from the inclusion of $7.4 million in
research and development expense of legacy Nanometrics resulting from the Merger. The year-over-year dollar
increase from 2017 to 2018 was primarily due to increased compensation and development initiatives. These costs
were partially offset by decreased litigation expenses. We continue to maintain our commitment to investing in
new product development and enhancement to existing products.
Sales and Marketing. Sales and marketing expenses are primarily comprised of salaries and related costs for sales
and marketing personnel, as well as commissions and other non-personnel related expenses. Our sales and
marketing expenses were $28.3 million, $22.0 million and $20.8 million in 2019, 2018 and 2017, respectively.
The year-over-year dollar increase from 2018 to 2019 was primarily due to the inclusion of $6.9 million in sales
and marketing expenses of legacy Nanometrics resulting from the Merger. The year-over-year increase from 2017
to 2018 was primarily due to compensation costs resulting from headcount and salary increases and an increase in
sales commissions
General and Administrative. General and administrative expenses are primarily comprised of salaries and related
costs for general administrative personnel, as well as other non-personnel related expenses. Our general and
administrative expenses were $53.0 million, $33.7 million and $27.9 million in 2019, 2018 and 2017, respectively.
The year-over-year dollar increase from 2018 to 2019 was primarily due to the inclusion of $4.4 million in general
and administrative expenses of legacy Nanometrics resulting from the Merger. In addition, we incurred $14.8
million in merger expenses for bankers fees, legal, accounting, and change in control compensation expenses. The
year-over-year dollar increase from 2017 to 2018 was primarily due to compensation costs resulting from
headcount and salary increases.
Amortization of Identifiable Intangible Assets. Amortization of identifiable intangible assets was $10.4 million,
$1.5 million and $1.9 million in 2019, 2018 and 2017, respectively. The year-over-year increase in amortization
expense from 2018 to 2019 was due additional amortization recorded associated with additional purchased
intangible assets recorded as a result of the Merger. The year-over-year decreases in amortization expense from
2017 to 2018 were due to certain intangible assets becoming fully amortized during these periods.
31
•
Patent Litigation Income. During the twelve months ended December 31, 2019 and 2018, there was no patent
litigation income. During the twelve months ended December 31, 2017, we recorded income and received cash of
$13.0 million from a comprehensive settlement regarding a patent infringement litigation with Camtek.
Interest income (expense), net. In 2019, 2018 and 2017, net interest income was $3.7 million, $2.2 million and $1.0
million, respectively. The increase in net interest income from 2018 to 2019 was due to interest earned on our marketable
securities and additional interest income on a higher marketable securities balance following the Merger with Nanometrics.
The increase in net interest income from 2017 to 2018 was due to higher interest earned on our marketable securities.
Income taxes. The following table provides details of income tax (dollars in millions):
Income before income taxes .............................................................
Provision (benefit) for income taxes.................................................
Effective tax rate...............................................................................
$
$
(0.6)
(2.5)
419.9%
$
$
$
$
53.3
8.3
15.5%
59.8
26.9
45.0%
2019
Year Ended December 31,
2018
2017
The income tax provision differs from the federal statutory income tax rate of 21% for 2019 primarily due to a benefit
related to the Foreign Derived Intangible Income Deduction (“FDII”) of $2.3 million and tax benefits for research and
development credits of $2.1 million, partially offset by non-deductible transaction costs of $1.1 million and Section 162(m)
limitation on the deductibility of executive compensation of $0.8 million.
The income tax provision differs from the federal statutory income tax rate of 21% for 2018 primarily due to Foreign
Derived Intangible Income Deduction (“FDII”) from Public law No. 115-97, known as the Tax Cuts and Jobs Act (the “Tax
Act”) of $2.2 million, tax benefits for research and development credits of $2.3 million, offset by a Section 162(m) limitation
on the deductibility of executive compensation of $0.5 million and additional Accounting Standards Codification (“ASC”) 740-
10 tax reserves of $0.6 million.
The income tax provision differs from the federal statutory income tax rate of 21% for 2017 primarily due to new
regulations resulting from the Tax Act of $9.5 million, offset by tax benefits for research and development credits of $1.6
million, section 199 manufacturing deduction of $1.6 million and excess tax benefits on vesting of restricted stock of $1.6
million.
The Tax Act, which was enacted and signed into law on December 22, 2017, reduced the U.S. federal corporate tax rate
from 35% to 21%, effective January 1, 2018. Also, on December 22, 2017, the SEC issued Staff Accounting Bulletin No. 118
(“SAB 118”), which provides guidance on accounting for tax effects of the Tax Act. SAB 118 provides a measurement period
of up to one year from the enactment date to complete the accounting. Any adjustments during this measurement period will
be included in net earnings from continuing operations as an adjustment to income tax expense in the reporting period when
such adjustments are determined. Based on the information available and current interpretation of the rules, we estimated the
impact of the reduction in the corporate tax rate and remeasurement of certain deferred tax assets and liabilities. The provisional
amount recorded in the fourth quarter of 2017 related to the remeasurement of our deferred tax balance resulted in additional
income tax expense of $8.0 million. During the fourth quarter of 2018, we completed the accounting for such revaluation and
recorded an additional $0.8 million in tax expense. The prior year provisional impact and current year finalization of the Tax
Act summarized below, which is included as a component of the provision from income taxes is further described in Note 12
in the accompanying Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K (dollars in
millions).
Year Ended December 31,
2019
2018
Re-measurement of U.S. deferred tax assets and liabilities ..............
Transition tax on non-U.S. subsidiaries’ earnings.............................
Foreign tax credits applied against transition tax..............................
Valuation allowance for unused foreign tax credits ..........................
Total impact of the Tax Act on the provision for income taxes....
$
$
— $
—
—
1.0
1.0
$
—
0.1
—
0.7
0.8
Our future effective income tax rate depends on various factors, such as future impacts of the Tax Act, possible further
tax legislation, the geographic composition of our pre-tax income, the amount of our pre-tax income as business activities
fluctuate, non-deductible expenses incurred in connection with acquisitions and research and development credits as a
percentage of aggregate pre-tax income.
32
Liquidity and Capital Resources
At December 31, 2019, we had $320.2 million of cash, cash equivalents and marketable securities and $555.9 million
in working capital. At December 31, 2018, our cash, cash equivalents and marketable securities totaled $175.1 million, while
working capital amounted to $305.9 million.
Net cash and cash equivalents provided by operating activities for the years ended December 31, 2019, 2018 and 2017
totaled $18.1 million, $35.1 million and $64.2 million, respectively. During the year ended December 31, 2019, cash provided
by operating activities was primarily due to net income, adjusted to exclude the effect of non-cash charges, of $53.5 million, a
decrease in income taxes of $7.6 million, which were partially offset by a decrease in accounts payable of $12.1 million, a
decrease in accrued and other liabilities of $6.7 million, an increase in inventories of $9.3 million, an increase in accounts
receivable of $9.7 million and an increase in prepaid expenses and other assets of $5.1 million.
During the year ended December 31, 2018, cash provided by operating activities was primarily due to net income,
adjusted to exclude the effect of non-cash charges, of $64.3 million, an increase in accounts payable of $3.5 million, a decrease
in income taxes of $1.1 million, a decrease in account receivable of $0.7 million and an increase in accrued and other liabilities
of $0.2 million, which were partially offset by an increase in inventories of $31.5 million, and an increase in prepaid expenses
and other assets of $3.1 million. The increase in inventories of $31.5 million was primarily due to increased sales projections
of our latest products and new product initiatives.
During the year ended December 31, 2017, cash provided by operating activities was primarily due to net income,
adjusted to exclude the effect of non-cash charges, of $65.9 million, an increase in accrued and other liabilities of $5.2 million,
an increase in accounts payable of $3.2 million and a decrease in account receivable of $0.4 million, which were partially offset
by an increase in income taxes of $4.7 million, an increase in inventory of $4.2 million, and an increase in prepaid expenses
and other assets of $1.7 million.
Net cash and cash equivalents provided by investing activities for the years ended December 31, 2019 and 2018 was
$4.1 million and $33.8 million, respectively. Net cash and cash equivalents used in investing activities for the year ended
December 31, 2017 totaled $32.5 million. During the year ended December 31, 2019, net cash provided by investing activities
included proceeds from maturities and sales of marketable securities of $94.5 million and cash acquired in the Merger of $43.9
million, which were partially offset by purchases of marketable securities of $127.5 million and purchases of property, plant
and equipment of $6.8 million. During the year ended December 31, 2018, net cash provided by investing activities included
proceeds from sales of marketable securities of $186.3 million, which was partially offset by purchases of marketable securities
of $140.0 million, purchases of property, plant and equipment of $7.5 million and cash advanced on a convertible note
receivable of $5.0 million. During the year ended December 31, 2017, net cash used in investing activities included purchases
of marketable securities of $164.7 million, purchases of property, plant and equipment of $10.2 million, and purchase of
intangible assets of $1.0 million, which were partially offset by proceeds from sales of marketable securities of $143.3 million.
Net cash used in financing activities was $4.2 million, $23.9 million and $2.6 million in 2019, 2018 and 2017,
respectively. During the year ended December 31, 2019, financing activities used cash to pay taxes related to shares withheld
for share based compensation plans of $2.5 million, pay contingent consideration for acquired business of $1.8 million, and
purchase shares of our common stock under share repurchase authorizations of $0.7 million. These uses of cash were partially
offset by proceeds from sales of shares through employee stock plans of $0.8 million. During the year ended December 31,
2018, financing activities used cash to purchase shares of our common stock under share repurchase authorizations of $21.1
million, pay taxes related to shares withheld for share based compensation plans of $1.9 million and pay contingent
consideration for acquired business of $1.5 million. These uses of cash were partially offset by proceeds from sales of shares
through employee stock plans of $0.6 million. During the year ended December 31, 2017, financing activities included the
redemption of stock warrants of $1.0 million, tax payments related to shares withheld for share-based compensation plans of
$1.4 million and payment of contingent consideration for acquired businesses of $0.8 million, which were partially offset by
proceeds from sales of shares through employee stock plans of $0.6 million.
From time to time, we evaluate whether to acquire new or complementary businesses, products and/or technologies. We
may fund all of or a portion of the price of these investments or acquisitions in cash, stock, or a combination of cash and stock.
On May 31, 2018, we entered into a convertible loan agreement with Simax Precision Technologies Limited (“the
borrower”), which allowed them to borrow up to $15.0 million in multiple promissory notes with an interest rate of 4.25% per
annum payable on a semi-annual basis. We expected to be a supplier of lithography modules to Simax, which is used in the
manufacture, sale and service of lithography systems. At December 31, 2019, we had $5.0 million in outstanding convertible
notes receivable with the borrower.
During the fourth quarter of 2019, we began negotiations with the borrower to end our relationship as it pertains to this
agreement. We determined that it is unlikely that a portion of the convertible note receivable will be collectable, and a reserve
33
in the amount of $2.0 million was recorded during the period ended December 31, 2019. In addition, we ceased recognizing
interest income on these convertible notes receivable as of September 30, 2019. See Note 8 in the accompanying Notes to the
Consolidated Financial Statements included in this Annual Report on Form 10-K for further information.
Following the Merger, we assumed the share repurchase authorization approved on March 14, 2019, by the former
Nanometrics Board of Directors. This share repurchase authorization allows us to purchase up to $80.0 million worth of shares
of our common stock. Under the terms of this share repurchase authorization, shares may be repurchased through open market
or privately negotiated transactions. No shares have been repurchased under this repurchase authorization.
For further information regarding our share repurchases, see Note 18 in the accompanying Notes to the Consolidated
Financial Statements included in this Annual Report on Form 10-K.
We have a credit agreement with a bank that provides for a line of credit that is secured by the marketable securities we
have with the bank. We are permitted to borrow up to 70% of the value of eligible securities held at the time the line of credit
is accessed. As of December 31, 2019, the available line of credit was approximately $91.3 million with an available interest
rate of 3.3%. The credit agreement is available to us until such time that either party terminates the arrangement at its discretion.
To date, we have not utilized the line of credit.
Our future capital requirements will depend on many factors, including the timing and amount of our revenue and our
investment decisions, which will affect our ability to generate additional cash. We expect that our existing cash, cash
equivalents, marketable securities and availability under our line of credit will be sufficient to meet our anticipated cash
requirements for working capital, capital expenditures and other cash needs for the next 12 months following the filing of this
Form 10-K. Thereafter, if cash generated from operations and financing activities is insufficient to satisfy our working capital
requirements, we may seek additional funding through bank borrowings, sales of securities or other means. There can be no
assurance that we will be able to raise any such capital on terms acceptable to us or at all.
Contractual Obligations
The following table summarizes our significant contractual obligations at December 31, 2019, and the effect such
obligations are expected to have on our liquidity and cash flows in future periods. This table excludes the liability for
unrecognized tax benefits that totaled approximately $10.6 million at December 31, 2019. We are currently unable to provide
a reasonably reliable estimate of the amount or periods when cash settlement of this liability may occur (dollars in thousands).
Operating lease obligations...................................
Open and committed purchase orders...................
Total.................................................................
Off-Balance Sheet Arrangements
$
Total
29,152
97,877
$ 127,029
Less than 1
year
Payments due by period
1-3
years
12,116
4,172
16,288
$
$
$
$
5,901
93,705
99,606
$
$
3-5
years
More than
5 years
5,856
—
5,856
$
$
5,279
—
5,279
The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a material
effect on our financial condition, results of operations or liquidity and capital resources.
Critical Accounting Policies
Management’s discussion and analysis of our financial condition and results of operations are based upon our
Consolidated Financial Statements included in this Annual Report on Form 10-K, which have been prepared in accordance
with accounting principles generally accepted in the United States. We review the accounting policies we use in reporting our
financial results on a regular basis. The preparation of these financial statements requires us to make estimates and judgments
that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosure of contingent assets and
liabilities. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, accounts receivable,
inventories, business acquisitions, intangible assets, share-based payments, income taxes and warranty obligations. We base
our estimates on historical experience and on various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that
are not readily apparent from other sources. Results may differ from these estimates due to actual outcomes being different
from those on which we based our assumptions. These estimates and judgments are regularly reviewed by management on an
ongoing basis at the end of each quarter prior to the public release of our financial results. We believe the following critical
accounting policies affect our more significant judgments and estimates used in the preparation of our Consolidated Financial
Statements.
34
Revenue Recognition. Effective January 1, 2018, we adopted the requirements of Accounting Standards Update (“ASU”)
No. 2014-09, “Revenue from Contracts with Customers (Topic 606).”
Revenue is recognized when control of the promised goods or services are transferred to our customers in an amount
that reflects the consideration we expect to be entitled to receive in exchange for those goods or services. We account for a
contract when it has approval and commitment from both parties, the rights of the parties and payment terms are identified, the
contract has commercial substance and collectability of consideration is probable.
We account for shipping and handling activities as the fulfillment of a promise to transfer goods to the customer and
therefore record these activities under the caption “Cost of revenue.” Sales tax and any other taxes collected concurrent with
revenue producing activities are excluded from revenue. Incidental items that are immaterial in the context of the contract are
recognized as expense.
Contracts with customers may include multiple performance obligations. For such arrangements, we allocate revenue to
each performance obligation based on its relative standalone selling price. We generally determine standalone selling prices
based on the prices charged to customers or the expected cost-plus margin.
Revenue from systems is recognized when we transfer control of the product to our customer. To indicate transfer of
control, we must have a present right to payment, legal title must have passed to the customer and the customer must have the
significant risks and rewards of ownership. We generally transfer control for system sales when the customer or the customer’s
agent picks up the system at our facility. Payment for the majority of our systems have 80-90% of the invoice amount due
within 30 days and the remaining amount due upon completion of installation, recalibration and qualification by the customer.
We provide an assurance warranty on our systems for a period of twelve to fourteen months against defects in material and
workmanship. We provide for the estimated cost of product warranties at the time revenue is recognized.
Depending on the terms of the systems arrangement, we may also defer the recognition of a portion of the consideration
expected to be received because we have to satisfy a future obligation (e.g., installation, training and extended warranties). We
use an observable price to determine the standalone selling price for separate performance obligations or a cost-plus margin
approach when one is not available.
Revenue from software licenses is recognized upfront at the point in time when the software is made available to the
customer. Software licenses provide the customer with limited rights to use the software. Revenue from licensing support and
maintenance is recognized as the support and maintenance are provided, which is over the contract period. Payment for software
licensing, support and maintenance is generally due in 30 days.
Revenue from parts is recognized when we transfer control of the product, which typically occurs when we ship the
product from our facilities to the customer. Payment for parts is generally due in 30 days.
Revenue from services primarily consists of service contracts, which provide additional maintenance coverage beyond
our assurance warranty on our products, service labor, consulting and training. Revenue from service contracts is recognized
ratably over the term of the service contract. Revenue from service labor, consulting and training is recognized as services are
performed. Payment for services is generally due in 30 days.
We record contract liabilities when the customer has been billed in advance of completing our performance obligations.
These amounts are recorded as deferred revenue in the Consolidated Balance Sheets.
Business combinations. We account for business combinations under the acquisition method of accounting, which
requires us to recognize separately from goodwill the assets acquired, and the liabilities assumed at their acquisition date fair
values. While we use our best estimates and assumptions to accurately value assets acquired and liabilities assumed at the
acquisition date as well as contingent consideration, where applicable, our estimates are inherently uncertain and subject to
refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, we record
adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of
the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first,
any subsequent adjustments are recognized in our consolidated statements of operations. Accounting for business combinations
requires our management to make significant estimates and assumptions, especially at the acquisition date including our
estimates for intangible assets, contractual obligations assumed, restructuring liabilities, pre-acquisition contingencies, and
contingent consideration, where applicable. Although we believe the assumptions and estimates we have made in the past have
been reasonable and appropriate, they are based, in part, on historical experience and information obtained from the
management of the acquired companies and are inherently uncertain. Estimates in valuing certain acquired intangible assets
under the income approach include growth in future expected cash flows from product sales, acquired technologies, technology
obsolescence rates, estimated cash flows from the projects when completed and discount rates. Unanticipated events and
circumstances may occur that may affect the accuracy or validity of such assumptions, estimates or actual results.
35
Excess and Obsolete Inventory. We maintain reserves for our excess and obsolete inventory equal to the difference
between the cost of inventory and the estimated market value based upon assumptions about future product lifecycles, product
demand and market conditions. If actual product lifecycles, product demand and market conditions are less favorable than those
originally projected by management, additional inventory write-downs may be required.
Long-Lived Assets and Acquired Intangible Assets. We periodically review long-lived assets, other than goodwill, for
impairment whenever changes in events or circumstances indicate that the carrying amount of an asset may not be recoverable.
Assumptions and estimates used in the determination of impairment losses, such as future cash flows and disposition costs,
may affect the carrying value of long-lived assets and the impairment of such long-lived assets, if any, could have a material
effect on our consolidated financial statements. During the year ended December 31, 2019, we recognized a $0.5 million
impairment loss on long-lived assets. No such indicators were noted in 2018 or 2017.
Accounting for Income Taxes. As part of the process of preparing our consolidated financial statements, we are required
to estimate our actual current tax exposure together with our temporary differences resulting from differing treatment of items
for tax and accounting purposes. These temporary differences result in deferred tax assets and liabilities, which are included
within our consolidated balance sheet. We must then assess the likelihood that our deferred tax assets will be recovered from
future taxable income and to the extent we believe that recovery is not likely, we must establish a valuation allowance.
Management judgment is required in determining our provision for income taxes and any valuation allowance recorded against
our deferred tax assets. The need for a valuation allowance is based on our estimates of taxable income by jurisdiction in which
we operate and the period over which our deferred taxes will be recoverable. In the event that actual results differ from these
estimates or we adjust these estimates in future periods, we may need to adjust the valuation allowance, which could materially
impact our financial position and results of operations. At December 31, 2019 and 2018, we had recorded valuation allowances
of $14.2 million and $3.2 million on certain of our deferred tax assets to reflect the deferred tax assets at the net amount that is
more likely than not to be realized. We evaluated the realizability of the deferred tax assets based on positive earnings as well
as the projected earnings in future years and believe it is more likely than not that the substantial majority of our deferred tax
asset will be realized in the future years. We will continue to monitor the realizability of the deferred tax assets and evaluate
the valuation allowance.
We recognize liabilities for uncertain tax positions based on a two-step process. The first step requires us to determine
if the weight of available evidence indicates that the tax position has met the threshold for recognition; therefore, we must
evaluate whether it is more likely than not that the position will be sustained on audit, including resolution of any related
appeals or litigation processes. The second step requires us to measure the tax benefit of the tax position taken, or expected to
be taken, in an income tax return as the largest amount that is more than 50% likely of being realized when effectively settled.
This measurement step is inherently difficult and requires subjective estimations of such amounts to determine the probability
of various possible outcomes. We reevaluate the uncertain tax positions each quarter based on factors including, but not limited
to, changes in facts or circumstances, changes in tax law, effectively settled issues, and new audit activity. Such a change in
recognition or measurement could result in the recognition of a tax benefit or an additional charge to the tax provision in the
period.
Although we believe the measurement of our liabilities for uncertain tax positions is reasonable, no assurance can be
given that the final outcome of these matters will not be different than what is reflected in the historical income tax provisions
and accruals. If additional taxes are assessed as a result of an audit or litigation, it could have a material effect on our income
tax provision and net income in the period or periods for which that determination is made.
Impact of Recent Accounting Pronouncements
Recently Adopted
Effective January 1, 2019, we adopted ASU No. 2018-07, “Compensation – Stock Compensation (Topic 718):
Improvements to Nonemployee Share-Based Payment Accounting.” This ASU expands the scope of Topic 718 to include
share-based payment transactions for acquiring goods and services from nonemployees. An entity should apply the
requirements of Topic 718 to nonemployee awards except for specific guidance on inputs to an option pricing model and the
attribution of cost. The ASU is effective for the fiscal years beginning after December 15, 2018, including interim periods
within that fiscal year. The adoption of ASU No. 2018-07 did not have a material impact on our consolidated financial position,
results of operations, and cash flows.
Effective January 1, 2019, we adopted ASU No. 2018-02, “Income Statement – Reporting Comprehensive Income
(Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” The new guidance
allows companies to reclassify stranded tax effects resulting from the Tax Act from accumulated other comprehensive income
to retained earnings. The guidance also requires certain new disclosures regardless of a company’s election. The standard is
effective for annual periods beginning after December 15, 2018 and for interim periods within those annual periods, with earlier
36
adoption permitted. The adoption of ASU No. 2018-02 did not have a material impact on our consolidated financial position,
results of operations, and cash flows.
In January 2017, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2017-04, “Intangibles – Goodwill
and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” This ASU eliminates Step 2 from the goodwill
impairment test. Accordingly, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss will be
recognized in an amount equal to the excess, limited to the total amount of goodwill allocated to the reporting unit. The ASU
is effective for the fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years, with earlier
adoption permitted. The adoption of ASU No. 2017-04 in 2019 did not have a material impact on our consolidated financial
position, results of operations, and cash flows.
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” ASU No. 2016-02 requires that lessees
recognize virtually all of their leases on the balance sheet, by recording a right-of-use asset and lease liability. On January 1,
2019, we adopted ASU No. 2016-02 using the modified retrospective method which applies the provisions of the standard at
the effective date without adjusting the comparative periods presented. We also elected the package of practical expedients.
There was not a cumulative-effect adjustment to our beginning retained earnings as a result of adopting ASU No. 2016-
02. We recognized additional operating lease assets and obligations of $14.4 million as of January 1, 2019. As a result of the
Merger, operating lease assets and obligations of $9.7 million were assumed from the former Nanometrics. We elected to not
reassess prior conclusions related to the identification, classification and accounting for initial direct costs for leases that
commenced prior to January 1, 2019. For additional disclosure and detail, see Note 7 of the Notes to the Consolidated Financial
Statements included in this Annual Report on Form 10-K.
Recently Issued
In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for
Income Taxes.” This standard simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in
Topic 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim
period and the recognition of deferred tax liabilities for outside basis differences. The new guidance also simplifies aspects of
the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that
result in a step-up in the tax basis of goodwill and allocating consolidated income taxes to separate financial statements of
entities not subject to income tax. ASU No. 2019-12 is effective for fiscal years beginning after December 15, 2020, with early
adoption permitted. Upon adoption, we must apply certain aspects of this standard retrospectively for all periods presented
while other aspects are applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings
as of the beginning of the fiscal year of adoption. We are currently evaluating the impact of this new standard on our
consolidated financial position, results of operations, and cash flows.
In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework –
Changes to the Disclosure Requirements for Fair Value Measurement.” This ASU is part of the FASB’s larger disclosure
framework project intended to improve the effectiveness of financial statement footnote disclosure. ASU No. 2018-13 modifies
required fair value disclosures related primarily to level 3 investments. This ASU is effective for annual periods beginning
after December 15, 2019 and interim periods within those annual periods. The adoption of ASU No. 2018-13 is not expected
to have a material effect on our consolidated financial position, results of operations, and cash flows.
In May 2017, the FASB issued ASU No. 2017-09, “Compensation - Stock Compensation (Topic 718): Scope of
Modification Accounting.” This ASU amends the scope of modification accounting for share-based payment arrangements
and provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity
would be required to apply modification accounting under ASC 718. The ASU is effective for the fiscal years beginning after
December 15, 2019 and for interim periods within those fiscal years. The adoption of ASU No. 2017-09 is not expected to
have a material effect on our consolidated financial position, results of operations, and cash flows, if any.
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of
Credit Losses on Financial Instruments,” which represents a new credit loss standard that will change the impairment model
for most financial assets and certain other financial instruments. Specifically, this guidance will require entities to utilize a new
“expected loss” model as it relates to trade receivables, notes receivable and other commitments to extend credit held by a
reporting entity. In addition, entities will be required to recognize an allowance for estimated credit losses on available-for-sale
debt securities, regardless of the length of time that a security has been in an unrealized loss position. This guidance will be
effective for annual reporting periods beginning after December 15, 2019, including interim periods within those annual
reporting periods, with early adoption permitted. We expect that the adoption of this guidance will not have a material impact
on our consolidated financial position, results of operations, and cash flows.
37
Recently issued accounting guidance not discussed above is not applicable or did not have, or is not expected to have, a
material impact to the Company.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Interest Rate and Credit Market Risk
We are exposed to changes in interest rates and market liquidity including our investments in certain available-for-sale
securities. Our available-for-sale securities consist of fixed and variable rate income investments, such as municipal notes,
municipal bonds and corporate bonds. We continually monitor our exposure to changes in interest rates, market liquidity and
credit ratings of issuers for our available-for-sale securities. It is possible that we are at risk if interest rates, market liquidity or
credit ratings of issuers change in an unfavorable direction. The magnitude of any gain or loss will be a function of the difference
between the fixed or variable rate of the financial instrument and the market rate, and our financial condition and results of
operations could be materially affected. Based on a sensitivity analysis performed on our financial investments held as of
December 31, 2019, an immediate adverse change of 10% in interest rates (e.g. 3.00% to 3.30%) would result in a decrease of
$0.9 million in the fair value of our available-for-sale debt securities and would not have a material impact on our consolidated
financial position, results of operations or cash flows.
Foreign Currency Risk
A substantial portion of our systems and software sales are denominated in U.S. dollars with the exception of Japan. As
a result, we have relatively little exposure to foreign currency exchange risk with respect to these sales. Substantially all of our
sales in Japan are denominated in Japanese yen. From time to time, we may enter into forward exchange contracts to
economically hedge a portion, but not all, of the existing and anticipated foreign currency denominated transactions expected
to occur within 12 months. The change in fair value of the forward exchange contracts is recognized under the caption “Other
(income) expense” in the Consolidated Statements of Operations for each reporting period. As of December 31, 2019 and 2018,
we had seventeen and twenty-seven outstanding forward contracts with a total notional contract value of $38.9 million and
$6.7 million, respectively. We do not use derivative financial instruments for trading or speculative purposes.
The Company has branch sales and service offices or subsidiaries in Korea, Japan, China, Taiwan, Singapore and in
several countries in Europe. Our international subsidiaries and branches operate primarily using local functional
currencies. Our exposure to foreign currency exchange rate fluctuations arise from intercompany balances between our U.S.
headquarters and that of our foreign owned entities. Our intercompany balances are denominated in U.S. dollars. Since each
foreign entity’s functional currency is generally denominated in its local currency, there is exposure to foreign exchange risk
when the foreign entity’s intercompany balance is remeasured at a reporting date, resulting in transaction gains or losses. The
intercompany balance, exposed to foreign currency risk, as of December 31, 2019 was approximately $24.1 million. A
hypothetical change of 10% in the relative value of the U.S. dollar versus local functional currencies could result in
approximately $3.2 million in foreign currency exchange losses / (gains) which would be recorded as non-operating expense
under the caption “Other income (expense), net” in our Consolidated Statements of Operations. We cannot accurately predict
future exchange rates or the overall impact of future exchange rate fluctuations on our business, results of operations and
consolidated financial condition.
To manage the level of exposure to the risk of foreign currency exchange rate fluctuations, we enter into foreign currency
forward exchange contracts to protect against a portion of our currency exchange risks associated with existing assets and
liabilities. A foreign currency forward exchange contract acts as a hedge by increasing in value when underlying assets decrease
in value or underlying liabilities increase in value due to changes in foreign exchange rates. Conversely, a foreign currency
forward exchange contract decreases in value when underlying assets increase in value or underlying liabilities decrease in
value due to changes in foreign exchange rates. These forward contracts are not designated as accounting hedges, so the
unrealized gains and losses are recognized in other income, net, in advance of the actual foreign currency cash flows with the
fair value of these forward contracts being recorded as accrued liabilities or other current assets.
Item 8.
Financial Statements and Supplementary Data.
The consolidated financial statements and related information required by this Item are set forth on the pages indicated
in Item 15(a) of this Annual Report on Form 10-K.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
38
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information we are required to disclose
in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time period
specified in SEC rules and forms. These controls and procedures are also designed to ensure that such information is
accumulated and communicated to our management, including our principal executive officer and principal financial officer,
as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating disclosure controls and
procedures, we have recognized that any controls and procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives. Management is required to apply judgment in evaluating its
controls and procedures.
We performed an evaluation under the supervision and with the participation of our management, including our principal
executive officer and principal financial officer, to assess the effectiveness of the design and operation of our disclosure controls
and procedures under the Exchange Act as of December 31, 2019. Based on that evaluation, our management, including our
principal executive officer and principal financial officer, concluded that our disclosure controls and procedures were effective
as of December 31, 2019 at the reasonable assurance level.
In accordance with the SEC’s published guidance, because the merger with Nanometrics closed in the fourth quarter of
the year ended December 31, 2019, and considering it was a reverse merger with Rudolph as the accounting acquirer, we did
not have sufficient time to fully incorporate Nanometrics into our internal control over financial reporting. Therefore, we
excluded Nanometrics from the evaluation of disclosure controls and procedures and the effectiveness of our internal control
over financial reporting as of December 31, 2019.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as
such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with accounting principles generally accepted in the United States of America.
Under the supervision and with the participation of our management, including our principal executive officer and principal
financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the
framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (2013 framework) (“COSO”). Based on our evaluation, our management concluded that our internal control over
financial reporting was effective as of December 31, 2019.
In accordance with the SEC’s published guidance, because the merger with Nanometrics closed in the fourth quarter of
the year ended December 31, 2019, management excluded Nanometrics from its evaluation of the effectiveness of the
Company’s internal control over financial reporting as of December 31, 2019. Nanometrics constituted 26% of total assets as
of December 31, 2019 and 22% of revenue for the year then ended.
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
because of changes in conditions, or that the degree of compliance with the policies or procedures may be circumvented or
deteriorate.
Attestation Report of the Registered Public Accounting Firm
Our consolidated financial statements as of and for the year ended December 31, 2019 have been audited by Ernst &
Young LLP, our independent registered public accounting firm, in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Ernst & Young LLP has also audited our internal control over financial reporting
as of December 31, 2019, as stated in its attestation report included elsewhere in this Annual Report on Form 10-K.
As indicated in the accompanying Management’s Report on Internal Control Over Financial Reporting, management’s
assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal
controls of Nanometrics, which is included in the 2019 consolidated financial statements of the Company and constituted 26%
of total assets as of December 31, 2019 and 22% of revenue for the year then ended. Our audit of internal control over financial
reporting of the Company also did not include an evaluation of the internal control over financial reporting of Nanometrics.
39
Changes in Internal Control over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f)
under the Exchange Act) that occurred during the Company’s quarter ended December 31, 2019 that have materially affected,
or are reasonably likely to materially affect, its internal control over financial reporting.
Item 9B. Other Information.
None.
40
PART III
Certain information required by Part III is omitted from this Annual Report on Form 10-K because we expect to file a
definitive proxy statement within one hundred twenty (120) days after the end of our fiscal year pursuant to Regulation 14A
(the “Proxy Statement”) for our Annual Meeting of Stockholders currently scheduled for May 12, 2020, and the information
included in the Proxy Statement is incorporated herein by reference.
Item 10. Directors, Executive Officers and Corporate Governance.
The information required by this Item with respect to directors and executive officers is included under the headings
“Proposal One: Election of Directors,” “Executive Officers” and “Corporate Governance Principles and Practices” in the Proxy
Statement, which is incorporated herein by reference. Information regarding compliance with Section 16 of the Exchange Act
is incorporated by reference to the information under the heading “Delinquent Section 16(a) Reports” in the Proxy Statement.
Code of Business Conduct and Ethics. We have adopted a code of business conduct and ethics that applies to our principal
executive officer, principal financial officer and controller. This code of business conduct and ethics is posted on our internet
website address at http://investors.ontoinnovation.com. We will post on our website any amendment to or waiver from a
provision of our code of business conduct and ethics as may be required, and within the time period specified, by applicable
SEC rules.
Item 11.
Executive Compensation.
The information required by this Item is included under the headings “Executive Compensation,” “Compensation of
Directors,” “Compensation Committee Report on Executive Compensation,” “Stock Ownership/Retention Guidelines for
Directors” and “Compensation Committee Interlocks and Insider Participation” in the Proxy Statement, which is incorporated
herein by reference.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by this Item is included under the headings “Security Ownership” and “Equity Compensation
Plan Information” in the Proxy Statement, which is incorporated herein by reference.
Item 13.
Certain Relationships and Related Transactions, and Director Independence.
The information required by this Item is included under the headings “Related Persons Transactions Policy” and “Board
Independence” in the Proxy Statement, which is incorporated herein by reference.
Item 14.
Principal Accounting Fees and Services.
The information required by this Item is included under the heading “Proposal 5: Ratification of Appointment
of Independent Registered Public Accounting Firm” in the Proxy Statement, which is incorporated herein by reference.
41
Item 15.Exhibits and Financial Statement Schedule.
(a)
The following documents are filed as part of this Annual Report on Form 10-K:
1.
Financial Statements
PART IV
The consolidated financial statements and consolidated financial statement information required by
this Item are included on pages F-1 through F-10 of this report. The Reports of Independent Registered Public
Accounting Firm appear on pages F-2 through F-5 of this report.
2.
Financial Statement Schedule
See Index to financial statements on page F-1 of this report.
3.
Exhibits
Exhibits are as set forth in the “Exhibit Index”, provided below. Where so indicated, exhibits, which
were previously filed, are incorporated by reference.
Exhibit
No.
2.1
3.1
3.2
4.1+
4.2+
10.1
Exhibit Description
Agreement and Plan of Merger, dated as of
June 23, 2019, by and among Nanometrics
Incorporated, Rudolph Technologies, Inc. and
PV Equipment Inc.
Amended and Restated Certificate of
Incorporation of Onto Innovation Inc.
Amended and Restated Bylaws of Onto
Innovation Inc.
Form of Common Stock Certificate
Description of Securities
Nanometrics Incorporated Amended and
Restated 2003 Employee Stock Purchase Plan
File
Number
000-13470
Date of First
Filing
June 24, 2019
Exhibit
No./Appendix
Reference
2.1
001-39110 October 28, 2019
001-39110 January 27, 2020
3.2
3.1
Form
8-K
8-K
8-K
―
―
DEF14A
―
―
000-13470
―
―
April 4, 2016
―
―
Appendix 1
10.1.1 Form of Subscription Agreement Under the
S-8
333-40866
June 24, 2019
4.1
Nanometrics Incorporated Amended and
Restated 2003 Employee Stock Purchase Plan
10.2* Nanometrics Incorporated Amended and
DEF14A
000-13470
April 4, 2017
Appendix B
Restated 2005 Equity Incentive Plan
10.2.1* Form of Performance-Based Restricted Stock
Unit Agreement
8-K
000-13470 March 24, 2015
10.2.2* Nanometrics Incorporated Amended and
10-K
000-13470 March 13, 2008
99.1
10.8
Restated 2005 Equity Incentive Plan forms of
Stock Option and Restricted Stock Unit
Agreements
10.3* Nanometrics Incorporated 2017 Executive
DEF14A
000-13470
April 4, 2017
Appendix A
Performance Bonus Plan
10.4* Rudolph Technologies, Inc. 2009 Stock Plan
10.4.1* Amended form of Employee Restricted Stock
DEFR14A
10-Q
000-27965
001-36226 August 3, 2017
May 8, 2009
Appendix A
10.12
Unit Purchase Agreement pursuant to the
Rudolph Technologies, Inc. 2009 Stock Plan
10.5* Rudolph Technologies, Inc. 2018 Stock Plan
10.5.1* Form of Employee Performance Stock Unit
Purchase Agreement pursuant to the Rudolph
Technologies, Inc. 2018 Stock Plan
8-K
10-Q
001-36226 May 16, 2018
001-36226 August 2, 2018
10.1
10.1
42
Exhibit
No.
10.5.2* Form of Employee Stock Option Agreement
Exhibit Description
Form
10-Q
File
Number
001-36226 August 2, 2018
Date of First
Filing
Exhibit
No./Appendix
Reference
10.2
pursuant to the Rudolph Technologies, Inc.
2018 Stock Plan
10.6* Compensation Arrangements with Named
10.7*
Executive Officers
Form of Indemnification Agreement between
the Nanometrics Incorporated and each of its
directors and executive officers
Form of Indemnity Agreement
10.8*
10.9*
Form of Indemnification Agreement
10.10* General Severance Benefits and Change in
Control Severance Benefits Agreement
between Kevin Heidrich and Nanometrics
Incorporated, dated May 19, 2015.
10.11* General Severance Benefits and Change in
Control Severance Benefits Agreement
between Janet Taylor and Nanometrics
Incorporated, dated August 27, 2015.
10.12* General Severance Benefits and Change in
Control Severance Benefits Agreement
between Rollin Kocher and Nanometrics
Incorporated, dated November 10, 2016.
Independent Contractor Agreement between
Nanometrics Incorporated and S. Mark
Borowicz, dated January 8, 2018.
10.13
8-K
8-K
8-K
8-K
8-K
000-13470 March 1, 2018
5.02
000-13470 February 20, 2013
10.1
June 24, 2019
001-36226
001-39110 November 6, 2019
000-13470 May 22, 2015
10.1
10.1
10.4
10-Q
000-13470 October 30, 2015
10.1
10-K
000-13470 March 3, 2017
10.22
10-K
000-13470 February 26, 2018
10.22
10.14* Employment Agreement between Pierre-Yves
10-K
000-13470 February 26, 2018
10.20
Lesaicherre and Nanometrics Incorporated,
dated November 27, 2017.
10.15* Retention Bonus Agreement between
10-K
000-13470 February 26, 2018
10.23
Nanometrics Incorporated and Greg Swyt,
dated December 18, 2017.
10.16* Retention Bonus Agreement between
8-K
000-13470 November 6, 2018
10.1
Nanometrics and Greg Swyt, dated June 25,
2018.
10.17* General Severance Benefits and Change in
8-K
000-13470
July 26, 2019
10.1
Control Severance Benefits Agreement, dated
July 25, 2019, between Nanometrics
Incorporated and Greg Swyt.
10.18* Retention Bonus Agreement, dated September
8-K
000-13470 September 9, 2019
10.1
6, 2019, between Nanometrics Incorporated
and Greg Swyt.
10.19* General Severance Benefits and Change in
10-Q
000-13470
May 1, 2019
10.1
Control Severance Benefits Agreement
between Nanometrics Incorporated and James
Barnhart, dated March 12, 2018.
10.20* Management Agreement, dated as of July 24,
2000 by and between Rudolph Technologies,
Inc. and Steven R. Roth as restated and
amended on July 29, 2014.
10-Q
001-36226 August 6, 2014
10.2
10.21* Employment Agreement, dated as of November
8-K
001-36226 November 9, 2015
10.1
9, 2015, by and between Rudolph
Technologies, Inc. and Michael Plisinski.
43
Exhibit No.
Exhibit Description
10.22* Executive Change of Control Agreement, dated
Form
10-Q
File
Number
000-27965 November 6, 2009
Date of First
Filing
Exhibit
No./Appendix
Reference
10.3
8-K
000-27965
July 25, 2011
10.5
S-1
333-86821 September 9, 1999
10.1
―
―
―
―
―
―
―
―
―
―
―
―
―
―
―
―
―
―
―
―
―
―
―
―
10.23
10.24
21.1+
23.1+
31.1+
31.2+
32.1+
32.2+
August 20, 2009, by and between Rudolph
Technologies, Inc. and Robert A. Koch.
Amendment to Confirmation of Issuer Warrant
Transaction, dated July 22, 2011, by and
between Rudolph Technologies, Inc. and Credit
Suisse International.
License Agreement, dated June 28, 1995,
between the Rudolph Technologies Inc. and
Brown University Research Foundation.
Subsidiaries.
Consent of Ernst & Young LLP, Independent
Registered Public Accounting Firm.
Rule 13a-14(a) Certification of Chief
Executive Officer of the Registrant pursuant to
Section 302 of the Sarbanes-Oxley Act of
2002.
Rule 13a-14(a) Certification of Chief Financial
Officer of the Registrant pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
Certification of the Chief Executive Officer
pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
Certification of the Chief Financial Officer
pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
101.INS Inline XBRL Instance Document
101.SCH Inline XBRL Taxonomy Extension Schema
Document
101.CALInline XBRL Taxonomy Extension Calculation
Linkbase Document
101.DEF Inline XBRL Taxonomy Extension Definition
Linkbase Document
101.LABInline XBRL Taxonomy Extension Label
Linkbase Document
101.PRE Inline XBRL Taxonomy Extension
104
*
+
Presentation Linkbase Document
Cover Page Interactive Data File (formatted in
inline XBRL and contained in Exhibit 101)
Management contract, compensatory plan or
arrangement.
Filed herewith.
44
ONTO INNOVATION INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE
Consolidated Financial Statements:
Reports of Independent Registered Public Accounting Firm........................................................................
Consolidated Statements of Operations for the years ended December 31, 2019, 2018 and 2017 ...............
Consolidated Statements of Comprehensive Income for the years ended December 31, 2019, 2018 and 2017
Consolidated Balance Sheets as of December 31, 2019 and 2018................................................................
Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018 and 2017..............
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2019, 2018 and 2017
Notes to the Consolidated Financial Statements...........................................................................................
Consolidated Financial Statement Schedule:
Schedule of Valuation and Qualifying Accounts...........................................................................................
Page
F-2
F-6
F-7
F-8
F-9
F-10
F-11
F-44
F-1
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Onto Innovation Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Onto Innovation Inc., formerly Rudolph
Technologies, Inc. (the Company), as of December 31, 2019 and 2018, the related consolidated statements of operations,
comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2019,
and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the
“consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects,
the financial position of the Company at December 31, 2019 and 2018, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 2019, 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, 2019, based on criteria
established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated February 25, 2020 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 the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations 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 audit to obtain reasonable assurance about whether the financial statements are free of material misstatement,
whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the
financial statements, whether due 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 accounting principles used and significant estimates made by management, as well as evaluating the
overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial
statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or
disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex
judgments. The communication of critical audit matters 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 matters below, providing separate opinions
on the critical audit matters or on the accounts or disclosures to which they relate.
Excess Inventory Reserve
Description of the
Matter
As described in Note 9 to the consolidated financial statements, the Company had net inventories of
$176.1 million as of December 31, 2019, which included materials of $108.5 million, work-in-progress
of $42.7 million, and finished goods of $24.9 million. The valuation of certain of the Company’s
inventory is subject to risks associated with supply and demand. As described in Note 2 to the
consolidated financial statements, the Company maintains reserves for excess and obsolete inventory
equal to the difference between the cost of inventory and its estimated net realizable value based upon
assumptions about historical and future demand for the Company’s products and market conditions.
Auditing management’s estimate of the excess and obsolete inventory reserve was subjective and
required significant judgment as the excess and obsolete inventory reserve is sensitive to changes in the
Company’s operations and assumptions used to estimate the reserve including management’s
assumptions with regards to product life-cycles, product demand and market conditions, which includes
historical usage, expected future usage, on-hand quantities of individual materials, and anticipated
engineering design changes or advancements.
F-2
How We
Addressed the
Matter in Our
Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of controls
over the Company’s excess and obsolete inventory reserve process, including those over the validity and
reasonableness of the data and assumptions used in estimating the excess and obsolete inventory reserve.
To test the adequacy of the Company’s excess and obsolete inventory reserve, we performed audit
procedures that included, among others, assessing methodologies and assumptions used, testing the
completeness and accuracy of the underlying data used by management in its analysis including the
usage of historical materials, considering potential product obsolescence, observing physical inventory
on-hand and inspecting historical gross margins to assess whether any items are being sold at a loss or
lower margins that may need to be included in the reserve. We assessed the historical accuracy of
management’s estimated excess and obsolete inventory reserve and performed sensitivity analyses to
evaluate changes in the estimate that result from changes in the Company’s significant assumptions.
Accounting for Acquisition of Nanometrics Incorporated
Description of the
Matter
In October 2019, Rudolph Technologies, Inc. (Rudolph) completed its acquisition of Nanometrics
Incorporated (Nanometrics) for net consideration of $890.1 million, including identified intangible assets
of $374.9 million, which principally consisted of developed technology, in-process research and
development and customer relationships, as disclosed in Note 3 to the consolidated financial statements.
The transaction was accounted for as a business combination with Rudolph as the accounting acquirer.
How We
Addressed the
Matter in Our
Audit
Auditing the fair value of intangible assets was complex due to the sensitivity of the respective fair values
to the significant underlying assumptions. The Company engaged a specialist that used an income
approach which is based on a discounted cash flow model to measure the intangible assets. The significant
assumptions used to estimate the fair value of the intangible assets included discount rates and revenue
growth rates. These significant assumptions are forward looking and could be affected by future
economic and market conditions. The determination of the accounting acquirer is a subjective
determination where management applied judgment in evaluating the relevant criteria to make this
determination.
We tested the Company’s controls over its accounting for the Nanometrics acquisition. Our tests included
controls over the determination of the accounting acquirer and the estimation process supporting the
recognition and measurement of the intangible assets, including the significant assumptions used.
To test the estimated fair value of the intangible assets, we performed audit procedures that included,
among others, evaluating the Company’s use of the income approach and testing the significant
assumptions used in the model, including the completeness and accuracy of the underlying data. We
involved our valuation specialists to assist with our evaluation of the methodology used by the Company
and significant assumptions included in the fair value estimates. For example, we compared the
significant assumptions to current industry, market and economic trends; to the assumptions used to value
similar assets in the marketplace; and to the historical results of the acquired business and to other
guidelines used by companies within the same industry. To test the determination of the accounting
acquirer, we performed audit procedures that included, among others, inspecting the analysis prepared
by the Company on this topic and evaluating the accuracy of the information and the judgments made by
management considering historical information, the merger agreement and other relevant information
relating to the terms of the merger and the prospective plans of the Company after the merger.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2008.
Iselin, New Jersey
February 25, 2020
F-3
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Onto Innovation Inc.
Opinion on Internal Control Over Financial Reporting
We have audited Onto Innovation Inc.’s (formerly Rudolph Technologies, Inc.) internal control over financial reporting as of
December 31, 2019, based on criteria established in Internal Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Onto
Innovation Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2019, based on the COSO criteria.
As indicated in the accompanying Management’s Report on Internal Control Over Financial Reporting, management’s
assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal
controls of Nanometrics Incorporated, which is included in the 2019 consolidated financial statements of the Company and
constituted 26% of total assets as of December 31, 2019 and 22% of revenue for the year then ended. Our audit of internal
control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting
of Nanometrics Incorporated.
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, 2019 and 2018, the related consolidated
statements of operations, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period
ended December 31, 2019, and the related notes and financial statement schedule listed in the Index at Item 15(a) and our report
dated February 25, 2020 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
assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report
on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control
over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of 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
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk,
and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
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
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
F-4
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
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Iselin, New Jersey
February 25, 2020
F-5
ONTO INNOVATION INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Revenue .....................................................................................
Cost of revenue..........................................................................
Gross profit...........................................................................
Operating expenses:
Research and development...................................................
Sales and marketing .............................................................
General and administrative...................................................
Amortization.........................................................................
Patent litigation income........................................................
Total operating expenses.................................................
Operating income (loss).............................................................
Interest income, net....................................................................
Other income (expense), net ......................................................
Income (loss) before provision (benefit) for income taxes...
Provision (benefit) for income taxes..........................................
Net income.................................................................................
Earnings per share:
Basic.....................................................................................
Diluted..................................................................................
Weighted average number of shares outstanding:
Basic.....................................................................................
Diluted..................................................................................
$
$
$
$
2019
Year Ended December 31
2018
$
305,896
170,868
135,028
$
273,784
125,505
148,279
2017
255,098
120,503
134,595
48,358
28,251
53,017
10,445
—
140,071
(5,043)
3,666
780
(597)
(2,507)
1,910
0.06
0.06
29,729
30,007
$
$
$
39,953
22,010
33,698
1,534
—
97,195
51,084
2,206
56
53,346
8,250
45,096
1.77
1.74
25,470
25,895
$
$
$
37,694
20,795
27,878
1,940
(13,000)
75,307
59,288
971
(457)
59,802
26,893
32,909
1.30
1.27
25,325
25,865
The accompanying notes are an integral part of these consolidated financial statements.
F-6
ONTO INNOVATION INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Net income.................................................................................
Other comprehensive income (loss), net of tax: ........................
Change in net unrealized gains (losses) on investments.......
Change in currency translation adjustments.........................
Total comprehensive income .....................................................
$
$
2019
Year Ended December 31,
2018
2017
1,910
$
45,096
$
32,909
(44)
709
2,575
$
136
(194)
45,038
$
(89)
1,663
34,483
The accompanying notes are an integral part of these consolidated financial statements.
F-7
ONTO INNOVATION INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
Current Assets:
ASSETS
Cash and cash equivalents.................................................................................
Marketable securities.........................................................................................
Accounts receivable, less allowance of $1,247 in 2019 and $691 in 2018........
Inventories.........................................................................................................
Prepaid expenses and other current assets.........................................................
Total current assets.......................................................................................
Property, plant and equipment, net .........................................................................
Goodwill .................................................................................................................
Identifiable intangible assets, net............................................................................
Deferred income taxes ............................................................................................
Other assets.............................................................................................................
Total assets ...................................................................................................
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable ..............................................................................................
Accrued liabilities .............................................................................................
Deferred revenue ...............................................................................................
Other current liabilities......................................................................................
Total current liabilities .................................................................................
Deferred and other tax liabilities.............................................................................
Other non-current liabilities....................................................................................
Total liabilities .............................................................................................
Commitments and contingencies (Note 10)............................................................
Stockholders’ equity:
Preferred stock, $0.001 par value, 3,000 and 4,021 shares authorized, no shares
issued and outstanding at December 31, 2019 and 2018, respectively. ..........
Common stock, $0.001 par value, 97,000 and 80,420 shares authorized, 50,184
and 24,855 issued and outstanding at December 31, 2019 and 2018,
respectively.....................................................................................................
Additional paid-in capital..................................................................................
Accumulated other comprehensive loss ............................................................
Accumulated deficit ..........................................................................................
Total stockholders’ equity ............................................................................
Total liabilities and stockholders’ equity......................................................
$
$
$
$
December 31,
2019
December 31,
2018
$
$
$
130,673
189,563
123,656
176,134
21,638
641,664
98,420
307,148
371,953
1,456
27,939
1,448,580
27,738
26,204
12,629
19,172
85,743
67,040
31,771
184,554
112,388
62,684
64,194
96,820
14,821
350,907
18,874
22,495
7,448
12,810
5,506
418,040
16,981
13,700
6,767
7,543
44,991
—
11,161
56,152
—
—
50
1,269,437
(598)
(4,863)
1,264,026
1,448,580
$
31
369,893
(1,263)
(6,773)
361,888
418,040
The accompanying notes are an integral part of these consolidated financial statements.
F-8
ONTO INNOVATION INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31,
2018
2017
2019
Cash flows from operating activities:
Net income .............................................................................................................................
$
1,910 $ 45,096 $ 32,909
Adjustments to reconcile net income to net cash and cash equivalents provided by operating
activities:
Depreciation...........................................................................................................................
Amortization of intangibles....................................................................................................
Share-based compensation .....................................................................................................
Acquired inventory step-up amortization...............................................................................
Provision for doubtful accounts and inventory valuation.......................................................
Deferred income taxes ...........................................................................................................
Other, net................................................................................................................................
Change in operating assets and liabilities net of assets acquired and liabilities assumed in merger:
Accounts receivable .........................................................................................................
Income taxes.....................................................................................................................
Inventories........................................................................................................................
Prepaid expenses and other assets ....................................................................................
Accounts payable .............................................................................................................
Accrued and other liabilities.............................................................................................
Net cash and cash equivalents provided by operating activities .................................
Cash flows from investing activities:
Purchases of marketable securities.........................................................................................
Proceeds from sales of marketable securities.........................................................................
Purchases of property, plant and equipment...........................................................................
Cash acquired from merger ....................................................................................................
Cash advance on convertible note receivable.........................................................................
Purchase of intangible assets..................................................................................................
Net cash and cash equivalents provided by (used in) investing activities...................
Cash flows from financing activities:
Redemption of stock warrants.............................................................................................
Purchases of common stock ................................................................................................
Tax payments related to shares withheld for share-based compensation plans ...................
Payment of contingent consideration for acquired business................................................
Issuance of shares through share-based compensation plans ..............................................
Net cash and cash equivalents used in financing activities.........................................
Effect of exchange rate changes on cash and cash equivalents....................................................
Net increase in cash and cash equivalents....................................................................................
Cash and cash equivalents at beginning of year...........................................................................
Cash and cash equivalents at end of year.....................................................................................
Supplemental disclosure of cash flow information:
5,965
10,445
10,585
15,370
11,202
(4,116)
2,098
(9,721)
7,648
(9,338)
(5,079)
(12,138)
(6,685)
18,146
4,848
1,534
6,062
—
3,335
2,163
1,265
706
1,056
(31,545)
(3,101)
3,512
163
35,094
3,990
1,940
5,670
—
3,608
17,207
590
430
(4,727)
(4,218)
(1,686)
3,198
5,260
64,171
(127,462)
94,486
(6,802)
43,882
—
—
4,104
(140,018)
186,332
(7,542)
—
(5,000)
—
33,772
(164,661)
143,349
(10,210)
—
—
(1,000)
(32,522)
—
(744)
(2,540)
(1,758)
844
(4,198)
233
18,285
112,388
(1,025)
—
(1,358)
(792)
623
(2,552)
814
29,911
37,859
$ 130,673 $ 112,388 $ 67,770
—
(21,069)
(1,921)
(1,543)
624
(23,909)
(339)
44,618
67,770
Income taxes paid (received), net...........................................................................................
Litigation settlement received ................................................................................................
$
$
(3,848) $
— $
4,301 $ 14,605
— $ 13,000
The accompanying notes are an integral part of these consolidated financial statements.
F-9
ONTO INNOVATION INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For the years ended December 31, 2019, 2018 and 2017
(In thousands)
Balance at December 31, 2016 .....................
Issuance of shares through share-based
compensation plans, net .......................
Net income ..............................................
Share-based compensation ......................
Cumulative effect of a change in accounting
for share-based compensation .............
Share-based compensation plan
withholdings ........................................
Redemption of stock warrants.................
Currency translation ................................
Unrealized loss on investments ...............
Balance at December 31, 2017 .....................
Issuance of shares through share-based
compensation plans, net .......................
Repurchase of common stock..................
Net income ..............................................
Share-based compensation ......................
Share-based compensation plan
withholdings ........................................
Currency translation ................................
Unrealized gain on investments...............
Balance at December 31, 2018 .....................
Effect of merger.......................................
Issuance of shares through share-based
compensation plans, net .......................
Repurchase of common stock..................
Net income ..............................................
Share-based compensation ......................
Share-based compensation plan
withholdings ........................................
Currency translation ................................
Unrealized loss on investments ...............
Balance at December 31, 2019 .....................
Common Stock
Shares
25,033
Amount
31
$
Additional
Paid-in
Capital
$ 381,189
Accumulated
Other
Comprehensive
Loss
$
(2,779) $
Accumulated
Deficit
(84,706) $ 293,735
Total
348
—
—
—
(47)
82
—
—
25,416
358
(853)
—
—
(66)
—
—
24,855
25,060
377
(30)
—
—
(78)
—
—
50,184
$
1
—
—
—
—
—
—
—
32
—
(1)
—
—
—
—
—
31
19
—
—
—
—
—
—
—
50
623
—
5,670
72
(1,358)
—
—
—
386,196
624
(21,068)
—
6,062
(1,921)
—
—
369,893
890,112
2,131
(744)
—
10,585
—
—
—
—
—
—
1,663
(89)
(1,205)
—
—
—
—
—
(194)
136
(1,263)
—
—
—
—
—
—
32,909
—
624
32,909
5,670
(72)
—
—
—
—
—
(51,869)
—
—
45,096
—
—
—
—
(6,773)
—
—
—
1,910
—
(1,358)
—
1,663
(89)
333,154
624
(21,069)
45,096
6,062
(1,921)
(194)
136
361,888
890,131
2,131
(744)
1,910
10,585
(2,540)
—
—
$ 1,269,437
$
—
709
(44)
(598) $
—
—
—
(2,540)
709
(44)
(4,863) $ 1,264,026
The accompanying notes are an integral part of these consolidated financial statements
F-10
ONTO INNOVATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
1.
Organization and Nature of Operations:
Onto Innovation Inc. (“Onto Innovation” or the “Company”) is a worldwide leader in the design, development,
manufacture and support of process control tools that perform macro-defect inspections and metrology, lithography systems,
and process control analytical software used by semiconductor and advanced packaging device manufacturers. The Company’s
products are also used in a number of other high technology industries including: silicon wafer substrates; light emitting diode
(“LED”); vertical-cavity surface-emitting laser (“VCSEL”); micro-electromechanical system (“MEMS”); CMOS image sensor
(“CIS”); power device; RF filter; data storage; and certain industrial and scientific applications. The Company provides process
and yield management solutions used in bare silicon wafer production and wafer processing facilities, often referred to as
“front-end” manufacturing and device packaging and test facilities, (or “back-end” manufacturing), respectively through a
portfolio of standalone systems for macro-defect inspection, packaging lithography, probe card test and analysis, as well as
transparent and opaque thin film measurements. Our automated and integrated metrology systems measure critical dimensions,
device structures, topography, shape, and various thin film properties, including three-dimensional features and film thickness,
as well as optical, electrical and material properties. Our primary area of focus are products that provide critical yield-enhancing
information, which is used by microelectronic device manufacturers to drive down costs and to decrease the time to market of
their devices. All of Onto Innovation’s systems feature sophisticated software and production-worthy automation. In addition,
the Company’s advanced process control software portfolio includes powerful solutions for standalone tools, groups of tools,
factory-wide, and enterprise-wide suites to enhance productivity and achieve significant cost savings. Onto Innovation’s
systems are backed by worldwide customer service and applications support. The Company has branch sales and service offices
or subsidiaries in Korea, Japan, China, Taiwan, Singapore and in several countries in Europe. The Company operates in a single
reportable segment and is a provider of process characterization equipment and software for wafer fabs and advanced packaging
facilities.
Basis of Presentation. As further discussed in Note 3 of Notes to the Consolidated Financial Statements, Rudolph
Technologies, Inc. (“Rudolph”) and Nanometrics Incorporated (“Nanometrics”) completed a merger effective October 25, 2019
(the “Merger”). Upon consummation of the Merger, the combined company was renamed Onto Innovation. The Merger was
accounted for as a reverse acquisition where Rudolph was the accounting acquirer and Nanometrics was the legal acquirer in
accordance with Accounting Standards Codification (“ASC”) Topic 805, “Business Combinations” (“ASC 805”). Accordingly,
Rudolph’s historical results of operations replaced the Nanometrics historical results of operations for all periods prior to the
merger. Specifically, the accompanying Consolidated Financial Statements for all periods prior to the Merger are those of
Rudolph and for the period after the Merger, also include Nanometrics. The Consolidated Financial Statements reflect the
assets and liabilities of Rudolph at historical cost basis and the assets and liabilities of Nanometrics are reflected at fair value
under the acquisition method. While Rudolph applied the acquisition method of accounting to Nanometrics, the legal capital
in the current and prior periods has been retroactively adjusted to reflect the legal capital of Nanometrics. Accordingly, earnings
per share has been retroactively restated for periods prior to the merger date.
Reclassifications. In conjunction with the Merger, the Company assessed the need to realign its financial statement presentation
and certain income statement classifications were adjusted with prior periods reclassified to conform with current period
presentation. The changes made were as follows:
• Amounts related to sales and marketing are now presented on a separate line on the Consolidated Statements of
Operations and were previously reported under the caption “Selling, general and administrative.”
• Amounts related to applications engineering are now presented under the caption, “Sales and marketing” on the
Consolidated Statements of Operations and were previously reported under the caption “Research and
development.”
Certain line items on the prior period Consolidated Balance Sheet were combined to conform to current period
presentation. For additional information on the Company’s balance sheet details, see Note 9 of Notes to the
Consolidated Financial Statements.
•
F-11
ONTO INNOVATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except per share data)
2.
Summary of Significant Accounting Policies:
Consolidation. The consolidated financial statements reflect the accounts of the Company and its wholly-owned subsidiaries.
All intercompany accounts and transactions have been eliminated.
Revenue Recognition. Revenue is recognized when control of the promised goods or services are transferred to the Company’s
customers in an amount that reflects the consideration the Company expects to be entitled to receive in exchange for those
goods or services. The Company accounts for a contract when it has approval and commitment from both parties, the rights of
the parties and payment terms are identified, the contract has commercial substance and collectability of consideration is
probable.
The Company has elected to account for shipping and handling activities as the fulfillment of a promise to transfer goods
to the customer and therefore records these activities under the caption “Cost of revenue.” Sales tax and any other taxes
collected concurrent with revenue producing activities are excluded from revenue. Incidental items that are immaterial in the
context of the contract are recognized as expense. These accounting policy elections are consistent with the manner in which
the Company has historically recorded these items.
Contracts with customers may include multiple performance obligations. For such arrangements, the Company allocates
revenue to each performance obligation based on its relative standalone selling price. The Company generally determines
standalone selling prices based on the prices charged to customers or the expected cost-plus margin.
Systems and Software Revenue
Revenue from systems is recognized when the Company transfers control of the product to the customer. To indicate
transfer of control, the Company must have a present right to payment, legal title must have passed to the customer and the
customer must have the significant risks and rewards of ownership. The Company generally transfers control for system sales
when the customer or the customer’s agent picks up the system at the Company’s facility. Payment for the majority of the
Company’s systems have 80-90% of the invoice amount due within 30 days and the remaining amount due upon completion
of installation, recalibration and qualification by the customer. The Company provides an assurance warranty on its systems
for a period of twelve to fourteen months against defects in material and workmanship. The Company provides for the estimated
cost of product warranties at the time revenue is recognized.
Depending on the terms of the systems arrangement, the Company may also defer the recognition of a portion of the
consideration expected to be received because the Company has to satisfy a future obligation (e.g., installation, training and
extended warranties). The Company uses an observable price to determine the standalone selling price for separate performance
obligations or a cost-plus margin approach when one is not available.
Revenue from software licenses provides the customer with a right to use the software as it exists when made available
to the customer. Revenue from software licenses are recognized upfront at the point in time when the software is made available
to the customer. Revenue from licensing support and maintenance is recognized as the support and maintenance are provided,
which is over the contract period. Payment for software licensing, support and maintenance is generally due in 30 days.
Parts Revenue
Revenue from parts is recognized when the Company transfers control of the product, which typically occurs when the
Company ships the product from its facilities to the customer. Payment for parts is generally due in 30 days.
Services Revenue
Revenue from services primarily consists of service contracts, which provide additional maintenance coverage beyond
the Company’s assurance warranty on its products, service labor, consulting and training. Revenue from service contracts is
recognized ratably over the term of the service contract. Revenue from service labor, consulting and training is recognized as
services are performed. Payment for services is generally due in 30 days. Revenue from installation services is recognized at a
point in time when installation is complete.
F-12
ONTO INNOVATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except per share data)
Practical Expedients
The Company generally expenses sales commissions when incurred because the amortization period is one year or less.
These costs are recorded within selling, general and administrative expenses.
The Company does not adjust the amount of consideration for the effects of a significant financing component as the
payment terms are generally one year or less.
The Company does not disclose the value of remaining performance obligations for contracts with an original expected
length of one year or less and contracts for which the Company recognizes revenue in the amount to which it has the right to
invoice.
For additional information on the Company’s revenue recognition, see Note 11 of Notes to the Consolidated Financial
Statements.
Business Combinations. We account for business combinations under the acquisition method of accounting, which requires
us to recognize separately from goodwill the assets acquired, and the liabilities assumed at their acquisition date fair values.
While we use our best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition
date as well as contingent consideration, where applicable, our estimates are inherently uncertain and subject to refinement. As
a result, during the measurement period, which may be up to one year from the acquisition date, we record adjustments to the
assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement
period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent
adjustments are recognized in our consolidated statements of operations. Accounting for business combinations requires our
management to make significant estimates and assumptions, especially at the acquisition date including our estimates for
intangible assets, contractual obligations assumed, restructuring liabilities, pre-acquisition contingencies, and contingent
consideration, where applicable. Although we believe the assumptions and estimates we have made in the past have been
reasonable and appropriate, they are based, in part, on historical experience and information obtained from the management of
the acquired companies and are inherently uncertain. Estimates in valuing certain acquired intangible assets under the income
approach include growth in future expected cash flows from product sales, acquired technologies, technology obsolescence
rates, estimated cash flows from the projects when completed and discount rates. Unanticipated events and circumstances may
occur that may affect the accuracy or validity of such assumptions, estimates or actual results.
For additional information on the Company’s business combinations, see Note 3 of Notes to the Consolidated Financial
Statements.
Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts
of revenue and expenses during the reporting period. Significant estimates made by management include the allowances for
doubtful accounts and convertible notes receivable, excess and obsolete inventory, fair value of assets acquired and liabilities
assumed in a business combination, recoverability and useful lives of property, plant and equipment and identifiable intangible
assets, recoverability of goodwill, recoverability of deferred tax assets, liabilities for product warranty, contingencies, including
litigation reserves and share-based payments and liabilities for tax uncertainties. Actual results could differ from those
estimates.
Cash and Cash Equivalents. Cash and cash equivalents include cash and highly liquid debt instruments with original
maturities of three months or less when purchased.
Marketable Securities. The Company determined that all of its investment securities are to be classified as available-for-sale.
Available-for-sale debt securities are carried at fair value, with the unrealized gains and losses reported in stockholders’ equity
under the caption “Accumulated other comprehensive loss.” Realized gains and losses and, interest and dividends on available-
for-sale securities are included in interest income and other, net. Available-for-sale securities are classified as current assets
regardless of their maturity date if they are available for use in current operations. The Company reviews its investment portfolio
to identify and evaluate investments that have indications of possible impairment. Factors considered in determining whether
F-13
ONTO INNOVATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except per share data)
a loss is other-than-temporary include the length of time and extent to which fair value has been less than the cost basis, credit
quality and the Company’s ability and intent to hold the investment for a period of time sufficient to allow for any anticipated
recovery in market value. When a decline in fair value is determined to be other-than-temporary, unrealized losses on available-
for-sale securities are charged against earnings. The specific identification method is used to determine the gains and losses on
marketable securities.
For additional information on the Company’s marketable securities, see Note 5 of Notes to the Consolidated Financial
Statements.
Allowance for Doubtful Accounts. The Company evaluates the collectability of accounts receivable based on a combination
of factors. Where the Company is aware of circumstances that may impair a specific customer’s ability to meet its financial
obligation, the Company records a specific allowance against amounts due, thereby reducing the net recognized receivable to
the amount management reasonably believes will be collected. For all other customers, the Company recognizes allowances
for doubtful accounts based on the length of time the receivables are outstanding, industry and geographic concentrations, the
current business environment and historical experience.
Inventories. Inventories are stated at the lower of cost or net realizable value. Net realizable value is the estimated selling
prices in the ordinary course of business, less predictable costs of completion, disposal and transportation. Cost is generally
determined on a first-in, first-out basis, and includes material, labor and manufacturing overhead costs. The Company reviews
and sets standard costs as needed, but at a minimum, on an annual basis, at current manufacturing costs in order to approximate
actual costs.
The Company evaluates inventories for excess quantities and obsolescence. The Company establishes inventory reserves
when conditions exist that suggest that inventory may be in excess of anticipated demand or is obsolete based upon assumptions
about historical and future demand for the Company’s products and market conditions. In addition, inventories are evaluated
for potential obsolescence due to the effect of known and anticipated engineering design changes. Once a reserve has been
established, it is maintained until the item to which it relates is scrapped or sold. The Company regularly evaluates its ability
to realize the value of inventory based on a combination of factors including the following: historical usage rates, forecasted
sales of usage, product end-of-life dates, estimated current and future market values and new product introductions. When
recorded, reserves are intended to reduce the carrying value of the Company’s inventory to its net realizable value. If actual
demand for the Company’s products deteriorates, or market conditions are less favorable than those that the Company projects,
additional reserves may be required. Charges to Cost of revenue for excess and obsolete inventories totaled $10,841 in
2019.
Included in this amount is a charge of $5,945 recorded in the fourth quarter related to excess inventory from a
deemphasized product line and the rationalization of service inventory after the Merger. In 2018 and 2017, the Company
recorded charges of $3,042 and $3,833, respectively.
Property, Plant and Equipment. Property, plant and equipment are stated at cost. Depreciation of property, plant and
equipment is computed using the straight-line method over the estimated useful lives of the assets, which are five to twenty-
two years for buildings, three to ten years for machinery and equipment, three to ten years for furniture and fixtures, three years
for computer equipment, and three to seven years for software. Leasehold improvements are amortized using the straight-line
method over the lesser of the lease term or the estimated useful life of the related asset. Repairs and maintenance costs are
expensed as incurred and major renewals and betterments are capitalized.
F-14
ONTO INNOVATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except per share data)
Impairment of Long-Lived Assets. Long-lived assets, such as property, plant, and equipment, and identifiable acquired
intangible assets with definite useful lives, are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the
asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the
amount by which the carrying amount of the asset exceeds the fair value of the asset, which is generally based on discounted
cash flows. For the year ended December 31, 2019, there was an impairment to an item in property, plant and equipment of
$507, which was recorded in general and administrative expenses in the Consolidated Statements of Operations. There were
no impairments of long-lived assets for the years ended December 31, 2018 and 2017.
Goodwill and Intangible Assets. Intangible assets with finite useful lives are amortized using the straight-line method over
their estimated useful lives. Goodwill and indefinite lived assets are tested for impairment on an annual basis or when an event
or changes in circumstances indicate that its carrying value may not be recoverable. Goodwill impairment is tested at the
reporting unit level, which is defined as an operating segment or one level below the operating segment. The Company has
one operating segment. No goodwill impairment occurred in 2019, 2018, or 2017. Goodwill is reviewed for impairment using
either a qualitative assessment or a quantitative goodwill impairment test. If the Company chooses to perform a qualitative
assessment and determine the fair value more likely than not exceeds the carrying value, no further evaluation is necessary.
When the Company performs the quantitative goodwill impairment test, it compares fair value to carrying value, which includes
goodwill. If fair value exceeds carrying value, the goodwill is not considered impaired. If the carrying value is higher than the
fair value, the difference would be recognized as an impairment loss.
For additional information on the Company’s goodwill and purchased intangible assets, see Note 6 of Notes to the
Consolidated Financial Statements.
Concentration of Credit Risk. Financial instruments, which potentially subject the Company to concentrations of credit risk,
consist primarily of accounts receivable, cash and cash equivalents and marketable securities. The Company performs ongoing
credit evaluations of its customers and generally does not require collateral for sales on credit. The Company maintains
allowances for potential credit losses. The Company maintains cash and cash equivalents and marketable securities with higher
credit quality issuers and monitors the amount of credit exposure to any one issuer. The Company's investment policy provides
guidelines and limits regarding credit quality, investment concentration, investment type, and maturity that the Company
believes will provide liquidity while reducing risk of loss of capital. Investments are of a short-term nature and include
investments in commercial paper, corporate debt securities, asset-backed securities, U.S. Treasury, U.S. Government, and U.S.
Agency debt.
The Company sells its products primarily to end users in the United States, Asia and Europe and, generally, does not
require its customers to provide collateral or other security to support accounts receivable. Management performs ongoing
credit evaluations of its customers’ financial condition and maintains an allowance for estimated potential bad debt losses. The
Company’s customer base is highly concentrated and historically, a relatively small number of customers have accounted for a
significant portion of its revenues. The Company participates in a dynamic high technology industry and believes that changes
in any of the following areas could have a material adverse effect on its future financial position, results of operations or cash
flows: advances and trends in new technologies and industry standards; competitive pressures in the form of new products or
price reductions on current products; changes in product mix; changes in the overall demand for products offered; changes in
third-party manufacturers; changes in key suppliers; changes in certain strategic relationships or customer relationships;
litigation or claims against the Company based on intellectual property, patent, product, regulatory or other factors; fluctuations
in foreign currency exchange rates; risk associated with changes in domestic and international economic and/or political
regulations; availability of necessary components or sub-assemblies; disruption of manufacturing facilities; and its ability to
attract and retain employees necessary to support its growth.
Certain components and sub-assemblies used in the Company’s products are purchased from a sole supplier or a limited
group of suppliers. The Company currently purchases its spectroscopic ellipsometer and robotics used in its advanced
measurement systems from a sole supplier or a limited group of suppliers located in the United States. Any shortage or
interruption in the supply of any of the components or sub-assemblies used in its products or its inability to procure these
F-15
ONTO INNOVATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except per share data)
components or sub-assemblies from alternate sources on acceptable terms could have a material adverse effect on its business,
financial condition and results of operations.
Warranties. The Company generally provides a warranty on its products for a period of twelve to fourteen months against
defects in material and workmanship. The Company provides for the estimated cost of product warranties at the time revenue
is recognized. The estimated future warranty obligations are affected by the warranty periods, sales volumes, product failure
rates, material usage and labor and replacement costs incurred in correcting a product failure. If actual product failure rates,
material usage, labor or replacement costs differ from the Company’s estimates, revisions to the estimated warranty obligations
would be required. The warranty accrual represents the best estimate of the amount necessary to settle future and existing
claims on products sold as of the balance sheet date. The Company periodically assesses the adequacy of its recorded warranty
reserve and adjusts the amounts in accordance with changes in these factors.
Income Taxes. The Company accounts for income taxes using the asset and liability approach for deferred taxes which requires
the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized
in the Company’s consolidated financial statements or tax returns. A valuation allowance is recorded to reduce a deferred tax
asset to that portion which more likely than not will be realized.
For additional information on the Company’s income taxes, see Note 14 of Notes to the Consolidated Financial
Statements.
Translation of Foreign Currencies. The Company has branch operations or wholly-owned subsidiaries in the United States,
Europe, Japan, China, Taiwan, Singapore and South Korea. Its international subsidiaries and branches operate primarily through
the use of local functional currencies. A substantial portion of the Company’s international systems sales are denominated in
U.S. dollars with the exception of Japan. Consequently, we have relatively little exposure to foreign currency exchange risk
with respect to these sales.
Assets and liabilities are translated at exchange rates in effect at the balance sheet date, and income and expense accounts
and cash flow items are translated at average monthly exchange rates during the period. Net exchange gains or losses resulting
from the translation of foreign financial statements and the effect of exchange rates on intercompany transactions of a long-
term investment nature are recorded directly as a separate component of stockholders’ equity under the caption, “Accumulated
other comprehensive loss.” Any foreign currency gains or losses related to transactions are included in operating results. The
Company had accumulated exchange losses resulting from the translation of foreign operation financial statements of $564 and
$1,273 as of December 31, 2019 and 2018, respectively.
Share-based Compensation. The Company measures the cost of employee services received in exchange for the award of
equity instruments based on the fair value of the award at the date of grant. Compensation expense is recognized using the
straight-line attribution method to recognize share-based compensation over the service period of the award, with adjustments
recorded for forfeitures as they occur.
For additional information on the Company’s share-based compensation plans, see Note 12 of Notes to the Consolidated
Financial Statements.
Research and Development Costs. Expenditures for research and development are expensed as incurred.
Fair Value of Financial Instruments. The carrying amounts of the Company’s financial instruments, including cash and cash
equivalents, accounts receivable, accounts payable and accrued liabilities, approximate fair value due to their short maturities.
The estimated fair value of these obligations is based, primarily, on a market approach, comparing the Company’s interest rates
to those rates the Company believes it would reasonably receive upon re-entry into the market. Judgment is required to estimate
the fair value using available market information and appropriate valuation methods.
For additional information on the Company’s fair value of financial instruments, see Note 4 of Notes to the Consolidated
Financial Statements.
F-16
ONTO INNOVATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except per share data)
Derivative Instruments and Hedging Activities. The Company, when it considers it to be appropriate, enters into forward
contracts to hedge the economic exposures arising from foreign currency denominated transactions. At December 31, 2019 and
2018, these contracts included the future sale of Japanese Yen to purchase U.S. dollars. The foreign currency forward contracts
were entered into by the Company’s Japanese subsidiary to hedge a portion of certain intercompany obligations. Post-merger
with Nanometrics, the Company enters into forward contracts for several other currencies including the Korean Won, Taiwanese
dollar and Chinese Yuan Renminbi. The forward contracts are not designated as hedges for accounting purposes and therefore,
the change in fair value is recorded in general and administrative expenses in the Consolidated Statements of Operations. The
Company records its forward contracts at fair value in either prepaid expenses and other current assets or other current liabilities
in the Consolidated Balance Sheets.
The dollar equivalent of the U.S. dollar forward contracts and related fair values as of December 31, 2019 and 2018 were
as follows:
Notional amount .....................................................................................................
Fair value of asset (liability) ...................................................................................
December 31,
2019
2018
38,887
120
6,746
(32)
During the years ended December 31, 2019 and 2017, the Company recorded gains of $ $343 and $105 on maturities of
forward contracts, respectively. During the year ended December 31, 2018, the Company recognized a loss of $81 on maturities
of forward contracts. The aggregate notional amounts of matured contracts were $58,522, $8,465 and $9,582 for 2019, 2018
and 2017, respectively.
Contingencies and Litigation. The Company is subject to the possibility of losses from various contingencies, including
certain legal proceedings, lawsuits and other claims. The Company accrues for a loss contingency when it concludes that the
likelihood of a loss is probable and the amount of the loss can be reasonably estimated. If the Company concludes that loss
contingencies that could be material to any one of its financial statements are not probable, but are reasonably possible, or are
probable, but cannot be estimated, then the Company discloses the nature of the loss contingencies, together with an estimate
of the range of possible loss or a statement that such loss is not reasonably estimable. The Company expenses as incurred the
costs of defending legal claims against the Company. The Company does not recognize gain contingencies until realized. See
Note 10 of the Notes to the Consolidated Financial Statements, “Commitments and Contingencies” for a detailed description.
Recent Accounting Pronouncements.
Recently Adopted
Effective January 1, 2019, the Company adopted Accounting Standards Update (“ASU”) No. 2018-07, “Compensation
– Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.” This ASU expands
the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. An
entity should apply the requirements of Topic 718 to nonemployee awards except for specific guidance on inputs to an option
pricing model and the attribution of cost. The ASU is effective for the fiscal years beginning after December 15, 2018, including
interim periods within that fiscal year. The adoption of ASU No. 2018-07 did not have a material impact on the Company’s
consolidated financial position, results of operations, and cash flows.
Effective January 1, 2019, the Company adopted ASU No. 2018-02, “Income Statement – Reporting Comprehensive
Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” The new
guidance allows companies to reclassify stranded tax effects resulting from the Tax Cuts and Jobs Act (the “Tax Act”) from
accumulated other comprehensive income to retained earnings. The guidance also requires certain new disclosures regardless
of a company’s election. The standard is effective for annual periods beginning after December 15, 2018 and for interim periods
within those annual periods, with earlier adoption permitted. The adoption of ASU No. 2018-02 did not have a material impact
on the Company’s consolidated financial position, results of operations, and cash flows.
In January 2017, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2017-04, “Intangibles – Goodwill
and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” This ASU eliminates Step 2 from the goodwill
impairment test. Accordingly, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss will be
F-17
ONTO INNOVATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except per share data)
recognized in an amount equal to the excess, limited to the total amount of goodwill allocated to the reporting unit. The ASU
is effective for the fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years, with earlier
adoption permitted. The adoption of ASU No. 2017-04 during 2019 did not have a material impact on the Company’s
consolidated financial position, results of operations, and cash flows.
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” ASU No. 2016-02 requires that lessees
recognize virtually all of their leases on the balance sheet, by recording a right-of-use asset and lease liability. On January 1,
2019, the Company adopted ASU No. 2016-02 using the modified retrospective method which applies the provisions of the
standard at the effective date without adjusting the comparative periods presented. The Company also elected the package of
practical expedients.
There was not a cumulative-effect adjustment to the Company’s beginning retained earnings as a result of adopting ASU
No. 2016-02. The Company has recognized additional operating lease assets and obligations of $14,426 as of January 1, 2019.
As a result of the Merger, operating lease assets and obligations of $9,658 were assumed from the former Nanometrics. The
Company elected to not reassess prior conclusions related to the identification, classification and accounting for initial direct
costs for leases that commenced prior to January 1, 2019. For additional disclosure and detail, see Note 7 of the Notes to the
Consolidated Financial Statements, “Leasing Arrangements.”
Recently Issued
In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for
Income Taxes.” This standard simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in
Topic 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim
period and the recognition of deferred tax liabilities for outside basis differences. The new guidance also simplifies aspects of
the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that
result in a step-up in the tax basis of goodwill and allocating consolidated income taxes to separate financial statements of
entities not subject to income tax. ASU No. 2019-12 is effective for fiscal years beginning after December 15, 2020, with early
adoption permitted. Upon adoption, the Company must apply certain aspects of this standard retrospectively for all periods
presented while other aspects are applied on a modified retrospective basis through a cumulative-effect adjustment to retained
earnings as of the beginning of the fiscal year of adoption. The Company is currently evaluating the impact of this new standard
on its consolidated financial position, results of operations, and cash flows.
In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework –
Changes to the Disclosure Requirements for Fair Value Measurement.” This ASU is part of the FASB’s larger disclosure
framework project intended to improve the effectiveness of financial statement footnote disclosure. ASU No. 2018-13 modifies
required fair value disclosures related primarily to level 3 investments. This ASU is effective for annual periods beginning
after December 15, 2019 and interim periods within those annual periods. The adoption of ASU No. 2018-13 is not expected
to have a material effect on the Company’s consolidated financial position, results of operations, and cash flows.
In May 2017, the FASB issued ASU No. 2017-09, “Compensation - Stock Compensation (Topic 718): Scope of
Modification Accounting.” This ASU amends the scope of modification accounting for share-based payment arrangements
and provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity
would be required to apply modification accounting under Accounting Standards Codification (“ASC”) 718. The ASU is
effective for the fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years. The adoption
of ASU No. 2017-09 is not expected to have a material effect on the Company’s consolidated financial position, results of
operations, and cash flows, if any.
F-18
ONTO INNOVATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except per share data)
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of
Credit Losses on Financial Instruments,” which represents a new credit loss standard that will change the impairment model
for most financial assets and certain other financial instruments. Specifically, this guidance will require entities to utilize a new
“expected loss” model as it relates to trade receivables, notes receivable and other commitments to extend credit held by a
reporting entity. In addition, entities will be required to recognize an allowance for estimated credit losses on available-for-sale
debt securities, regardless of the length of time that a security has been in an unrealized loss position. This guidance will be
effective for annual reporting periods beginning after December 15, 2019, including interim periods within those annual
reporting periods, with early adoption permitted. The Company expects that the adoption of this guidance will not have a
material impact on its consolidated financial position, results of operations, and cash flows.
Recently issued accounting guidance not discussed above is not applicable or did not have, or is not expected to have, a
material impact to the Company.
3.
Business Combination:
Pursuant to the Agreement and Plan of Merger dated as of June 23, 2019 (the “Merger Agreement”), among Rudolph
Technologies, Inc. (“Rudolph”), Nanometrics Incorporated, (“Nanometrics”) and PV Equipment Inc., a wholly-owned
subsidiary of Nanometrics, (“Merger Sub”) Merger Sub merged with and into Rudolph, with Rudolph continuing as a wholly-
owned subsidiary of Onto Innovation (formerly Nanometrics) and the surviving corporation of the merger (the “Merger”). The
Merger was effective on October 25, 2019 (the “Effective Time”). At the Effective Time, each share of Rudolph common stock,
par value $0.001 per share, issued and outstanding immediately prior to the Effective Time (other than shares owned by Rudolph
or Nanometrics) was converted into the right to receive 0.8042 (the “Exchange Ratio”) shares of common stock, par value
$0.001 per share, of Onto Innovation common stock, par value $0.001 per share, and cash in lieu of any fractional shares of
Onto Innovation common stock any former holder of Rudolph common stock would otherwise be entitled to receive.
Immediately following the Effective Time of the Merger, Rudolph’s and Nanometrics’ common stockholders each owned
approximately 50% of the outstanding common stock of the combined company on a fully diluted basis.
The Merger creates a company that is an end-to-end metrology, inspection, process control software, and lithography
equipment provider for the semiconductor industry and other advanced markets with a global support organization whose
technology development teams, and product portfolio creates unique end-to-end solutions across the entire semiconductor
fabrication process. The company will be able to provide improved device yield at reduced manufacturing cycle time,
supporting the accelerated product life cycles in the semiconductor and other advanced markets.
The combined company accounts for the Merger as a reverse acquisition, using the acquisition method of accounting in
accordance with generally accepted accounting principles, with Rudolph being treated as the acquiring entity for accounting
purposes. In identifying Rudolph as the accounting acquiring entity, Rudolph and Nanometrics reviewed the accounting
guidance as provided in ASC 805, which takes into account the type of consideration, the structure of the merger and the other
transactions contemplated by the merger agreement, relative outstanding share ownership, the composition of the combined
company board of directors, designation of certain senior management positions of the combined company, mainly the Chief
Executive Officer and the Chief Financial Officer, relative voting rights, relative size as measured by assets, revenue or earnings
as well as other metrics an investor would use for evaluating the respective company’s current and future financial performance,
which of the combining entities initiated the combination and where the combined company’s headquarters will be located.
The acquisition method of accounting is based on ASC 805, and uses the fair value concepts defined in ASC Topic 820,
“Fair Value Measurement” (“ASC 820”). The purchase price allocation described herein is preliminary and is based on the
information that was available to make estimates of the fair value and may change as further information becomes available
and additional analysis are completed. While the Company believes that such information provides a reasonable basis for
estimating the fair values, more evidence and information may be obtained during the measurement period that results in
changes to the estimated fair value amounts. The measurement period ends on the earlier of one year after the Effective Time
or the date information about the facts and circumstances that existed at the Effective Time becomes available. Such
adjustments, if necessary, will be recognized during the period in which that amounts are determined. These adjustments may
include: (1) changes in the fair value of certain intangible assets acquired; and (2) changes in deferred tax assets and liabilities
related to the fair value estimates.
F-19
ONTO INNOVATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except per share data)
At the Effective Time of the Merger, Nanometrics changed its name to Onto Innovation Inc., and its shares began trading
on the New York Stock Exchange (the “NYSE”) on October 28, 2019 (NYSE: ONTO). At the close of trading on October 25,
2019, Rudolph common stock ceased being listed on the NYSE. The accompanying consolidated financial statements for all
periods presented are those of Rudolph with those of Nanometrics included only from the Effective Time through year-end.
The acquisition was nontaxable to the Company and certain of the assets acquired, including goodwill, will not be
deductible for tax purposes. The acquired assets and liabilities of Nanometrics were recorded at their respective fair values
including an amount for goodwill, which represents the purchase price paid in excess of the fair value of the net tangible and
intangible assets acquired and liabilities assumed, and is attributable primarily to expected synergies, economies of scale and
the assembled workforce of Nanometrics.
ASC 805 requires, among other things, that assets acquired, and liabilities assumed, be recognized at their fair values as
of the Effective Time. In addition, ASC 805 requires that the consideration transferred be measured at the Effective Time of the
Merger at the then-current market price. The market price of the shares of Rudolph common stock at the Effective Time was
$28.50, which was based on the closing price of shares of Rudolph common stock on the NYSE on Friday, October 25, 2019,
the last day of trading prior to the Effective Time.
ASC 820 defines the term “fair value” and sets forth the valuation requirements for any asset or liability measured at
fair value, expands related disclosure requirements and specifies a hierarchy of valuation techniques based on the nature of the
inputs used to develop the fair value measurements. Fair value is defined in ASC 829 as “the price that would be received to
sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” This
is an exit price concept for the valuation of the asset or liability. In addition, market participants are assumed to be buyers and
sellers in the principal (or most advantageous) market for the asset or liability. Fair value measurements for an asset assume
the highest and best use by these market participants, As a result of these standards, the Company may be required to record
the fair value of assets which are not intended to be used or sold and/or to value assets at fair values that do not reflect the
Company’s intended use for those assets. Many of these fair value measurements can be highly subjective, and it is possible
that other professionals, applying reasonable judgment to the same facts and circumstances, could develop and support a range
of alternative estimated amounts.
The aggregate purchase price of $890,131 consisted of 25,060 shares of common stock valued at $884,801 and the fair
value of assumed Nanometrics equity awards of $5,330. Under ASC 805, acquisition-related transaction costs (e.g., advisory,
legal, investment banking and other professional fees) are not included as a component of consideration transferred but are
accounted for as expenses in the periods in which such costs are incurred. Total transaction costs incurred by the Company
were $9,907 during the year ended December 31, 2019 and are included in general and administrative expense in the
Consolidated Statements of Operations.
F-20
ONTO INNOVATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except per share data)
The following table summarizes the preliminary allocation of the total purchase consideration to the initial estimated
fair values of the assets acquired and liabilities assumed as of October 25, 2019:
Cash and cash equivalents ...........................................................................................................
Marketable securities ...................................................................................................................
Account receivables.....................................................................................................................
Inventories ...................................................................................................................................
Prepaid expenses and other current assets ...................................................................................
Property, plant and equipment .....................................................................................................
Operating lease right-of-use assets ..............................................................................................
Identifiable intangible assets........................................................................................................
Deferred income taxes .................................................................................................................
Other assets..................................................................................................................................
Total assets acquired .................................................................................................................
Accounts payable.........................................................................................................................
Payroll and related expenses........................................................................................................
Deferred revenue .........................................................................................................................
Other current liabilities ................................................................................................................
Income taxes payable...................................................................................................................
Other non-current liabilities.........................................................................................................
Net assets acquired ...................................................................................................................
Goodwill ......................................................................................................................................
Total purchase consideration ...............................................................................................
$43,882
94,389
49,917
98,478
7,734
77,451
9,658
374,900
1,352
850
758,611
(23,361)
(20,290)
(5,931)
(10,739)
(2,699)
(90,113)
605,478
284,653
$890,131
The fair value of accounts receivable, net, consisted of gross contractual accounts receivable reduced by approximately
$200 for receivables not expected to be collected as of the acquisition date. The inventory acquired consisted primarily of work
in process, for which fair value was measured based on determining its net realizable value as such value represents an exit
price in an orderly transaction between market participants, and raw materials. Factors that required judgment in determining
the net realizable value for the inventory included determining estimated selling prices, cost to complete, costs to dispose,
operating profit, and discount rates, among others. The Company recorded a $26,486 step-up of inventory to its fair value as
of the Merger date based on the preliminary valuation.
The preliminary allocation of the intangible assets subject to amortization is as follows:
Developed technology ......................................................................
In-process research and development ...............................................
Customer relationships .....................................................................
Backlog.............................................................................................
Trademarks and trade names.............................................................
Total intangible assets ....................................................................
Estimated
Fair Value
$260,500
46,600
53,000
6,700
8,100
$374,900
Weighted Average
Useful Life (years)
6.6
indefinite
13.1
1.1
7.5
Acquired intangible assets reported above are being amortized using the straight-line method over their estimated useful
lives, which approximates the pattern of how the economic life is expected to be used. This includes amounts allocated to
customer relationships because of anticipated high customer retention rates that are common in the semiconductor capital
equipment industry.
Developed technology relates to Nanometrics’ product family and was valued using the multi-period excess earnings
method under the income approach. This method reflects the present value of the projected cash flows that are expected to be
generated by the developed technology less charges representing the contribution of other assets to those cash flows. The
F-21
ONTO INNOVATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except per share data)
average estimated useful life of developed technologies was determined to be 6.6 years and was based on the technology cycle
related to each developed technology, as well as the cash flows over the respective forecast period.
The fair value of the in-process research and development (“IPRD”) was determined using the multi-period excess
earnings method under the income approach. Such method reflects the present value of the projected cash flows that are
expected to be generated by the IPRD, less costs to complete the development and charges representing the contribution of
other assets to those cash flows.
Customer relationships represent the fair value of future projected revenue that will be derived from sales of products to
new and existing customers and was valued using the distributor method under the income approach. This method reflects the
present value of projected distributor margins to be derived from sales to existing customers less charges representing the
contribution of other assets to those cash flows. The estimated useful life of the customer relationships was determined to be
13.1 years and was based on historical customer turnover rates.
Order backlog represents the fair value of future projected revenue that will be derived from outstanding orders from
customers that have not yet been shipped and was valued using the multi-period excess earnings method under the income
approach, which reflects the present value of such outstanding orders less charges representing the contribution of other assets
to those cash flows. The estimated useful life of the order backlog was determined to be 1.1 years and was based on historical
order fulfilment rates.
Trademarks and trade names relate to the “Nanometrics” trademarks and trade names and were fair valued by applying
the relief-from-royalty method under the income approach. This method is based on the application of a royalty rate to
forecasted revenue under the trademarks and trade names. The estimated useful life of the trademarks and trade names was
determined to be 7.5 years and was based on the expected life of the trademarks and trade names and the cash flows anticipated
over the forecast period.
Factors that required a judgment in determining the fair value for the acquired intangible assets included estimating
future cash flows, revenue and gross margin assumptions, technology lives, future operating expenses, and discount rates,
among others.
The Company has determined that the estimated useful life of the acquired in-process research and development is
currently indeterminate; thus, it has been categorized as indefinite and will be reviewed annually for impairment, along with
the Company’s other long-lived assets with indefinite lives, unless its estimated useful life is known.
The Company believes the amounts of purchased intangible assets recorded above represent the fair values of and
approximate the amounts a market participant would pay for such assets as of the Effective Time.
The results of operations of Nanometrics are reported in the Company’s consolidated financial statements from the
Effective Time and include $66,261 of total net sales and an operating loss of $7,065 for the year ended December 31, 2019.
Unaudited Pro Forma Financial Information
The following unaudited pro forma financial information summarizes the combined results of operations of Rudolph
and Nanometrics, on a pro forma basis, as if the companies had combined at the beginning of fiscal year 2018. The pro forma
financial information is presented for informational purposes only and may not necessarily reflect the actual results of
operations that would have been achieved if the Merger had taken place on January 1, 2018, nor are they necessarily reflective
of future results of operations. The pro forma information for all periods presented also includes adjustments to amortization
charges for acquired intangible assets, depreciation charges for stepped-up fair value of acquired fixed assets, related tax effects
and other adjustments.
F-22
ONTO INNOVATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except per share data)
The reported financial information for the year ended December 31, 2019 includes the results of Rudolph for the year
then-ended and the results of Nanometrics from the Effective Time through December 31, 2019. The reported financial
information for the year ended December 31, 2018 is the historical results of Rudolph:
Year Ended December 31,
2019
2018
Reported
Pro Forma
Reported
Pro Forma
Net revenue...........................................................
Net income attributable to Onto Innovation .........
$
305,896
1,910
$
525,455
901
$
273,784
45,096
$
598,307
36,246
The pro forma results have been adjusted to eliminate $37,900 of merger-related costs incurred by Rudolph and
Nanometrics that would have been incurred in 2017 had the Merger occurred on January 1, 2018.
4.
Fair Value Measurements:
The Company applies a three-level valuation hierarchy for fair value measurements. This hierarchy prioritizes the inputs
into three broad levels. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2
inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability,
either directly or indirectly through market corroboration, for substantially the full term of the asset or liability. Level 3 inputs
are unobservable inputs based on management’s assumptions used to measure assets and liabilities at fair value. A financial
asset’s or liability’s fair value measurement classification within the hierarchy is determined based on the lowest level input
that is significant to the fair value measurement.
F-23
ONTO INNOVATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except per share data)
The following tables provide the assets and liabilities carried at fair value measured on a recurring basis at December 31,
2019 and December 31, 2018:
Fair Value Measurements Using
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
Significant
Other
Observable
Inputs (Level 2)
Significant
Unobservable
Inputs (Level 3)
Carrying
Value
December 31, 2019
Assets:
Available-for-sale debt securities:
Municipal notes and bonds ......................................
Asset-backed securities............................................
Certificates of deposit ..............................................
Commercial paper....................................................
Corporate bonds.......................................................
Foreign currency forward contracts...............................
Total assets .........................................................
Liabilities:
Contingent consideration – acquisitions........................
Total liabilities ....................................................
December 31, 2018
Assets:
Available-for-sale debt securities:
Municipal notes and bonds ......................................
Total assets .........................................................
Liabilities:
Contingent consideration – acquisitions........................
Foreign currency forward contracts...............................
Total liabilities ....................................................
$
$
$
$
$
$
$
$
81,108 $
10,779
30,507
30,708
36,461
120
189,683 $
569 $
569 $
62,684 $
62,684 $
2,060 $
32
2,092 $
— $
—
—
—
—
—
— $
— $
— $
— $
— $
— $
—
— $
81,108 $
10,779
30,507
30,708
36,461
120
189,683 $
— $
— $
62,684 $
62,684 $
— $
32
32 $
—
—
—
—
—
—
—
569
569
—
—
2,060
—
2,060
The Company’s available-for-sale debt securities classified as Level 2 are valued using observable inputs to quoted
market prices, benchmark yields, reported trades, broker/dealer quotes or alternative pricing sources with reasonable levels of
price transparency. The foreign currency forward contracts are primarily measured based on the foreign currency spot and
forward rates quoted by the banks or foreign currency dealers. Investment prices are obtained from third party pricing
providers, which model prices utilizing the above observable inputs, for each asset class.
Level 3 liabilities consisted of contingent consideration related to an acquisition for which the Company uses a discounted
cash flow model to value these liabilities. The Level 3 assumptions used in the discounted cash flow model for the contingent
consideration included projected revenue, timing of cash flows and estimates of discount rates of 0.0% and 9.2% for the years
ended December 31, 2019 and 2018, respectively. A significant decrease in the projected revenue or increase in discount rates
could result in a significantly lower fair value measurement for the contingent consideration.
F-24
ONTO INNOVATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except per share data)
This table presents a reconciliation of all liabilities measured at fair value on a recurring basis using significant
unobservable inputs (Level 3) for the year ended December 31, 2019:
Fair Value
Measurements
Using
Significant
Unobservable
Inputs (Level 3)
Balance at December 31, 2018 ........................................................................................................
$
Total loss due to remeasurement included in general and
administrative expense ............................................................................................................
Additions ....................................................................................................................................
Payments ....................................................................................................................................
Transfer into (out of) Level 3 .....................................................................................................
Balance at December 31, 2019 ........................................................................................................
$
2,060
267
—
(1,758)
—
569
See Note 5 for additional discussion regarding the fair value of the Company’s marketable securities.
Fair Value of Other Financial Instruments
The carrying value of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities
approximates fair value because of the short-term maturity of these instruments. The estimated fair value of these obligations
is based, primarily, on a market approach, comparing the Company’s interest rates to those rates the Company believes it would
reasonably receive upon re-entry into the market. Judgment is required to estimate the fair value using available market
information and appropriate valuation methods.
The carrying amount of the convertible notes receivable approximates fair value based on current interest rates for
instruments with similar characteristics. Convertible notes receivable are initially recognized at fair value. The Company does
not subsequently adjust the fair value of these convertible notes receivable unless it is determined that the convertible note
receivable is impaired. The Company considers the issuer’s financial condition, payment history, and other relevant factors
when assessing the collectability of the convertible note and to reserve the portion of such convertible note for which collection
does not appear likely.
5. Marketable Securities:
The Company has evaluated its investment policies and determined that all of its marketable securities, which are
comprised of debt securities, are to be classified as available-for-sale. The Company’s available-for-sale debt securities are
carried at fair value, with the unrealized gains and losses reported in Stockholders’ equity under the caption “Accumulated
other comprehensive loss.” Realized gains and losses on available-for-sale securities are included in “Other income (expense)”
on the Consolidated Statements of Operations. The Company records other-than-temporary impairment charges for its
available-for-sale debt securities when it intends to sell the securities, it is more-likely-than not that it will be required to sell
the securities before a recovery, or when it does not expect to recover the entire amortized cost basis of the securities. The cost
of securities sold is based on the specific identification method.
The Company has determined that the gross unrealized losses on its marketable securities at December 31, 2019 and 2018
are temporary in nature. The Company reviews its investment portfolio to identify and evaluate marketable securities that have
indications of possible impairment. Factors considered in determining whether a loss is other-than-temporary include the length
of time and extent to which fair value has been less than the cost basis, credit quality and the Company’s ability and intent to
hold the securities for a period of time sufficient to allow for any anticipated recovery in market value.
F-25
ONTO INNOVATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except per share data)
At December 31, 2019 and 2018, marketable securities are categorized as follows:
December 31, 2019
Municipal notes and bonds .................................................
Asset-backed securities.......................................................
Certificates of deposit .........................................................
Commercial paper...............................................................
Corporate bonds..................................................................
Total marketable securities ............................................
December 31, 2018
Municipal notes and bonds .................................................
Total marketable securities ............................................
Amortized
Cost
Gross
Unrealized
Holding Gains
Gross
Unrealized
Holding Losses
Fair
Value
$
$
$
$
80,926
10,767
30,500
30,707
36,409
189,309
62,681
62,681
$
$
$
$
188
12
7
1
52
260
43
43
$
$
$
$
6
—
—
—
—
6
40
40
$
$
$
$
81,108
10,779
30,507
30,708
36,461
189,563
62,684
62,684
The amortized cost and estimated fair value of marketable securities classified by the maturity date listed on the security,
regardless of the Consolidated Balance Sheet classification, is as follows at December 31, 2019 and 2018:
Due within one year............................................................
Due after one through five years.........................................
Due after five through ten years..........................................
Due after ten years ..............................................................
Total marketable securities ............................................
December 31, 2019
December 31, 2018
Amortized
Cost
152,649
36,660
—
—
189,309
$
$
Fair
Value
152,852
36,711
—
—
189,563
$
$
$
$
Amortized
Cost
Fair
Value
47,767
14,914
—
—
62,681
$
$
47,732
14,952
—
—
62,684
The following table summarizes the estimated fair value and gross unrealized holding losses of marketable securities,
aggregated by investment instrument and period of time in an unrealized loss position, at December 31, 2019 and 2018.
December 31, 2019
Municipal notes and bonds .................................................
Total marketable securities ............................................
December 31, 2018
Municipal notes and bonds .................................................
Total marketable securities ............................................
In Unrealized Loss Position
For Less Than 12 Months
Gross
Unrealized
Losses
Fair
Value
In Unrealized Loss Position
For Greater Than 12 Months
Fair
Value
Gross
Unrealized
Losses
$
$
$
$
14,166
14,166
27,952
27,952
$
$
$
$
6
6
30
30
$
$
$
$
— $
— $
4,671
4,671
$
$
—
—
10
10
See Note 4 for additional discussion regarding the fair value of the Company’s marketable securities.
F-26
ONTO INNOVATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except per share data)
6.
Goodwill and Purchased Intangible Assets:
Goodwill
The changes in the carrying amount of goodwill are as follows:
Balance at December 31, 2017, net of accumulated impairment charge of $192,872 .................
Goodwill acquired during the period......................................................................................
Balance at December 31, 2018 ....................................................................................................
Goodwill acquired during the period (Note 3) .......................................................................
Balance at December 31, 2019 ....................................................................................................
$
$
22,495
—
22,495
284,653
307,148
Purchased Intangible Assets
Purchased intangible assets as of December 31, 2019 and 2018 are as follows:
December 31, 2019
Finite-lived intangible assets:
Developed technology.................................................................
Customer and distributor relationships........................................
Trademarks and trade names .......................................................
Total finite-lived intangible assets..................................................
In-process research and development ............................................
Total identifiable intangible assets .........................................
December 31, 2018
Finite-lived intangible assets:
Developed technology.................................................................
Customer and distributor relationships........................................
Trademarks and trade names .......................................................
Total identifiable intangible assets .........................................
Gross Carrying
Amount
Accumulated
Amortization
Net
$
$
$
$
326,726
69,261
12,461
408,448
46,600
455,048
66,177
9,560
4,361
80,098
$
$
$
$
67,861
11,078
4,156
83,095
—
83,095
59,692
9,082
3,876
72,650
$
$
$
$
258,865
58,183
8,305
325,353
46,600
371,953
6,485
478
485
7,448
Intangible asset amortization expense amounted to $10,445, $1,534 and $1,940 for the years ended December 31, 2019,
2018 and 2017, respectively. Assuming no change in the gross carrying value of identifiable intangible assets and estimated
lives, estimated amortization expenses are $53,741 for 2020, $48,009 for 2021, $47,610 for 2022, $47,135 for 2023, and
$41,450 for 2024.
7.
Leasing Arrangements:
The Company leases space for its corporate headquarters, manufacturing, sales and service operations, vehicles and
information technology equipment under operating leases. All of the Company’s leases are operating leases. The Company
elected not to apply Accounting Standard Codification Topic 842 (“ASC 842”) to arrangements with lease terms of less than
12 months. Operating lease right-of-use assets and obligations are reflected within the captions “Operating lease right-of-use
assets,” “Current operating lease obligations,” and “Non-current operating lease obligations,” respectively, on the Consolidated
Balance Sheets.
Operating lease costs were $4,124 during the twelve months ended December 31, 2019. These costs are primarily
related to long-term operating leases, but also include immaterial amounts for short-term leases less than 12 months. Operating
lease costs are recognized on a straight-line basis over the terms of the leases.
Additional operating lease right-of-use assets of $2,946 were recognized as non-cash asset additions that resulted from
new operating lease liabilities as of the twelve months ended December 31, 2019. Cash paid for amounts included in the
F-27
ONTO INNOVATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except per share data)
measurement of operating lease liabilities was $3,872 during the twelve months ended December 31, 2019 and is included in
operating cash flows.
The Company often has the option to renew lease terms for buildings and other assets. The exercise of lease renewal
options is generally at the Company’s sole discretion. In addition, certain lease arrangements may be terminated prior to their
original expiration date at the Company’s discretion. The Company evaluates renewal and termination options at the lease
commencement date to determine if it is reasonably certain to exercise the option on the basis of economic factors. The weighted
average of the remaining lease term for operating leases as of December 31, 2019 was 6.7 years.
The discount rate implicit within the Company’s leases is generally not determinable and therefore the Company
determines the discount rate based on its incremental borrowing rate. The incremental borrowing rate for our leases is
determined based on the lease term in which lease payments are made. The weighted average discount rate used to measure
operating lease liabilities as of December 31, 2019 was 4.5%.
The following table presents information about the amount and timing of cash flows arising from the Company’s
operating leases as of December 31, 2019:
Maturity of Lease Liabilities
2020 ........................................................................................................................
2021 ........................................................................................................................
2022 ........................................................................................................................
2023 ........................................................................................................................
2024 ........................................................................................................................
Thereafter................................................................................................................
Total undiscounted operating lease payments......................................................
Less: Imputed interest.............................................................................................
Present value of operating lease liabilities ...........................................................
$
$
Lease Payments
5,901
4,659
4,059
3,398
2,939
8,196
29,152
4,276
24,876
8.
Convertible Notes Receivable:
On May 31, 2018, the Company entered into a convertible loan agreement with Simax Precision Technologies Limited
(“the borrower”), which allowed them to borrow up to $15,000 in multiple promissory notes with an interest rate of 4.25% per
annum payable on a semi-annual basis. The Company expected to be a supplier of lithography modules to Simax, which is
used in the manufacture, sale and service of lithography systems. At December 31, 2019, the Company had $5,000 in
outstanding convertible notes receivable with the borrower.
During the fourth quarter 2019, the Company and the borrower began negotiations to end their relationship as it pertains
to this agreement. The Company determined that it is unlikely that a portion of the convertible note receivable will be
collectable, and a reserve in the amount of $2,000 was recorded during the period ended December 31, 2019. In addition, the
Company ceased recognizing interest income on these convertible notes receivable as of September 30, 2019.
9.
Balance Sheet Details:
Inventories
Inventories are comprised of the following:
Materials .................................................................................................................
Work-in-process......................................................................................................
Finished goods........................................................................................................
Total inventories................................................................................................
$
$
108,492
42,694
24,948
176,134
$
$
61,025
21,910
13,885
96,820
December 31,
2019
2018
F-28
ONTO INNOVATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except per share data)
Property, Plant and Equipment
Property, plant and equipment, net, is comprised of the following:
Land and building ...................................................................................................
Machinery and equipment ......................................................................................
Furniture and fixtures .............................................................................................
Computer equipment and software .........................................................................
Leasehold improvements ........................................................................................
Accumulated depreciation ......................................................................................
Total property, plant and equipment, net ...........................................................
December 31,
2019
2018
$
$
47,222
56,504
3,968
15,770
13,069
136,533
(38,113)
98,420
$
$
2,584
29,097
3,226
7,906
9,448
52,261
(33,387)
18,874
Depreciation expense amounted to $5,965, $4,848 and $3,990 for the years ended December 31, 2019, 2018 and 2017,
respectively.
Other assets
Other assets is comprised of the following:
Convertible notes receivable, net of allowance of $2,000 ......................................
Operating lease right-of-use assets .........................................................................
Other .......................................................................................................................
Total other assets ...............................................................................................
Accrued liabilities
Accrued liabilities is comprised of the following:
Payroll and related expenses...................................................................................
Warranty .................................................................................................................
Other .......................................................................................................................
Total accrued liabilities .....................................................................................
Other current liabilities
Other current liabilities is comprised of the following:
Contingent consideration – acquisitions .................................................................
Income tax payable .................................................................................................
Current operating lease obligations ........................................................................
Customer deposits...................................................................................................
Accrued inventory ..................................................................................................
Accrued professional fees.......................................................................................
Other .......................................................................................................................
Total other current liabilities .............................................................................
December 31,
2019
2018
3,000
23,588
1,351
27,939
$
$
5,000
—
506
5,506
December 31,
2019
2018
19,365
6,348
491
26,204
$
$
10,648
2,441
611
13,700
December 31,
2019
2018
569
2,783
4,906
1,994
1,614
1,520
5,786
19,172
$
$
1,422
—
—
1,135
1,103
532
3,351
7,543
$
$
$
$
$
$
F-29
ONTO INNOVATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except per share data)
Other non-current liabilities
Other non-current liabilities is comprised of the following:
Unrecognized tax benefits (including interest) .......................................................
Non-current operating lease obligations .................................................................
Contingent consideration – acquisitions .................................................................
Deferred revenue ....................................................................................................
Other .......................................................................................................................
Total non-current liabilities ...............................................................................
$
$
6,384
19,970
—
2,464
2,953
31,771
$
$
5,409
—
638
1,314
3,800
11,161
December 31,
2019
2018
10. Commitments and Contingencies:
Factoring
The Company maintains arrangements under which eligible accounts receivable in Japan are sold without recourse to
unrelated third-party financial institutions. These receivables were not included in the consolidated balance sheets as the criteria
for sale treatment had been met. The Company sold $9,018 of receivables during the year ended December 31, 2019. There
were no material gains or losses on the sale of such receivables. There were no amounts due from such third-party financial
institutions at December 31, 2019.
Intellectual Property Indemnification Obligations
The Company has entered into agreements with customers that include limited intellectual property indemnification
obligations that are customary in the industry. These guarantees generally require the Company to compensate the other party
for certain damages and costs incurred as a result of third-party intellectual property claims arising from these transactions. The
nature of the intellectual property indemnification obligations prevents the Company from making a reasonable estimate of the
maximum potential amount it could be required to pay to its customers. Historically, the Company has not made any
indemnification payments under such agreements and no amount has been accrued in the accompanying consolidated financial
statements with respect to these indemnification guarantees.
Warranty Reserves
The Company generally provides a warranty on its products for a period of 12 to 14 months against defects in material
and workmanship. The Company estimates the costs that may be incurred during the warranty period and records a liability in
the amount of such costs at the time revenue is recognized. The Company’s estimate is based primarily on historical experience.
The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary.
Settlements of warranty reserves are generally associated with sales that occurred during the 12 to 14 months prior to the year-
end and warranty accruals are related to sales during the same year.
Changes in the Company’s warranty reserves are as follows:
Balance, beginning of the period ............................................................................
Accruals.............................................................................................................
Warranty liability assumed in Merger ...............................................................
Usage.................................................................................................................
Balance, end of the period ......................................................................................
$
$
2,441
4,265
4,227
(4,585)
6,348
$
$
2,427
3,486
—
(3,472)
2,441
Year Ended December 31,
2019
2018
F-30
ONTO INNOVATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except per share data)
Legal Matters
From time to time, the Company is subject to legal proceedings and claims in the ordinary course of business. The
following reflects an overview of the material activities with regard to these matters.
Optical Solutions Inc. v. Nanometrics Incorporated (Case No. 18-cv-00417-BLF): On August 2, 2017, Nanometrics was
named as defendant in a complaint filed in New Hampshire Superior Court (“Complaint”). The Complaint, brought by Optical
Solutions, Inc. (“OSI”), alleges claims arising from a purported exclusive purchase contract between OSI and Nanometrics
pertaining to certain product. On September 18, 2017, Nanometrics removed the action to the United States District Court for
the District of New Hampshire. On September 25, 2017, Nanometrics moved to transfer the Complaint to the District Court for
the Northern District of California (the “Court”). On December 20, 2017, Nanometrics filed its complaint against OSI in the
California Superior Court for the County of Santa Clara alleging claims arising from OSI’s breach of certain purchase orders.
Nanometrics’ complaint was later removed by OSI to the Northern District of California. On May 29, 2018, the District Court
of New Hampshire issued an order granting Nanometrics’ motion to transfer the Complaint to the Northern District of California
and denying Nanometrics’ motion to dismiss the Complaint without prejudice. On June 14, 2018, the Complaint was
consolidated with Nanometrics’ complaint against OSI. On August 9, 2018, OSI filed an Amended Complaint. On September
19, 2018, Nanometrics filed a motion to dismiss OSI’s Amended Complaint for failure to state a claim. Nanometrics’ motion
to dismiss was heard on February 28, 2019. On March 5, 2019, the Court granted Nanometrics’ Motion to Dismiss with
leave to amend. OSI filed a Second Amended Complaint on March 29, 2019. Nanometrics filed a motion to dismiss OSI’s
Second Amended Complaint on May 31, 2019. In October of 2019, Nanometrics was renamed Onto Innovation Inc. as a
result of the Merger. Thereafter, the Company’s second motion to dismiss was heard on November 14, 2019. On November
26, 2019 the Court granted the Company’s Motion to dismiss with leave to amend. OSI filed a Third Amended Complaint
on January 21, 2020. Trial has been set for May 16, 2022. At this time, the Company does not anticipate the outcome of this
matter to have a material impact on its financial position, results of operations, or cash flows.
Following the announcement of the proposed merger transaction between Nanometrics Incorporated and Rudolph
Technologies, Inc., two purported class action complaints and three complaints were filed on behalf of Rudolph’s stockholders
against Rudolph and its directors; of those five complaints, three were filed in the United States District Court for the District
of Delaware, one in the United States District Court for the District of New Jersey, and one in the United States District Court
for the District of Massachusetts. One of those five complaints also named Nanometrics and the subsidiary formed to effectuate
the proposed merger transaction as defendants. A sixth complaint was filed on behalf of a Nanometrics stockholder against
Nanometrics and its directors in the United States District Court for the Northern District of California. The complaints are
captioned as follows: Stein v. Rudolph Technologies, Inc., et al. (D. Del.); Rosenblatt et al. v. Rudolph Technologies, Inc., et
al. (D. Del.); Stein et al. v. Rudolph Technologies, Inc., et al. (D. Del.); Parikh v. Rudolph Technologies, Inc., et al. (D.N.J.);
Roy v. Rudolph Technologies, Inc., et al. (D. Mass.); and Bryden-Moore v. Nanometrics Inc., et al. (N.D. Cal.). The Company
refers to these actions collectively as the “Shareholder Actions.” The complaints in the Shareholder Actions generally asserted
claims under Sections 14(a) and 20(a) of the Exchange Act challenging the adequacy of certain disclosures made in the version
of the joint proxy statement/prospectus filed with the SEC on August 15, 2019, or, solely with respect to the complaint captioned
Roy v. Rudolph Technologies, Inc., et al. (D. Mass.), the version of the joint proxy statement/prospectus filed with the SEC on
September 10, 2019. The complaints generally sought, among other relief, an injunction preventing Rudolph from holding the
Rudolph special meeting or consummating the transaction, an injunction preventing the Company from consummating the
transaction, damages in the event that the merger is consummated, and attorneys’ fees. On October 11, 2019, plaintiffs in each
of the Shareholder Actions agreed in principle to dismiss their claims in connection with the issuance of certain supplemental
disclosures regarding the transaction and reserved the right to seek attorneys’ fees. The supplemental disclosures were filed
with the Securities and Exchange Commission that same day. Subsequently, each of the plaintiffs filed a Notice of Voluntary
Dismissal and a negotiation regarding the collective plaintiffs’ mootness fee claims was finalized. The payment for the
plaintiffs’ mootness fee claims, which was immaterial, was thereafter made and the Shareholder Actions have been closed.
Royalty Agreements
Under various licensing agreements, the Company is obligated to pay royalties based on net sales of products sold. There
are no minimum annual royalty payments. Royalty expense amounted to $1,429, $1,904 and $1,117 for the years ended
December 31, 2019, 2018 and 2017, respectively.
F-31
ONTO INNOVATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except per share data)
Open and Committed Purchase Orders
The Company has open and committed purchase orders of $97,877 as of December 31, 2019.
Line of Credit
The Company has a credit agreement with a bank that provides for a line of credit which is secured by the marketable
securities the Company has with the bank. The Company is permitted to borrow up to 70% of the value of eligible securities
held at the time the line of credit is accessed. The available line of credit as of December 31, 2019 was approximately $91,258
with an available interest rate of 3.3%. The credit agreement is available to the Company until such time that either party
terminates the arrangement at their discretion. The Company has not utilized the line of credit to date.
11. Revenue
The following table represents a disaggregation of revenue by timing of revenue:
Point-in-time............................................................................................
Over-time.................................................................................................
Total revenue.................................................................................
Year Ended December 31,
2019
2018
286,130
19,766
305,896
$
$
257,124
16,660
273,784
$
$
See Note 16 of the Notes to the Consolidated Financial Statements for additional discussion of the Company’s
disaggregated revenue in detail.
Contract Liabilities
The Company records contract liabilities when the customer has been billed in advance of the Company completing its
performance obligations. These amounts are recorded as deferred revenue in the Consolidated Balance Sheets.
Changes in deferred revenue were as follows:
Balance, beginning of the period .............................................................
Deferred revenue assumed in Merger.................................................
Deferral of revenue.............................................................................
Recognition of deferred revenue ........................................................
Balance, ending of the period ..................................................................
$
$
Year Ended December 31,
2019
2018
8,080
5,931
28,651
(27,569)
15,093
$
$
7,206
—
19,326
(18,452)
8,080
12.
Share-Based Compensation and Employee Benefit Plans:
Share-Based Compensation Plans
The Company’s share-based compensation plans are intended to attract and retain employees and to provide an incentive
for them to assist the Company to achieve long-range performance goals and to enable them to participate in long-term growth
of the Company. The Company settles restricted stock unit awards and stock option exercises with newly issued common
shares.
Rudolph Technologies, Inc. 2018 Stock Plan (the “2018 Plan”). The 2018 Plan provides for the grant of 2,709 stock
awards and stock options to employees, directors and consultants at an exercise price equal to or greater than the fair market
value of the common stock on the date of grant. Restricted stock units granted under the 2018 Plan typically vest over a three
to five-year period for employees and one year for directors; however, other vesting periods are allowable under the 2018 Plan.
Restricted stock units granted to employees have time based or performance based vesting. If options were to be granted under
the 2018 Plan, they would typically grade vest over a five-year period and expire ten years from the date of grant. As of
F-32
ONTO INNOVATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except per share data)
December 31, 2019 and 2018, there were shares of common stock available for issuance pursuant to future grants under the
2018 Plan totaling 2,478 and 2,680, respectively.
Rudolph Technologies, Inc. 2009 Stock Plan (the “2009 Plan”). The 2009 Plan provided for the grant of 4,711 stock
options and other stock awards to employees, directors and consultants at an exercise price equal to or greater than the fair
market value of the common stock on the date of grant. Options granted under the 2009 Plan typically grade vested over a five-
year period and expired ten years from the date of grant. Restricted stock units granted under the 2009 Plan typically vested
over a three to five-year period for employees and one year for directors; however, other vesting periods were allowable under
the 2009 Plan. Restricted stock units granted to employees have time based or performance based vesting. In the second quarter
of 2018, the 2009 Plan was terminated and therefore as of December 31, 2019 and 2018, there were no shares of common stock
available for issuance pursuant to future grants under the 2009 Plan.
Nanometrics Incorporated 2005 Amended and Restated Equity Incentive Plan (the “2005 Plan”). The 2005 Plan
provides for the grant of 4,714 stock options and other stock awards to employees, directors and consultants at an exercise price
equal to the fair market value of the common stock on the date of grant. Options granted under the 2005 Plan typically grade
vest over a three-year period and expire ten years from the date of grant. Restricted stock units granted under the 2005 Plan
typically vest over a three-year period for employees and one year for directors; however, other vesting periods are allowable
under the 2005 Plan. Restricted stock units granted to employees have time based or performance based vesting. As of
December 31, 2019, there were 1,253 shares of common stock available for issuance pursuant to future grants under the 2005
Plan.
The following table reflects share-based compensation expense by type of award:
Share-based compensation expense:
Restricted stock units, including all performance and market
based awards ...........................................................................
Stock options and employee stock purchase options...................
Total share-based compensation .......................................................
Tax effect on share-based compensation .....................................
Net effect on net income...................................................................
Effect on earnings per share:
Basic............................................................................................
Diluted.........................................................................................
2019
Year Ended December 31,
2018
2017
$
$
$
$
10,421
164
10,585
2,283
8,302
$
$
6,062
—
6,062
1,362
4,700
$
$
(0.28) $
(0.28) $
(0.18) $
(0.18) $
5,433
237
5,670
2,052
3,618
(0.14)
(0.14)
F-33
ONTO INNOVATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except per share data)
Restricted Stock Unit Activity
A summary of the Company’s restricted stock unit activity with respect to the years ended December 31, 2019, 2018
and 2017 follows:
Nonvested at December 31, 2016 ...........................................................................
Granted..............................................................................................................
Vested ................................................................................................................
Forfeited ............................................................................................................
Nonvested at December 31, 2017 ...........................................................................
Granted..............................................................................................................
Vested ................................................................................................................
Forfeited ............................................................................................................
Nonvested at December 31, 2018 ...........................................................................
Granted..............................................................................................................
Assumed in Merger ...........................................................................................
Vested ................................................................................................................
Forfeited ............................................................................................................
Nonvested at December 31, 2019 ...........................................................................
Number of
Shares
Weighted
Average
Grant Date
Fair Value
914
225
(258)
(65)
816
228
(325)
(80)
639
271
598
(366)
(35)
1,107
$
$
$
$
$
$
$
$
$
$
$
$
$
$
15.29
28.23
14.80
17.14
18.50
34.80
17.73
22.12
24.26
29.58
31.43
25.69
26.44
28.89
As of December 31, 2019, there was $22,230 of total unrecognized compensation cost related to restricted stock units
granted under the plans. That cost is expected to be recognized over a weighted average period of 1.9 years.
F-34
ONTO INNOVATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except per share data)
Stock Option Activity
A summary of the Company’s stock option activity with respect to the years ended December 31, 2019, 2018 and 2017
follows:
Weighted
Average
Exercise
Price
Per Share
Weighted
Average
Remaining
Contractual
Term (years)
Aggregate
Intrinsic Value
Shares
Outstanding at December 31, 2016.....................................
Granted..........................................................................
Exercised .......................................................................
Expired ..........................................................................
Forfeited ........................................................................
Outstanding at December 31, 2017.....................................
Granted..........................................................................
Exercised .......................................................................
Expired ..........................................................................
Forfeited ........................................................................
Outstanding at December 31, 2018.....................................
Granted..........................................................................
Assumed in Merger .......................................................
Exercised .......................................................................
Expired ..........................................................................
Forfeited ........................................................................
Outstanding at December 31, 2019.....................................
Vested or expected to vest at December 31, 2019...............
Exercisable at December 31, 2019......................................
173
—
(114)
—
—
59
—
(22)
—
—
37
—
12
(2)
—
—
47
47
47
$
$
$
$
$
12.67
—
11.37
—
—
15.20
—
15.20
—
—
15.20
—
16.27
14.96
—
—
15.49
15.49
15.49
2.4
2.4
2.4
$
$
$
985
985
985
The total intrinsic value of the stock options exercised during 2019, 2018 and 2017 was $51, $384 and $853, respectively.
As of December 31, 2019, there was no unrecognized compensation cost related to stock options granted under the plans.
The options outstanding and exercisable at December 31, 2019 were in the following exercise price ranges:
Range of Exercise Prices
Shares
$14.08 - $14.08 .......................
$15.20 - $15.20 .......................
$15.61 - $18.22 .......................
$18.79 - $18.79 .......................
$14.08 - $18.79 .......................
1
35
9
1
47
Options Outstanding
Weighted
Average
Remaining
Contractual
Life (years)
0.7
3.0
0.5
1.2
2.4
Weighted
Average
Exercise Price
14.08
$
15.20
$
16.37
$
18.79
$
15.49
$
Options Exercisable
Shares
Weighted
Average
Exercise Price
14.08
$
15.20
$
16.37
$
18.79
$
15.49
$
1
35
9
1
47
Employee Stock Purchase Plan
Rudolph Technologies, Inc. 2018 Employee Stock Purchase Plan (the “2018 ESPP”). The 2018 ESPP was terminated
in the third quarter of 2019 as a result of the Merger. Under the terms of the ESPP, eligible employees may have had up to 15%
of eligible compensation deducted from their pay and applied to the purchase of shares of Company common stock. The price
the employee would pay for each share of stock was 95% of the fair market value of Company common stock at the end of the
F-35
ONTO INNOVATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except per share data)
applicable six-month purchase period. The ESPP was intended to qualify under Section 423 of the Internal Revenue Code and
was a non-compensatory plan as defined by FASB ASC 718, “Stock Compensation.” No stock-based compensation expense
attributable to the 2018 ESPP was recorded for the years ended December 31, 2019, 2018 and 2017.
Nanometrics Incorporated Amended and Restated 2003 Employee Stock Purchase Plan (the “2003 ESPP”). Under the
terms of the 2003 ESPP, eligible employees may have up to 10% of eligible compensation deducted from their pay and applied
to the purchase of shares of Company common stock. The price the employee pays for each share of stock is 85% of the lesser
of the fair market value of Company common stock at the beginning or the end of the applicable six-month purchase period.
The 2003 ESPP is intended to qualify under Section 423 of the Internal Revenue Code and is a compensatory plan as defined
by FASB ASC 718, “Stock Compensation.” Stock-based compensation expense attributable to the 2003 ESPP was $165 for
the year ended December 31, 2019.
Through the Company’s employee stock purchase plans, employees purchased 72, 13 and 11 shares during the twelve
months ended December 31, 2019, 2018 and 2017, respectively. As of December 31, 2019 and 2018, there were 236 and 1,206,
shares available for issuance under the Company’s employee stock purchase plans, respectively.
401(k) Savings Plan
The Company has a 401(k) savings plan that allows employees to contribute up to 100% of their annual compensation
to the Plan on a pre-tax or after-tax basis, limited to a maximum annual amount as set periodically by the Internal Revenue
Service. The plan provides a 50% match of all employee contributions up to 6 percent of the employee’s salary. Matching
contributions to the plan totaled $1,317, $1,118 and $1,047 for the years ended December 31, 2019, 2018 and 2017,
respectively.
13. Other Income (Expense), Net:
Other income (expense), net is comprised of the following:
Foreign currency exchange gains (losses), net..................................
Gain on casualty insurance claim .....................................................
Rental income ...................................................................................
Other .................................................................................................
Total other income (expense), net ...............................................
$
$
2019
Year Ended December 31,
2018
2017
676
—
2
102
780
$
$
(255) $
302
—
9
56
$
(457)
—
—
—
(457)
14.
Income Taxes:
The components of income tax expense are as follows:
Current:
Federal.........................................................................................
State.............................................................................................
Foreign ........................................................................................
$
Deferred:
Federal.........................................................................................
State.............................................................................................
Foreign ........................................................................................
Total income tax expense (benefit) ........................................
$
2019
Year Ended December 31,
2018
2017
(27) $
88
1,548
1,609
(4,730)
506
108
(4,116)
(2,507) $
4,423
1,038
626
6,087
1,961
(73)
275
2,163
8,250
$
$
6,020
507
3,159
9,686
17,034
643
(470)
17,207
26,893
F-36
ONTO INNOVATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except per share data)
The income before tax is comprised of the following:
Domestic operations .........................................................................
Foreign operations ............................................................................
$
$
2019
Year Ended December 31,
2018
(7,087) $
$
6,490
49,089
4,257
$
$
2017
57,079
2,723
The provision for income taxes differs from the amount of income tax determined by applying the applicable U.S. federal
income tax rate of 21% for the years ended December 31, 2019 and 2018, and 35% for years ended December 31, 2017 to
income before provision for income taxes as follows:
Federal income tax provision at statutory rate ..................................
State taxes, net of federal effect ........................................................
Foreign taxes, net of federal effect....................................................
Domestic manufacturing benefit.......................................................
Foreign Derived Intangible Income ("FDII") Deduction..................
Global Intangible Low-Taxes Income ("GILTI") inclusion ..............
Non-deductible officer's compensation.............................................
Research & development tax credit ..................................................
Remeasurement of deferred tax balances, related to the Tax Act......
Transition tax on foreign earnings, related to the Tax Act ................
Other .................................................................................................
Provision (benefit) for income taxes ...........................................
Effective tax rate .........................................................................
$
$
Deferred tax assets and liabilities are comprised of the following:
2019
Year Ended December 31,
2018
2017
$
$
(125)
113
(1,277)
—
(2,278)
1,786
826
(2,126)
—
—
574
(2,507)
420%
11,203
747
17
—
(2,217)
113
526
(2,298)
(33)
138
54
8,250
$
$
20,931
573
(238)
(1,569)
—
—
—
(1,559)
8,020
(106)
841
26,893
15%
45%
Deferred Tax Assets:
Reserves and accruals ......................................................................................
Deferred revenue..............................................................................................
Share-based compensation ...............................................................................
Tax credit carryforward....................................................................................
Net operating losses .........................................................................................
Depreciation and amortization .........................................................................
Operating lease right-of-use assets (1)...............................................................
Other ................................................................................................................
Gross deferred tax assets..................................................................................
Less: valuation allowance ................................................................................
Total deferred tax assets after valuation allowance..........................................
Deferred Tax Liabilities:
Depreciation and amortization .........................................................................
Operating lease liabilities (1).............................................................................
Other ................................................................................................................
Gross deferred tax liabilities ............................................................................
Net deferred tax assets (liabilities)......................................................................
$
$
December 31,
2019
2018
8,254
1,219
2,955
11,307
6,008
7,151
4,965
1,128
42,987
(14,160)
28,827
(89,286)
(4,709)
(416)
(94,411)
(65,584)
$
$
4,880
1,201
1,259
2,484
1,692
4,298
—
777
16,591
(3,172)
13,419
(609)
—
—
(609)
12,810
(1) As discussed in Note 7 to the Consolidated Financial Statements, in 2019, the Company adopted an updated accounting standard that
resulted in the recognition of operating right-of-use assets and lease liabilities. The Company adopted this standard using a transition
method that does not require application to periods prior to adoption.
F-37
ONTO INNOVATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except per share data)
At December 31, 2019 and 2018, the Company had recorded valuation allowances of $14,160 and $3,172, respectively,
on a certain portion of the Company’s deferred tax assets to reflect the deferred tax assets at the net amount that is more likely
than not to be realized. The Company maintained a full valuation allowance on its remaining foreign tax credits in the amount
of $2,366, as well as maintaining a full valuation allowances against its China, Switzerland and United Kingdom deferred tax
assets of $478, $3,434 and $443, respectively. The Company also maintained a valuation allowance against a portion of its
California deferred tax assets of $7,439.
In assessing the realizability of deferred tax assets, the Company uses a more likely than not standard. If it is determined
that it is more-likely-than-not that deferred tax assets will not be realized, a valuation allowance must be established against
the deferred tax assets. The ultimate realization of the assets is dependent on the generation of future taxable income during the
periods in which the associated temporary differences become deductible. Management considers the scheduled reversal of
deferred income tax liabilities, projected future taxable income and tax planning strategies when making this assessment. In
making the determination that it is more likely than not that the Company’s deferred tax assets will be realized as of
December 31, 2019, the Company relied primarily on the reversal of deferred tax liabilities as well as projected future taxable
income.
At December 31, 2019, the Company had federal, state and foreign net operating loss carryforwards of $1,997, $25,630
and $20,986, respectively. The federal, state and foreign net operating loss carryforwards expire on various dates beginning in
2020 through 2035.
At December 31, 2019, the Company had federal and state research & development credits and foreign tax credit
carryforwards of $6,859, $9,948 and $2,366, respectively. The state research & development credits are set to expire at various
dates beginning in 2025. The foreign tax credit is set to expire at various dates through December 31, 2029.
As of December 31, 2019, the Company has provided U.S. income taxes on all its foreign earnings. The Company
continues to permanently reinvest the cash held offshore to support its working capital needs. Accordingly, no additional
foreign withholding taxes that may be required from certain jurisdictions in the event of a cash distribution have been provided
for.
The total amount of unrecognized tax benefits are as follows:
Balance, beginning of the period ......................................................
Gross increases—tax positions in prior period............................
Gross decreases—tax positions in prior period ...........................
Gross increases—current-period tax positions ............................
Lapse of statute of limitations .....................................................
Balance, end of the period ................................................................
$
$
5,528
9,989
(932)
558
—
15,143
$
$
4,880
496
(61)
213
—
5,528
$
$
4,827
171
(362)
244
—
4,880
2019
December 31,
2018
2017
The unrecognized tax benefit at December 31, 2019 and 2018 were $15,143 and $5,528, respectively, of which $10,649
and $4,995, respectively, would be reflected as an adjustment to income tax expense if recognized. The year over year increase
from 2018 to 2019 is primarily due to additional unrecognized tax benefits related to federal tax exposures. It is reasonably
possible that certain amounts of unrecognized tax benefits may reverse in the next 12 months; however, the Company does not
expect such reversals to have a significant impact on its results of operations or financial position.
The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense.
During the years ended December 31, 2019, 2018 and 2017, the Company recognized approximately $236, $199 and $246,
respectively, in interest and penalties expense associated with uncertain tax positions. As of December 31, 2019 and 2018, the
Company had accrued interest and penalties expense related to unrecognized tax benefits of $1,681 and $1,445, respectively.
The Company is subject to U.S. federal income tax as well as income tax in multiple state and foreign jurisdictions. The
Company is subject to ordinary statute of limitation rules of three and four years for federal and state returns, respectively.
F-38
ONTO INNOVATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except per share data)
However, due to tax attribute carryforwards, the Company is subject to examination for tax years 2003 forward for U.S. federal
tax purposes. The Company is also subject to examination in various states for tax years 2002 forward. The Company is
subject to examination for tax years 2011 forward for various foreign jurisdictions. The Company believes that adequate
amounts have been reserved for any adjustments that may ultimately result from any future examinations of these years.
In the normal course of business, the Company is subject to tax audits in various jurisdictions, and such jurisdictions may
assess additional income taxes or other taxes against it. Although the Company believes its tax estimates are reasonable, the
final determination of tax audits and any related litigation could be materially different from the Company’ s historical income
tax provisions and accruals. The results of an audit or litigation could have a material adverse effect on the Company’ s results
of operations or cash flows in the period or periods for which that determination is made.
15. Accumulated Other Comprehensive Loss:
Comprehensive income includes net income, foreign currency translation adjustments, and net unrealized gains and
losses on available-for-sale debt securities. See the Consolidated Statements of Comprehensive Income for the effect of the
components of comprehensive income on the Company’s net income.
The components of accumulated other comprehensive loss, net of tax, are as follows:
Foreign currency
translation
adjustments
Net unrealized
(gains) losses on
marketable
securities
Accumulated
other
comprehensive
loss (income)
Balance at December 31, 2017 .........................................................
Net current period other comprehensive loss ..............................
Reclassifications..........................................................................
Balance at December 31, 2018 .........................................................
Net current period other comprehensive income.........................
Reclassifications..........................................................................
Balance at December 31, 2019 .........................................................
$
$
1,079
194
—
1,273
(709)
—
564
$
$
126
(136)
—
(10)
44
—
34
$
$
1,205
58
—
1,263
(665)
—
598
16.
Segment Reporting and Geographic Information:
The Company is engaged in the design, development, manufacture and support of high-performance control metrology,
defect inspection, advanced packaging lithography and data analysis systems used by microelectronics device manufacturers.
The Company and its subsidiaries currently operate in a single operating segment: the design, development, manufacture and
support of high-performance process control defect inspection and metrology, advanced packaging lithography and process
control software systems used by microelectronics device manufacturers. Therefore, the Company has one reportable segment.
The Company’s chief operating decision maker is the Chief Executive Officer (the “CEO”). The CEO allocates resources and
assesses performance of the business and other activities at the reportable segment level.
The following table lists the different sources of revenue:
Systems and software .....................................................
Parts ................................................................................
Services...........................................................................
Total revenue........................................................
2019
$255,723
34,892
15,281
$305,896
Year Ended December 31,
2018
2017
84% $234,241
11% 28,658
5% 10,885
100% $273,784
86% $216,884
10% 27,143
4% 11,071
100% $255,098
85%
11%
4%
100%
F-39
ONTO INNOVATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except per share data)
The Company’s significant operations outside the United States include sales, service and application offices in Asia and
Europe. For geographical revenue reporting, revenue is attributed to the geographic location to which the product is shipped.
Revenue by geographic region is as follows:
2019
Year Ended December 31,
2018
2017
Revenue from third parties:
United States .................................................................................
Taiwan ...........................................................................................
South Korea...................................................................................
Singapore.......................................................................................
Japan..............................................................................................
Germany........................................................................................
China .............................................................................................
Other Europe .................................................................................
Other Asia......................................................................................
Total revenue............................................................................
$
$
46,717
66,601
43,997
10,699
29,816
4,899
80,017
18,124
5,026
305,896
$
$
43,944
45,312
51,750
14,371
22,361
14,913
63,243
12,260
5,630
273,784
$
$
36,104
63,079
44,180
12,775
18,943
15,580
35,925
23,768
4,744
255,098
In 2019, sales to Taiwan Semiconductor Manufacturing Co. Ltd and SK Hynix Inc. accounted for 13.4% and 13.1%,
respectively, of the Company’s revenue. In 2018, sales to SK Hynix Inc. accounted for 12.2% of the Company’s revenue. No
individual end user customer accounted for more than 10% of the Company’s revenue in 2017. The Company does not have
purchase contracts with any of its customers that obligate them to continue to purchase its products.
At December 31, 2019, one customer, Taiwan Semiconductor Manufacturing Co. Ltd., accounted for more than 10% of
net accounts receivable. At December 31, 2018, no individual customer accounted for more than 10% of net accounts
receivable.
Substantially all of the Company’s long-lived assets are located within the United States of America.
17. Earnings Per Share:
Basic earnings per share is calculated using the weighted average number of shares of common stock outstanding during
the period. Diluted earnings per share is computed in the same manner and also gives effect to all dilutive common stock
equivalent shares outstanding during the period. Potential common shares that would have the effect of increasing diluted
earnings per share are considered to be anti-dilutive. In accordance with U.S. GAAP, these shares were not included in
calculating diluted earnings per share.
For the year ended December 31, 2019, the weighted average number of restricted stock units and stock options excluded
from the computation of diluted earnings per share were 69 and 0, respectively. For the year ended December 31, 2018, the
weighted average number of restricted stock units and stock options excluded from the computation of diluted earnings per
share were 52 and 0, respectively. For the year ended December 31, 2017, the weighted average number of restricted stock
units and stock options excluded from the computation of diluted earnings per share were 8 and 0, respectively.
F-40
ONTO INNOVATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except per share data)
The Company’s basic and diluted earnings per share amounts are as follows:
Numerator:
Net income ..................................................................................
$
1,910
$
45,096
$
32,909
Denominator:
Basic earnings per share - weighted average shares
outstanding ...............................................................................
29,729
25,470
25,325
2019
December 31,
2018
2017
Effect of potential dilutive securities:
Restricted stock units and stock options - dilutive
shares........................................................................................
Warrants - dilutive shares ............................................................
Diluted earnings per share - weighted average shares
outstanding ...............................................................................
Earnings per share:
278
—
426
—
539
1
30,007
25,895
25,865
Basic............................................................................................
Diluted.........................................................................................
$
$
0.06
0.06
$
$
1.77
1.74
$
$
1.30
1.27
F-41
ONTO INNOVATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except per share data)
18.
Shares Repurchase Authorization:
In October 2018, the Rudolph Board of Directors approved a share repurchase authorization, which allowed Rudolph to
repurchase up to $40,000 worth of shares of the Rudolph’s common stock. The authorization provided for repurchases to be
made in the open market or through negotiated transactions from time to time. The share repurchase authorization was
terminated on October 25, 2019 due to the closing of the Merger.
The following table summarizes the Company’s stock repurchases:
Shares of common stock repurchased.................................
Cost of stock repurchased ...................................................
Average price paid per share...............................................
$
$
37
744
19.85
$
$
1,061
21,069
19.86
$
$
—
-
-
2019
Year Ended December 31,
2018
2017
Following the Merger, the Company assumed the share repurchase authorization approved on March 14, 2019, by the
former Nanometrics Board of Directors. This share repurchase authorization allows for the Company to purchase up to $80,000
worth of shares of its common stock. Under the terms of this share repurchase authorization, shares may be repurchased through
open market or privately negotiated transactions. No shares have been repurchased under this repurchase authorization as of
December 31, 2019.
F-42
ONTO INNOVATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except per share data)
19. Quarterly Consolidated Financial Data (unaudited):
The following tables present certain unaudited consolidated quarterly financial information for the years ended
December 31, 2019 and 2018. In the opinion of the Company’s management, this quarterly information has been prepared on
the same basis as the consolidated financial statements and includes all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the information for the periods presented. The results of operations for any quarter are
not necessarily indicative of results for the full year or for any future period.
Year-over-year quarterly comparisons of the Company’s results of operations may not be meaningful, as the sequential
quarterly comparisons set forth below tend to reflect the cyclical activity of the semiconductor industry as a whole. Other
quarterly fluctuations in expenses are related directly to sales activity and volume and may also reflect the timing of operating
expenses incurred throughout the year, and changes in tax rates.
Revenue ...................................................................
Gross profit ..............................................................
Income (loss) before income taxes ..........................
Net income (loss).....................................................
Income (loss) per share:
Quarters Ended
$
March 31,
2019
60,892
32,019
8,795
7,576
$
June 30,
2019
61,511
31,911
6,121
5,526
September 30,
2019
$
62,935
31,511
6,908
6,560
December 31,
2019
$ 120,558
39,587
(22,421) $
(17,752) $
Total
$ 305,896
$ 135,028
(597)
1,910
Basic...................................................................
Diluted................................................................
$
$
0.31
0.30
$
$
0.22
0.22
$
$
0.26
0.26
$
$
(0.41) $
(0.41) $
0.06
0.06
Weighted average number of shares outstanding:
Basic...................................................................
Diluted................................................................
24,863
25,144
25,032
25,250
25,079
25,305
43,609
43,609
29,729
30,007
Revenue ...................................................................
Gross profit ..............................................................
Income before income taxes ....................................
Net income...............................................................
Income per share:
Quarters Ended
$
March 31,
2018
73,096
42,421
17,674
15,130
$
June 30,
2018
77,476
41,736
17,290
14,697
September 30,
2018
$
60,432
31,454
8,368
7,187
$
December 31,
2018
62,780
32,668
10,014
8,082
Total
$ 273,784
148,279
53,346
45,096
Basic...................................................................
Diluted................................................................
$
$
0.59
0.58
$
$
0.57
0.56
$
$
0.28
0.28
$
$
0.32
0.32
$
$
1.77
1.74
Weighted average number of shares outstanding:
Basic...................................................................
Diluted................................................................
25,463
25,989
25,621
26,086
25,655
26,063
25,146
25,449
25,470
25,895
F-43
ONTO INNOVATION INC. AND SUBSIDIARIES
SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Column A
Description
Year 2019:
Allowance for doubtful
Column B
Balance at
Beginning of
Period
Column C
Column D
Column E
Charged to (Recovery
of) Costs and Expense
Charged to Other
Accounts (net)
Deductions
Balance at
End of Period
accounts......................
$
691 $
363 $
— $
(193) $
1,247
Deferred tax valuation
allowance....................
Allowance for convertible
notes receivable ..........
Year 2018:
Allowance for doubtful
3,172
—
accounts......................
$
460 $
Deferred tax valuation
allowance....................
Year 2017:
Allowance for doubtful
2,447
942
2,000
293 $
725
10,046
—
—
—
— $
62 $
—
—
accounts......................
$
680 $
(222) $
— $
(2) $
Deferred tax valuation
allowance....................
1,924
626
(103)
—
14,160
2,000
691
3,172
460
2,447
F-44
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
SIGNATURES
Onto Innovation Inc.
(Registrant)
By:
/s/ Michael P. Plisinski
Michael P. Plisinski
Chief Executive Officer
Date:
February 25, 2020
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT
HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN
THE CAPACITIES AND ON THE DATES INDICATED.
Signature
Title
/s/ Michael P. Plisinski
Michael P. Plisinski
/s/ Steven R. Roth
Steven R. Roth
/s/ Jeffrey A. Aukerman
Jeffrey A. Aukerman
/s/ Leo Berlinghieri
Leo Berlinghieri
/s/ Edward J. Brown, Jr.
Edward J. Brown Jr.
/s/ Vita A Cassese
Vita A. Cassese
/s/ Robert G. Deuster
Robert G. Deuster
/s/ David B. Miller
David B. Miller
/s/ Bruce C. Rhine
Bruce C. Rhine
/s/ Christopher A. Seams
Christopher A. Seams
/s/ Timothy J. Stultz, Ph.D.
Timothy J. Stultz, Ph.D.
/s/ Christine A. Tsingos
Christine A. Tsingos
/s/ John R. Whitten
John R. Whitten
Chief Executive Officer (Principal
Executive Officer)
Senior Vice President, Chief Financial
Officer (Principal Financial Officer and
Principal Accounting Officer)
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Date
February 25, 2020
February 25, 2020
February 25, 2020
February 25, 2020
February 25, 2020
February 25, 2020
February 25, 2020
February 25, 2020
February 25, 2020
February 25, 2020
February 25, 2020
February 25, 2020
February 25, 2020
SUBSIDIARIES
Name
Rudolph Technologies, Inc.
4D Technology Corporation
Rudolph Technologies Japan K.K.
Nanometrics Japan K.K.
Rudolph Technologies (Shanghai) Trading Co., Ltd.
Nanometrics China Company Ltd.
Rudolph Technologies Germany GmbH
Accent Optical Technologies (Germany) GmbH
Rudolph Technologies Hong Kong Limited
Rudolph Technologies Europe, B.V.
Nanometrics France S.A.S.
Nanometrics (Switzerland) GmbH
Nanometrics U.K. Ltd.
Nanometrics Israel, Ltd.
Nanometrics Korea Limited
Nanometrics Southeast Asia Pte. Limited
Nanometrics Metrology Ireland Limited
Exhibit 21.1
Jurisdiction
U.S.A.
U.S.A.
Japan
Japan
China
China
Germany
Germany
Hong Kong
Netherlands
France
Switzerland
United Kingdom
Israel
Korea
Singapore
Ireland
Rule 13a-14(a) Certification of Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.1
I, Michael P. Plisinski, certify that:
1. I have reviewed this annual report on Form 10-K of Onto Innovation Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
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, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (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 registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’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 role in the
registrant’s internal control over financial reporting.
Date: February 25, 2020
By:/s/ Michael P. Plisinski
Michael P. Plisinski
Chief Executive Officer
Exhibit 31.2
Rule 13a-14(a) Certification of Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Steven R. Roth, certify that:
1. I have reviewed this annual report on Form 10-K of Onto Innovation Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
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, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (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 registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’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 role in the
registrant’s internal control over financial reporting.
Date: February 25, 2020
By:/s/ Steven R. Roth
Steven R. Roth
Senior Vice President and Chief Financial Officer
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
I, Michael P. Plisinski, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that the Annual Report of Onto Innovation Inc. on Form 10-K for the year ended December 31, 2019 fully complies
with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and that the
information contained in the Annual Report on Form 10-K fairly presents in all material respects the financial condition and
results of operations of Onto Innovation Inc.
Date: February 25, 2020
By:/s/ Michael P. Plisinski
Michael P. Plisinski
Chief Executive Officer
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
I, Steven R. Roth, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002, that the Annual Report of Onto Innovation Inc. on Form 10-K for the year ended December 31, 2019 fully complies
with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and that the
information contained in the Annual Report on Form 10-K fairly presents in all material respects the financial condition and
results of operations of Onto Innovation Inc.
Date: February 25, 2020
By:/s/ Steven R. Roth
Steven R. Roth
Senior Vice President and Chief Financial Officer
Forward Looking Statements
This proxy statement contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act
of 1995 (the “Act”) which include those concerning Onto Innovation’s business momentum and future growth; acceptance of
Onto Innovation’s products and services; Onto Innovation’s ability to both deliver products and services consistent with its
customers’ demands and expectations and strengthen its market position; as well as other matters that are not purely historical
data. Onto Innovation wishes to take advantage of the “safe harbor” provided for by the Act and cautions that actual results
may differ materially from those projected as a result of various factors, including risks and uncertainties, many of which are
beyond Onto Innovation’s control. Such factors include, but are not limited to, the following: variations in the level of orders,
which can be affected by general economic conditions; seasonality and growth rates in the semiconductor manufacturing
industry and in the markets served by Onto Innovation’s customers; the global economic and political climates; the impact on
supply, production, sales and delivery of our products and services due to the global spread of the coronavirus (COVID-19);
difficulties or delays in product functionality or performance; the delivery performance of sole source vendors; the timing of
future product releases; failure to respond to changes in technology or customer preferences; changes in pricing by Onto
Innovation or its competitors; Onto Innovation’s ability to leverage its resources to improve its position in its core markets, to
weather difficult economic environments, to open new market opportunities and to target high-margin markets; the
strength/weakness of the back-end and/or front-end semiconductor market segments; the imposition of tariffs or trade
restrictions and costs, burdens and restrictions associated with other governmental actions; the ability to successfully integrate
the businesses of Rudolph and Nanometrics promptly and effectively and to achieve the anticipated synergies and value-
creation contemplated by the Merger within the expected time frame; unanticipated difficulties or expenditures relating to the
Merger and integration of the Rudolph and Nanometrics businesses; the response of business partners and retention as a result
of the Merger; the diversion of management time in connection with the integration; and the effect of litigation related to the
Merger. Additional information and considerations regarding the risks faced by Onto Innovation are available in the Company’s
Annual Report on Form 10-K for the year ended December 31, 2019 and other filings with the Securities and Exchange
Commission. As the forward-looking statements are based on Onto Innovation’s current expectations, the Company cannot
guarantee any related future results, levels of activity, performance or achievements. Onto Innovation does not assume any
obligation to update the forward-looking information contained in this proxy statement.
Date:
Time:
Place:
NOTICE OF 2020 ANNUAL MEETING OF STOCKHOLDERS
Tuesday, May 12, 2020
10:00 a.m., Eastern time*
Company principal executive offices located at 16 Jonspin Road, Wilmington, Massachusetts, 01887
Record Date:
Only stockholders of record at the close of business on March 13, 2020 are entitled to vote at the
meeting and any adjournment or postponement thereof for which no new record date is set.
Items of Business:
1.
To elect the Board’s ten nominees for director to serve until the next annual meeting and until their
successors are duly elected and qualified;
2.
3.
4.
5.
6.
To approve, on an advisory (non-binding) basis, the compensation of our named executive officers
as disclosed in this proxy statement;
To approve the Onto Innovation Inc. 2020 Stock Plan;
To approve the Onto Innovation Inc. 2020 Employee Stock Purchase Plan;
To ratify the appointment of Ernst & Young LLP as our independent registered public accounting
firm for the fiscal year ending December 26, 2020; and
To transact such other business as may properly come before the meeting and any adjournment or
postponement thereof.
These items of business are described more fully in the accompanying proxy statement. This year we will be providing
access to our proxy materials via the internet in accordance with the Securities and Exchange Commission’s “Notice and
Access” rules. On or about April 3, 2020, we will be mailing our Notice of Internet Availability of Proxy Materials to our
stockholders, which contains instructions for our stockholders’ use of this process, including how to access our 2020 proxy
statement and 2019 annual report to stockholders and how to vote online. In addition, the Notice of Internet Availability of
Proxy materials contains instructions on how you may receive a paper copy of the 2020 proxy statement and 2019 annual report
to stockholders.
Your vote is important. As always, but especially now given the uncertainties posed by the Coronavirus (COVID-19)
pandemic, we encourage you to vote your shares as soon as possible and prior to the Annual Meeting via the internet even if
you plan to participate in the Annual Meeting. Voting will ensure your shares are represented at the Annual Meeting, regardless
of whether you attend the Annual Meeting. You may cast your vote via the internet, by mail or during the Annual Meeting. If
you receive a paper copy of the proxy card by mail, you may also mark, sign, date, and return the proxy card promptly in the
accompanying postage-prepaid envelope.
*We intend to hold our annual meeting in person. However, we are sensitive to the public health and travel concerns
our stockholders may have and recommendations that public health officials may issue in light of the evolving coronavirus
(COVID-19) situation. As a result, we may impose additional procedures or limitations on meeting attendees or may decide to
hold the meeting in a different location or solely by means of remote communication (i.e., a virtual-only meeting). In such an
event, we would announce any such updates in additional proxy materials filed with the SEC and in a press release that we
would make available on our website at https://investors.ontoinnovation.com. We encourage you to check this website prior to
the meeting if you plan to attend.
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MAY 12, 2020:
This notice, the proxy statement, and the 2019 Annual Report to Stockholders are available at:
https://www.ontoinnovation.com/ar-proxy
Wilmington, Massachusetts
April 3, 2020
FOR THE BOARD OF DIRECTORS
Robert A. Koch
Secretary
PROXY SUMMARY
On October 25, 2019 (the “Merger Date”), Rudolph Technologies, Inc. merged with and into Nanometrics Incorporated, which
was then renamed Onto Innovation Inc. (the “2019 Merger”). Unless otherwise indicated or context otherwise requires, as used
herein “Nanometrics” refers to Nanometrics Incorporated and its subsidiaries prior to the 2019 Merger and “Rudolph” refers
to Rudolph Technologies, Inc. and its subsidiaries prior to the 2019 Merger.
This summary highlights information contained elsewhere in the proxy statement. This summary does not contain all of the
information that you should consider, and you should read the entire proxy statement carefully before voting.
Stockholder Voting Matters
Voting Matter
Board Vote
Recommendation
Page Reference for
more information
Proposal 1: Election of Directors
FOR ALL
Proposal 2: Advisory Vote on Named Executive Officer Compensation
Proposal 3: Approval of the Onto Innovation Inc. 2020 Stock Plan
Proposal 4: Approval of the Onto Innovation Inc. 2020 Employee Stock
Purchase Plan
Proposal 5: Ratification of Appointment of Independent Registered
Public Accounting Firm for the Fiscal Year Ending
December 26, 2020
FOR
FOR
FOR
FOR
18
30
31
41
44
Corporate Governance Highlights
Snapshot Of Board Composition
The following table presents a snapshot of the expected composition of the Onto Innovation Board of Directors immediately
following the 2020 Annual Meeting, assuming the election of all nominees named in the proxy statement.
Board Characteristic
Total Number of Directors
Percentage of Independent Directors
Average Age of Directors (years)
Average Tenure of Directors (years)
Separate Chairman and CEO roles
Independent Chairman
Audit Committee Financial Experts
1
Onto
Innovation
10
90%
61.4
6.3
Yes
Yes
2
Snapshot Of Board Governance And Compensation Policies
The following table presents a snapshot of the Onto Innovation Board Governance and Compensation Policies currently in
effect.
Policy
Majority Voting for All Directors
Regular Executive Sessions of Independent Directors
Annual Board, Committee and Director Evaluations
Risk Oversight by Full Board and Committees
Independent Audit, Compensation and Nominating & Governance Committees
Code of Business Conduct and Ethics for Employees and Directors
Financial Information Integrity Policy
Stock Ownership Requirement for Directors
Stock Ownership Requirement for CEO
Stock Ownership Requirement for other NEOs
Stock Ownership Requirements for other executives
Anti-Hedging, Anti-Short Sale & Anti-Pledging Policy
Compensation Clawback Policy
No Future Tax Gross-Up Provisions
No Poison Pill
Stock Buyback Program
Double Trigger Change-in-Control Provisions for Executives
2
Onto Innovation
Yes
Yes
Yes
Yes
Yes
Yes
Yes
3x annual retainer
3x base salary
1x base salary
Specified number of
shares
Yes
Yes
Yes
Yes
Yes
Yes
Snapshot Of Board Governance And Compensation Policies Newly Implemented Or Adjusted In Past Year
The following presents a snapshot of the Onto Innovation Board Governance and Compensation Policies that were newly
implemented or adjusted in the past year.
•
•
•
•
•
•
As of the Merger Date, the following was established with regard to the Board of Directors:
◦ Board size of twelve (12) Directors.
◦ Board of Directors Chairman: Christopher A. Seams
◦ Audit Committee:
- Five (5) members
- Chairperson: Christine A. Tsingos
◦ Compensation Committee:
- Five (5) members
- Chairperson: Edward J. Brown, Jr.
◦ Nominating & Governance Committee:
- Five (5) members
- Chairperson: Leo Berlinghieri
Prior to the Merger Date, the Nanometrics Board of Directors approved the charters for the Audit, Compensation and
Nominating & Governance Committees, the Code of Business Conduct and Ethics and the Financial Information
Integrity Policy and the Summary of Corporate Governance Policies for the Company in order that they be established
as of the Merger Date in accordance with NYSE listing rules. Each charter, policy and summary was thereafter ratified
by the Board of Directors of the Company at the first Board of Directors Meeting following the Merger Date.
Foreign Corrupt Practices Act Policy
At the first Board of Directors meeting following the Merger Date, the Board approved the following policies for Onto
Innovation:
◦
◦ Related Parties Transaction Policy
◦
◦ Director Candidate Policy
◦
◦
Thereafter, an Incentive Compensation Clawback Policy was approved for the Company.
Insider Trading Compliance Policy
Stockholder Communication Policy
Stock Ownership Policy
The Company established an incentive compensation plan for executives which combined elements of the legacy
Nanometrics and Rudolph Technologies plans and includes a long-term equity component which utilizes both time-
based and performance-based awards. The performance-based awards employ a Total Shareholder Return (“TSR”)
calculation comparing Company TSR to a peer group consisting of the thirty (30) companies in the Philadelphia
Semiconductor Index (SOX).
The Board of Directors determined that subsequent to the 2020 Annual Meeting of Stockholders the size of the
Company Board would be reduced to ten (10) members.
Consistent with Nanometrics’ prior policy, the Board of Directors approved a 52-53-week fiscal year ending on the
last Saturday in December for the Company.
3
__________________________________________
PROXY STATEMENT
__________________________________________
The proxy detailed herein is solicited on behalf of the Board of Directors (the “Board” or “Board of Directors”) of Onto
Innovation Inc. (“Onto Innovation,” the “Company,” “we,” “us” or “our”) for use at the 2020 Annual Meeting of Stockholders
to be held May 12, 2020 at 10:00 a.m. Eastern time (the “Annual Meeting”), or at any adjournment or postponement thereof,
for the purposes set forth herein and in the accompanying Notice of Annual Meeting of Stockholders. The Annual Meeting will
be held at the Company’s principal executive offices, located at 16 Jonspin Road, Wilmington, Massachusetts 01887. Directions
to the annual meeting may be found on our website www.ontoinnovation.com by clicking on “Company,” “Locations,”
“Massachusetts” and then accessing the interactive map. The Company’s telephone number is (978) 253-6200.
We intend to hold the Annual Meeting in person. However, we are sensitive to the public health and travel concerns our
stockholders may have and recommendations that public health officials may issue in light of the evolving coronavirus
(COVID-19) situation. As a result, we may impose additional procedures or limitations on meeting attendees or may decide to
hold the meeting in a different location or solely by means of remote communication (i.e., a virtual-only meeting). In such an
event, we would announce any such updates in additional proxy materials filed with the SEC and in a press release that would
be available on our website at https://investors.ontoinnovation.com. We encourage you to check this website prior to the
meeting if you plan to attend.
On or about Friday, April 3, 2020, we will furnish a Notice of Internet Availability of Proxy Materials (“Notice”) to our
stockholders containing instructions on how to access the proxy materials online at:
https://www.ontoinnovation.com/ar-proxy
Instructions on how to vote online and to request a printed copy of the proxy materials may be found in the Notice. If you
received a Notice by mail, you will not receive a paper copy of the proxy materials, unless you request such materials by
following the instructions contained in the Notice. Your vote is important, regardless of the extent of your holdings.
QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING
What Is The Purpose Of The Annual Meeting?
At the Annual Meeting, stockholders will be asked to vote upon the matters set forth in the accompanying Notice of Annual
Meeting, including:
•
•
•
•
•
the election of ten (10) directors;
an advisory resolution on named executive officer compensation;
approval of the Onto Innovation 2020 Stock Plan;
approval of the Onto Innovation 2020 Employee Stock Purchase Plan; and
the ratification of the appointment of our independent registered public accounting firm for fiscal 2020,
all of which are more fully described herein.
Will Other Matters Be Voted On At The Annual Meeting?
We are not currently aware of any other matters to be presented at the Annual Meeting other than those described in this proxy
statement. If any other matters not described in the proxy statement are properly presented at the meeting, any proxies received
by us will be voted in the discretion of the proxy holders.
4
Who Is Entitled To Vote?
If you were a stockholder of record as of the close of business on March 13, 2020, which is referred to in this proxy statement
as the “record date,” you are entitled to receive notice of the Annual Meeting and to vote the shares of common stock that you
held as of the close of business on the record date. Each stockholder is entitled to one (1) vote for each share of common stock
held by such stockholder on the record date.
May I Attend The Meeting?
All stockholders of record as of the record date may attend the Annual Meeting.
To gain admission, you will need valid picture identification and proof that you are a stockholder of record of the Company as
of the record date, or if you are a beneficial holder, proof from your bank, broker or other record holder of your shares that you
are the beneficial owner of such shares. If you are a beneficial holder and wish to vote your shares at the meeting, you will
need a legal proxy from your bank, broker or other record holder of your shares. To obtain directions to attend the Annual
Meeting and vote in person, please contact Investor Relations at 978-253-6200.
What Constitutes A Quorum?
The required quorum for the transaction of business at the Annual Meeting is a majority of the issues and outstanding shares
of Common Stock of the Company, $0.001 par value per share (“Common Stock”), present in person or by proxy and entitled
to vote at the Annual Meeting. On the record date, 50,381,691 shares of the Company’s Common Stock were issued and
outstanding, each entitled to one vote on each matter to be acted upon at the Annual Meeting. Your shares will be counted
towards the quorum only if you submit a valid proxy (or one is submitted on your behalf by your broker, bank or other nominee)
or if you vote in person at the meeting. Abstentions and broker non-votes will be counted to determine whether there is a
quorum present. If a quorum is not present, the Annual Meeting may be adjourned or postponed to a later date.
What Are “Broker Non-Votes”?
A broker non-vote occurs when a bank, broker or other registered holder of record holds shares for a beneficial owner, but is
not empowered to vote on a particular proposal on behalf of such beneficial owner because the proposal is considered “non-
routine” and the beneficial owner has not provided voting instructions on that proposal. The election of directors, the advisory
vote on named executive officer compensation, the proposal to approve the Onto Innovation Inc. 2020 Stock Plan, and the
proposal to approve the Onto Innovation Inc. 2020 Employee Stock Purchase Plan are treated as “non-routine” proposals. This
means that if a brokerage firm holds your shares on your behalf, those shares will not be voted with respect to any of these
proposals unless you provide instructions to that firm by voting your proxy. See below under “What Is the Vote Required for
Election of Directors?” and “What Is the Vote Required for the Approval of Proposals Other Than Director Elections?” for a
discussion of the impact of broker non-votes on each of the proposals that will be presented at the Annual Meeting. In order
to ensure that any shares held on your behalf by a bank, broker or other registered holder of record are voted in
accordance with your wishes, we encourage you to provide instructions to that firm or organization in accordance with
the voting instruction form provided by the broker, bank or other registered holder or to contact your broker, bank or
other registered holder to request a proxy form.
Who Bears The Cost Of Soliciting Proxies?
The Company will bear the cost of soliciting proxies. In addition, the Company may reimburse brokerage firms and other
persons representing beneficial owners of shares for their expenses in forwarding solicitation material to such beneficial owners.
Solicitation of proxies by mail may be supplemented by telephone, facsimile, e-mail or other electronic means or personal
solicitation by directors, officers or regular employees of the Company. No additional compensation will be paid to such persons
for such services. We have engaged The Proxy Advisory Group, LLC to assist in the solicitation of proxies and provide related
advice and informational support, for a services fee and the reimbursement of customary disbursements, which are not expected
to exceed $15,000 in total.
Why Did I Receive A “Notice Of Internet Availability Of Proxy Materials” But No Proxy Materials?
We are distributing the Company’s proxy materials to stockholders of record via the internet in accordance with the “Notice
and Access” approach permitted by rules of the Securities and Exchange Commission (“SEC”). This approach benefits the
5
environment, while providing a timely and convenient method of accessing the materials and voting. Accordingly, we have
sent you a Notice because the Board of Directors of the Company is soliciting your proxy to vote at the 2020 Annual Meeting
of Stockholders, including at any adjournments or postponements of the meeting. On or about April 3, 2020, the Company
will begin mailing the Notice to all stockholders of record entitled to vote at the annual meeting. All stockholders will have
the ability to access the proxy materials on the website referred to in the Notice or request to receive a printed set of the proxy
materials. Instructions on how to access the proxy materials over the Internet or to request a printed copy of the proxy materials
and the Company’s 2019 Annual Report may be found in the Notice.
What Does It Mean If I Received More Than One Notice?
If you receive more than one Notice, your shares may be registered in more than one name or in different accounts. Please
follow the voting instructions on each of the Notices to ensure that all of your shares are voted.
How Do I Go About Voting?
You may either vote “For” all the nominees to the Board of Directors or you may “Withhold” your vote for any nominee you
specify. For each of the other matters to be voted on, you may vote “For” or “Against” or “Abstain” from voting.
Voting For Shares Registered Directly In The Name Of The Stockholder
If you have a stock certificate or hold shares in an account with our transfer agent, you are considered the “stockholder of
record” with respect to those shares. You can submit your proxy online by following the instructions on the Notice. You may
opt to submit your proxy by requesting a full set of proxy materials be mailed to you and completing and returning the proxy
in the postage-paid envelope provided. Stockholders of record may also vote in person at the Annual Meeting. Whether or not
you plan to attend the meeting, we urge you to vote by proxy to ensure your vote is counted. You may still attend the meeting
and vote in person even if you have already submitted a proxy.
If you are a stockholder of record with shares registered in your name, you can vote by one of the following methods:
In Person - To vote in person, come to the annual meeting and you will receive a ballot when you arrive.
•
• Via the Internet - To submit your proxy by internet, go to www.investorvote.com/ONTO and follow the instructions
on the secure website. The deadline for proxy submission via the internet is 11:59 p.m. (EDT) on May 11, 2020.
• Via Telephone – To submit your proxy by telephone, call toll free 1-800-652-VOTE (8683) within the USA, US
•
territories and Canada.
By Mail – Stockholders who receive a paper proxy card may elect to submit a proxy by mail and should complete,
sign and date their proxy card and mail it in the pre-addressed postage-paid envelope that accompanies the delivery
of paper proxy cards. Proxy cards submitted by mail must be received by the time of the annual meeting in order for
your shares to be voted.
Further instructions on how to submit a proxy online or by mail are contained in the Notice. Even if you plan to attend the
meeting, we recommend that you submit your proxy in advance so that your vote will be counted if you later decide not to
attend the meeting. Each stockholder of record is entitled to one (1) vote for each share of Common Stock owned by such
stockholder on all matters presented at the Annual Meeting. Stockholders do not have the right to cumulate their votes in the
election of directors.
If you return a signed and dated proxy but do not indicate how the shares are to be voted, those shares will be voted in
accordance with Onto Innovation’s Board of Directors’ recommendations. A valid proxy also authorizes the individuals named
as proxies to vote your shares in their discretion on any other matters, which, although not described in the proxy statement,
are properly presented for action at our Annual Meeting. If you indicate on your proxy that you wish to “abstain” from voting
on an item, your shares will not be voted on that item.
While internet proxy voting is being provided to allow you to submit your proxy online, with procedures designed to ensure
the authenticity and correctness of your proxy vote instructions, please be aware that you must bear any costs associated with
your internet access, such as usage charges from Internet access providers and telephone companies.
6
Voting By Proxy For Shares Registered In Street Name
If your shares are held in a stock brokerage account or by a bank or other holder of record, you are considered the “beneficial
owner” of shares held in “street name.” In that case, you may receive a separate voting instruction form, or you may need to
contact your broker, bank, or other stockholder of record to determine whether you will be able to provide voting instructions
electronically via the internet. As the beneficial owner, you have the right to direct your broker, bank or other holder of record
on how to vote your shares by submitting voting instructions to such person in accordance with the directions outlined in your
proxy. In the event you are considered the “beneficial owner” of shares held in “street name” and you wish to vote in person
at the annual meeting, you must obtain a valid proxy from your broker, bank or another agent. Follow the instructions from
your broker or bank included with these proxy materials or contact your broker or bank to request a proxy form.
May I Revoke My Proxy Instructions?
Any proxy given pursuant to this solicitation may be revoked by the person giving it at any time before it is voted. If you are a
stockholder of record, you may change your vote after submitting your proxy by:
•
•
•
•
delivering a written notice of revocation or a duly executed proxy bearing a later date to the Secretary of the Company
at the Company’s principal executive offices prior to the meeting, if you submitted your proxy by mail;
submitting a timely and valid later proxy online at www.investorvote.com/ONTO, if you submitted your proxy online;
submitting a timely and valid later proxy by telephone call to 1-800-652-VOTE (8683) within the USA, US territories
and Canada or
attending the meeting and voting in person.
If you are a beneficial owner of shares, please contact your bank, broker or other holder of record for specific instructions on
how to change or revoke your voting instructions.
What Happens If I Do Not Vote?
Stockholder Of Record: Shares Registered In Your Name
If you are a stockholder of record and do not submit a proxy by completing your proxy card, by telephone, through the Internet
or vote in person at the annual meeting, your shares will not be voted.
Beneficial Owner: Shares Registered In The Name Of Broker Or Bank
If you are a beneficial owner and do not instruct your broker, bank, or other agent how to vote your shares, the question of
whether your broker or nominee will still be able to vote your shares depends on whether the New York Stock Exchange
(“NYSE”) deems the particular proposal to be a “routine” matter. Brokers and nominees can use their discretion to vote
“uninstructed” shares with respect to matters that are considered to be “routine,” but not with respect to “non-routine” matters.
Under the rules and interpretations of the NYSE, “non-routine” matters are matters that may substantially affect the rights or
privileges of stockholders, such as mergers, stockholder proposals, elections of directors (even if not contested), executive
compensation (including any advisory stockholder votes on executive compensation and on the frequency of stockholder
advisory votes on executive compensation), and certain corporate governance proposals, even if management-supported.
Accordingly, your broker or nominee may not vote your shares on Proposals 1, 2, 3 or 4 without your instructions but may vote
your shares on Proposal 5 even in the absence of your instruction.
What If I Return A Proxy Card Or Otherwise Submit a Proxy But Do Not Make Specific Choices?
If you return a signed and dated proxy card or otherwise submit a proxy without marking voting selections, your shares will be
voted, as applicable, “For” the election of all ten (10) nominees for director, “For” the advisory approval of executive
compensation, “For” approval of the Onto Innovation Inc. 2020 Stock Plan, “For” approval of the Onto Innovation Inc. 2020
Employee Stock Purchase Plan and “For” the ratification of the appointment by the Audit Committee of the Board of Directors
of Ernst & Young, LLP as the independent registered public accounting firm of the Company for its fiscal year ending December
26, 2020. If any other matter is properly presented at the meeting, your proxyholder (one of the individuals named on your
proxy card) will vote your shares using his or her best judgment.
7
What Is The Vote Required For Election Of Directors?
For the election of directors, each director is elected by the vote of the majority of the votes cast (except that if the number of
nominees exceeds the number of directors to be elected, directors will be elected by a plurality voting standard). This means
that in order for a director nominee to be elected to our Board of Directors, the number of votes cast “for” a director’s election
must exceed the number of votes cast “against” that director’s election (with “abstentions” and “broker non-votes” not counted
as a vote cast either “for” or “against” that director’s election, although abstentions and broker non-votes count for quorum
purposes). Our Amended and Restated Bylaws (“Bylaws”) provide for a for election of directors by a majority of votes cast in
uncontested elections, and our Corporate Governance Summary provides that any incumbent director nominee in an
uncontested election who does not receive an affirmative majority of votes cast must promptly tender such director’s resignation
to our Board of Directors. Further information regarding the process that will be followed if such an event occurs can be located
under the heading “Proposal 1 - Election of Directors.”
What Is The Vote Required For The Approval Of Proposals Other Than Director Elections?
The proposal to approve, on an advisory basis, the compensation of our named executive officers, the proposal to approve the
Onto Innovation Inc. 2020 Stock Plan, the proposal to approve the Onto Innovation Inc. 2020 Employee Stock Purchase Plan
and the proposal to ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for the
fiscal year ending December 26, 2020 require the affirmative vote, in person or by proxy, of a majority of the shares present in
person or represented by proxy at the meeting and entitled to vote on the matter to be approved. For such proposals, abstentions
in effect count as negative votes, because they are shares represented in person or by proxy that are entitled to vote on the
matter and not voted in the affirmative. Broker non-votes are not counted as part of the vote total (because they are not
considered “entitled to vote” on the matter) and have no effect on the outcome of those proposals.
What Is Householding?
The Company has adopted a procedure approved by the SEC called “householding.” Under this procedure, when multiple
stockholders of record share the same address, we may deliver only one (1) Notice to that address unless we have received
contrary instructions from one or more of those stockholders. The same procedure may be followed by brokers and other
nominees holding shares of our stock in “street name” for more than one (1) beneficial owner with the same address.
If a stockholder holds shares of stock in multiple accounts (e.g., with our transfer agent and/or banks, brokers or other registered
stockholder), we may be unable to use the householding procedures and, therefore, that stockholder may receive multiple copies
of the Notice. You should follow the instructions on each Notice that you receive in order to vote the shares you hold in different
accounts.
A stockholder that shares an address with another stockholder, who has received only one (1) Notice may write or call us as
specified below:
(i)
(ii)
To request a separate copy of such materials, which will be promptly mailed without charge; and
To request that separate copies of these materials be sent to his or her home for future meetings.
Conversely, a stockholder of record who shares the same address with another stockholder of record may write or call us as
specified below to request that a single set of the proxy materials be delivered to that address. Such stockholder requests may
be made to our Investor Relations Department either via phone at 978-253-6200 or by mail directed to:
Investor Relations Department
Onto Innovation Inc.
16 Jonspin Road
Wilmington, Massachusetts 01887
If you are a beneficial owner of shares held in street name, please contact your bank, broker or other holder of record regarding
such requests.
How Can I Find Out the Results Of The Voting At The Annual Meeting?
Preliminary voting results will be announced at the annual meeting. In addition, final voting results will be published in a
current report on Form 8-K that we expect to file within four (4) business days after the annual meeting. If final voting results
are not available to us in time to file a Form 8-K within four (4) business days after the meeting, we intend to file a Form 8‑K
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to publish preliminary results and, within four (4) business days after the final results are known to us, file an additional Form
8-K to publish the final results.
What Are The Deadlines For Submission Of Stockholder Proposals For The 2021 Annual Meeting?
Stockholders of the Company are entitled to present proposals for consideration at forthcoming stockholder meetings provided
that they comply with the proxy rules promulgated by the SEC, if applicable, and the Bylaws of the Company. Stockholders
wishing to present a proposal at the Company’s 2021 Annual Stockholder Meeting must submit such proposal in writing to the
Company Secretary at Onto Innovation Inc., 16 Jonspin Road, Wilmington, Massachusetts 01887 no later than December 1,
2020 in accordance with Rule 14a-8 under the Securities Exchange Act of 1934, as amended (“Exchange Act”), if they wish
for it to be eligible for inclusion in the proxy statement and form of proxy relating to that meeting. In addition, under the
Company’s Bylaws, a stockholder wishing to nominate a director or make a proposal at the 2021 Annual Stockholder Meeting
outside of Exchange Act Rule 14a-8 must submit such nomination or proposal in writing to the Company Secretary at the above
address no earlier than January 12, 2021 and no later than February 11, 2021. The Nominating & Governance Committee will
also consider qualified director nominees recommended by stockholders. Our process for receiving and evaluating Board
member nominations from our stockholders is described below under the caption “Consideration Of Director Nominees.”
You are also advised to review Company’s Bylaws, which contain additional requirements about advance notice of stockholder
proposals and director nominations.
9
CORPORATE GOVERNANCE PRINCIPLES AND PRACTICES
Onto Innovation is committed to sound and effective corporate governance practices. Having such principles is essential to
running our business efficiently and to maintaining our integrity in the marketplace. The major components of our corporate
governance practices are described below.
Board Leadership Structure
Our Company management is led by Michael P. Plisinski, who has served as our CEO and a director since the Merger Date and
Christopher A. Seams, who is an independent director and has served as the Chairman of the Company’s Board of Directors
since the Merger Date.
Prior to the 2019 Merger, Bruce C. Rhine served as the Chairman of the Board of Nanometrics and Pierre-Yves Lesaicherre,
Ph.D. served as the President, Chief Executive Officer and a director of Nanometrics through the Merger Date. With regard to
Rudolph, prior to the 2019 Merger, David B. Miller served as the Chairman of the Board of Rudolph and Mr. Plisinski served
as the Chief Executive Officer of Rudolph and as a director on the Rudolph Board from November 2015 through the Merger
Date.
Our Board of Directors is currently comprised of two (2) non-independent directors, Mr. Plisinski and Timothy J. Stultz, Ph.D.,
and ten (10) directors each of whom has been affirmatively determined by our Board of Directors to meet the criteria for
independence established by the SEC and the NYSE. The independent directors meet periodically in executive session chaired
by the Chairman without the CEO or other management present. Furthermore, each director is encouraged to suggest items for
the Board agenda and to raise at any Board meeting subjects that are not on the agenda for that meeting.
In accordance with our sound and effective corporate governance practice, the roles of CEO and Chairman of the Board, as
cited above, are held by separate individuals, with the independent Chairman of the Board being designated by the Board. The
Board of Directors believes that, at the current time, the designation of an independent Chairman of the Board facilitates the
functioning of the Board of Directors, while leaving the CEO responsible for setting the strategic direction for the Company
and for the day-to-day leadership and performance of the Company. The independent Chairman of the Board:
•
•
•
•
•
•
•
Presides at all meetings of the stockholders and the Board of Directors at which he or she is present;
Establishes the agenda for each Board of Directors meeting;
Sets the schedule and annual agenda, to the extent foreseeable;
Calls and prepares the agenda for and presides over separate executive sessions of the independent directors;
Acts as a liaison between the independent directors and the Company’s management;
Serves as a point of communications with stockholders; and
Performs such other powers and duties as may from time to time be assigned by the Board of Directors or as may be
prescribed by the Company’s Bylaws.
Board Meetings
The Board of Directors of the Company held one (1) meeting during 2019, which 100% of the incumbent directors attended.
In 2019, the Nanometrics Board of Directors held a total of thirteen (13) meetings as did the Rudolph Board of Directors. All
of Nanometrics’ incumbent directors attended at least 80% of the total number of meetings held by the Nanometrics Board and
its standing committees upon which such directors served during 2019. All of Rudolph’s incumbent directors attended at least
95% of the total number of meetings held by the Rudolph Board and its standing committees upon which such directors served
during 2019. While the Company does not currently have a formal policy regarding the attendance of directors at the annual
meeting of stockholders, directors are encouraged to attend. All members of both the Nanometrics Board of Directors and the
Rudolph Board of Directors serving at the time attended the 2019 Annual Meeting of Stockholders for the respective companies.
On one (1) occasion during 2019, the Company’s Board met in executive session in which only the independent Board members
were present. In 2019, the Nanometrics Board met in executive session on four (4) occasions and the Rudolph Board met in
executive session on three (3) occasions.
10
Board Independence
The Board of Directors makes an annual determination as to the independence of each of our Board members under the current
standards for “independence” established by the NYSE and the SEC. The Board has determined that the following nominees
for election as directors to our Board are independent under the NYSE Corporate Governance Rules: Jeffrey A. Aukerman, Leo
Berlinghieri, Edward J. Brown, Jr., Vita A. Cassese, Robert G. Deuster, David B. Miller, Bruce C. Rhine, Christopher A. Seams
and Christine A. Tsingos. Michael P. Plisinski, due to his position as our Chief Executive Officer, is not considered to be
independent. As for the two (2) directors not standing for re-election in 2020, John R. Whiten is independent while Timothy J.
Stultz, Ph.D., due to his position as Nanometrics President and Chief Executive Officer prior to his retirement from those
positions in November 2017, is not considered independent.
From July 2006 to February 2008, Mr. Rhine served as Nanometrics Chief Strategy Officer, and from March 2007 to August
2007, Mr. Rhine served as Nanometrics Chief Executive Officer. The Nanometrics Board of Directors determined that Mr.
Rhine became an independent member of the Board effective February 2011 under the Nasdaq Listing Rules due to the passage
of time subsequent to his previous management role with Nanometrics and this designation was confirmed under the NYSE
Listing Rules by the Company Board.
During 2019, none of the independent members of our Board was a party to any transactions, relationships or arrangements
that were considered by the Board to impair his or her independence.
Oversight Of Risk
One of the Board’s primary responsibilities is reviewing the Company’s strategic plans and objectives, including oversight of
the principal risk exposures of the Company. In particular, the Board is responsible for monitoring and assessing strategic risk
exposure, including a determination of the nature and level of risk appropriate for the Company. The Board does not have a
standing risk management committee, but rather administers this oversight function directly through the Board as a whole, as
well as through various Board standing committees that address risks inherent in their respective areas of oversight. The Audit
Committee assists the Board in oversight and monitoring of the legal and financial risks facing the Company, management's
approach to addressing these risks and strategies for risk mitigation and serves as the contact point for employees to report
corporate compliance issues. On at least an annual basis, the Audit Committee reviews and discusses with management policies
and systems pursuant to which management addresses risk, including risks associated with our audit, financial reporting,
internal control, disclosure control, cybersecurity, legal and regulatory compliance, and investment policies. Our Audit
Committee regularly reviews with our Board any issues that arise in connection with such topics and, in accordance with our
Summary of Corporate Governance Guidelines, our full Board regularly engages in discussions of risk management to assess
major risks facing our Company and review options for the mitigation of such risks. Our Compensation Committee periodically
reviews enterprise risks to ensure that our compensation programs do not encourage excessive risk-taking and our Nominating
& Governance Committee oversees risks related to governance issues, such as succession planning. As a result of the foregoing,
we believe that our CEO, together with the Chairman of our Audit Committee and our full Board of Directors, provides effective
oversight of the Company’s risk management function.
Board Committees
The Board has three standing committees with separate chairs - the Audit, Compensation, and Nominating & Governance
Committees. Each of the Board committees is comprised solely of independent directors. The Audit Committee, Compensation
Committee and Nominating & Governance Committee have each adopted a written charter that sets forth the specific
responsibilities and qualifications for membership to the respective committees. The charters of each of these committees are
available on our website at https://investors.ontoinnovation.com/governance/governance-documents/.
In 2019, the composition of and number of meetings held by the Company’s Board Committees were as follows:
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Company
Committee
Chairperson
Committee Members
# of Meetings
held in 2019
Audit Committee
Onto Innovation2
Christine A. Tsingos
Nanometrics1
Christine A. Tsingos
Rudolph1
Jeffrey A. Aukerman
Jeffrey A. Aukerman
Vita A. Cassese
Christopher A. Seams
John R. Whitten
Bruce C. Rhine
Robert G. Deuster
Christopher A. Seams
Vita A. Cassese
David B. Miller
John R. Whitten
Nominating & Governance Committee
Onto Innovation2
Leo Berlinghieri
Nanometrics1
Christopher A. Seams
Rudolph1
Leo Berlinghieri
David B. Miller
Bruce C. Rhine
Christopher A. Seams
Christine A. Tsingos
Bruce C. Rhine
Edward J. Brown, Jr.
Daniel H. Berry
John R. Whitten
Compensation Committee
Onto Innovation2
Edward J. Brown, Jr.
Nanometrics1
Edward J. Brown, Jr.
Rudolph1
David B. Miller
Jeffrey A. Aukerman
Leo Berlinghieri
Robert G. Deuster
David B. Miller
J. Thomas Bentley
Robert G. Deuster
Christine A. Tsingos
Jeffrey A. Aukerman
Vita A. Cassese
Thomas G. Greig
2
8
5
1
4
4
1
3
5
1
2
Through the Merger Date.
After the Merger Date
Audit Committee
The Audit Committee assists the Board in fulfilling its responsibilities for general oversight of the integrity of our financial
statements, our accounting policies and procedures and our compliance with legal and regulatory requirements. Among its
functions, the Audit Committee is responsible for:
•
•
•
•
The appointment, compensation, retention and oversight of the Company’s independent registered public accounting
firm;
The approval of services performed by the Company’s independent registered public accounting firm;
Reviewing the responsibilities, functions and performance of the Company’s internal audit function;
Reviewing the scope and results of internal audits and ongoing assessments of the Company’s risk management
processes;
• Monitoring possible transactions between the Company and our officers and directors for any potential conflicts of
interest; and
•
Evaluating the Company’s system of internal control over financial reporting and disclosure controls and procedures.
The report of our Audit Committee is found below under the caption “Audit Committee Report.”
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The Board has determined that each of the Audit Committee members meet the Audit Committee membership requirements
set forth by the NYSE and the SEC, including that they be “independent.” Furthermore, the Board has determined that each of
Ms. Tsingos and Mr. Aukerman qualify as an “Audit Committee Financial Expert” as that term is defined under SEC rules.
Compensation Committee
The Compensation Committee is responsible for the establishment of the policies upon which compensation of and incentives
for the Company’s executive officers will be based, the review and recommendation for approval by the independent members
of the Board of the compensation of the Company’s executive officers, and the administration of the Company’s equity
compensation plans.
In general, the Compensation Committee reviews and recommends for approval by the independent members of the Board of
Directors the Company’s compensation policies and practices, including executive salary levels and variable compensation
programs, both cash-based and equity-based, benefits, severance and equity-based and other compensation plans, policies and
programs. With respect to the compensation of the Company’s CEO, the Compensation Committee reviews and recommends
for approval by the independent members of the Board the various elements of the CEO’s compensation. With respect to other
executive officers, including each of our NEOs, the Compensation Committee reviews the recommendations for compensation
for such individuals presented to the Compensation Committee by the CEO and the reasons therefor and, in its discretion, may
modify the compensation packages for any such individuals. The Compensation Committee has delegated to the Company’s
CEO the authority, within certain parameters, to approve the grant of restricted stock units (“RSUs”) to employees and
consultants who are not executive officers for purposes of Section 16 of the Exchange Act and hold positions below the level
of vice president. All such grants are thereafter reviewed and ratified by the Compensation Committee.
In accordance with its charter, the Compensation Committee may form and delegate its authority to subcommittees when
appropriate. Further, the Compensation Committee has the authority to retain, and to terminate, any compensation consultant
or other advisors to assist in the evaluation of director, CEO or executive compensation or other matters within the scope of the
Compensation Committee’s responsibilities and is directly responsible for the appointment, compensation and oversight of
such consultants and other advisors, including their fees and other retention terms. From time to time, the Compensation
Committee engages the services of such outside compensation consultants to provide advice on compensation plans and issues
related to the Company’s executive and non-executive employees. In 2019, the Company’s Compensation Committee engaged
Compensia, Inc. (“Compensia”) to provide such assistance to the Compensation Committee. Prior to the 2019 Merger,
Compensia provided compensation consultancy services to Nanometrics while Rudolph engaged Pay Governance LLC for
such compensation advice. The Compensation Committee also has authority to obtain advice and assistance from internal or
external legal, accounting and other advisors.
Each current member of our Compensation Committee is an “outside” director as defined in Section 162(m) of the Internal
Revenue Code of 1986, as amended, and a “non-employee” director within the meaning of Rule 16b-3 under the Exchange
Act. The Board has determined that each of the Compensation Committee members meet the Compensation Committee
membership requirements set forth by the NYSE and the SEC, including that they be “independent.”
For further discussion of the Compensation Committee and its processes and procedures, please refer to the “Compensation
Program Objectives, Design and Practices” section in the Compensation Discussion and Analysis below. The Compensation
Committee Report is included under the caption “Compensation Committee Report on Executive Compensation” in this Proxy
Statement.
Nominating & Governance Committee
The responsibilities of the Nominating & Governance Committee include:
•
•
•
Identifying prospective director nominees and recommending to the Board director nominees for the next annual
meeting of stockholders and replacements of a director in the event of a vacancy on the Board;
Recommending to the Board the appointment of directors to Board Committees;
Developing and recommending to the Board, and monitoring compliance with, the corporate governance principles
and standards applicable to the Company;
• Managing the CEO selection process; and
•
Together with our CEO, overseeing our Company’s management succession planning.
13
The Nominating & Governance Committee also oversees the annual evaluation of the Board, the Committees of the Board and
the individual directors. Typically, this evaluation is performed during the first quarter by each of the directors and reflects an
assessment of the Board, the Committees of the Board and each individual director in the prior year. Among other topics, the
evaluation in general assesses:
•
•
For both the Board and the Committees:
◦ Their structure and composition;
◦ The format and content of meetings; and
◦ The effectiveness of the Board/Committees.
For each individual director:
◦ Their performance and approach to their directorship;
◦ Their understanding of their role as a director;
◦ Their understanding of critical aspects of the Company’s business, products and strategy; and
◦ Their skills, experience and ongoing training.
In addition, the Board reviews the issues faced during the past year, assesses its response and makes determinations whether
additional resources or approaches might be applied to further optimize the handling of the issues. The goal of the evaluation
is to identify and address any performance issues at the Board, committee or individual level, should they exist, identify
potential gaps in the boardroom and to assure the maintenance of an appropriate mix of director skills and qualifications. Upon
completion of the evaluation, the Nominating & Governance Committee provides feedback to the Board, the committees and
the individual directors regarding the results of the evaluation and raises any issues that have been identified which may need
to be addressed.
The Nominating & Governance Committee utilizes a variety of methods for identifying and evaluating nominees. Its general
policy is to assess the appropriate size and needs of the Board of Directors and whether any vacancies are expected due to
retirement or otherwise. In addition, candidates for director nominees are typically reviewed in the context of the current
composition of the Board, the operating requirements of the Company, the current needs of the Board, and the long-term
interests of stockholders, with the goal of maintaining a balance of knowledge, experience and capability. In the event those
vacancies are anticipated, or otherwise arise, the Nominating & Governance Committee will consider recommending various
potential candidates to fill such vacancies. Candidates may come to the attention of the Nominating & Governance Committee
through its current members, stockholders or other persons.
The Board has determined that each of the Nominating & Governance Committee members meets the Nominating &
Governance Committee membership requirements, including the independence requirements of the NYSE.
Other Committees
Our Board of Directors may from time to time establish other special or standing committees to facilitate the management of
the Company or to discharge specific duties delegated to the committee by the full Board of Directors.
Compensation Committee Interlocks And Insider Participation
In 2019, no member serving on the Company’s Compensation Committee (Edward J Brown, Jr., Jeffrey A. Aukerman, Leo
Berlinghieri, Robert G. Deuster, David B. Miller), the Nanometrics Compensation Committee (Edward J Brown, Jr., J. Thomas
Bentley, Robert G. Deuster, Christine A. Tsingos) or the Rudolph Compensation Committee (David B. Miller, Jeffrey A.
Aukerman, Vita A Cassese, Thomas G. Greig) at any time during the year had any form of interlocking relationship as described
in Item 407(e)(4) of Regulation S-K with the respective company. Further, no member of the Company’s Compensation
Committee as constituted in 2020 (Edward J Brown, Jr., Jeffrey A. Aukerman, Leo Berlinghieri, Robert G. Deuster, David B.
Miller) has any form of interlocking relationship as described in Item 407(e)(4) of Regulation S-K as of the date of this proxy
statement.
Board Membership Criteria And Nominee Identification
The Nominating & Governance Committee of the Board determines the required selection criteria and qualifications of director
nominees based upon the needs of the Company at the time nominees are considered. While the Nominating & Governance
Committee has no specific minimum qualifications for director candidates, persons considered for Board of Directors positions
14
must demonstrate the following qualifications to be recommended by the Nominating & Governance Committee for a position
on the Board:
•
•
•
•
•
The candidate must exhibit proven leadership capabilities, high integrity and experience with a high level of
responsibilities within his or her chosen field;
The candidate must possess the ability to apply good business judgment and be of sound mind and high moral
character;
The candidate must have no personal or financial interest that would conflict or appear to conflict with the interests
of the Company;
The candidate must be in a position to properly exercise his or her duties of loyalty and be willing and able to commit
the necessary time for Board of Directors and committee service; and
The candidate must have the ability to grasp complex principles of business, finance, international transactions and
semiconductor inspection, metrology, lithography and related software technologies.
The Nominating & Governance Committee retains the right to modify these qualifications from time to time.
The Nominating & Governance Committee has not adopted a formal diversity policy with regard to the selection of director
nominees. Diversity is one of the factors that the Nominating & Governance Committee considers in identifying nominees for
director. In selecting director nominees, the Nominating & Governance Committee considers, among other factors:
•
•
•
The competencies and skills that the candidate possesses and the candidate’s areas of qualification and expertise that
would enhance the composition of the Board and further its ability to offer advice and guidance to management;
How the candidate would contribute to the Board’s overall balance of expertise, perspectives, backgrounds and
experiences in substantive matters pertaining to the Company’s business; and
The candidate’s demonstrated excellence in his or her field and commitment to rigorously representing the long-term
interests of the Company’s stockholders.
In its identification of director nominees, the Nominating & Governance Committee will consider how the candidate would
contribute to the Board’s overall balance of diversity of expertise, perspectives, backgrounds and experiences in substantive
matters pertaining to the Company’s business. When current Board members are considered for nomination for reelection, the
Nominating & Governance Committee also takes into consideration their prior contributions to and performance on the Board
and their record of attendance.
The Nominating & Governance Committee will consider the above criteria for nominees identified by the Nominating &
Governance Committee itself, by stockholders, or through some other source. The Nominating & Governance Committee uses
the same process for evaluating all nominees, regardless of the original source of nomination. The Nominating & Governance
Committee may use the services of a third-party search firm to assist in the identification or evaluation of Board member
candidates.
Consideration Of Director Nominees
The Nominating & Governance Committee has a formal policy with regard to consideration of director candidates
recommended by the Company’s stockholders, the Director Candidate Policy, which may be found on our website at:
https://investors.ontoinnovation.com/governance/governance-documents/
In accordance with the policy, the Nominating & Governance Committee will consider recommendations for candidates to the
Board of Directors from stockholders of the Company holding no less than 1% of the Company’s securities for at least twelve
(12) months prior to the date of the submission of the recommendation. Stockholders wishing to recommend persons for
consideration by the Nominating & Governance Committee as nominees for election to the Company’s Board of Directors can
do so by writing to the Office of the General Counsel of the Company at its principal executive offices giving:
•
•
•
•
Candidate’s name, age, business address and residence address;
Candidate’s detailed biographical data and qualifications including his/her principal occupation and employment
history;
The class and number of shares of the Company which are beneficially owned by the candidate;
The candidate’s written consent to being named as a nominee and to serving as a director, if elected;
15
•
•
•
•
•
•
Information regarding any relationship between the candidate and the Company in the last three (3) years;
Any other information relating to the candidate that is required by law to be disclosed in solicitations of proxies for
election of directors;
The name and address of the recommending or nominating stockholder;
The class and number of shares of the Company which are beneficially owned by the recommending or nominating
stockholder;
A description of all arrangements or understandings between such stockholder and each nominee and any other person
or persons (naming such person or persons) relating to the nomination; and
Any other information specified under Section 2.5 of the Company’s Bylaws.
Corporate Governance Guidelines
Our Board of Directors adopted Corporate Governance Guidelines, a copy of which is available on our website at
https://investors.ontoinnovation.com/governance/governance-documents/ under “Corporate Governance Summary.”
Codes Of Ethics
We have adopted a Code of Business Conduct and Ethics (applicable to all employees, executive officers and directors) and a
Financial Information Integrity Policy (applicable to our financial officers, including our CEO and Chief Financial Officer
(“CFO”)) that set forth principles to guide all employees, executive officers and directors and establish procedures for reporting
any violations of these principles. Copies of these codes may be found on our website at:
https://investors.ontoinnovation.com/governance/governance-documents/
or may be requested by writing to:
Onto Innovation Inc.
Attention: Investor Relations
16 Jonspin Road
Wilmington, Massachusetts 01887
The Company will disclose any amendment to its code of ethics or waiver of a provision of its code of ethics applicable to its
officers or directors, including the name of the officer or director to whom the waiver was granted, on our website at
www.ontoinnovation.com, on the Investors page.
Related Person Transactions Policy
There have been no “related person transactions” since the beginning of 2019 to present, nor are there any currently proposed
“related person transactions,” involving any director, director nominee or executive officer of the Company, any known 5%
stockholder of the Company or any immediate family member of any of the foregoing persons (which are referred to together
as “related persons”). A “related person transaction” generally means a transaction involving more than $120,000 in which the
Company (including any of its subsidiaries) is a participant and in which a related person has a direct or indirect material
interest.
The Board has adopted policies addressing the Company’s procedures with respect to the review, approval and ratification of
“related person transactions” that are required to be disclosed pursuant to Item 404(a) of Regulation S-K. Our related person
practices and policies ensure that our directors, officers and employees are proactively screened from any conflicts of interests
interfering with their obligations to the Company. Our policies are included in our corporate governance documents, including
our Code of Business Conduct and Ethics, the Audit Committee Charter and Summary of Corporate Governance Policies, each
of which is available on the Investors section of our website located at:
https://investors.ontoinnovation.com/governance/governance-documents/
•
Pursuant to our Code of Business Conduct and Ethics, our directors, officers and employees are required to avoid any
actual or apparent conflicts of interest (other than conflicts of interest that have received appropriate approval as
described below), which includes taking actions or having interests that may interfere with the objective or efficient
performance of such person’s duties to the Company or that may result in such person receiving improper personal
benefits as a result of their position with the Company.
16
•
•
Pursuant to our Summary of Corporate Governance Policies, if a director becomes involved in any activity or interest
that may result in an actual or potential conflict (or the appearance of a conflict) with the interests of the Company,
that director is required to disclose such information promptly to the Board, which will determine an appropriate
resolution on a case-by-case basis. This policy further reflects that all directors must recuse themselves from any
discussion or decision affecting their personal, business or professional interests. Similarly, our Board will determine
the appropriate resolution of any actual or potential conflict of interest involving our CEO and our CEO will determine
the appropriate resolution of any conflict of interest issue involving any other officer of the Company. When necessary
and appropriate, resolution of such issues may require consideration of the matter by the Audit Committee.
Pursuant to both the Board’s Summary of Corporate Governance Policies and the Audit Committee Charter, the Audit
Committee, which consists entirely of independent directors, will review any proposed transaction in which the
Company or its subsidiaries are to participate if the amount involved in the transaction exceeds $120,000 and we are
aware that any related person may have a direct or indirect material interest in the transaction. The Audit Committee
will consider the facts and circumstances and will approve or ratify a proposed transaction if the Audit Committee
considers it appropriate and believes that such transaction will serve the long-term interests of our stockholders. The
Compensation Committee of the Board reviews and approves compensation decisions for Board members and our
executive officers (and such other employees of the Company as directed by the Board) pursuant to the Compensation
Committee Charter.
Communications With The Board Of Directors
We have a formal policy regarding communications with the Board of Directors, our Stockholder Communications Policy,
which is found on our website at https://investors.ontoinnovation.com/governance/governance-documents/.
Stockholders may communicate with the Board of Directors, any of the Company’s Board Committees (Audit, Compensation
or Nominating & Governance) or any of the Company’s directors by writing to:
Onto Innovation Inc.
Office of the General Counsel
550 Clark Drive
P.O. Box 860
Budd Lake, New Jersey 07828
and such communications will be forwarded to the intended recipient(s) to the extent appropriate. Prior to forwarding any
communication, the General Counsel will review it and, in his or her discretion, will not forward a communication deemed to
be of a commercial nature or otherwise inappropriate.
17
PROPOSAL 1
ELECTION OF DIRECTORS
Nominees
The Board currently has twelve (12) members. Effective subsequent to the 2020 Annual Meeting of Stockholders, the
authorized number of directors for the Board shall be reduced to ten (10) members. All current directors are standing for election
at the Annual Meeting with the exception of John R. Whitten and Timothy J. Stultz, Ph.D.
The Company’s Amended and Restated Certificate of Incorporation provides that at each annual meeting of stockholders, each
director of the Company shall be elected to hold office, and shall serve, until the expiration of the term for which he or she is
elected and until his or her successor is duly elected and qualified or until his or her death, resignation, or removal; except that
if any such election shall not be so held, such election shall take place at a stockholders' meeting called and held in accordance
with the DGCL.
Based on the recommendation of the Nominating & Governance Committee, the ten (10) director nominees approved by the
Board for inclusion in this proxy statement are:
Jeffrey A. Aukerman
Leo Berlinghieri
Edward J. Brown, Jr. Vita A. Cassese
Robert G. Deuster
David B. Miller
Michael P. Plisinski
Bruce C. Rhine
Christopher A. Seams Christine A. Tsingos
Each nominee is currently serving as a director of Onto Innovation. In making its recommendations, the Nominating &
Governance Committee considered a number of factors, including its criteria for Board membership, which include the
minimum qualifications that must be possessed by a director candidate in order to be nominated for a position on our Board.
Each nominee has indicated that he or she will serve if elected. Unless otherwise instructed, the proxy holders will vote the
proxies received by them for the Company’s ten (10) nominees. In the event that any nominee of the Company becomes unable
or unavailable to serve as a director at the time of the Annual Meeting (which we do not anticipate), the proxy holders will vote
the proxies for any substitute nominee who is designated by the current Board of Directors to fill the vacancy. Alternatively,
the Board of Directors, in its discretion, may elect to reduce the number of directors serving on the Board. We do not have any
reason to believe that any of the nominees will be unable or will decline to serve as a director.
Board Composition And Refreshment
A priority of the Nominating & Governance Committee and the Board as a whole is making certain that the composition of the
Board reflects the desired professional experience, skills and backgrounds in order to present an array of viewpoints and
perspectives and effectively represent the long-term interests of stockholders. Further, the Board recognizes the importance of
Board refreshment in order to continue to achieve an appropriate balance of tenure, turnover, diversity and skills on the Board.
Vote Required
Pursuant to the Company’s Bylaws, our directors are elected by the affirmative vote of the majority of the votes cast (provided,
however, that if the number of nominees exceeds the number of directors to be elected, directors will be elected by a plurality
voting standard). In order for a director in an uncontested election to be elected, the number of votes cast “for” his/her election
must exceed the number of votes cast “against” his/her election (with “abstentions” and “broker non-votes” not counted as a
vote cast either “for” or “against” that director’s election). If a nominee for director in an uncontested election receives a greater
number of “Withhold” votes for election than “For” votes and is not elected, our Corporate Governance Summary provides
that such director must promptly tender a resignation to the Board. Our Nominating & Governance Committee would then
make a recommendation to the Board on whether to accept or reject the tendered resignation, or whether other action should
be taken. Within ninety (90) days after the date of the certification of the election results, our Board will act on any such
tendered resignation and publicly disclose (in a press release, a filing with the SEC or other broadly disseminated means of
communication) its decision regarding the tendered resignation and the rationale behind the decision.
18
Information About The Nominees And Continuing Directors
Our Board and its Nominating & Governance Committee believe that all of the directors and nominees are highly qualified and
have demonstrated leadership skills and have experience and judgment in areas that are relevant to our business. We believe
that their ability to challenge and stimulate management and their dedication to the affairs of the Company collectively serve
the interests of the Company and its stockholders.
The ten (10) nominees for director are set forth below. All information is as of the record date.
Name
Nominee Directors:
Jeffrey A. Aukerman
Leo Berlinghieri
Edward J. Brown, Jr.
Vita A. Cassese
Robert G. Deuster
Michael P. Plisinski
David B. Miller
Bruce D. Rhine
Christopher A. Seams
Christine A. Tsingos
Position
Board Tenure(1)
Former Partner, Deloitte & Touche LLP
Former Chief Executive Officer and President, MKS Instruments, Inc.
Former CEO, Cymer Light Source
Chief Executive Officer, Mardon Management Advisors
Former CEO, Collectors Universe, Inc.
Chief Executive Officer, Onto Innovation Inc.
Former President, DuPont Electronics & Communications
Former CEO, Nanometrics Incorporated
Former CEO, Deca Technologies
Former Executive Vice President and CFO, Bio-Rad Laboratories
5.25 years
11.50 years
7.08 years
1.67 years
3.00 years
4.33 years
4.67 years
13.50 years
4.58 years
5.83 years
(1) Board Tenure includes time served on the Rudolph Board of Directors or the Nanometrics Board of Directors prior to the Merger
Date.
Except as discussed below, each nominee and each incumbent director has been engaged in the principal occupation set forth
above during the past five (5) years. There are no family relationships between any directors or executive officers of the
Company. Messrs. Aukerman, Berlinghieri, Miller, Plisinski and Whitten, along with Ms. Cassese, all former members of the
Rudolph Board of Directors, were appointed to the Board on October 22, 2019 pursuant to the Agreement and Plan of Merger,
dated as of June 23, 2019 (the “Merger Agreement”), among Nanometrics, Rudolph and PV Equipment Inc., after
recommendation by the previous Board of Directors of Rudolph. The Nominating & Governance Committee thereafter
considered the professional experience, skills and backgrounds of the nominees (including Messrs. Aukerman, Berlinghieri,
Miller and Plisinski and Ms. Cassese) and recommended the nominees to the full Board.
The following reflects additional information regarding the background and qualifications of our directors, including the
experience and skills that support the Board’s determination that each director should serve on our Board.
19
NOMINEES FOR DIRECTOR
Jeffrey A. Aukerman
Director Since:
December 2014 (formerly with Rudolph)
Age:
54
Independent Status:
Independent Director
Board Committee(s):
Audit, Compensation
Other Boards Served:
Advisory Council to the Lariccia School of Accounting &
Finance at Youngstown State University (since 2012)
Mr. Aukerman is a certified public accountant and has extensive public accounting and consulting experience, serving many
public and private equity sponsored public reporting companies in the manufacturing, distribution and services industries.
From July 1987 to May 2014, Mr. Aukerman was employed by Deloitte & Touche LLP, which, together with its affiliates, is
an audit, consulting, tax and advisory services firm, and served as an audit partner for the most recent fifteen (15) years. He
also served in various capacities for the firm, including as an audit function professional practice director for the Cleveland,
Ohio office and a regional leader of internal control subject matter specialists. Mr. Aukerman graduated magna cum laude with
a B.S.B.A. in Accounting from Youngstown State University.
Specific Qualifications, Attributes, Skills and Experience
Relevant Senior Leadership / CEO Experience
•
Served as Partner at Deloitte & Touche LLP.
High Level of Financial Experience
•
Twenty-seven (27) years of extensive experience with a wide range of financial reporting, accounting, risk
management, and compliance matters at Deloitte & Touche LLP.
Leo Berlinghieri
Director Since:
September 2008 (formerly with Rudolph)
Age:
66
Independent Status:
Independent Director
Board Committee(s):
Nominating & Governance (Chair), Compensation
Other Boards Served:
Unipower, LLC (since 2017)
MKS Instruments, Inc. (2005-2013)
Massachusetts High Technology Council, Inc. (2006-2013)
From July 2005 to December 2013, Mr. Berlinghieri served as Chief Executive Officer and President of MKS Instruments,
Inc., a critical subsystem and instrument provider to the semiconductor industry. From April 2004 to July 2005, Mr. Berlinghieri
served as President and Chief Operating Officer and prior to that served as Vice President and Chief Operating Officer from
July 2003 to April 2004 for MKS Instruments, Inc.
Specific Qualifications, Attributes, Skills and Experience
Relevant Senior Leadership / CEO Experience
•
Served for over eight (8) years as Chief Executive Officer and President of MKS Instruments, Inc. Additional
prior experience as Vice President and Chief Operating Officer of the company, among other senior management
roles.
High Level of Financial Experience
•
Substantial financial experience gained in roles as Chief Executive Officer, President and Vice President and
Chief Operating Officer with MKS Instruments, Inc.
20
Broad International Exposure
•
Gained extensive international experience in various roles with MKS Instruments, including Chief Executive
Officer, Chief Operating Officer and Vice President of Global Sales and Service.
Extensive Knowledge of Company Business/Industry
•
Over thirty-three (33) years of experience in the semiconductor industry, including eight (8) years at the helm of
MKS Instruments, Inc. a public corporation. Also served on the SEMI North America Advisory Board (NAAB)
including as its chairman in 2009.
Innovation/Technology Experience
•
Broad array of technological experience with MKS Instruments, Inc., including roles in manufacturing, customer
support, and sales all in addition to his roles as Chief Executive Officer and Chief Operating Officer.
Edward J. Brown, Jr.
Director Since:
February 2013
Age:
62
Independent Status:
Independent Director
Board Committee(s):
Compensation (Chair)
Other Boards Served:
Astrodyne TDI (2015-present)
From May 2013 until September 2015, Mr. Brown was the Chief Executive Officer of Cymer Light Source, following the
merger of Cymer, Inc. with ASML Holding Ltd., prior to which Mr. Brown served as President and Chief Operating Officer of
Cymer, Inc. from September 2005 until May 2013. From 1984 to 2005, Mr. Brown was employed at Applied Materials, Inc.,
where he held numerous high-level management positions including group vice president and senior advisor to the president,
vice president and general manager of the Intel business unit, as well as managing director heading up their largest product
division, Global Operations. Prior to Applied Materials Inc., Mr. Brown held key engineering positions at TRW Corporation
and Burroughs Corporation. Mr. Brown received a master’s degree in business administration from National University and a
bachelor’s degree in industrial studies from San Diego State University.
Specific Qualifications, Attributes, Skills and Experience
Relevant Senior Leadership / CEO Experience
•
Served as Chief Executive Officer for Cymer Light Source. Further, he served for over seven (7) years as
President and Chief Operating Officer of Cymer, Inc. as well as held various senior management positions with
Applied Materials, Inc. and key engineering positions at TRW Corporation and Burroughs Corporation.
High Level of Financial Experience
•
Substantial financial experience gained as Chief Executive Officer of Cymer Light Source, as President and Chief
Operating Officer of Cymer, Inc. as well as high-level management positions with Applied Materials, Inc., among
others.
Broad International Exposure
•
Gained extensive international experience as Chief Executive Officer of Cymer Light Source, President and Chief
Operating Officer of Cymer, Inc. and Global Vice President of Worldwide Business Operations as well as other
roles including vice president of Applied Material, Inc.’s largest product division, Global Operations.
Extensive Knowledge of Company Business/Industry
•
Over forty (40) years of employment experience within an array of fields in the semiconductor industry. Also
served on the SEMI North America Advisory Board (NAAB).
Innovation/Technology Experience
•
Expansive scope of technological and innovative experience from over forty (40) years of semiconductor industry
employment in key management, operations, development and engineering positions.
21
Vita A. Cassese
Director Since:
July 2018 (formerly with Rudolph)
Age:
70
Independent Status:
Independent Director
Board Committee(s):
Other Boards Served:
Audit
Loftware, Inc. (since 2014)
Interactive Health, Inc. (since 2017)
Medical Knowledge Group (2015-2019)
Zitter Health Insights (2015-2019)
Context Matters, Inc. (2016-2017)
Decision Resources Group, Inc. (2010-2012)
College of Mount Saint Vincent Board (Trustee) (since 2007)
Ms. Cassese currently serves as the CEO of Mardon Management Advisors, a technology and analytics advisory firm. Ms.
Cassese has over 30 years of experience in operating and strategic management roles at Pfizer, Inc., Ms. Cassese’s last held
position at Pfizer, Inc. was chief information officer of its Worldwide Pharmaceuticals Group. Ms. Cassese serves as a mentor
for the Masters in Technology program at Columbia University and has been a guest lecturer at New York University's Stern
School of Business, MIT Sloan School of Business, and Boston University. Ms. Cassese earned a B.A. in Mathematics from
the College of Mount Saint Vincent and an MBA from New York University’s Stern School of Business.
Specific Qualifications, Attributes, Skills and Experience
Relevant Senior Leadership / CEO Experience
•
Serves as Chief Executive Officer of Mardon Management Advisors. Additional experience as Vice President,
Business Development, Strategy and Innovation for Pfizer, Inc. and CIO for Pfizer Worldwide Pharmaceuticals.
High Level of Financial Experience
•
Substantial financial experience gained in serving in executive management roles with Pfizer, Inc. and as chief
information officer of Pfizer’s Worldwide Pharmaceuticals Group with an annual operating budget exceeding
$1.5B.
Broad International Exposure
•
Roles with Pfizer included management of nearly 2,000 employees in 44 countries as well as serving on the
company’s Worldwide Pharmaceuticals Executive Leadership Team responsible for long-term international
business strategy.
Innovation/Technology Experience
•
Extensive innovation and technology experience derived from over 30 years of operations experience, service on
multiple technical advisory boards and leadership of a technology and analytics advisory firm.
Robert G. Deuster
Director Since:
March 2017
Age:
69
Independent Status:
Independent Director
Board Committee(s):
Compensation
Other Boards Served:
Collectors Universe, Inc. (2012-2018)
Ondax Incorporated (2010-2018)
Symmetry Medical Incorporated (2014-2017)
Pico Holdings (2011-2016)
22
Mr. Deuster served as Chief Executive Officer of Collectors Universe, Inc., a public company that provides authentication and
grading services to the global collectibles market, from 2012 to 2017. Mr. Deuster served as Chairman and Chief Executive
Officer of Newport Corporation, a public company that is a global supplier of laser, optical and motion control products, from
May 1996 until his retirement in October 2007. Mr. Deuster served in various senior management positions at Applied Power,
Inc. (now Actuant Corporation) and General Electric Company’s Medical Systems Division. Mr. Deuster received a B.S. in
Electrical Engineering from Marquette University in 1973. Mr. Deuster holds a Masters Professional Director Certification
from the American College of Corporate Directors (“ACCD”), a public company director education and credentialing
organization.
Specific Qualifications, Attributes, Skills and Experience
Relevant Senior Leadership / CEO Experience
•
Served as Chief Executive Officer of both Collectors Universe, Inc. and Newport Corporation. Further, he served
in various senior management positions at Applied Power, Inc. and General Electric Company's Medical Systems
Division.
High Level of Financial Experience
•
Substantial financial experience gained as Chief Executive Officer of Collectors Universe, Inc. for over five (5)
years, as Chief Executive Officer of Newport Corporation for over eleven (11) years and in other senior
management positions with Applied Power, Inc. and General Electric Company's Medical Systems Division.
Broad International Exposure
•
Gained extensive international experience as Chief Executive Officer of both Collectors Universe, Inc. and
Newport Corporation.
Extensive Knowledge of Company Business/Industry
•
Significant employment experience as Chief Executive Officer of Newport Corporation, a global supplier of laser,
optical and motion control products to an array of industries including the semiconductor industry.
Innovation/Technology Experience
•
Extensive innovation and technology experience derived from over eleven (11) years of service as the Chief
Executive Officer of Newport Corporation as well as in various senior management positions at Applied Power,
Inc. and General Electric Company's Medical Systems Division.
David B. Miller
Director Since:
July 2015 (formerly with Rudolph)
Age:
63
Independent Status:
Independent Director
Board Committee(s):
Compensation, Nominating & Governance
Other Boards Served:
President, University of Virginia School of Engineering &
Applied Science Foundation (since 2011)
Merrimac Industries, Inc. (2002-2008)
SEMI International (2011-2015)
North Carolina Chamber of Commerce (2010-2015)
Mr. Miller served as the Rudolph non-executive Chairman from August 2018 through the Merger Date. From June 1981 to
November 2015, Mr. Miller served in various positions, most recently as President, with DuPont Electronics &
Communications, an electronic materials company. Mr. Miller holds a B.S. in Electrical Engineering from the University of
Virginia.
Specific Qualifications, Attributes, Skills and Experience
Relevant Senior Leadership / CEO Experience
•
Served as President of DuPont Electronics & Communications.
23
High Level of Financial Experience
•
Substantial financial experience gained in roles with DuPont Electronics & Communications including as
President of the company. Oversight of complex financial transactions, profit and loss responsibility and investor
relations during prior operations and leadership roles with this company.
Broad International Exposure
•
Served as President of DuPont Electronics & Communications, a global electronic materials company. Served
on several joint venture boards in the U.S. and Asia while with DuPont Electronics & Communications as well
as on the board of SEMI International. Resided in Tokyo, Japan for three (3) years.
Extensive Knowledge of Company Business/Industry
•
Forty (40) years of experience within the electronics industry including six (6) years at the helm of DuPont
Electronics & Communications, which in addition to other markets, served the semiconductor industry.
Innovation/Technology Experience
•
Significant experience and leadership roles with DuPont Electronics & Communications, overseeing the
company’s technology advancement, breadth of process expertise and ongoing innovation.
Michael P. Plisinski
Director Since:
November 2015 (formerly with Rudolph)
Age:
50
Independent Status:
Non-Independent Director
Board Committee(s):
Other Boards Served:
None
None
Mr. Plisinski has served as the Company’s Chief Executive Officer since the Merger Date and was previously Chief Executive
Officer of Rudolph beginning in November 2015. Prior to his appointment as Rudolph’s CEO, Mr. Plisinski served as
Rudolph’s Executive Vice President and Chief Operating Officer from October 2014 to November 2015 and as Vice President
and General Manager, Data Analysis and Review Business Unit from February 2006 when Rudolph merged with August
Technology Corporation (“August Technology”) until October 2014. From February 2004 to February 2006, Mr. Plisinski
served as August Technology’s Vice President of Engineering and, from July 2003 to February 2004, as its Director of Strategic
Marketing for review and analysis products. Mr. Plisinski joined August Technology as part of the acquisition of Counterpoint
Solutions, a supplier of optical review and automated metrology equipment to the semiconductor industry, where he was both
sole founder and President from June 1999 to July 2003. Mr. Plisinski has a B.S. in Computer Science from the University of
Massachusetts and has completed the Advanced Management Program from Harvard Business School.
Specific Qualifications, Attributes, Skills and Experience
Relevant Senior Leadership / CEO Experience
•
Serving as Chief Executive Officer of Onto Innovation with prior experience as Chief Executive Officer of
Rudolph, Chief Operating Officer and Vice President of Rudolph, General Manager of the Rudolph’s Data
Analysis and Review Business Unit, among other senior management positions.
High Level of Financial Experience
•
Substantial financial experience gained in roles as Chief Executive Officer of the Company and Rudolph and
Chief Operating Officer and Vice President, General Manager of the Data Analysis and Review Business Unit of
Rudolph.
Broad International Exposure
•
Extensive experience working with the Asian and European customers of the Company through the various roles
held with Rudolph, August Technology and the Company.
Extensive Knowledge of Company Business/Industry
•
Over fifteen (15) years of dedicated experience with Rudolph and August Technology and an additional four (4)
years as founder of an optical review and automated metrology start-up company, each serving the semiconductor
industry.
24
Innovation/Technology Experience
•
Technological and innovative experience includes leadership roles in both engineering and software development
while with Rudolph and August Technology. Prior entrepreneurial experience in the founding of optical review
and automated metrology equipment company, Counterpoint Solutions.
Bruce C. Rhine
Director Since:
Age:
July 2006
62
Independent Status:
Independent Director
Board Committee(s):
Audit (Chairman through July 2018), Nominating & Governance
Other Boards Served:
Snap2Insights (since 2018)
Shaper.io (since 2015)
Columbia Nutritional LLC (since 2014)
Phoseon Technology, Inc. (since 2012)
Jama Software (2008-2018)
NEXX Systems (2002-2012)
Nor-Cal Products, Inc. (2010-2017)
Accent Optical Technologies Inc. (2000-2006)
Mr. Rhine served as the Chairman of the Board of Directors of Nanometrics from August 2009 through the Merger Date. From
July 2006 to February 2008, Mr. Rhine served as Nanometrics’ Chief Strategy Officer and from March 2007 to August 2007,
as Nanometrics Chief Executive Officer. From 2000 to 2006, Mr. Rhine served as Chairman and Chief Executive Officer of
Accent Optical Technologies, Inc. (acquired by Nanometrics in July 2006) and as its President from January 2003 to April 2005
and from August 2000 to September 2001. Prior to 2000 Mr. Rhine was an executive at Applied Materials, Lam Research
Corporation, Asyst Technologies and Air Products and Chemicals. Mr. Rhine holds a B.S. degree in Chemical Engineering
and an M.B.A. in Finance from The Pennsylvania State University. Mr. Rhine is a member of the National Association of
Corporate Directors (“NACD”) and the ACCD.
Specific Qualifications, Attributes, Skills and Experience
Relevant Senior Leadership / CEO Experience
•
Served as Chief Executive Officer of Nanometrics and of Accent Optical Technologies with additional prior senior
leadership experience with Applied Materials, Lam Research Corporation, Asyst Technologies and Air Products
and Chemicals.
High Level of Financial Experience
•
Substantial financial experience gained in roles as Chief Executive Officer of Nanometrics and of Accent Optical
Technologies as well as with executive roles held in several semiconductor industry companies.
Broad International Exposure
•
Gained extensive international experience as Chief Executive Officer of Nanometrics and of Accent Optical
Technology as well as through array of other executive roles within the semiconductor industry.
Extensive Knowledge of Company Business/Industry
•
Over thirty-seven (37) years of dedicated experience within the semiconductor industry.
Innovation/Technology Experience
•
Broad and comprehensive array of technological experience with multiple companies within the semiconductor
space including serving as the Chief Strategy Officer of Nanometrics.
25
Christopher A. Seams
Director Since:
August 2015
Age:
57
Independent Status:
Independent Director
Board Committee(s):
Audit, Nominating & Governance
Other Boards Served:
Xperi Corporation (since 2016)
Tessera Technologies, Inc. (2013-2016)
Mr. Seams served as Chief Executive Officer of Deca Technologies from June 2013 to August 2016. Prior to Deca Technologies,
Mr. Seams served as Executive Vice President of sales and marketing at Cypress Semiconductor and held various technical and
operational management positions in its manufacturing, development and operations. Prior to joining Cypress in 1990, Mr.
Seams worked in process development for Advanced Micro Devices and Philips Research Laboratories. Mr. Seams earned his
bachelor’s degree in electrical engineering from Texas A&M University and his master’s degree in electrical and computer
engineering from the University of Texas at Austin. Mr. Seams has a Professional Certificate in Advanced Computer Security
from Stanford University and is a senior member of the Institute of Electrical and Electronics Engineers. Mr. Seams is a member
of the ACCD as well as a member and Certified Director of the NACD.
Specific Qualifications, Attributes, Skills and Experience
Relevant Senior Leadership / CEO Experience
•
Served as Chief Executive Officer of Deca Technologies as well as in additional senior leadership roles within
the semiconductor industry including with Cypress Semiconductor.
High Level of Financial Experience
•
Substantial financial experience gained in roles as Chief Executive Officer of Deca Technologies as well as with
executive roles held in the semiconductor industry.
Broad International Exposure
•
Extensive international experience as Chief Executive Officer of Deca Technologies, Executive Vice President of
sales and marketing at Cypress Semiconductor as well as through other management roles with both Cypress and
other semiconductor companies with which he worked.
Extensive Knowledge of Company Business/Industry
•
Over thirty (30) years of dedicated experience within the semiconductor industry.
Innovation/Technology Experience
•
Technological and innovative experience gained through an array of technical and operational management
positions in manufacturing, development and operations for Cypress Semiconductor as well as in process
development for Advanced Micro Devices and Philips Research Laboratories.
Christine A. Tsingos
Director Since:
Age:
May 2014
61
Independent Status:
Independent Director
Board Committee(s):
Audit (Chair), Nominating & Governance
Other Boards Served:
Envista Holdings Corporation (since September 2019)
Varex Imaging Corporation (since February 2017)
Ms. Tsingos served as the Executive Vice President and Chief Financial Officer of Bio-Rad Laboratories from December 2002
through May 2019. Prior to Bio-Rad, Ms. Tsingos held executive positions at Autodesk, The Cooper Companies, and Attest
Systems. Ms. Tsingos earned her Bachelor of Arts in International Studies from the American University in Washington D.C.
and an M.B.A in International Business from the George Washington University. In 2010, Ms. Tsingos was awarded the
prestigious Bay Area CFO of the Year.
26
Specific Qualifications, Attributes, Skills and Experience
Relevant Senior Leadership / CEO Experience
•
Served as Executive Vice President and Chief Financial Officer of Bio-Rad Laboratories.
High Level of Financial Experience
•
Over thirty (30) years of financial and operational experience with a series of companies including sixteen (16)
years of service as Chief Financial Officer of Bio-Rad Laboratories.
Broad International Exposure
•
Comprehensive international experience through service as Chief Financial Officer of Bio-Rad Laboratories.
The Board unanimously recommends voting
“FOR ALL” of the nominees set forth above.
27
Compensation Of Directors
Directors who are employees of the Company receive no compensation for their services as members of the Board of Directors.
Director compensation for non-employee members of the Board is a mix of cash and equity-based compensation, which is
largely comprised of the equity component to align the interests of our directors with the Company’s long-term performance
and stockholder interests. The components of the compensation for directors who are not employees of the Company are as
follows:
Board Compensation Element
Annual Retainer
Annual Equity Grant (in RSUs)
Committee Chair Stipend
Audit
Compensation
Nominating & Governance
Committee Member Stipend
Audit
Compensation
Nominating & Governance
Board Chair Stipend
Initial Equity Grant (in RSUs)
Amount/Value
$70,000 1
$150,000 2
$20,000 1
$15,000 1
$10,000 1
$10,000 1
$7,500 1
$5,000 1
$50,000 1
$150,000 3
1
2
3
Paid subsequent to the director election results at the Annual Stockholders Meeting.
Awarded at second quarter Board meeting in a number of shares calculated by dividing the listed amount by the closing stock price
per share of Company Common Stock on the date of grant, rounded to the nearest 100 shares.
Awarded as of the first Board meeting following election or appointment and calculated in the same manner as the annual equity
grant above but prorated by the number of quarters between such first meeting and the date on which the next annual equity grant
is scheduled to be awarded.
Any initial equity grants and/or annual equity grants typically vest on the first anniversary of the grant date. Equity awards
granted to Rudolph directors in 2019 were granted under and subject to the terms of the Rudolph Technologies, Inc. 2018 Stock
Plan. Equity awards granted to Nanometrics directors in 2019 were granted under and subject to the terms of the Nanometrics
Incorporated 2005 Equity Incentive Plan.
Prior to the 2019 Merger, Nanometrics non-employee directors received an annual retainer fee of $60,000. In addition, the
Chairman of the Board, Audit Committee Chairman, Compensation Committee Chairman and Nominating & Governance
Committee Chairman received an incremental $30,000, $20,000, $20,000 and $10,000 annual retainer, respectively, for serving
in such capacities. Committee members, other than the chairpersons, received an incremental $10,000 annual retainer for
service on the Audit or Compensation Committee and an incremental $7,500 annual retainer for service on the Nominating &
Governance Committee. All retainer fees were paid annually, as of the date of Nanometrics annual stockholders meeting, and
in advance of the provision of services to which the retainer relates.
Prior to the 2019 Merger, Rudolph non-employee directors received an annual retainer fee of $70,000. In addition, the
Chairman of the Board and the Chairmen of the Audit Committee, Compensation Committee and Nominating & Governance
Committee received an incremental $40,000 and $15,000 annual retainer, respectively, for serving in such capacities. Rudolph
directors were not paid in 2019 to serve on the committees of the Board of Directors with the exception of those directors
serving as committee chairs during 2019. The foregoing compensation was paid on a quarterly basis to the Rudolph directors.
No fees were paid to Rudolph directors for special subcommittee work in 2019.
28
For the year ended December 31, 2019, the directors, excluding the directors who are named executive officers, received total
compensation indicated in the table below. There were no option awards, non-equity incentive plan compensation, or pension
and nonqualified deferred compensation earnings granted to such directors. They did not earn any type of compensation during
the year other than what is disclosed in the following table:
Name
J. Thomas Bentley2
Edward J. Brown, Jr.
Robert G. Deuster3
Bruce C. Rhine
Christopher A. Seams
Timothy J. Stultz, Ph.D.3,4
Christine A. Tsingos
Jeffery A. Aukerman5
Leo Berlinghieri5
Vita A. Cassese6
David B. Miller7
John R. Whitten4,6
Fees Earned or
Paid in Cash
Stock
Awards (1)
Nanometrics Non-Executive Directors
All Other
Compensation
$0
$90,000
$80,000
$107,500
$80,000
$60,000
$97,500
$0
$119,654
$119,654
$119,654
$119,654
$119,654
$119,654
Rudolph Non-Executive Directors
$21,250
$21,250
$17,500
$31,250
$17,500
$0
$0
$0
$0
$0
$0
$0
$6,856
$0
$0
$259,944
$0
$0
$0
$0
$0
$0
Total
$0
$209,654
$199,654
$234,010
$199,654
$699,542
$217,154
$21,250
$21,250
$17,500
$31,250
$17,500
(1) Represents the grant date fair value for each share-based compensation award granted during the year, calculated in accordance
with FASB ASC Topic 718. The assumptions used in determining the grant date fair value of these awards are set forth in Note 9
to our consolidated financial statements, which are included in our Annual Report on Form 10-K for the fiscal year ended December
31, 2019 filed with the SEC. As of December 31, 2019, our directors had the following stock awards outstanding: Mr. Aukerman
– 3,297 RSUs; Mr. Berlinghieri – 3,297 RSUs; Mr. Brown, Jr. – 4,041 RSUs, Ms. Cassese – 3,297 RSUs; Mr. Deuster – 4,041
RSUs; Mr. Miller – 3,297 RSUs; Mr. Rhine – 4,041 RSUs; Mr. Seams – 4,041 RSUs; Dr. Stultz – 21,707 RSUs; Ms. Tsingos –
4,041 RSUs; and Mr. Whitten – 3,297 RSUs.
(2) Mr. Bentley did not stand for re-election to the Nanometrics board of directors on May 22, 2019.
(3) All other compensation for Mr. Deuster and Dr. Stultz includes amounts for health care reimbursements. All other compensation
for Dr. Stultz also included payment of $250,645 for merger consultations.
(4) Dr. Stultz and Mr. Whitten are not standing for re-election at the Annual Meeting.
(5) The total compensation earned by each of Messrs. Aukerman and Berlinghieri during 2019 while serving as a Rudolph Director
when added to the amounts reported in the Director Compensation Table above results in total compensation for the full calendar
year of $185,327. This adjustment includes increasing fees earned by $63,750 and including the grant date fair value of a time-
based equity award received for Rudolph prior to the 2019 Merger of $100,327.
(6) The total compensation earned by each of Ms. Cassese and Mr. Whitten during 2019 while serving as a Rudolph Director when
added to the amounts reported in the Director Compensation Table above results in total compensation for the full calendar year of
$170,327. This adjustment includes increasing fees earned by $52,500 and including the grant date fair value of a time-based equity
award received for Rudolph prior to the 2019 Merger of $100,327.
(7) The total compensation earned by Mr. Miller during 2019 while serving as a Rudolph Director when added to the amounts reported
in the Director Compensation Table above results in total compensation for the full calendar year of $225,327. This adjustment
includes increasing fees earned by $93,750 and including the grant date fair value of a time-based equity award received for
Rudolph prior to the 2019 Merger of $100,327.
Stock Ownership/Retention Guidelines For Directors
The Company has established guidelines related to stock ownership and retention for its non-employee directors. Currently,
the guidelines require that each non-employee director of the Company own shares of Company Common Stock valued at a
minimum of three (3) times the amount of the director’s total cash compensation which includes the annual cash retainer as
well as any additional fee paid to those individuals who are Committee Chairs, Lead Director or Chairman of the Board. For
a new director the stock holding requirement is to be attained within five (5) years of his or her initial election or appointment
to the Board.
29
PROPOSAL 2
ADVISORY VOTE ON EXECUTIVE COMPENSATION
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act, enables our stockholders
to vote to approve, on an advisory (non-binding) basis, the compensation of our named executive officers as disclosed in this
proxy statement in accordance with SEC rules. Consistent with the recommendation of the Board of Directors and the
preference of our stockholders as reflected in the non-binding advisory vote on the frequency of future advisory votes on named
executive officer compensation held at the Nanometrics 2017 Annual Meeting of Stockholders, the Company currently holds
an annual “say on pay” vote. In accordance with this policy, this year we are requesting our stockholders to approve an advisory
resolution on the Company’s executive compensation as reported in this Proxy Statement, and as required by Section 14A(a)(1)
of the Exchange Act.
Our executive compensation arrangements are designed to enhance stockholder value on an annual and long-term basis. These
arrangements are consistent with our compensation philosophy and pay-for-performance principles and, as such, have been
designed to provide competitive compensation packages that enable the Company to attract and retain talented executives,
motivate executive officers to achieve the Company’s short- and long-term business strategies and objectives, align the interests
of executives with those of stockholders, and are consistent with current market practices and good corporate governance
principles. Please read the Compensation Discussion and Analysis beginning on page 49 of this proxy statement and the tabular
and additional narrative disclosures on executive compensation beginning on page 71 of this proxy statement for additional
details about our executive compensation arrangements, including information about the fiscal year 2019 compensation of our
named executive officers.
We are asking our stockholders to indicate their support for our compensation arrangements as described in this proxy
statement.
For the reasons discussed above, the Board recommends that stockholders vote in favor of the following resolution:
“RESOLVED, that the Company’s stockholders APPROVE, on an advisory basis, the compensation paid to
the Company’s named executive officers, as disclosed in the proxy statement for this meeting pursuant to Item
402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and
narrative discussion and other related tables and disclosures.”
Because your vote is advisory, it will not be binding upon or overrule any decisions of the Board, nor will it create any additional
fiduciary duty on the part of the Board. This advisory vote is not intended to address any specific item of compensation, but
rather the overall compensation of our named executive officers and our compensation philosophy, policies and practices
described in this proxy statement, and does not seek to have the Board or Compensation Committee take any specific action.
However, the Board and the Compensation Committee value the view expressed by our stockholders in their vote on this
proposal and will take into account the outcome of the vote when considering executive compensation matters in the future.
Vote Required
The affirmative vote, in person or by proxy, of a majority of the shares present or represented at the meeting and entitled to
vote will be required to approve, on an advisory (non-binding) basis, the compensation of our named executive officers as
disclosed in this proxy statement.
The Board recommends a vote “FOR” the approval of the compensation of the
named executive officers as disclosed in this proxy statement pursuant to Item 402
of Regulation S-K as required by Section 14A(a)(1) of the Exchange Act.
30
PROPOSAL 3
APPROVAL OF ONTO INNOVATION INC. 2020 STOCK PLAN
The Board of Directors is requesting that our stockholders approve a new stock plan, the Onto Innovation Inc. 2020 Stock Plan
(the “2020 Stock Plan”). The Board has adopted the 2020 Stock Plan, subject to stockholder approval at the Annual Meeting.
If approved by our stockholders, the 2020 Stock Plan will become effective as of May 12, 2020 and will expire ten (10 years
from such date, unless terminated earlier.
The 2020 Stock Plan is structured to allow the Board to award equity incentives to eligible directors, officers, employees and
consultants in order to assist the Company in attracting, retaining and motivating the best available personnel for the successful
conduct of the Company’s business. The Company believes that linking compensation to corporate performance motivates
employees and consultants to improve stockholder value. The Company has, therefore, consistently included equity incentives
as a significant component of compensation for its officers, employees, directors and consultants. With the high demand for
highly skilled employees and consultants, especially in the technology industries, management believes it is critical to the
Company’s success to maintain competitive compensation programs. The Board believes that the approval of the 2020 Stock
Plan would be in the best interests of the Company and its stockholders.
We currently maintain the Nanometrics Incorporated 2005 Equity Incentive Plan (the “Nanometrics 2005 Stock Plan”) and the
Rudolph Technologies, Inc. 2018 Stock Plan (the “Rudolph 2018 Stock Plan”). The Nanometrics 2005 Stock Plan currently
expires on May 23, 2023 while the Rudolph 2018 Stock Plan currently expires on May 16, 2028. We are seeking stockholder
approval of the 2020 Stock Plan so that we can maintain and administer one equity incentive plan for all eligible participants
following the 2019 Merger and continue to provide our officers, employees, directors and consultants with equity-based
compensation that aligns their interests with the interests of our stockholders.
To ensure that the Company has an adequate number of shares available for compensation to its directors, executive officers
and other employees and consultants, we are asking our stockholders to approve the 2020 Stock Plan with a total share reserve
of 3,500,000 shares, as described below under “Share Reserve Under the 2020 Stock Plan”.
Key Governance Highlights Of The 2020 Stock Plan
The following are key governance highlights of the 2020 Stock Plan:
• Minimum Vesting Requirements. Minimum one-year vesting period for all awards subject to certain limited carve-
outs.
•
•
•
•
•
•
•
No Dividends on Unvested Awards. Prohibition on payment of dividends and dividend equivalents while an award
is unvested.
No Liberal Share Recycling. Shares of common stock not issued as the result of a net settlement of options or stock
appreciation rights (“SARs”) as well as shares tendered or withheld to pay the exercise price or withholding taxes
relating to awards will not again be made available for issuance as awards under the 2020 Stock Plan.
Individual Annual Award Limits for Directors. Limitations apply to the value of awards an individual non-employee
director (“outside director”) may receive in a given calendar year.
Individual Annual Award Limits for Other Participants. Limitations apply to the value of awards an individual
officer, employee or consultant may receive in a given calendar year.
No Liberal Change-in-Control Definition. The change-in-control definition under the 2020 Stock Plan is not
considered “liberal” and, for example, is not triggered by shareholder approval of a transaction.
Clawback. Awards are subject to potential cancellation or clawback in certain circumstances in accordance with
the Company’s clawback policy.
No Repricing. The 2020 Stock Plan prohibits, without stockholder approval, the cancellation of underwater options
or SARs for cash or other awards, the reduction of the exercise price of options or SARs, or any other action that
would be treated as a repricing, without stockholder approval.
31
Share Reserve Under The 2020 Stock Plan
Under the 2020 Stock Plan, the number of shares of Company common stock available for issuance to eligible participants will
be 3,500,000, subject to stockholder approval, plus any shares subject to awards under the Nanometrics 2005 Stock Plan or the
Rudolph 2018 Stock Plan that would again become available for new awards under the terms of either such plan if such plan
were still in effect and without regard to any termination thereof.
As of the effective date of the 2020 Stock Plan, no additional grants may thereafter be issued under either the Nanometrics
2005 Stock Plan or the Rudolph 2018 Stock Plan. As of March 13, 2020, 1,280,597 shares remained available for grant under
the Nanometrics 2005 Stock Plan and 2,393,656 shares under the Rudolph 2018 Stock Plan.
The following table presents information about the number of shares that were subject to various outstanding equity awards
under the Nanometrics 2005 Stock Plan or the Rudolph 2018 Stock Plan and the shares remaining available for issuance under
these two (2) plans. On March 13, 2020, the total number of shares outstanding was 50,381,691 and our closing stock price
was $27.98.
Nanometrics
2005 Stock Plan
Rudolph 2018
Stock Plan
Number of outstanding stock options as of March 13, 2020.
Weighted average exercise price of the outstanding stock options as of March 13,
2020.
Weighted average remaining contractual term of the outstanding stock options as
of March 13, 2020.
Number of outstanding serviced-based restricted stock units as of March 13, 2020.
Number of outstanding performance-based restricted stock units as of March 13,
2020.(1)
Shares remaining available as of March 13, 2020.
Number of shares available for issuance under the 2020 Stock Plan(2)
1,230
$18.41
0.98 years
482,414
32,639
1,280,597
3,500,000
-
n/a
n/a
154,969
93,574
2,393,656
(1) Includes earned performance-based restricted stock units that have been earned and remain subject to service-based vesting
requirements.
(2) As may be increased after the effective date of the 2020 Stock Plan as a result of any cancelled shares under the Nanometrics 2005
Stock Plan or the Rudolph 2018 Stock Plan as described above.
In determining whether to approve the 2020 Stock Plan, including the share reserve under the 2020 Stock Plan, the following
considerations were taken into account:
• We expect the share reserve under the 2020 Stock Plan to provide us with enough shares for awards for
approximately 6 years. However, this expectation assumes that we continue to grant awards consistent with our
current practices and historical usage and is dependent on our stock price and hiring activity during the next few
years and forfeitures of outstanding awards. We cannot predict our future equity grant practices, the future price of
our stock or future hiring activity with any degree of certainty at this time and, as a result, the share reserve under
the 2020 Stock Plan could last for a shorter or longer time.
•
•
The potential dilution to our stockholders that may result from the issuance of shares pursuant to outstanding awards:
our overhang rate as of March 13, 2020 (calculated by dividing (x) the number of shares subject to equity awards
outstanding plus shares remaining available for issuance for future awards by (y) the number of common shares
outstanding plus the number of shares subject to equity awards outstanding plus the remaining shares available for
issuance) was 8.1%. Our overhang rate on a pro forma basis, assuming that the 3,500,000 share reserve under the
2020 Stock Plan was authorized as of that date, would have been 7.8%.
The “burn rate” which measures our usage of shares for the Nanometrics and Rudolph stock plans as a percentage
of our outstanding shares. For 2019, 2018, and 2017, our burn rate was 0.79%, 0.58%, and 0.63%, respectively, and
the three-year average was 0.67%. The rates were calculated by dividing the number of shares subject to awards
granted during the year net of forfeitures and cancellations by the weighted average number of shares outstanding
during the year.
32
• Analysis by our compensation consultant, which was based on generally accepted evaluation methodologies used
by proxy advisory firms, that the number of shares to be reserved under the 2020 Stock Plan is within generally
accepted standards as measured by an analysis of the 2020 Stock Plan cost relative to industry standards.
Summary Of The 2020 Stock Plan
The following is a summary of the principal features of the 2020 Stock Plan and its operation. This summary is qualified in its
entirety by reference to the 2020 Stock Plan itself set forth in Appendix A.
General
The 2020 Stock Plan provides for the grant of equity awards to employees, directors and consultants. Options granted under
the 2020 Stock Plan may either be “incentive stock options” as defined in Code Section 422 or nonstatutory stock options, as
determined by the Board.
Purpose
The general purposes of the 2020 Stock Plan are to attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to the employees, directors and consultants of the Company and to promote the
success of the Company’s business.
Administration
The 2020 Stock Plan will be administered by the Compensation Committee (“Committee”) or the Board, as applicable (in
either case, the “Administrator”).
Eligibility
The 2020 Stock Plan provides that nonstatutory stock options, stock appreciation rights (“SARs”), restricted stock, restricted
stock units, performance units and performance shares may be granted to employees, directors and consultants of the Company
and any parent or subsidiary. Incentive stock options may be granted only to employees of the Company and any parent or
subsidiary. The Administrator will determine which eligible persons will be granted awards. As of March 13, 2020, there were
twelve (12) outside directors (which will be reduced to ten (10) on the date of the Annual Meeting), approximately 1,300
employees and consultants eligible to participate in the 2020 Stock Plan.
Shares Available Under The 2020 Stock Plan
The maximum aggregate number of shares that may be awarded and sold under the 2020 Stock Plan is 3,500,000 shares. If,
after the effective date of the 2020 Stock Plan, any shares subject to awards granted under the Nanometrics 2005 Stock Plan or
the Rudolph 2018 Stock Plan would again become available for new awards under the terms of such plan if it were still in
effect and without regard to any termination of such plan, then those shares will be available for the purpose of granting awards
under the 2020 Stock Plan. The shares issued pursuant to awards under the 2020 Stock Plan may be authorized but unissued or
reacquired Common Stock. No awards have been granted under the 2020 Stock Plan.
If an award terminates, expires or becomes unexercisable without having been exercised in full, or, with respect to restricted
stock, restricted stock units, performance units or performance shares, is terminated or forfeited in whole or in part due to
failure to vest, the shares (or forfeited shares) which were subject to such terminated, expired, unexercised or forfeited award
will become available for future issuance under the 2020 Stock Plan. To the extent that an award under the 2020 Stock Plan is
paid out in cash, rather than shares, such cash payment will not result in reduction of the shares available for issuance under
the 2020 Stock Plan.
Shares used to pay the exercise price of an award or to satisfy the tax withholding obligations related to an award will not again
become available for future grant under the 2020 Stock Plan. Upon exercise of a SAR settled in shares, all shares subject to
33
the SAR (not the number of net shares actually issued pursuant to the SAR upon any exercise) will cease to be available under
the 2020 Stock Plan.
Individual Award Limits
For any calendar year, (i) the value of awards granted to an outside director under the 2020 Stock Plan may not exceed $600,000
and (ii) the value of awards granted to any individual participant other than an outside director under the 2020 Stock Plan may
not exceed $5,000,000, in each case calculating the value of any such awards based on the grant date fair value of such awards
for financial reporting purposes. For purposes of applying this annual limit, any award of performance units, performance
shares or any other award subject to performance-based vesting criteria will be taken into account assuming target performance
achievement under the terms of such award.
Minimum Vesting Period
All awards granted to all participants under the 2020 Stock Plan will be subject to a minimum vesting period of not less than
one (1) year from the date of grant; provided, the Administrator may provide for the grant of awards to participants without
regard to the minimum vesting requirement with respect to a maximum of five percent (5%) of the total number of shares
authorized for issuance under the 2020 Stock Plan.
Substitute Awards
In connection with an entity’s merger or consolidation with the Company or any subsidiary or the direct or indirect acquisition
by the Company or any subsidiary of an entity’s property or stock, the Committee may grant awards in substitution or exchange
for any options or other stock or stock-based awards granted before such merger or consolidation by such entity or its affiliate.
Substitute awards may be granted on such terms and conditions as the Committee deems appropriate, notwithstanding any
limitations on awards in the 2020 Stock Plan. Substitute awards will generally not count against the aggregate share reserve.
Additionally, in the event that a company acquired by the Company or any subsidiary, or with which the Company or any
subsidiary otherwise combines, has shares available under a pre-existing plan approved by its stockholders and not adopted in
contemplation of such acquisition or combination as determined by the Administrator, the shares available for grant pursuant
to the terms of such pre-existing plan may be used under certain circumstances for awards under the 2020 Stock Plan and shall
not reduce the shares authorized for grant under the 2020 Stock Plan.
Types Of Awards Under The 2020 Stock Plan
Stock Options
Stock option awards may be granted to employees, directors or consultants of the Company at any time and from time to time
as determined by the Administrator in its discretion, except incentive stock options may be granted only to employees of the
Company. The exercise price of options granted under the 2020 Stock Plan is determined by the Administrator and must not
be less than 100% of the fair market value of the Common Stock at the time of grant. Options granted under the 2020 Stock
Plan expire as determined by the Administrator, but in no event later than ten (10) years from date of grant. No option may be
exercised by any person after its expiration. Incentive stock options granted to stockholders owning more than 10% of the
voting stock of the Company must have an exercise price per share no less than 110% of the fair market value at the time of
grant and the term of such option may be no more than five years from the date of grant. The fair market value of the Common
Stock is generally determined with reference to the closing sale price for the Common Stock (or the closing bid if no sales were
reported) on the day of determination.
Options become exercisable at such times as are determined by the Administrator and as set forth in the individual award
agreements. An option is exercised by giving notice to the Company in the form determined by the Administrator, specifying
the number of full shares of Common Stock to be purchased and tendering payment of the purchase price. The 2020 Stock
Plan permits payment to be made by cash, check, other shares of Common Stock, delivery of a properly executed exercise
notice together with any other documentation as the Administrator and the participant’s broker (if applicable) may require to
effect an exercise of the option and delivery to the Company of the sale or other proceeds (as permitted by applicable law)
required to pay the exercise price, withholding shares otherwise issuable in connection with the exercise of the option, such
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other consideration and method of payment authorized by the Administrator in its discretion or permitted by the award
agreement, or any combination thereof.
Restricted Stock
Restricted stock awards may be granted to employees, directors or consultants of the Company at any time and from time to
time as determined by the Administrator in its discretion. Each restricted stock grant will be evidenced by an award agreement
that will specify the number of shares granted and such other terms and conditions as the Administrator will determine in
accordance with the terms of the 2020 Stock Plan.
Subject to the terms of the 2020 Stock Plan, the Administrator will have complete discretion to determine (i) the number of
shares subject to a restricted stock award granted to any participant, and (ii) any vesting conditions that must be satisfied. The
Administrator may provide that awards of restricted stock earn dividends paid with respect to such shares. Any such dividends
will be accumulated and credited to an account for the participant, with interest in the Administrator’s discretion, and will be
subject to the same terms and conditions, including vesting restrictions, as the award with respect to which the dividends are
credited. To the extent an award of restricted stock is forfeited in whole or in part, any accrued dividends with respect to such
award will be forfeited at the same time and to the same extent as such award. No dividends or accrued interest, if any, earned
with respect to an award of restricted stock may be paid before the underlying award vests.
Restricted Stock Units
Restricted stock units may be granted to employees, directors or consultants of the Company at any time and from time to time
as determined by the Administrator. Each restricted stock unit grant will be evidenced by an award agreement that will specify
such terms and conditions as the Administrator will determine in accordance with the terms of the 2020 Stock Plan.
Restricted stock units result in a payment to a participant only if the vesting criteria the Administrator establishes are satisfied.
The Administrator may set vesting criteria based on the achievement of Company-wide, business unit, or individual goals
(including continued employment), or any other basis determined by the Administrator in its discretion. The restricted stock
units will vest at a rate determined by the Administrator. Upon satisfying the applicable vesting criteria, the participant will be
entitled to a payout as specified in the award agreement or as otherwise determined by the Administrator. The Administrator,
in its sole discretion, may pay earned restricted stock units in shares, cash, or a combination thereof. On the date set forth in,
and otherwise subject to the terms and conditions of the award agreement, or as provided by the Administrator, all unearned
restricted stock units will be terminated and forfeited to the Company. Additionally, the Administrator is authorized to grant
participants dividend equivalents based on the dividends declared on shares that are subject to any outstanding restricted stock
unit. Any such dividend equivalents will be accumulated and credited to an account for the participant, with interest in the
Administrator’s discretion, and will be subject to the same terms and conditions, including vesting restrictions, as the award
with respect to which the dividend equivalents are credited. To the extent an award of restricted stock units is forfeited in whole
or in part, any accrued dividend equivalents with respect to such award will be forfeited at the same time and to the same extent
as such award. No dividend equivalents or accrued interest, if any, earned with respect to restricted stock units may be paid
before the underlying award vests.
Stock Appreciation Rights
SARs may be granted to employees, directors or consultants of the Company at any time and from time to time as determined
by the Administrator in its discretion. Each SAR grant will be evidenced by an award agreement that will specify the exercise
price, the term of the SAR, the conditions of exercise, and such other terms and conditions as the Administrator will determine
in accordance with the terms of the 2020 Stock Plan.
The Administrator will have discretion to determine the terms and conditions of SARs granted under the 2020 Stock Plan;
provided that no SAR may have a term of more than 10 years from the date of grant and that the exercise price of a SAR may
not have an exercise price below 100% of the fair market value of the Common Stock on the grant date. No SAR can be
exercised by any person after its expiration.
Upon exercise of a SAR, the holder of the SAR will be entitled to receive payment from us in an amount determined by
multiplying (i) the difference between the fair market value of a share on the date of exercise over the exercise price, times (ii)
the number of shares with respect to which the SAR is exercised.
At the discretion of the Administrator and as set forth in the applicable award agreement, payment to the holder of a SAR may
be in cash, shares of Common Stock or a combination thereof.
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Performance Units And/Or Performance Shares
Performance units and performance shares may be granted to employees, directors or consultants of the Company at any time
and from time to time, as determined by the Administrator in its sole discretion. The Administrator will have complete
discretion in determining the number of performance units/shares granted to each participant. The Administrator may provide
that awards of performance shares and performance units earn dividends or dividend equivalents, as applicable, and accrued
interest in its discretion. To the extent an award of performance units or performance shares is terminated, cancelled or forfeited
in whole or in part, due to failure to meet performance conditions or otherwise, any dividends, dividend equivalents and accrued
interest will be terminated, cancelled or forfeited at the same time and to the same extent as such award. No dividends, dividend
equivalents or accrued interest, if any, earned with respect to a performance unit award or a performance share award may be
paid before the underlying award vests.
The Administrator will set performance objectives or other vesting provisions (including, without limitation, continued status
as a service provider to the Company) in its discretion which, depending on the extent to which they are met, will determine
the number or value of performance units or performance shares that will be paid out. Each award of performance units and
performance shares will be evidenced by an award agreement that will specify the time period during which the performance
objectives or other vesting provisions must be met (the “performance period”), vesting period and such other terms and
conditions as the Administrator will determine in its discretion in accordance with the terms of the 2020 Stock Plan. The
Administrator may set performance objectives based upon the achievement of Company-wide, divisional, or individual goals,
or any other basis determined by the Administrator in its discretion.
After the applicable performance period has ended, the holder of performance units or performance shares will be entitled to
receive a payout of the number of performance units or performance shares earned by the participant over the performance
period, to be determined as a function of the extent to which the corresponding performance objectives or other vesting
provisions have been achieved. The Administrator may pay earned performance units and performance shares in the form of
cash, in shares, or in a combination thereof. After the grant of performance units or performance shares, the Administrator may
reduce or waive any performance objectives or other vesting provisions for such performance unit or performance share.
On the date set forth in, and otherwise subject to the terms and conditions of, the award agreement, or as otherwise provided
by the Administrator, all unearned or unvested performance units and performance shares will be forfeited to the Company.
Other Plan Provisions
Termination Of Employment
The 2020 Stock Plan gives the Administrator the authority to vary the terms of the individual award agreements. Under the
2020 Stock Plan, unvested awards granted will generally be forfeited or expire upon a participant’s termination of employment
unless the Committee exercises its discretion to modify the time at which stock options and SARs may be exercised or any
restrictions will lapse or be removed or waived, notwithstanding any provision of the 2020 Stock Plan to the contrary.
Generally, with respect to stock options and SARs, if a participant ceases to provide ongoing service as an employee, director
or consultant for any reason other than death or disability or termination for cause, then the participant will generally have the
right to exercise his or her outstanding options and SARs for three (3) months after the date of termination, but only to the
extent that the participant was entitled to exercise such option or SAR at the date of such termination. If such termination is
due to death or disability, the participant (or the participant’s legal representative) will generally have the right to exercise any
existing unexercised option or SAR at any time within twelve (12) months following the termination date, but only to the extent
that the participant was entitled to exercise such option or SAR at the date of such termination. In no event will an option or
SAR be exercisable beyond its term. In the event of a participant’s termination for cause, then the participant’s options and/or
SARs, whether vested or unvested, will immediately be forfeited upon termination.
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Recoupment
A participant’s rights with respect to any award granted under the 2020 Stock Plan shall in all events be subject to (i) any right
that the Company may have under any clawback or recoupment policy as may be in effect from time to time or any other
clawback or recoupment agreement or arrangement applicable to a participant; or (ii) any right or obligation that the Company
may have regarding the recoupment of incentive-based compensation under Exchange Act Section 10D and any applicable
rules and regulations issued by the SEC.
Compliance With Code Section 409A
Awards are intended to operate in such a manner that they are either exempt from the application of, or comply with, the
requirements of Code Section 409A such that the grant, payment, settlement or deferral will not be subject to the additional tax
or interest applicable under Code Section 409A, except as otherwise determined in the sole discretion of the Administrator,
provided that no warranty of such exemption or compliance is made. The 2020 Stock Plan and each award Agreement under
the 2020 Stock Plan is intended to meet the requirements of Code Section 409A and will be construed and interpreted in
accordance with such intent, except as otherwise determined in the sole discretion of the Administrator.
Non-Transferability Of Awards
Unless determined otherwise by the Administrator, an award granted under the 2020 Stock Plan may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution
or as otherwise permitted in the 2020 Stock Plan and may be exercised, during the lifetime of the participant, only by the
participant. If the Administrator makes an award granted under the 2020 Stock Plan transferable, such award shall be subject
to the terms of the 2020 Stock Plan and the award agreement and will contain such additional terms and conditions as the
Administrator deems appropriate. Notwithstanding the foregoing, under no circumstance may unvested or unexercised awards
be transferred for value or consideration.
Adjustments
In the event that any dividend (other than ordinary cash dividends) or other distribution (whether in the form of cash, shares,
other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-
up, spin-off, combination, repurchase, or exchange of shares or other securities of the Company, or other change in the corporate
structure of the Company affecting the shares occurs, the Administrator, in order to prevent diminution or enlargement of the
benefits or potential benefits intended to be made available under the 2020 Stock Plan, will adjust, in such equitable manner as
the Administrator deems appropriate, the number and class of shares issuable under the 2020 Stock Plan and/or the number,
class and, if applicable, exercise price of shares subject to each outstanding award.
Dissolution Or Liquidation
In the event of a liquidation or dissolution, the Administrator will notify each participant as soon as practicable prior to the
effective date of such proposed transaction. To the extent that an award has not been previously exercised (with respect to
options and SARs) or vested (with respect to other awards), an award will terminate immediately prior to the consummation of
such proposed action.
Change-in-Control
In the event of a Change-in-Control, notwithstanding any other provision of the 2020 Stock Plan or an award, each outstanding
award shall be treated as the Administrator determines in its discretion without a participant’s consent, including, without
limitation, that awards may be assumed, or substantially equivalent awards may be substituted, by the acquiring or succeeding
entity or an affiliate thereof (a “successor”) with appropriate adjustments as to the number and kind of shares and prices; upon
written notice to a participant, the participant’s awards will terminate immediately prior to the consummation of such Change-
in-Control; awards will vest and become exercisable, realizable, or payable, or restrictions applicable to an award will lapse,
37
in whole or in part, prior to or upon consummation of such Change-in-Control, and, to the extent the Administrator determines,
terminate upon the effectiveness of such Change-in-Control; awards will terminate in exchange for an amount of cash and/or
property, if any, equal to the amount (if any) that would have been attained upon the exercise of such award or realization of
the participant’s rights as of the date of the occurrence of the transaction; the replacement of such award with other rights or
property selected by the Administrator in its sole discretion; or any combination of the foregoing.
In the event of a Change-in-Control, with respect to awards held by participants other than outside directors, if the successor
elects not to assume or substitute an Award, as determined by the Administrator in accordance with the terms of the 2020 Stock
Plan, the participant will fully vest in and have the right to exercise all of his or her outstanding stock options and SARs; all
restrictions on restricted stock and restricted stock units will lapse; and, with respect to performance units, performance shares
and any other awards subject to performance-based vesting conditions, all performance goals or other vesting conditions will
be deemed achieved at target.
With respect to awards granted to an outside director that are assumed or substituted by a successor, if, on the date of or
following such assumption or substitution, the participant’s status as a Director or a director of the successor, as applicable, is
terminated other than upon a voluntary resignation by the participant (unless such resignation is at the request of the successor),
then the participant will fully vest in and have the right to exercise options and/or SARs as to all of the shares underlying such
award for a period of one year following such termination (but in no event later than the expiration of the term of such option
as set forth in the award agreement); all restrictions on restricted stock and restricted stock units will lapse; and, with respect
to performance units, performance shares and any other awards subject to performance-based vesting conditions, all
performance goals or other vesting conditions will be deemed achieved at target.
Plan Term; Amendment Or Termination Of The 2020 Stock Plan
The 2020 Stock Plan will become effective on the date approved by stockholders and will have a ten-year term commencing
on that date, subject to any earlier termination by the Board. The Board may amend, alter, suspend or terminate the 2020 Stock
Plan or any part thereof from time to time, except that stockholder approval will be required for any amendment to the 2020
Stock Plan to the extent required by any applicable laws, regulations of the securities exchange on which the shares are then
listed, or otherwise in the Board’s discretion. The Administrator may waive any conditions or restrictions of or amend, modify
or terminate outstanding awards under the 2020 Stock Plan notwithstanding any plan provision to the contrary. As a general
matter, no amendment, alteration, suspension or termination of the 2020 Stock Plan or an outstanding award may impair the
rights of any participant under any then outstanding award without the participant’s written consent, with the exception of
certain compliance amendments.
New Plan Benefits
Future grants under the 2020 Stock Plan will be made at the discretion of the Administrator and, accordingly, are not yet
determinable. In addition, the value of the awards granted under the 2020 Stock Plan will depend on a number of factors,
including the fair market value of our common stock on future dates and the exercise decisions made by the participants.
Consequently, it is not possible to determine the benefits that might be received by participants receiving discretionary grants
under the Plan.
Nanometrics granted awards under the Nanometrics 2005 Stock Plan and Rudolph granted awards under the Rudolph 2018
Stock Plan in 2019 each to the named executive officers, outside directors and to other eligible employees. The 2019 grants to
our named executive officers and to our outside directors are reflected in the 2019 Grants of Plan-Based Awards Table and the
2019 Director Compensation Table, respectively, in this proxy statement. The closing market price of a share of Company
common stock as reported on the New York Stock Exchange on December 31, 2019 was $36.54.
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Equity Compensation Plan Information
The following table sets forth, as of December 31, 2019, certain information related to our equity compensation plans.
Equity compensation plans approved by security holders
Equity compensation plans not approved by security
holders
Total
(a)
(b)
Number of Securities
to be Issued Upon Exercise
of Outstanding Options,
Warrants and Rights (1)
1,152,980
Weighted-Average
Exercise Price of
Outstanding Options,
Warrants and Rights
$0.63
(c)
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plans (Excluding
Securities Reflected in
Column (a)) (2)
3,966,618
n/a
1,152,980
n/a
$0.63
n/a
3,966,618
(1)
Includes 1,106,177 shares issuable upon vesting of outstanding restricted stock units under the Nanometrics 2005 Stock Plan and the
Rudolph 2018 Stock Plan.
(2) As of December 31, 2019, 1,252,690 of these shares were available under the Nanometrics 2005 Stock Plan and 2,477,879 of these
shares were available under the Rudolph 2018 Stock Plan. As of December 31, 2019 there were 236,049 shares available under the
2003 ESPP. These shares will no longer remain available if the 2020 Stock Plan and the 2020 ESPP are approved by stockholders at
the Annual Meeting.
Federal Income Tax Information
Nonstatutory Stock Options
No taxable income is reportable by the recipient when a nonstatutory stock option with an exercise price equal to the fair market
value of the underlying stock on the date of grant is granted to a participant. Upon exercise, the participant will recognize
ordinary income in an amount equal to the excess of the fair market value (on the exercise date) of the shares purchased over
the exercise price of the option. Any taxable income recognized in connection with an option exercise by an employee of the
Company is subject to tax withholding by the Company. Any additional gain or loss recognized upon any later disposition of
the shares would be capital gain or loss.
Incentive Stock Options
No taxable income is generally reportable by the recipient when an incentive stock option is granted or exercised. If the
participant exercises the option and then later sells or otherwise disposes of the shares more than two years after the grant date
and more than one year after the exercise date, the difference between the sale price and the exercise price will be taxed as
capital gain or loss. If the participant exercises the option and then later sells or otherwise disposes of the shares before the
end of the two or one year holding periods described above, he or she generally will have ordinary income at the time of the
sale equal to the fair market value of the shares on the exercise date (or the sale price, if less) minus the exercise price of the
option.
Stock Appreciation Rights
No taxable income is reportable by the recipient when a stock appreciation right with an exercise price equal to the fair market
value of the underlying stock on the date of grant is granted to a participant. Upon exercise, the participant will recognize
ordinary income in an amount equal to the amount of cash received and the fair market value of any shares received. Any
additional gain or loss recognized upon any later disposition of the shares would be capital gain or loss.
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Restricted Stock And Restricted Stock Units
A participant generally will not have taxable income at the time an award of restricted stock or restricted stock units is granted.
Instead, with respect to restricted stock, he or she will recognize ordinary income in the first taxable year in which the restricted
shares are no longer subject to substantial risk of forfeiture in an amount equal to the excess of the fair market value of the
shares on the vesting date over the amount, if any, the participant paid for the shares. However, the recipient of a restricted
stock award may elect to recognize income at the time he or she receives the award in an amount equal to the fair market value
of the shares underlying the award (less any cash paid for the shares) on the date the award is granted. Upon settlement of a
restricted stock unit, a participant will recognize ordinary income an amount equal to the fair market value of the shares received
or, if the restricted stock unit is paid in cash, the amount payable.
Performance Units And Performance Shares
A participant generally will not have taxable income at the time an award of performance units or performance shares is granted.
Instead, with respect to performance shares, he or she will recognize ordinary income in the first taxable year in which his or
her interest in the shares underlying the award are no longer subject to substantial risk of forfeiture. Upon settlement of a
performance unit, a participant will recognize ordinary income an amount equal to the fair market value of the shares received
or, if the performance units are paid in cash, the amount payable.
Tax Effect For The Company
The Company generally will be entitled to a tax deduction in connection with an award under the 2020 Stock Plan in an amount
equal to the ordinary income realized by a participant and at the time the participant recognizes such income (for example, the
exercise of a nonstatutory stock option). Code Section 162(m) places a $1 million limit on the deductibility of compensation
paid to certain covered employees. Based on recent legislation effective for tax years commencing after December 31, 2017,
this limit on deductibility applies to the Company’s chief executive officer, its chief financial officer, its three most highly
compensated executive officers included as named executive officers in the proxy statement, and any individual who was a
named executive officer for fiscal 2017 or thereafter. In addition, the legislation eliminated the exception to the limit on
deductibility for certain performance-based compensation.
THE FOREGOING IS ONLY A SUMMARY OF THE EFFECT OF FEDERAL INCOME TAXATION UPON THE
PARTICIPANT AND THE COMPANY AS OF THE DATE HEREOF WITH RESPECT TO AWARDS UNDER THE
2020 STOCK PLAN AND DOES NOT PURPORT TO BE COMPLETE, AND REFERENCE SHOULD BE MADE TO
THE APPLICABLE PROVISIONS OF THE INTERNAL REVENUE CODE. IN ADDITION, THIS SUMMARY
DOES NOT DISCUSS THE TAX CONSEQUENCES OF A PARTICIPANT’S DEATH OR THE PROVISIONS OF
THE INCOME TAX LAWS OF ANY MUNICIPALITY, STATE OR FOREIGN COUNTRY IN WHICH THE
PARTICIPANT MAY RESIDE. PARTICIPANTS SHOULD CONSULT THEIR OWN TAX ADVISORS.
Vote Required
The affirmative vote, in person or by proxy, of a majority of the shares present or represented at the meeting and entitled to
vote will be required to approve the adoption of the 2020 Stock Plan.
The Board recommends a vote “FOR” the adoption of
the Onto Innovation Inc. 2020 Stock Plan.
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PROPOSAL 4
APPROVAL OF THE ONTO INNOVATION INC.
2020 EMPLOYEE STOCK PURCHASE PLAN
The Board of Directors is requesting that our stockholders approve a new employee stock purchase plan, the Onto Innovation
Inc. 2020 Employee Stock Purchase Plan (the “2020 ESPP”). The Board has adopted the 2020 ESPP, subject to stockholder
approval at the Annual Meeting. If approved by our stockholders, the 2020 ESPP will become effective as of July 1, 2020 and
will expire ten (10) years from such date, unless terminated earlier. The 2020 ESPP is intended to replace the Nanometrics 2003
Employee Stock Purchase Plan (the “2003 ESPP”). If the stockholders approve this Proposal 4, the 2003 ESPP will expire after
the final share purchase is made on or about June 30, 2020. The Board has determined that it remains in the best interests of
the Company and its stockholders to have an employee stock purchase plan and is asking the Company’s stockholders to
approve the 2020 ESPP.
Changes Being Made To The 2020 ESPP
Our 2020 ESPP provides for a maximum share reserve of 1,500,000 shares, which represents 3.0% of our outstanding shares
as of March 13, 2020. The 2003 ESPP upon amendment and restatement in 2016 provided for a share reserve of 2,450,000
shares. As of the effective date of the 2020 ESPP, no additional shares will thereafter be sold under the 2003 ESPP.
Summary Of The 2020 Employee Stock Purchase Plan
The following is a summary of the principal features of the 2020 ESPP and its operation. The summary is qualified in its entirety
by reference to the 2020 ESPP as set forth in Appendix B.
General
The 2020 ESPP was adopted by the Board in March 2020, subject to stockholder approval at the Annual Meeting. The purpose
of the 2020 ESPP is to provide eligible employees with an opportunity to purchase shares of Common Stock through payroll
deductions, to enhance the employees’ sense of participation in the Company and its participating subsidiaries, and to provide
an incentive for continued employment.
Shares Available For Issuance
If the Company’s stockholders approve this proposal, the number of shares of the Company’s Common Stock to be reserved
for issuance under the 2020 ESPP shall be 1,500,000, as may be adjusted for stock splits, stock dividends or other changes in
capitalization, mergers, reorganizations and other transactions in accordance with plan terms.
Administration
The 2020 ESPP will be administered by the Board or a committee of members of the Board (in either case, the “Administrator”).
Subject to the provisions of the 2020 ESPP, all questions of interpretation or application of the 2020 ESPP are determined by
the Administrator and its decisions are final and binding upon all participants.
Eligibility
Each of the Company’s (or the Company’s participating subsidiaries’) employees who is customarily employed for at least
twenty (20) hours per week and more than five (5) months in a calendar year by the Company or a designated subsidiary,
(provided that, in certain jurisdictions outside the United States employees employed for less than twenty (20) hours per week
or less than five (5) months in a calendar year if so required by local laws, as determined by the Company), on the first trading
day of the applicable offering period is eligible to participate in the 2020 ESPP. As of March 13, 2020, there were approximately
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1,300 employees eligible to participate under the terms of the 2020 ESPP. Notwithstanding the foregoing, no employee will be
granted an option under the 2020 ESPP (i) to the extent that, immediately after the grant, such employee would own 5% or
more of the total combined voting power of all classes of the Company’s capital stock or the capital stock of any Company
parent or subsidiary, or (ii) to the extent that his or her rights to purchase stock under all of the Company’s employee stock
purchase plans accrues at a rate which exceeds $25,000 worth of stock (determined at the fair market value of the shares at the
time such option is granted) for each calendar year.
Offering Period & Purchase Price
Each offering period under the 2020 ESPP will have a duration of approximately six (6) months, commencing on the first
trading day on or after January 1st and July 1st of each year of the 2020 ESPP and terminating on the last trading day of the
applicable period ending six (6) months later. On the last trading day of each offering period (the exercise date), shares of
Common Stock may be purchased on behalf of the participant in accordance with the terms of the 2020 ESPP.
Eligible employees may participate in the 2020 ESPP by delivering a subscription agreement as provided by the Company prior
to the beginning of an offering period authorizing payroll deductions pursuant to the 2020 ESPP. Such payroll deductions may
not be less than 1% or exceed 15% of a participant’s compensation during the offering.
Under the terms of the 2020 ESPP, the purchase price of shares under the 2020 ESPP is 85% of the fair market value of a share
of Common Stock on the exercise date, as may be adjusted in accordance with plan terms.
Merger Or Asset Sale
In the event of a proposed sale of all or substantially all of the assets of the Company, or the merger of the Company with or
into another corporation, each outstanding option under the 2020 ESPP may be assumed or an equivalent option will be
substituted by the successor corporation or a parent or subsidiary of such successor corporation. In the event the successor
corporation refuses to assume or substitute for the options, any offering period then in progress will be shortened by setting a
new exercise date on which such offering period will end. The new exercise date will be prior to the proposed sale or merger.
The Administrator will notify each participant in writing at least ten (10) business days prior to the new exercise date that the
purchase date for the participant’s option has been changed to the new exercise date and that the participant’s option will be
exercised automatically on the new exercise date unless the participant withdraws from the 2020 ESPP prior to such date.
Amendment And Termination Of The 2020 ESPP
The Administrator may amend, terminate or suspend the 2020 ESPP at any time and for any reason. Generally, no such
termination can adversely affect options previously granted and stockholder approval will be sought for certain changes as
required by applicable law.
Upon its approval by the stockholders, the 2020 ESPP will continue until the earlier to occur of (i) the termination of the 2020
ESPP by the Board, or (ii) July 1, 2030 (the date which is ten (10) years from the effective date of the 2020 ESPP).
Federal Income Tax Consequences Relating To The 2020 ESPP
The federal income tax consequences of an employee’s purchases under the 2020 ESPP will vary. The following discussion is
only a summary of the general federal income tax rules applicable to the 2020 ESPP. Employees should consult their own tax
advisors since a taxpayer’s particular situation may be such that some variation of the rules described below will apply.
The 2020 ESPP and the right of participants to make purchases thereunder are intended to qualify under the provisions of
Section 421 and 423 of the Code. Under those provisions, no income will be taxable to a participant at the time of grant of the
option or purchase of shares. However, a participant may become liable for tax upon the dispositions of shares acquired under
the 2020 ESPP (or if he or she dies holding such shares), and the tax consequences will depend on how long a participant has
held the shares prior to disposition.
If the shares are disposed of at least one (1) year after the shares were acquired under the 2020 ESPP and at least two (2) years
after the first day of the offering period to which the shares relate, or if the employee dies while holding the shares, the following
tax consequences will apply. The lesser of (a) the excess of fair market value of the shares at the time of such disposition over
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the purchase price of the shares (the “option price”) or (b) the excess of the fair market value of the shares at the time the option
was granted over the option price will be treated as ordinary income to the participant. Any further gain upon disposition
generally will be taxed at long-term capital gain rates. If the shares are sold and the sales price is less than the option price,
there is no ordinary income and the participant has a long-term capital loss equal to the difference. No deduction in respect of
the disposition of such shares will be allowed to the Company.
If the shares are sold or disposed of (including by way of gift) before the expiration of either the two-year or the one-year
holding period described above, the following tax consequences will apply. The amount by which the fair market value of the
shares on the date the option is exercised (which is the last trading day of the offering period and which is hereafter referred to
as the “termination date”) exceeds the option price will be treated as ordinary income to the participant. This excess will
constitute ordinary income in the year of sale or other disposition even if no gain is realized on the sale or a gratuitous transfer
of the shares is made. The balance of any gain will be treated as capital gain and will qualify for long-term capital gain treatment
if the shares have been held for more than one (1) year following the exercise of the option. Even if the shares are sold for less
than their fair market value on the termination date, the same amount of ordinary income is attributed to a participant and a
capital loss is allowed equal to the difference between the sales price and the value of such shares on such termination date.
The Company, in the event of an early disposition, will be allowed a deduction for federal income tax purposes equal to the
ordinary income realized by the disposing employee.
THE FOREGOING IS ONLY A SUMMARY OF THE EFFECT OF FEDERAL INCOME TAXATION UPON THE
PARTICIPANT AND THE COMPANY AS OF THE DATE HEREOF WITH RESPECT TO THE 2020 ESPP AND
DOES NOT PURPORT TO BE COMPLETE, AND REFERENCE SHOULD BE MADE TO THE APPLICABLE
PROVISIONS OF THE INTERNAL REVENUE CODE. IN ADDITION, THIS SUMMARY DOES NOT DISCUSS
THE TAX CONSEQUENCES OF A PARTICIPANT’S DEATH OR THE PROVISIONS OF THE INCOME TAX
LAWS OF ANY MUNICIPALITY, STATE OR FOREIGN COUNTRY IN WHICH THE PARTICIPANT MAY
RESIDE.
Vote Required
The affirmative vote, in person or by proxy, of a majority of the shares present or represented at the meeting and entitled to
vote will be required to approve the 2020 ESPP.
The Board recommends a vote “FOR” the adoption of the
Onto Innovation Inc. 2020 Employee Stock Purchase Plan.
43
PROPOSAL 5
RATIFICATION OF APPOINTMENT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
Although ratification by stockholders is not required by law, the Board of Directors is submitting the Audit Committee’s
selection of Ernst & Young LLP (“E&Y”) as the Company’s independent registered public accounting firm for fiscal year 2020
for ratification as a matter of good corporate governance and recommends that the stockholders vote for ratification of such
appointment. In the event of a negative vote on such ratification, the Board of Directors will reconsider its selection. Even if
the selection is ratified, the Audit Committee may appoint a new independent registered public accounting firm at any time
during the year if the Audit Committee believes that such a change would be in the best interests of the Company and its
stockholders. E&Y has indicated that representatives of E&Y, the independent registered public accounting firm presented
herein, will be in attendance at the Annual Meeting. Such representatives will have the opportunity to make a statement, if they
desire to do so, and to respond to appropriate questions.
Change in Independent Registered Public Accounting Firm
Prior to the 2019 Merger, E&Y was the independent registered public accounting firm of Rudolph, and PricewaterhouseCoopers
LLP (“PwC”) was the independent registered accounting firm of Nanometrics.
As previously reported on our Current Report on Form 8-K filed with the SEC on November 13, 2019, PwC resigned on
November 11, 2019, and E&Y was engaged by the Company as its independent registered public accounting firm for the year
ending December 31, 2019. The decision to change the independent registered accounting firm was approved by the Audit
Committee.
PwC’s reports on Nanometrics’ financial statements for the fiscal years ended December 29, 2018 and December 30, 2017
contained no adverse opinion or disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or
accounting principle.
During the fiscal years ended December 29, 2018 and December 30, 2017 and the subsequent interim period through November
11, 2019, there have been no disagreements (as defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions)
with PwC on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure,
which disagreements, if not resolved to the satisfaction of PwC, would have caused PwC to make reference thereto in their
reports on the financial statements for such years.
During the fiscal years ended December 29, 2018 and December 30, 2017 and subsequent interim period through November
11, 2019, there have been no reportable events (as defined in S-K 304(a)(1)(v)), except that as disclosed in the Company's
Quarterly Report on Form 10-Q for the quarterly periods ended April 1, 2017, July 1, 2017 and September 30, 2017 (the “2017
Form 10-Qs”), management concluded that a material weakness existed related to ineffective controls over the existence of
inventories subject to the cycle count programs. The material weakness was remediated and described in Item 9A of the
Company’s annual report on Form 10-K for the year ended December 30, 2017.
The Company requested that PwC furnish it with a letter addressed to the SEC stating whether or not it agrees with the above
statements. A copy of the letter from PwC, dated November 12, 2019, is filed as Exhibit 16.1 to such Form 8-K.
During the fiscal years ended December 29, 2018 and December 30, 2017, and the subsequent interim periods through
November 11, 2019, neither Onto Innovation nor anyone on its behalf consulted with E&Y, regarding either: (i) the application
of accounting principles to a specific transaction, completed or proposed, or the type of audit opinion that might be rendered
on Onto Innovation’s financial statements, and neither a written report nor oral advice was provided to Onto Innovation that
EY concluded was an important factor considered by Onto Innovation in reaching a decision as to any accounting, auditing or
financial reporting issue, or (ii) any matter that was either the subject of a disagreement (as defined in Item 304(a)(1)(iv) of
Regulation S-K and the related instructions) or a reportable event (as described in Item 304(a)(1)(v) of Regulation S-K).
Independent Registered Public Accounting Firm Selection Process
E&Y served as Rudolph’s independent registered public accounting firm since March 2008 and was selected as the accounting
firm for the Company after the Merger Date. During this time, the firm has demonstrated:
•
A high degree of independence and professionalism in their audit engagement with Rudolph and the Company;
44
•
•
•
•
A solid record of partner and professional staff continuity;
A knowledge of current and emerging accounting and auditing issues affecting Rudolph and the Company;
A deep and ongoing understanding of Rudolph’s and the Company’s business model and industry; and
A readiness to assist Rudolph and the Company and their respective audit committees in keeping up-to-date with the
latest accounting and auditing pronouncements and their application to Rudolph’s and the Company’s business.
In making its selection of an independent registered public accounting firm, the Audit Committee assesses, among other factors:
•
•
•
•
The performance of the independent registered public accounting firm in the prior year;
The anticipated needs of the Company and ability of the accounting firm to address them in the coming year;
The proposed fees for the coming year; and
The potential impact of changing auditors for the coming year.
Ultimately, the decision of the independent registered public accounting firm is made with the best interest of the Company
and its stockholders in mind.
Factors Used To Assess Independent Registered Public Accounting Firm Quality
Members of the Audit Committee have experience in dealing with audits of other public companies as well as experience with
other accounting firms. After the Merger Date, the Audit Committee’s basis for the selection of E&Y as the Company’s
independent registered public accounting firm included, among other considerations, familiarity of Rudolph’s accounting
practices as the accounting acquirer in the 2019 Merger, E&Y’s breadth of services and international footprint as well as
expense considerations. On an ongoing basis, E&Y has been responsive, reliable and professional in their dealings with the
Audit Committee and has appropriately assisted the Audit Committee in its oversight of the Company’s financial processes and
financial statements. In addition, E&Y makes available to the Company specialists within their firm to assist in the audit when
consultation on specific and unique issues arise. These processes appear to be effective in assisting E&Y with their audit
engagement.
As a part of the Audit Committee’s review of E&Y’s qualifications, E&Y provides the Company with the firm-wide comments
from the Public Company Accounting Oversight Board (PCAOB) regarding PCAOB’s examinations of E&Y for the prior year.
E&Y also updates the Company with the quality improvements that the firm has made as a result of the PCAOB comments as
well as other changes to their quality and risk assessment processes.
Audit Committee’s Involvement In The Lead Partner Selection
In keeping with their independence policy, E&Y employs a regular schedule of rotation of the both the lead engagement partner
(“Lead Partner”) and the support staff. This rotation provides for sufficient overlap of the new Lead Partner with the outgoing
Lead Partner. This process allows for the members of the Audit Committee and the Company management to become familiar
with the new Lead Partner and new staff and to introduce them to the Company’s business. Prior to the new Lead Partner’s
full engagement, the Audit Committee and Company management meet with E&Y to review and offer feedback on the industry
experience, financial acumen and anticipated fit of the new Lead Partner with the Company.
Policy On Audit Committee Pre-Approval Of Audit And Permissible Non-Audit Services Of Independent Registered
Public Accounting Firm
Pursuant to our Audit Committee charter, our Audit Committee must pre-approve all audit and permissible non-audit services
provided by the Company’s independent registered public accounting firm. These services may include audit services, audit-
related services, tax and other services. Pre-approval is generally provided for up to one (1) year, and any pre-approval is
detailed as to the particular service or category of services and is generally subject to a specific budget. The independent
registered public accounting firm and management are required to periodically report to the Audit Committee regarding the
extent of services provided by the independent registered public accounting firm in accordance with this pre-approval and the
fees for the services performed to date. The Audit Committee may also pre-approve particular services on a case-by-case basis.
During 2019, all services provided by Ernst & Young LLP to both Rudolph and the Company were pre-approved by the Audit
Committee in accordance with this policy, and the Audit Committee has concluded that the provision of these services is
compatible with the accountants’ independence.
45
Audit and Non-Audit Fees
The following table sets forth the fees billed for the year ended December 31, 2019 and the fiscal year ended December 29,
2018 by the Company’s independent registered public accounting firm, Ernst & Young LLP, for 2019, and the independent
registered public accounting firm, PricewaterhouseCoopers LLP, prior to the Merger.
Fees
Audit
Audit Related
Tax
All Other
Total
E&Y
2019
$1,006,202
-
43,770
2,000
$1,051,972
PwC
2019
$900,800
83,755
114,000
2,700
$1,101,255
PwC
2018
$1,333,197
-
-
2,700
$1,335,897
Audit Fees
Audit fees for the fiscal year ended December 31, 2018 were for the audit of Nanometrics’ annual financial statements including
management’s assessment of internal controls over financial reporting, the review of Nanometrics’ quarterly financial
statements and statutory and regulatory audits, consents and other services. Audit fees for the year ended December 31, 2019
were for the aggregate fees billed for professional services rendered to the Company subsequent to the 2019 Merger and
Nanometrics prior to the 2019 Merger for the audit of the annual financial statements and a review of financial statements
included in the quarterly reports on Form 10-Q. These fees may include services that are normally provided by the independent
registered public accounting firm in connection with regulatory filings or engagements including any comfort letters and
consents for financings and filings made with the SEC.
Audit Related Fees
Audit related fees for the fiscal year ended December 31, 2018 were for professional services rendered to Nanometrics prior to
the 2019 Merger that were reasonably related to the performance of the audit or review of Nanometrics’ financial statements.
This category includes fees related to assistance in financial due diligence related to the 2019 Merger and general assistance
with implementation of SEC requirements.
Tax Fees
Tax fees may include fees for tax compliance, tax planning and tax advice. Tax fees for the year ended December 31, 2019
were for tax advice.
All Other Fees
All other fees would consist of fees for products and services other than the services described above. For the year ended
December 31, 2019, all other fees included payments for an accounting and auditing information tool.
Negotiation of the annual independent registered public accounting firm fees is the responsibility of the Audit Committee with
the support of the Company’s CFO. All of the Ernst & Young LLP fees listed in the chart above for 2019 were pre-approved
by the Audit Committee of Rudolph prior to the 2019 Merger and, after the Merger Date, the Company, each of which concluded
that the provisions of such services by Ernst & Young LLP were compatible with the maintenance of that firm’s independence
in the conduct of its audit functions. All of the PricewaterhouseCoopers LLP fees listed above were pre-approved by the Audit
Committee of Nanometrics prior to the 2019 Merger, each of which concluded that the provisions of such services by
PricewaterhouseCoopers LLP were compatible with the maintenance of that firm’s independence in the conduct of its audit
functions.
46
Vote Required
The affirmative vote, in person or by proxy, of a majority of the shares present or represented at the meeting and entitled to
vote will be required to ratify Ernst & Young LLP as the Company’s independent registered public accounting firm for the year
ending December 26, 2020.
The Company’s Board of Directors unanimously recommends voting “FOR” the
ratification of the appointment of Ernst & Young LLP as the Company’s independent
registered public accounting firm for the year ending December 26, 2020.
47
AUDIT COMMITTEE REPORT
The following is the Audit Committee’s report submitted to the Board of Directors for the year ended December 31, 2019.
As noted in the Company’s charter, management is responsible for the Company’s internal controls and the financial reporting
process. The independent registered public accounting firm is responsible for performing an independent audit of the
Company’s consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight
Board (United States) and for issuing a report thereon. Additionally, the independent registered public accounting firm is
responsible for performing an independent audit of the Company’s internal controls over financial reporting and for issuing a
report thereon. The Committee’s responsibility is to monitor and oversee these processes.
In this context, the Audit Committee of the Board of Directors has:
•
•
•
•
reviewed and discussed with management and with Ernst & Young LLP, the Company’s independent registered public
accounting firm, together and separately, the Company’s audited consolidated financial statements contained in its
Annual Report on Form 10-K for the year ended December 31, 2019;
discussed with Ernst & Young LLP the matters required to be discussed by Statement on Auditing Standards No. 1301,
Communications with Audit Committees;
received the written disclosures and the letter from Ernst & Young LLP required by applicable requirements of the
Public Company Accounting Oversight Board regarding the independent registered public accounting firm’s
communications with the Audit Committee concerning independence, and has discussed with Ernst & Young LLP its
independence; and
discussed and reviewed with the Company’s manager - internal audit (“Mgr-IA”) and Ernst & Young LLP, with and
without management present, the Company’s work in complying with the requirements of Section 404 under the
Sarbanes-Oxley Act of 2002 regarding internal controls over financial reporting. In connection therewith, the Audit
Committee also discussed with the Mgr-IA, with and without other members of management present, management’s
assessment of the effectiveness of internal controls over financial reporting as of December 31, 2019. The Audit
Committee also discussed Ernst & Young LLP’s audit report on internal controls over financial reporting as of
December 31, 2019 with management and Ernst & Young LLP.
Based on the foregoing review and discussions, the Audit Committee recommended to the Board of Directors that the audited
financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.
THE AUDIT COMMITTEE
Christine A. Tsingos (Chairperson)
Jeffrey A. Aukerman
Vita A. Cassese
Christopher A. Seams
John R. Whitten
48
EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION AND ANALYSIS
Introduction
On the Merger Date, Nanometrics and Rudolph combined to create Onto Innovation Inc. As Nanometrics was the legal acquirer
of Rudolph, the compensation of Nanometrics executives for periods prior to and after the 2019 Merger is discussed and
analyzed. The compensation of former Rudolph executives who are now executives of Onto Innovation is discussed and
analyzed for periods subsequent to the 2019 Merger. Therefore, this CD&A primarily addresses legacy Nanometrics executive
compensation programs and the decisions made by the legacy Nanometrics Compensation Committee, and, where necessary,
legacy Rudolph executive compensation programs and the decisions made by the legacy Rudolph Compensation Committee.
We also provide a discussion and analysis of the combined company executive compensation programs going forward, which
reflect the decisions made by the Company’s Compensation Committee.
This Compensation Discussion and Analysis describes our compensation philosophy, process, plans and practices for our
executive officers and contains a discussion of the material elements of compensation awarded to, earned by, or paid to the
Company’s “Named Executive Officers” listed in the table below (“NEOs”), including:
The next three (3) most highly compensated executives of the Company in 2019
• Our principal executive officer
• Our principal financial officer
•
• Nanometrics’ principal executive officer prior to the 2019 Merger
• Nanometrics’ principal financial officer prior to the 2019 Merger
• Up to two (2) individuals for whom disclosure would have been provided pursuant to the third bullet above but for
the fact they were not serving as an executive officer of Onto Innovation as of December 31, 2019
Based on the foregoing, the Company’s NEOs for 2019 are:
Onto Innovation’s Named Executive Officers (NEOs)
NEO Name
Position
Michael P. Plisinski
CEO
Sr. Vice President & CFO
Legacy
Company
Affiliation
Current
Company
Affiliation
Rudolph
Onto Innovation
Rudolph
Onto Innovation
Sr. Vice President, Field Operations
Nanometrics
Onto Innovation
Sr. Vice President, Marketing & Corporate
Development
Sr. Vice President & General Manager,
Metrology Business Unit
Former President, Chief Executive Officer
Nanometrics
Onto Innovation
Nanometrics
Onto Innovation
Nanometrics
N/A
Vice President, Finance
Nanometrics
Onto Innovation
Former Sr. Vice President, Operations
Former General Counsel
Nanometrics
Nanometrics
N/A
N/A
Steven R. Roth
Rollin Kocher
Kevin Heidrich
Rodney Smedt
Pierre-Yves Lesaicherre, Ph.D.
Greg Swyt
James Barnhart
Janet Taylor
EXECUTIVE SUMMARY
Our Business
We are a global leader in process control, combining global scale with an expanded portfolio of leading-edge technologies that
include: unpatterned wafer quality; 3D metrology spanning the chip from nanometer-scale transistors to micron-level die-
49
interconnects; macro defect inspection of wafers and packages; metal interconnect composition; factory analytics; and
lithography for advanced semiconductor packaging. We also provide services relating to the maintenance and repair of our
products, installation services and training. Semiconductor capital equipment is our primary served market.
2019 Financial Highlights
On October 25, 2019, Nanometrics Incorporated and Rudolph Technologies, Inc. merged to form Onto Innovation Inc. Onto
Innovation accounts for the 2019 Merger as a reverse acquisition using the acquisition method of accounting in accordance
with generally accepted accounting principles, with Rudolph being treated as the acquiring entity for accounting purposes.
Because Rudolph is treated as the accounting acquirer in the 2019 Merger, the financial statements filed with the SEC in Onto
Innovation’s Form 10-K include the financial results of Rudolph for all periods presented and the financial results of the former
Nanometrics for the periods on or after October 26, 2019. Based on the foregoing, Onto Innovation reported revenue of $305.9
million as of year-end 2019.
Results Of The 2019 Stockholder Votes On Executive Compensation
Our Board recognizes the fundamental interest our stockholders have in the compensation of our executive officers. At the
Nanometrics 2019 Annual Meeting, 98% of stockholders present at the meeting voted in favor of its advisory vote on executive
compensation. Similarly, at the Rudolph 2019 Annual Meeting, 97% of stockholders present at the meeting voted in favor of
its advisory vote on executive compensation.
COMPENSATION PROGRAM OBJECTIVES, DESIGN AND PRACTICES
Our Compensation Philosophy And Principles
Rewarding continuous improvement in financial and operating results and the creation of stockholder value are key attributes
of our compensation philosophy, which serves as the framework for the Company’s executive compensation program. The
Compensation Committee of the Board of Directors of the Company (referred to as the “Compensation Committee”), acts on
behalf of the Board of Directors and, by extension, on behalf of our stockholders, to establish, implement and continually
monitor adherence to our compensation philosophy. Accordingly, the Compensation Committee has developed a set of core
objectives and principles that it has used to develop the executive compensation program. The specific objectives of our
executive compensation program are to:
•
•
•
Attract, retain, and motivate executive talent;
Align compensation with Company and individual performance; and
Foster an ownership mentality that aligns our executives’ interests with stockholder interests.
Consistent with the foregoing, the Compensation Committee believes that the most effective executive compensation program is
one that is designed to reward the achievement of specific strategic and operating goals of the Company on both an annual and a
long-term basis, and which aligns our executives’ interests with those of our stockholders. The Compensation Committee evaluates
both performance and compensation to ensure that the Company maintains its ability to attract and retain superior employees in
key positions. Based on that evaluation, the Compensation Committee designs the compensation provided to key employees to
remain competitive relative to the compensation paid to similarly situated executives at competitor companies. The Compensation
Committee believes executive compensation packages provided by the Company to its executives, including the NEOs, should
include base salary, annual cash incentive opportunities, select perquisites and stock-based compensation, including equity
incentive opportunities which reward performance as measured against pre-established goals.
The following principles support the objectives and design of the compensation program:
•
•
•
The compensation program is designed to be fair and competitive, from an internal and external perspective, taking
into account the role, unique qualifications and distinct responsibilities of each executive;
A substantial portion of an executive’s compensation is designed to be at risk and linked to the achievement of both
corporate and individual financial, management or other performance goals and changes in stockholder value;
A retirement provision which is designed to provide financial stability following employment but will not be the focal
point of why executives choose to work for the Company;
50
•
•
The use of select, limited perquisites and other executive benefits are designed to serve a business purpose; and
All compensation program elements taken as a whole are designed to help focus executives to achieve the Company’s
financial and strategic goals while supporting our culture and core values.
To underscore the importance of “pay-for-performance” in our compensation philosophy and our Company’s culture, the
Compensation Committee has developed incentive arrangements based on performance standards established at levels which
the Compensation Committee believes, at target achievement, will incentivize our executives to meet or exceed industry
performance. The incentive component of the Company’s executive compensation program, also referred to as the Tier I
Incentive Compensation Plan, rewards executives for achieving specific corporate, business unit and individual goals as well
as strategic and operational measures depending on the executive involved.
Our long-term incentive program includes grants of performance-based stock units (“PSUs”) which are earned based on the
achievement of TSR performance relative to the top 30 companies in the Philadelphia Stock Exchange Semiconductor Index
over a two and three-year performance period. Our long-term incentive program also includes service-based RSUs, which
vest in equal annual increments over time. All grants are currently made under either of two (2) stockholder approved Company
stock plans, the Nanometrics 2005 Stock Plan or the Rudolph 2018 Stock Plan, and shares earned and vested are subject to the
Company’s stock ownership and retention guidelines. If the 2020 Stock Plan is approved by stockholders, equity awards will
no longer be granted under either of the Nanometrics 2005 Stock Plan or the Rudolph 2018 Stock Plan but will instead be
awarded under the new 2020 Stock Plan.
The Company strives to promote an ownership mentality among its key leadership and the Board of Directors, in part through
the guidelines described below under the heading “Stock Ownership/Retention Guidelines.” We believe this “skin in the game”
approach mitigates the incentive to take on unnecessary risks. To that end, a stock ownership requirement for independent
directors has been established such that the minimum number of shares to be held by each director is equivalent in value of
three (3) times their respective total annual retainer compensation. For the CEO, the stock ownership requirement reflects a
minimum share ownership equivalent in value to three (3) times the CEO’s year-end base salary. As for the NEOs, the stock
ownership requirement reflects a minimum share ownership equal to the NEO’s current year-end base salary. In further support
of this approach, our Board of Directors established an anti-pledging and anti-hedging policy to ensure that personal interests
relating to the stock holdings of officers and directors do not conflict with their duties to the Company.
NEO Compensation Elements
Our executive compensation program is generally comprised of four parts, each intended to address different objectives: base
salary, annual cash performance incentives, long-term equity incentives, which generally are in the form of both performance-
based vesting and service-based vesting RSU grants, and limited perquisites.
51
The table below highlights the foregoing key elements of our executive compensation structure for 2020.
Element
Form
Description
NEO Compensation Elements
Base Salary
Fixed Cash Compensation
Competitive cash compensation that takes into consideration the
scope and complexity of the role, individual qualifications,
experience, and internal value to the Company.
Annual Cash
Incentive Plan
Annual Performance-Based
Cash Compensation
Annual cash incentive contingent on meeting performance criteria
related to corporate, business unit/department, and individual
performance objectives.
Long-Term Equity
Incentive Program
Performance- and Time-Based
Restricted Stock
Units
A set percentage of PSUs that are earned based on TSR performance
relative to a designated peer group, with remaining percentage of the
RSUs vesting incrementally over a fixed period.
Executive
Perquisites
Income tax preparation
Airline club membership
Limited perquisites, consistent with market practice, that promote
efficient use of executives’ time and attract and retain executive
talent.
The Compensation Committee aligns the Company’s Tier I Incentive Compensation Plan, which encompasses our annual cash
incentive plan and long-term incentive equity program, with the Company’s performance relative to pre-established
performance goals based on the Company’s stated financial objectives, historical performance, and anticipated market and
economic conditions for the performance period.
In adopting this design, the Compensation Committee considered a number of parameters, including the advice of its
independent compensation consultant, comparable practices within the industry and the desire to achieve the goals underlying
the compensation program. The Compensation Committee believes that as a result of this program the Company has been able
to attract, retain and motivate executives and reward the achievement of strategic, operational and financial goals, thereby
enhancing stockholder value.
52
Our Compensation Practices
The Compensation Committee has adopted the following practices and policies with respect to the Company’s executive
compensation program:
What We Do
Committee
Independence
The Compensation Committee consists of independent directors and reserves time at each
meeting to meet in executive session without management present.
Independent
Compensation
Consultant
The Compensation Committee has engaged its own independent compensation consultant and
annually assesses the consultant’s performance, independence, and whether any potential
conflicts of interest exist.
Independent Legal
Advisor
The Compensation Committee may engage its own independent legal advisor specializing in
corporate compensation issues, as necessary.
CEO Goal Setting
and Performance
Evaluation
Peer Group
The Compensation Committee, with the input of the full Board, engages in formal goal setting
and performance evaluation processes with the CEO.
The Compensation Committee has established formal criteria for the selection of peer groups
used as a competitive reference point with respect to executive and director compensation,
program design and practices, and financial and stock performance.
Share Ownership
Guidelines
The Company maintains rigorous share ownership guidelines, which apply to executives and
directors, and serve as a risk-mitigating feature within our compensation structure.
Double Trigger
Change-in-Control
Employment agreements have been entered into with senior executives, including the CEO, that
contain change-in-control severance protection. Executives are entitled to severance in the event
of both a change-in-control of the Company and a qualifying termination of employment
(“double trigger”).
Clawback Policy
The Company has adopted a policy that provides for the recovery or adjustment of amounts
previously awarded or paid to a NEO in the event that financial results or other performance
measures on which the award or payment were determined are restated or adjusted.
What We Don’t Do
Anti-Hedging and
Pledging Policies
Tax Gross-Ups on
Perquisites or
Severance
The Company’s insider trading policy prohibits our directors, officers and employees from
entering into hedging transactions related to our Common Stock. Additionally, under the
Company’s anti-pledging policy, non-employee directors and executive officers are prohibited
from making any new pledges of Company securities as collateral for a loan, or otherwise
making a new transfer of Company securities to a margin account.
The Company does not provide any tax gross-up payments to cover personal income taxes on
perquisites or severance benefits related to a change-in-control.
53
Compensation Consultant
From time to time, the Compensation Committees of the Company and Nanometrics have engaged the services of outside
compensation consultants to provide advice on compensation plans and issues related to the executive and non-executive
employees. During 2019, the Nanometrics Compensation Committee engaged Compensia, an independent executive
compensation consulting firm, as its compensation consultant. Compensia had advised the committee for several years and was
very familiar with the industry and geographies in which Nanometrics operated. The Nanometrics Compensation Committee
requested that Compensia:
•
•
•
evaluate the efficacy of Nanometrics’ existing compensation strategy and practices in supporting and reinforcing
Nanometrics’ long-term strategic goals;
assist in refining Nanometrics’ compensation strategy and in developing and implementing an executive compensation
program to execute that strategy; and
provide market information to assist Compensation Committee in establishing 2019 executive compensation.
For 2020, the Compensation Committee also engaged Compensia to provide advice on the Company’s executive compensation
arrangements. Compensia does not provide any services other than those related to compensation consulting and does not
provide any services to Company management or previously to Nanometrics management. The Compensation Committees of
both the Company and Nanometrics determined that Compensia is independent within the meaning of the respective
Compensation Committee Charters, the NASDAQ listing standards for Nanometrics and the NYSE listing standards for the
Company, and the work of Compensia for the respective Compensation Committee does not raise any conflicts of interest.
Independent Legal Counsel
The Compensation Committee may engage, as necessary, the services of independent outside legal counsel for compensation
issues. No independent counsel was engaged for compensation issues in 2019 by the Nanometrics or the Company
Compensation Committee or in 2020 by the Company Compensation Committee.
Role Of Executives In Establishing Compensation
The Compensation Committee of the Company, like the Compensation Committee of Nanometrics prior to the 2019 Merger,
is charged with making all determinations regarding executive compensation subject to approval by the independent members
of the Board. On an annual basis, the Compensation Committee evaluates the CEO’s performance in light of the goals and
objectives established for measuring his or her performance at the beginning of the previous fiscal year. The results of this
evaluation guide the Compensation Committee in setting the CEO’s salary, cash incentive award opportunity and equity
compensation. The CEO does not participate in the Compensation Committee’s or Board’s deliberations regarding his or her
compensation.
With regard to compensation for executives other than the CEO, the Compensation Committee and the Compensation
Committee of Nanometrics prior to the 2019 Merger have sought input from the CEO with the support of the human resources
department. Each year, the CEO is responsible for establishing proposed personal and corporate objectives for the Company’s
(or Nanometrics’, prior to the 2019 Merger) other executives, including the other NEOs. These objectives, subject to the
approval of the Compensation Committee, are reviewed and agreed upon by the CEO with the executive. In addition, as part
of the annual performance review of the Company’s executives, the CEO assesses the performance of his or her direct reports
and recommends any merit increase to be proposed for each individual. These recommendations are compiled by the CEO into
executive compensation plans which include any proposed merit increases, each executive’s personal and corporate objectives,
proposed annual incentive award opportunities (expressed as a percentage of their base salary) and equity grant proposals, and
are submitted to the Compensation Committee for review and consideration for approval. At the Compensation Committee
meeting during which the executive compensation plans are reviewed, the CEO attends the initial session to present the
proposed plans and to answer questions. Thereafter, the Compensation Committee has met without the CEO present to review,
discuss and recommend for approval all executive compensation plans, subject to any modifications made by the Compensation
Committee. The Compensation Committee then recommends such compensation packages to the independent members of the
Board of Directors for approval.
54
Compensation Committee Activity
During 2019, the Compensation Committee of the Company met one (1) time, while the Compensation Committees of
Nanometrics and Rudolph met three (3) and five (5) times respectively.
In early 2019, Nanometrics’ CEO met with the Nanometrics Compensation Committee to present the proposed compensation
plans for each of the Nanometrics’ executives as well as the proposed incentive award opportunities under the Nanometrics
2019 Executive Performance Bonus Program (“Nanometrics 2019 Bonus Program”) for certain non-executive employees. In
2019, the Nanometrics Compensation Committee met regularly in executive session, without the presence of the CEO or any
other Company executives, to review the relevant compensation matters.
In 2019, the Nanometrics Compensation Committee took a number of actions. These included reviewing and recommending
for approval by the independent members of the Board:
•
•
•
•
the annual compensation of the Nanometrics CEO for 2019;
the annual compensation for each of Nanometrics’ other executive officers for 2019;
the incentive compensation plan and Employee Profit Sharing Plan 2019; and
the service-based and performance-based equity incentive awards and related performance targets for Nanometrics’
executives for 2019.
With regard to the Company, in reviewing and setting the annual compensation for each executive, the Compensation
Committee considered the amounts payable under each of the elements of their respective compensation plans, including base
salary, annual cash incentive awards, equity grants and perquisites. The Compensation Committee took into consideration both
the Company’s internal pay equity as well as the competitive environment within which the Company operates. In each
instance, the Compensation Committee determined that the base salary and annual and long-term incentive award opportunities
for the individual executives were at an acceptable level for 2019 and that the perquisites were appropriate for the related
positions.
In late 2019, the Company’s Compensation Committee reviewed our annual and long-term incentive programs for 2020. At
this time, measures were again selected that were determined to be consistent with advancing the interests of the Company’s
stockholders and aligning and supporting the Company’s business strategy.
Based on the foregoing, in early 2020, the Company’s Compensation Committee met and took a number of actions. These
included the review and recommendation for approval by the independent members of the Board of:
•
•
•
•
the annual compensation of the Company’s CEO for 2020;
the annual compensation for each of our other executive officers for 2020;
the Tier I Incentive Compensation Plan and Employee Profit Sharing Plan for 2020; and
the service-based and performance-based equity incentive awards and related performance targets for the Company’s
executives for 2020.
Peer Companies
In order to meet its objective of maintaining competitive executive compensation packages, the Nanometrics and Company
Compensation Committees have obtained third-party compensation information from time to time and have reviewed executive
compensation programs of comparable, publicly held, high technology companies. These independent compensation
consultants have assisted the Nanometrics and Company Compensation Committees at various times in the development and
evaluation of their compensation programs. To the extent that independent compensation consultants are not engaged to consult
with a Committee with respect to compensation for a position or time period, the Compensation Committee obtains market
compensation information using internal resources at the Company. The Compensation Committee reviews data related to
compensation levels and programs of other similar companies prior to making its decisions, but only considers such information
in a general manner in order to obtain a better understanding of the current compensation practices within our industry. For
2020, the Compensation Committee engaged Compensia to provide peer group data and perform an assessment of
compensation levels provided to executives. Compensia had previously been engaged by the Nanometrics Compensation
Committee prior to the 2019 Merger.
In Nanometrics’ Compensation Committee’s review of its executive compensation for the 2019 fiscal year, the Nanometrics
Compensation Committee considered publicly available market data for companies that typically include similarly-sized
55
semiconductor and semiconductor capital equipment or similar firms for each Nanometrics executive officer in a like or similar
role. In November 2018, for compensation decisions for Nanometrics’ 2019 fiscal year, Compensia recommended and the
Nanometrics Compensation Committee approved the peer group previously established for Nanometrics which took into
consideration the following factors:
•
primary focus on semiconductor and semiconductor equipment companies, and secondary focus on hardware
companies; revenue between approximately half and two times Nanometrics four quarter revenue at the time; and
• market capitalization.
In evaluating potential peers, the Nanometrics Compensation Committee also reviewed secondary factors such as revenue
growth, whether potential peers include Nanometrics as a peer, and whether potential peers are included in the compensation
peer groups for Nanometrics selected by leading proxy advisory firms. Nanometrics peer group companies considered for
compensation for the 2019 fiscal year are listed below:
Companies Included In Nanometrics’ Compensation Peer Group For 2019
Advanced Energy Industries Inc.
Cabot Microelectronics Corporation
Photronics, Inc.
Axcelis Technologies Inc.
Cohu, Inc.
Rudolph Technologies, Inc.
AXT Inc.
Electro Scientific Industries, Inc.
Veeco Instruments, Inc.
Brooks Automation, Inc.
FormFactor, Inc.
With regard to the Company’s 2020 compensation peer group of companies, data from company proxy disclosures and industry
compensation surveys was used in conducting this assessment. The compensation peer group of companies that was utilized
to assess the 2020 compensation was based generally on the following criteria:
•
•
Semi equipment and other electronics and hardware tech companies;
Revenue between approximately 0.5x and 2x the Company’s revenue run-rate; and
• Market cap between approximately 0.5x and 2x the Company’s revenue run-rate.
The Company’s compensation peer group for the 2020 review (which was used to make decisions regarding the year’s
compensation) consisted of the following companies.
Companies Included In The Company’s Compensation Peer Group For 2020
Advanced Energy Industries Inc.
Inphi Corporation
Photronics, Inc.
Axcelis Technologies Inc.
Knowles Electronics, LLC.
Power Integrations, Inc.
Brooks Automation, Inc.
Lattice Semiconductor Corporation
Veeco Instruments, Inc.
Cabot Microelectronics Corporation MACOM Technology Solutions Holdings, Inc.
Vishay Precision Group, Inc.
Cohu, Inc.
FormFactor, Inc.
MaxLinear, Inc.
Novanta Inc.
Xperi Corporation
The pay practices of the foregoing Company peer group were analyzed for base salary and short-term and long-term incentives.
Periodically, peer groups are used to evaluate other programs such as executive retirement, perquisites and severance policies.
Our peer group data is supplemented by broader technology industry data from compensation surveys to further facilitate the
evaluation of compensation levels and design. Compensation levels are generally developed at the low (25th percentile), middle
(50th percentile) and high (75th percentile) end of the market for each pay element (base salary and short-term and long-term
incentives) and for total compensation.
While the Compensation Committee considers market data for each pay element and in total, the Compensation Committee
does not specifically target any particular market compensation level. Instead, the Compensation Committee uses its discretion
in setting the compensation levels as appropriate.
56
ELEMENTS OF NANOMETRICS’ 2019 AND THE COMPANY’S 2020 COMPENSATION
PLANS
Compensation Program Design
Nanometrics’ executive compensation packages for the 2019 fiscal year included three primary components - base salaries,
cash bonus award opportunities and long-term equity incentive awards. Other elements of compensation included limited
perquisites, other benefits (including retirement (401(k) plan, including matching contributions), health, and welfare benefits),
and severance arrangements. The Nanometrics Compensation Committee considered the three primary components
individually and in the aggregate to assess their competitiveness and effectiveness in retaining Nanometrics’ executive officers
and motivating them to create short-term and long-term enhanced stockholder value. Nanometrics’ Compensation Committee
chose these components because it believed that each supports achievement of one or more of Nanometrics’ compensation
objectives, and that together they would be effective in achieving such objectives. The use of each compensation component
was based on a determination by the Nanometrics Compensation Committee of the importance of each compensation objective
in supporting Nanometrics’ business and talent strategies. These components are commonly used for executive officers at
companies within the Nanometrics peer group and, therefore, the Nanometrics Compensation Committee found these to be
appropriate in its talent retention strategy. The Nanometrics Compensation Committee’s determination varied for each
executive officer depending on a number of factors, including but not limited to, scope of his or her responsibilities, leadership
skills and values, and individual performance. The Nanometrics Compensation Committee did not apply formulas or assign
specific mathematical weights to any of these factors, but rather exercised its business judgment and discretion to make a
subjective determination after considering all of these measures collectively.
For 2020, the compensation program provided to the Company’s executive officers is generally comprised of four parts, each
intended to address different objectives: base salary, annual cash performance incentive awards, long-term incentives that
generally are in the form of both performance-based stock units and service-vesting RSU grants, and limited perquisites.
Executives are also entitled to participate in benefit programs available to all Company employees, such as our ESPP and
401(k) Plan. This design was adopted for executives by the Compensation Committee taking into consideration a number of
parameters including the independent compensation consultant’s advice, comparable practices within the industry and the
desire to achieve the goals underlying the compensation program. The Compensation Committee believes that as a result of
this program the Company can attract, retain and motivate employees and reward the achievement of strategic operational and
financial goals, thereby enhancing stockholder value.
Annually, the Compensation Committee will review the elements of the compensation package as well as the overall package
afforded to the executives. At such time, the Compensation Committee, in its discretion, can recommend adjustments to the
elements of the program to the independent members of the Board of Directors for review and approval. This review would
typically be performed coincident with the evaluation of the individual executive’s performance in relation to their Tier I
Incentive Compensation Plan goals, salary adjustment and equity grants, if any, as discussed below.
The Company’s Compensation Committee and Board believe that each of the elements as well as the entire compensation
package for Company executives is appropriate for the Company given its performance, industry, current challenges and
environment.
Based on the objectives discussed in the foregoing section, the Compensation Committee seeks to structure our equity and cash
incentive compensation program to motivate executives to achieve the business goals set by the Company and reward the executives
for achieving such goals, which we believe aligns the financial incentives of our executives with the interests of our stockholders. The
Compensation Committee primarily uses salary, perquisites and other executive benefits as a means for providing base compensation
to employees for their knowledge and experience and for fulfilling their basic job responsibilities.
In establishing these components of the executive compensation package, it is the Compensation Committee’s intention to set
total executive compensation at a sufficient level to attract and retain a strong motivated leadership team, while remaining
reasonable and in line with stockholder perception of overall fairness of executive compensation.
Base salaries serve as the foundation of the compensation programs detailed herein. The Compensation Committee derives
other executive compensation elements, including annual short-term cash incentives and long-term equity incentives by
weighing them against base salary. Base salary levels for executive officers of the Company are generally established at or
near the start of each year. The Company’s annual executive cash incentive bonuses are administered through its Tier I Incentive
Compensation Plan. The plan provides guidelines for the calculation of annual non-equity incentive-based compensation,
subject to the Compensation Committee’s oversight and the Company’s and executive’s achievement of corporate and
individual goals. Generally, at its first meeting each year, the Compensation Committee determines final bonuses for executive
officers earned in the preceding year based on each individual’s performance and the performance of the Company through its
57
audited financial statements, and also reviews the incentive program to be established for the current year and approves the
group of executives eligible to participate in the plan for that year.
Each of the Company’s executives, including our NEOs, is eligible to receive equity compensation, which has recently been in
the form of PSU and RSU grants under the Company’s stockholder approved Nanometrics Incorporated 2005 Equity Incentive
Plan and Rudolph 2018 Stock Plan. All full-time and part-time employees are eligible for equity grants. The Compensation
Committee believes that through the Company’s broad-based equity compensation plan, the economic interests of all
employees, including the executives, are more closely aligned with those of our stockholders. It is also believed that this
approach will allow the Company to use equity as an incentive in a balanced manner that supports the recruitment and retention
of top talent.
The Compensation Committee generally recommends for approval by the independent members of the Board the grant of
equity awards at the first regularly scheduled meeting of the Board or upon completion of the Compensation Committee’s
review and approval process. The Compensation Committee and the Board do not generally grant equity awards at other times
during the year, other than in the case of a new hire, promotion or other exceptional circumstances.
Impact Of Performance On Compensation
The performance of the Company and of the executive has a direct impact on the compensation received by such executive
from the Company. On an annual basis, the CEO reviews the performance and compensation for the Company’s executives to
determine any potential salary adjustment for each individual. This assessment takes into consideration a number of factors,
including the Company’s profitability; the performance of applicable business units; the executive’s individual performance
and measurable contribution to the Company’s success; and pay levels of similar positions with comparable companies in the
industry and within similar technology industries.
In addition, both Company and individual performance are assessed by the CEO when proposing to the Compensation
Committee any annual cash incentive payout to the NEOs (other than the CEO) under the annual cash incentive component of
their Tier I Incentive Compensation Plan. The plan includes various incentive level opportunities based on the executive’s
accountability and impact on Company operations, with target award opportunities that are established as a percentage of base
salary. Typically, these targets range from 30% to 100% of base salary for the executives in the plan. For our NEOs, 2019 and
2020 target annual cash bonus opportunities were set as follows:
Target Annual Cash Incentive Percentage
Name
Michael P. Plisinski
Steven R. Roth
Rollin Kocher
Kevin Heidrich
Rodney Smedt
Pierre-Yves Lesaicherre, Ph.D.
Greg Swyt
James Barnhart
Janet Taylor
2020
100.0%
65.0%
60.0%
50.0%
50.0%
N/A
40.0%
N/A
N/A
2019
100.0%
60.0%
60.0%
50.0%
50.0%
100.0%
40.0%
60.0%
55.0%
Under the annual cash incentive component of our Tier I Incentive Compensation Plan, payout is based upon achievement of
corporate and personal objectives with no payout unless the Company meets the threshold level of at least one of the Board
approved corporate financial targets established as part of the plan. Personal objectives are awarded only upon clear
achievement of the associated goal. Failure to meet the personal objectives thereby has a negative impact on the ultimate bonus
payout.
In addition to a review of the prior year’s objectives, the CEO and each executive also confer to propose new individual
performance targets for the executives (including the NEOs, other than the CEO) for the current year, which are combined with
the corporate targets into an annual cash incentive opportunity proposal. The personal targets that are established are designed
to result in additional incremental value to the Company if they are achieved. These personal performance targets in 2019
included goals related to additional corporate and/or business unit financial measures, operational measures and activities,
transactional activities, and marketing initiatives, depending on the executive involved. The target level of the corporate
component to the bonus goals was set based on the Company’s financial budget established by the Board at the beginning of
the year. The determination of these goals is made annually to meet the changing nature of the Company’s business.
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Upon completion of the prior year’s results and prior to implementation of the current year’s proposed Tier I Incentive
Compensation Plan, the results for each participating executive employee are submitted to, and reviewed by, the Compensation
Committee, which considers the CEO’s recommendations for executives other than the CEO and determines the final bonus
earned by each executive based on Company and individual performance. The Compensation Committee then establishes the
Company and individual metrics applicable to the current year’s Tier I Incentive Compensation Plan. Thereafter, the
Compensation Committee’s recommendations are presented to the independent members of the Board for approval of the
achieved incentive payment, if any, and of the new plan for the current year. If, during the year, there are changes to the Tier I
Incentive Compensation Plan that are proposed, such changes are presented to the Compensation Committee for its
consideration. The Compensation Committee may exercise discretion in relation to its recommendation to the independent
members of the Board regarding an individual’s award under the Tier I Incentive Compensation Plan based upon its review.
An executive’s role, responsibilities, individual performance and contribution to the Company are factors considered in
determining the size of any discretionary equity grant that may be recommended by the Compensation Committee to the
independent members of the Board of Directors for approval as long-term incentive to the individual.
Based upon the foregoing, the compensation that an executive may realize in the course of a year can be impacted by the
positive or negative performance of such individual as well as Company performance. We intend for an individual’s
compensation under the Tier I Incentive Compensation Plan to be proportionate to the Company’s and his or her performance
against established goals. Similarly, equity awards that are performance-based are intended to be proportionate to the
Company’s performance under goals established for the Company. This review and evaluation are more subjective when
applied to salary adjustments. In this case, an executive’s performance is evaluated by taking into consideration the executive’s
contribution to the Company, the significance of the individual’s achievements in relation to the overall corporate goals and
mission, and the executive’s effectiveness in his or her role within the Company and then weighed against the performance of
other executives. Industry norms and reference to comparative company data are considered to the extent appropriate. Thus,
there is no precise, objective formula that is applied in determining salary adjustments.
Compensation Plan Design And Decisions For 2019 And 2020
For 2019, both the Nanometrics and the Rudolph Compensation Committees conducted reviews of their respective
compensation programs and each determined that their 2019 NEO compensation plan would retain the same basic elements as
the prior year’s plan as these aligned its programs with their current business strategy and included the pay for performance
aspect of their respective executive compensation programs. Taking into account their respective 2018 performance and
outlook for 2019, each NEO’s performance and responsibilities, and current market compensation rates for each NEO position,
among other criteria, the Compensation Committee of both Nanometrics and Rudolph recommended, and the associated Boards
approved, the updated programs and compensation plan structures for the listed NEOs employed by Nanometrics and by
Rudolph in 2019 as detailed below.
For 2020, the Company’s Compensation Committee determined that the 2020 NEO compensation plan would retain the basic
elements shared by both Rudolph and Nanometrics in their 2019 plans. Taking into account the respective company’s 2019
performance and the Company’s outlook for 2020, each NEO’s performance and responsibilities, and current market
compensation rates for each NEO position, among other criteria, the Compensation Committee recommended, and the Board
approved the program and compensation plan structure for our NEOs also as detailed below.
Base Salary
The Company provides executives and other employees with base salary to compensate them for services rendered during the
fiscal year. Base salaries for executive officers are established considering a number of factors, including the executive’s:
Individual performance;
Unique qualifications;
Role and responsibilities;
•
•
•
• Measurable contribution to the Company’s profitability and success; and
•
The base salary levels of similar positions with comparable companies in the industry.
The Compensation Committee supports the compensation philosophy of moderation for elements such as base salary and
perquisites and other executive benefits. As noted above, under “Impact of Performance on Compensation,” base salary
decisions are made as part of the Company’s formal annual review process and are influenced by the performance of the
Company and the individual.
59
Salary levels are considered annually as part of the performance review process as well as upon a promotion or other change
in job responsibility. The Compensation Committee reviews and determines salaries after reviewing salary data supplied by the
compensation consultant, including data regarding the peer comparison group, as well as consideration of the compensation
for the executive officers on a company-wide basis, based on their relative duties and responsibilities and the recommendations
of the CEO (other than with respect to his or her compensation) as it relates to the executive officers who report to the CEO.
The Compensation Committee also considers comparisons of peer group compensation to peer group performance as provided
by the independent compensation consultant. The Compensation Committees of Nanometrics, Rudolph and the Company did
not apply formulas or assign specific mathematical weights to any of these factors, but rather exercised their business judgment
and discretion to make a subjective determination regarding each executive officer's base salary for 2019 and 2020, as
applicable, after considering all of these measures collectively.
The CEO’s recommendations for salary adjustments (other than his or her own) are reviewed and modified as deemed
appropriate by the Compensation Committee and presented to the independent members of the Board for approval.
Base Salary For 2019
For Nanometrics in 2019, its Compensation Committee approved a 3.0% increase to the Nanometrics CEO’s base salary and
increases ranging from 2.5% to 10.7% for the base salaries of each of the listed NEOs employed by Nanometrics in 2019.
For Rudolph in 2019, its Compensation Committee approved a 3.0% increase to the Rudolph CEO’s base salary and increases
ranging from 2.0% to 3.0% for the base salaries of each of the other the listed NEOs employed by Rudolph in 2019.
Base Salary For 2020
For 2020, the Company’s Compensation Committee approved a 10% increase to the CEO’s base salary and increases of 3% to
10% to the base salaries of each of our other NEOs.
Annual Cash Incentive Compensation
Nanometrics’ Compensation Committee viewed cash bonuses as part of its performance-based compensation program designed
to align the recipient’s interests with its annual goals and objectives and its stockholders’ interests. The Nanometrics 2019
Bonus Program was intended to motivate senior executive officers to achieve short-term and long-term corporate objectives
relating to the performance of Nanometrics or one of its business units as established by the Nanometrics Compensation
Committee and to reward them when those objectives were achieved, thereby tying performance to stockholder value. Bonuses
were triggered upon Nanometrics’ achievement of target metrics determined by the Nanometrics Compensation Committee.
For the Nanometrics NEO participants in the Nanometrics 2019 Bonus Program, 100% of the target bonus opportunity was
based upon overall company financial performance objectives recommended by Nanometrics’ CEO and approved by
Nanometrics Compensation Committee.
With regard to the Company, an executive’s annual cash incentive award under the 2020 Tier I Incentive Compensation Plan
(the “2020 Plan”) generally depends on the financial performance of the Company relative to profit, revenue and other financial
targets and the executive’s individual performance. The incentive opportunity is generally set at a higher percentage for more
senior officers, with the result that such officers have a higher percentage of their potential total cash compensation at risk.
Executive employees reporting to the CEO, including all of our NEOs, participate in the 2020 Plan, which is designed to
generate additional incentive for maximizing the employee’s performance in realizing the corporate strategic and financial
goals and mission. The Compensation Committee may, but is not required to, establish a Tier I Incentive Compensation Plan
for any given year.
Upon completion of the year, the individual’s and the Company’s results with respect to the performance targets are then
assessed and presented to the Compensation Committee. The Compensation Committee reviews the proposed payouts and
suggests changes to the extent it deems such action necessary. Tier I Incentive Compensation Plan awards are paid out following
completion of the annual audit by the Company’s independent registered public accounting firm. This generally occurs in the
first quarter of each year.
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Annual Cash Incentive Plan For 2019
For Nanometrics, the maximum award that an executive officer could receive under the Nanometrics 2019 Bonus Program was
two times the target bonus opportunity. Achievement of the bonus opportunity tied to the overall company performance for the
Nanometrics 2019 Bonus Program was determined based on annual revenues and Non-GAAP operating margin. The
Nanometrics 2019 Bonus Program provided that the company performance would be measured by comparing actual company
annual revenues against target revenues of $345.0 million and actual Non-GAAP operating margin against target Non-GAAP
operating margin of 22.1%.
Nanometrics’ company performance factor would be zero when Non-GAAP operating margin was less than or equal to 0%.
For the Nanometrics 2019 Bonus Program, Non-GAAP operating margin was defined as operating income/(loss) as reported
in accordance with generally accepted accounting principles in the United States, plus amortization of intangible assets, and
any unusual charges, such as restructurings, litigation or acquisition costs, divided by annual revenues.
As a result of the 2019 Merger and the fact that the financial performance measures could not be assessed for the full fiscal
year, as of the Merger Date, each NEO listed from Nanometrics was deemed by the Nanometrics Compensation Committee to
have earned their respective goals and targets for fiscal 2019 and was paid their cash-based awards for 2019 pursuant to the
Nanometrics 2019 Bonus Program established for such NEO.
With regard to the Rudolph NEOs in 2019, Rudolph’s annual cash incentive component of its 2019 Key Executive Incentive
Compensation Plan (“Rudolph 2019 Plan”) included corporate goals, business unit or department goals (if applicable) and
personal goals. The Rudolph 2019 Plan was established such that each NEO’s potential cash award was subject to the
achievement of 2019 corporate financial objectives relating to corporate revenue and non-GAAP operating income. The
Rudolph 2019 Plan included a provision that in the event of a change of control of the company, the Rudolph 2019 Plan would
be deemed to have been achieved at the applicable goal and target levels set forth therein for all of 2019. A “change in control”
was defined in accordance with the Rudolph 2018 Stock Plan. Therefore, as a result of the 2019 Merger, as of the change in
control closing, each NEO listed from Rudolph was deemed to have earned their respective goals and targets for 2019 and was
paid their cash-based awards for 2019 Plan Year pursuant to the Rudolph 2019 Plan established for such NEO.
Actual amounts paid to the NEOs under their respective annual cash incentive plans are reported below in the Non-Equity
Incentive Plan Compensation column of the Summary Compensation Table.
Annual Cash Incentive Plan For 2020
For 2020, the Compensation Committee adopted an annual cash incentive plan as part of the NEO compensation program that
is structured such that each NEO’s potential cash award is subject to the achievement of 2020 corporate financial objectives
consistent with the Board approved annual operating plan for 2020. These corporate financial objectives are established at
levels in excess of the overall industry projections in order that Rudolph drive to outperform the industry.
The annual cash incentive portion of the 2020 Plan has up to three (3) components: Corporate Goals, Business Unit Goals (if
applicable) and personal performance goals.
•
•
•
The Corporate Goals of the 2020 Plan relate to corporate revenue and corporate non-GAAP operating income. The
performance ranges for each metric include a payout level for threshold performance at 50% of target and an established
target level to achieve the maximum payout by exceeding the corporate performance objectives for each of the corporate
financial metrics. The cash bonus payout is contingent on meeting at least one of the 2020 corporate revenue or
corporate non-GAAP operating income goals. Should the Company not reach the threshold level for either the 2020
corporate revenue or corporate non-GAAP operating income goal, then no payout under the plan will be made to
executives.
For those NEOs who were associated with a particular Company business unit or department, a portion of their cash
bonus potential is allocated to business unit/department financial performance goals. In 2020, these goals are the
achievement of fiscal 2020 business unit revenue and non-GAAP operating income objectives (“Business Unit Goals”).
Earning of the potential cash award apportioned to the Business Unit Goals would begin upon achieving 80% of the
business unit revenue target and/or 70% of the business unit non-GAAP operating income target.
The final component of the 2020 Plan is the inclusion of personal performance goals that are specific to the individual
NEO. The NEO personal performance goals in 2020 include targets related to senior management planning, additional
corporate financial measures, operational measures and activities, product development measures or marketing
initiatives, depending on the executive involved. Cash bonuses arising from the personal performance goals are drafted
to be awarded on an “each or nothing” basis.
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Provided that either of the Corporate Goal thresholds is met, the cash bonus potential of the 2020 Plan may again be realized.
The annual cash incentive component of the 2020 Plan was designed and shall be administered as follows:
•
•
•
•
Cash bonuses arising from the Corporate Goals and the Business Unit Goals are to be awarded starting at a 50% level
at the respective goal threshold and increasing linearly up to the 2020 Plan target amounts.
If the 2020 Plan target is exceeded in either or both Corporate Goal categories, then the cash payout would increase as
follows:
◦ Corporate Revenue: From 100% to 120% of target, additional cash compensation would be earned linearly up to
200% of this target.
◦ Non-GAAP Operating Income: From 100% to 130% of target, additional cash compensation would be earned
linearly up to 200% of this target.
Upon achieving either of the Corporate Goals, the Business Unit Goals, if applicable, and personal performance goals
could be earned in full.
Additional cash payout could be realized if either of the Business Unit Goals was exceeded, similar to the Corporate
goal parameters above.
The following table reflects the structure of the annual cash incentive components of the 2020 Plan.
Tier I Incentive Compensation Plan -
Annual Cash Incentive Provisions
Payout if both financial metric thresholds are not reached
Corporate revenue threshold
Corporate non-GAAP operating income threshold
Payout upon attaining corporate financial metrics' threshold levels
Payout upon attaining corporate financial metrics' target goals
Payout upon attaining corporate financial metrics' maximum goals
Corporate revenue metric upside performance range
Corporate non-GAAP operating income metric upside performance range
Business unit/department goal payout
Personal goal payout
Long-Term Equity Incentive Plan
2020
0%
80% of corporate revenue target
70% of corporate non-GAAP operating
income target
50%
100%
200%
100%-120% of corporate revenue target
100%-130% of corporate non-GAAP
operating income target
Variable
Fixed
Our equity compensation plans are an essential tool to link the long-term interests of the Company’s stockholders and our
employees, particularly our executive officers, and serve to motivate executive officers to make decisions that will, in the long
run, optimize returns to our stockholders. Equity compensation plans also enable us to provide an opportunity for increased
equity ownership by executive officers, thereby increasing the link between the incentives of our executive officers and the
interests of our stockholders and maintain competitive levels of total compensation.
The Compensation Committee currently administers the Nanometrics Incorporated 2005 Equity Incentive Plan and the Rudolph
2018 Stock Plan. At this year’s Annual Meeting, we are asking our stockholders to vote to approve a new 2020 Stock Plan. If
approved, equity awards will no longer be granted under either of the Nanometrics Incorporated 2005 Equity Incentive Plan or
the Rudolph 2018 Stock Plan and will instead be awarded under the new 2020 Stock Plan. See Proposal 3 in this proxy
statement for additional information regarding the proposed 2020 Stock Plan.
Employees and members of management, including the Company’s NEOs, generally receive annual equity grants at or about
the time of their performance reviews each year. The Company’s long-term incentive compensation program seeks to align the
executives’ interests with the Company’s stockholders by rewarding successes in stockholder returns. Additionally, the
Compensation Committee desires to foster an ownership mentality among executives by providing stock-based incentives as a
portion of compensation.
For the Company’s long-term incentive compensation program, the Compensation Committee grants performance-based and
service-based RSUs.
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The number of Grants awarded to each executive officer is initially determined on a discretionary rather than formula basis by
the Compensation Committee.
Long-Term Equity Incentive Program For 2019
The long-term equity incentive component of the 2019 Plan was divided service-based RSU grants and, for select Nanometrics
NEOs, PSU grants. For 2019, the Compensation Committee established the portion of our NEOs’ long-term incentive awards
granted in the form of PSUs at 50% and the portion of our long-term incentive awards granted in the form of service-vesting
RSUs at 50%, reflecting our commitment to pay-for-performance.
Performance-Based Stock Units: At Nanometrics, PSUs were granted with a target amount of shares to vest if the target
performance metrics were met, and additional shares may be received, up to a maximum amount that may be received of 150%
of the target amount, in the event that the performance metrics were met at the maximum level.
PSUs were granted in 2019 to Dr. Lesaicherre and were to be earned based on Nanometrics’ stock price performance relative
to the Top 30 companies in the Philadelphia Stock Exchange Semiconductor Index over one, two and three-year performance
periods. The stock price measure used was TSR which combines price appreciation and dividends paid to show the total return
to a stockholder as an annualized percentage, thus directly linking executive pay to stock price changes. To earn the target
number of shares, Nanometrics’ stock price performance was required to be at the 50th percentile of the Index; for stock price
performance at or above the 75th percentile, the recipient was to earn 150% of the target shares (maximum payout is 150% of
target). If Nanometrics’ stock price performance for any period was negative, the number of shares earned was capped at target,
regardless of performance relative to the Index.
As a result of the 2019 Merger and the fact that the financial performance measures could not be assessed for the full fiscal
year, as of the Merger Date, each NEO listed from Nanometrics was deemed by the Nanometrics Compensation Committee to
have earned their respective goals and targets for fiscal 2019 and was issued their performance-based equity awards for 2019
that had been established for such NEO.
With regard to the Rudolph NEOs in 2019, the performance shares under the long-term equity component of the Rudolph 2019
Plan were designed to assess the company’s TSR performance in relation to nineteen (19) peer group companies. The Rudolph
2019 Plan included a provision that in the event of a change of control of the company, the Rudolph 2019 Plan would be deemed
to have been achieved at the applicable goal and target levels set forth therein for all of 2019. A “change in control” was defined
in accordance with the Rudolph 2018 Stock Plan. Therefore, as a result of the 2019 Merger, as of the change in control closing,
each NEO listed from Rudolph was deemed to have earned their respective goals and targets for 2019 and was issued their
performance equity awards for 2019 Plan Year pursuant to the Rudolph 2019 Plan established for such NEO. Such awards were
assumed by Onto Innovation in connection with the 2019 Merger and converted into Onto Innovation awards.
Service Vesting Restricted Stock Units: For 2019, each of the NEOs listed for Nanometrics received an equity grant which was
comprised of time-based RSUs. Each service-based RSU award is subject solely to service-based vesting in equal annual
increments over a three (3) year vesting period.
For the NEOs listed for Rudolph, in 2019, fifty percent (50%) of each NEO’s equity grant was comprised of time-based RSUs.
Each service-based RSU award is subject solely to service-based vesting in equal annual increments over a three (3) year
vesting period. The service-based RSUs were assumed by Onto Innovation in connection with the 2019 Merger and converted
into Onto Innovation RSU awards.
Actual number of PSUs and RSUs granted to the NEOs in 2019 and the related value are reported below in the Grants Of Plan-
Based Awards In 2019 Table.
Long-Term Equity Incentive Program For 2020
For the Company, the long-term equity incentive component of the 2020 Plan is divided between PSU grants and service-based
RSU grants. The Compensation Committee determined the portion of our NEOs’ long-term incentive awards granted in the
form of PSUs and service-vesting RSUs shall be split at 50% each.
In 2020, the Compensation Committee granted equity awards to our NEOs with the dollar value allocated to each NEO. The
structure of the long-term equity incentive component was determined by the CEO (except in connection with his or her own
grants) and the Compensation Committee through the consideration of a number of subjective factors, including the executive’s
position and responsibilities at the Company, the executive’s individual performance, the number of grants held (if any) and
other factors that they may deem relevant. The 2020 performance-based long-term equity incentive of our NEO compensation
63
program is based on the metric of TSR. The following parameters are included in the design of the long-term equity incentive
program in 2020:
Performance-Based Stock Units: For 2020, fifty percent (50%) of each NEO’s equity grant is comprised of PSUs. The relative
TSR plan design includes the following features:
•
•
•
•
•
•
•
Fifty percent (50%) of the PSU grant will be assessed at each of two (2) performance periods; at two years and at three
years from the grant date (2020 through 2022 and 2023, for awards granted in early 2020).
Performance will be assessed using TSR, which measures growth in stock price, plus any dividends paid, during the
performance period.
TSR performance will be compared to the Philadelphia Semiconductor Index (SOX).
The performance and standards to earn the PSU equity awards in 2020 are as follows:
TSR Performance Relative to Peers
PSUs Earned as % of Target
Below 25th Percentile
25th Percentile
55th Percentile
80th Percentile and above
0%
50%
100%
200%
The PSU award payout will be calculated on a straight-line basis between the 25th & 55th and the 55th & 80th
percentile levels referenced above.
A negative TSR cap has been instituted which limits any PSUs earned to target level if the Company’s TSR is negative
over the performance period and our TSR ranks above the target performance level.
Earned PSUs are not subject to additional service-based vesting conditions.
Service Vesting Restricted Stock Units: For 2020, fifty percent (50%) of each NEO’s equity grant is comprised of service-
based RSUs. The time required for the RSUs to fully vest is three (3) years from the date of grant. As a result, each service-
based RSU award is subject solely to service-based vesting in equal annual increments over the three (3) year vesting period.
The following table reflects the long-term equity incentive components of the 2020 Plan.
Tier I Incentive Compensation Plan -
Long-Term Equity Incentive Provisions
Performance-based / Service-based grant breakout
Service-based grant vesting period
Performance-based grant evaluation period
Performance-based grant metric(s)
Performance-based grant vesting period
Performance threshold for earning grant
Percent of grant earned at threshold
Measure at which 100% of grant is earned
Maximum grant upside
Measure at which maximum upside of grant is earned
2020
50%-50%
33.3% annually
over 3 years
50% of grant
at 2 and 3 years
TSR
100% upon earning
25th TSR percentile
50%
55th TSR percentile
200%
80th TSR percentile
Personal Benefits And Perquisites
Benefits
All employees of the Company, including its executives, are eligible to participate in the following benefit plans and programs
(“Benefit Package”), which were also available to Nanometrics employees and executives prior to the 2019 Merger:
•
Health and dental insurance;
64
•
•
•
•
•
•
•
•
•
Elective vision care program;
Life insurance and accidental death and dismemberment coverage;
401(k) savings plan;
Short- and long-term disability insurance with supplemental income continuation;
Health care and dependent care flexible spending account programs;
Employee assistance program (EAP);
Employee stock purchase plan;
Employee referral bonus program; and
Length of service awards.
The Company, in its discretion, may offer to reimburse the expenses that an employee incurs as a result of the Company
requiring the individual to relocate their primary residence for employment purposes. The Compensation Committee believes
that these benefits are consistent with industry practice and are important in recruiting and retaining qualified employees.
Perquisites
In addition to the above Benefit Package, Nanometrics provided certain executive officers with a limited number of perquisites
that its Compensation Committee believed to be reasonable and consistent with its overall compensation program. Although
the Nanometrics Compensation Committee sought the advice of the human resources department on general market
competitiveness for these benefits, it did not use a formal benchmarking process. In 2019, the perquisites included a car
allowance for the Nanometrics CEO and limited participation in an Executive Healthcare Reimbursement plan that provided
for reimbursement of usual and customary costs that may not have been covered under the medical, dental and eye care plans
available to all other Nanometrics employees.
Further, based on a review of comparable company offerings performed by Rudolph and its Compensation Committee’s
compensation consultant, Rudolph executive employees, including listed NEOs, received the following in 2019:
•
•
•
A monthly car allowance;
Company-paid tax preparation services; and
Company-paid membership in one (1) airline executive club.
The foregoing perquisites were determined and evaluated annually as part of the compensation review.
The Company’s Compensation Committee reviewed the perquisites offered by both Nanometrics and Rudolph and determined
that for 2020, executive perquisites would be limited to Company-paid tax preparation services and Company-paid membership
in one (1) airline executive club. The Compensation Committee believes that these benefits are reasonable and consistent with
the Company’s overall compensation program and enable the Company to attract and retain superior employees for key
positions.
Executive Perquisites For 2019
In 2019, the Nanometrics CEO received a car allowance and each of the listed Nanometrics NEOs with the exception of Mr.
Smedt and Mr. Swyt were eligible to participate in the above described Executive Healthcare Reimbursement plan.
In 2019, executive base perquisites provided to the listed NEOs employed by Rudolph included a monthly car allowance,
income tax preparation fee payment and airline club membership. These perquisites remained unchanged from those provided
to these NEOs in the prior year.
Executive Perquisites For 2020
In 2020, executive base perquisites limited to tax preparation fee payment and airline club membership are to be provided to
the NEOs.
65
Retirement Provision For Equity Awards
As part of their review of the overall compensation program for all Company employees, including the NEOs, the
Compensation Committee determined that the implementation of a retirement provision related to equity awards would
continue to incentivize individuals as they near the end of their employment with the Company. The alternative under the
active Nanometrics and Rudolph stock plans is that upon retirement of an employee any equity grants that had not vested would
be forfeited. Thus, any incentive realized through the service-vesting schedule for Company equity grants was diminished. As
a result, the Compensation Committee assessed retirement provision alternatives and recommended to the Board, and the Board
approved, the following retirement provision:
•
•
•
An employee is “retirement eligible” if they achieve a combination of age plus years of service with the Company
totaling 70, with a base minimum age of 58 years old and a minimum service requirement of five years.
Retirement under the provision then would occur when an employee has become retirement eligible and has formally
notified the Company of his/her intention to retire from the employ of the Company on a date certain and does so
retire or as otherwise approved by the Compensation Committee.
Upon such retirement by the employee, any equity awards granted by the Company shall vest based on:
◦ The vesting schedule established for service-based equity awards; or
◦ The actual performance results for performance-based equity awards.
Employee Stock Purchase Plan
The Company (as successor to Nanometrics) has maintained an Employee Stock Purchase Plan since 1986. The Nanometrics
2003 Employee Stock Purchase Plan was approved by stockholders in 2003 and subsequently amended and restated in 2009
and 2016 and is currently administered by the Compensation Committee. The Company currently administers its Employee
Stock Purchase Plan under the terms of the Nanometrics 2003 Employee Stock Purchase Plan. At this year’s Annual Meeting,
we are asking our stockholders to vote to approve a new 2020 ESPP. See Proposal 4 in this proxy statement for additional
information regarding the proposed 2020 ESPP.
Under the terms of our current Employee Stock Purchase Plan, eligible employees may elect to have up to fifteen percent (15%)
of eligible compensation deducted from their base salary and applied to the purchase of shares of Company Common Stock.
The price the employee pays for each share of stock is eighty-five percent (85%) of the fair market value of the Company
Common Stock at the end of the applicable six-month purchase period. The Employee Stock Purchase Plan qualifies as a non-
compensatory plan under Code Section 423.
The Company does not offer a non-qualified deferred compensation plan.
CORPORATE AND GOVERNANCE POLICIES
Employment And Change-In-Control Agreements
While the Company utilizes employment agreements on a limited basis, we currently maintain employment agreements or
arrangements with each of our NEOs.
In 2000, Rudolph entered into a management agreement with Mr. Roth, effective as of July 24, 2000, which was assumed by
Onto Innovation in connection with the 2019 Merger. Mr. Roth previously had employment agreements with Rudolph when it
was a private entity, and, at the time of Rudolph’s initial public offering, his agreement was redrafted to reflect terms believed
to be appropriate for such officer’s service in his capacity with a publicly held corporation.
Upon the appointment of Mr. Plisinski to the position of CEO of Rudolph, he entered into a new employment agreement with
Rudolph, which was assumed by Onto Innovation in connection with the 2019 Merger. This agreement superseded the
executive employment agreement that Mr. Plisinski had entered into with August Technology Corporation which was assumed
by Rudolph upon its merger with August Technology in 2006.
Mr. Plisinski’s employment agreement provides for a term of two (2) years with automatic renewals for additional two-year
terms and Mr. Roth’s agreement provides for a term of one (1) year with automatic renewals for additional one-year terms,
66
unless the Company or the applicable executive delivers a notice of non-renewal to the other party. Mr. Plisinski’s agreement
prohibits him from competing with the Company in any way or soliciting its employees during his term of employment and for
two (2) years after termination of his employment. Mr. Roth’s agreement prohibits him from competing with the Company in
any way or soliciting its employees during his term of employment and for one (1) year after termination of his employment.
Certain of our executive officers are also entitled to payments upon a qualifying termination of employment following a
Change-in-Control event. The Compensation Committee believes that providing severance in a Change-in-Control situation is
beneficial to stockholders so that executives may remain objectively neutral when evaluating a transaction that may be
beneficial to stockholders yet could negatively impact the continued employment of the executive.
The Nanometrics Compensation Committee authorized Nanometrics to enter into a Change-in-Control Agreement with Mr.
Heidrich in May 2015 and with Mr. Kocher in November 2016. Dr. Lesaicherre, Mr. Barnhart and Ms. Taylor each entered into
agreements with Change-in-Control provision with Nanometrics during their employment with Nanometrics. Further, Mr.
Plisinski’s and Mr. Roth’s employment agreements also contain Change-in-Control terms.
See “Potential Payments Upon Termination of Employment or Change-in-Control” below for a description of these
arrangements and potential payments that the NEOs would have been entitled to receive upon applicable hypothetical
termination scenarios as of December 31, 2019.
Other Elements Of Post-Termination Compensation
The Company does not have a practice of providing retirement benefits, including any supplemental executive retirement plans
(SERP), to its executives, other than through its 401(k) plan and the retirement provision for equity grants awarded by the
Company. The Company retains the discretion to utilize the offer of severance and/or change-in-control protection as an
incentive in its hiring and retention of executives.
Non-Solicitation And Non-Competition Policy
The Company maintains a policy of entering into an agreement with each of its new executives, which contains both non-
solicitation and non-competition provisions. The non-solicitation provisions apply for one (1) year after termination of the
individual’s employment while the non-competition provisions are in effect during the individual’s employment and generally
for one (1) year thereafter. Each of the Company’s executives had previously entered into these covenants on the foregoing
terms with either Nanometrics or Rudolph, except Mr. Plisinski, whose non-solicitation and non-competition provisions are in
place during, and extend for two (2) years after the end of, his employment with the Company. In all cases, these covenants
have been implemented to protect the confidential information, goodwill and other assets of the Company. For those individuals
with employment agreements, should a breach of the non-solicitation or non-competition terms of their agreements occur, this
could give rise to the Company declaring a breach under the agreement and terminating all severance payments thereunder.
General Termination Benefits
Upon termination of an executive’s employment with the Company, the individual is entitled to receive his or her base salary
earned through the termination date, along with a payout for all accrued but unused vacation time earned though such date.
Thereafter, further cash compensation to the executives is discontinued, except to the extent that severance or change-in-control
payments are required to be made in accordance with individual or Company severance protection arrangements. Certain
executives with the Company who have entered into employment agreements are entitled to elect to continue group health or
other group benefits as allowed by COBRA with continued Company co-payments for agreed post-termination periods. The
Company retains the right to offer severance and/or payment of COBRA benefits to any individual who is terminated from the
Company at its discretion.
Stock Ownership/Retention Guidelines
The Company has established guidelines related to stock ownership and retention for its executives and its outside directors to
further align the interest of the executives and non-employee directors with the interests of stockholders, to have a stake in the
long-term financial future of the Company and to further promote the Company’s commitment to sound corporate governance
while allowing them to prudently manage their personal financial affairs.
67
After the 2019 Merger, the Board established the Company’s initial stock ownership policy such that the stock ownership and
retention levels currently in effect are the following:
Company Role
Non-Employee Directors
CEO
Company Common Stock
Holding Requirement
Effective Date
3x value of the annual
Board retainer
Within 5 years of initial election
to Board
3x value of CEO’s
base annual salary
Within 5 years of hire/promotion
Executives Subject to Section 16
Reporting Requirements
1x value of executive’s
base annual salary
Within 5 years of hire/promotion
In assessing compliance with the foregoing guidelines, the Company takes into consideration only the ownership of Common
Stock in the Company. To that end, unearned PSUs, unvested service based RSUs and vested or unvested stock options do not
qualify as shares for purposes of compliance with the Company’s stock ownership and retention guidelines.
Participants are expected to achieve their ownership guideline target within five (5) years of becoming subject to the policy.
Existing participants were subject to this policy as of the date of the policy and any new participants will be subject to the
policy on their hire, promotion, election or appointment date, as applicable.
Compliance with the Company’s stock ownership and retention guidelines is reviewed annually by the Compensation
Committee. At their last review on January 21, 2020, the Compensation Committee determined that all executives and directors
who were with the Company, Nanometrics or Rudolph and acting in their executive/director capacities for periods in excess of
one (1) year were in compliance with the ownership requirements. Should any individual in the future not own the minimum
number of required shares after notice by the Compensation Committee, additional action, including possible removal from the
executive role or a determination to not nominate the director for election, would be considered by the Board.
The Compensation Committee has scheduled its review of the Company’s stock ownership and retention guidelines for its
January 2021 meeting and at this annual review will evaluate the appropriateness of the foregoing stock ownership levels for
2021 based in part on the average closing price of a share of the Company’s stock during the thirty (30) consecutive trading
days ending on and including the last day of the most recently completed fiscal year, as well as other considerations such as
market conditions and comparable practices within the industry.
Prohibition On Hedging And Pledging Of Company Stock
In order to ensure that our executives, including our NEOs, and our directors bear the full risk of the Company’s stock
ownership, our insider trading policy prohibits directors and executive officers of the Company from engaging in hedging
transactions related to our Common Stock. Additionally, under the Company’s anti-pledging policy, non-employee directors
and executive officers are prohibited from making any new pledges of Company securities as collateral for a loan, or otherwise
making a new transfer of Company securities to a margin account, provided that non-employee directors may pledge their
securities when obligated to do so to realize the consummation of potential mergers, acquisitions and similar transactions with
which the Company may be involved from time to time.
Adjustments Or Recovery Of Prior Compensation
The Company adopted a policy which provides for the recovery or adjustment of amounts previously awarded or paid to a
NEO in the event that financial results or other performance measures on which an award or payment was determined are
materially restated or adjusted. In addition, if the Company is required to restate its financial results due to material
noncompliance with any financial reporting requirements as a result of misconduct, the Sarbanes-Oxley Act of 2002 requires
the CEO and CFO to disgorge:
•
•
Any bonus or other incentive-based or equity-based compensation received from the Company during the 12-month
period following the first public issuance of the non-compliant financial reporting document; and
Any profits realized from the sale of Company stock during that 12-month period.
In addition, Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act requires the SEC to direct the
national securities exchanges to prohibit the listing of any security of an issuer that does not develop and implement a clawback
68
policy. The SEC has not finalized its rules related to these clawback policies. Once the final rules are in place, the Company
will adjust its policy, as necessary, to comply with SEC regulations.
Compensation Program Risk Assessment
As part of the engagement with the Compensation Committee’s compensation consultant, in association with the development
of and advice concerning our executive compensation program and practices, Compensia takes into consideration whether
possible compensation design features may have the potential to incentivize the NEOs to take risks that are reasonably likely
to have a material adverse effect on the Company. As part of the Compensation Committee’s compensation risk assessment,
potential risks and risk mitigating features are addressed in the following areas: compensation philosophy and pay mix;
performance measures used in incentive plans; goal setting and payout leverage and caps; calculation and verification of
performance outcomes for incentive payments; and other features. Based on this framework and the input from Compensia,
the Compensation Committee evaluated our current executive compensation policies, practices and programs and believes they
do not create risks that are reasonably likely to have a material adverse effect on the Company.
IRS Limits On Deductibility Of Compensation
Prior to the 2018 tax year, Section 162(m) of the IRC limited the tax deductibility of annual compensation paid to any publicly
held corporation’s CEO and three other highest compensated officers excluding the CFO, to the extent that the officer’s
compensation (other than qualified performance-based compensation) exceeded $1 million. Although the Compensation
Committee considers deductibility issues when approving executive compensation elements, the Compensation Committee
believes that the other compensation objectives, such as attracting, retaining and providing appropriate incentives to executives,
are important and can supersede the goal of maintaining deductibility. Consequently, the Compensation Committee generally
makes compensation decisions without regard to deductibility, as the Compensation Committee believes it has appropriately
structured its compensation programs to provide incentives to our executives to increase Company return and stockholder
value. Subsequent changes in the tax laws eliminated the “performance-based” exception, and the limitation on deductibility
was expanded to include all named executive officers. As a result, the Company does not deduct compensation paid to our
named executive officers in excess of $1 million.
CONCLUSION
In reviewing its compensation programs, the Company has concluded that each element of compensation as well as the total
compensation opportunities for its NEOs and its other executive officers are reasonable, appropriate and in the interests of the
Company and its stockholders. The Company believes that this compensation program appropriately satisfies the Company’s
goals of establishing a compensation package that attracts and retains a strong motivated leadership team, aligns the financial
incentives of the executives with the interests of the stockholders, and rewards the achievement of specific annual, long-term
and strategic goals of the Company. The Company believes that the compensation program which has been established and is
reflected herein has enabled it to recruit and secure a talented and motivated leadership team by which the Company drives
toward the ultimate objective of improving stockholder value.
69
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
We, the Compensation Committee of the Board of Directors, have reviewed and discussed the Compensation Discussion and
Analysis (“CD&A”) within the Executive Compensation section of this proxy statement with the management of the Company.
Based on such review and discussions, we have recommended to the Board of Directors that the CD&A be included as part of
this proxy statement.
THE COMPENSATION COMMITTEE
Edward J. Brown, Jr. (Chairman)
Jeffrey A. Aukerman
Leo Berlinghieri
Robert G. Deuster
David B. Miller
70
Summary Compensation Table
The following table summarizes the compensation earned by our NEOs in the fiscal years noted. For Messrs. Plisinski and
Roth, this information relates only to compensation paid by Onto Innovation during the period on and after the Merger Date
(i.e. from October 25, 2019 until December 31, 2019), and does not include compensation that Rudolph paid prior to the 2019
Merger.
Name and Principal Position
Year
Salary ($)
Bonus ($)
2019
$83,192 —
Michael P. Plisinski (4)
Chief Executive Officer
Steven R. Roth (5)
Senior Vice President, Finance & Administration and
Chief Financial Officer
Rollin Kocher
Senior Vice President, Field Operations
Kevin Heidrich (6)
Senior Vice President, Marketing &
Corporate Development Leadership
Rodney Smedt (6)
Senior Vice President & General Manager,
Metrology Business Unit
Greg Swyt (7)
Vice President, Business Finance
Former Officers (at December 31, 2019)
Pierre-Yves Lesaicherre, Ph.D.
Former President and Chief Executive Officer
Janet Taylor
Former General Counsel
James Barnhart
Former Senior Vice President, Operations
2019
2019
2018
2017
2019
2019
2019
2018
2017
2019
2018
2017
2019
2018
2017
2019
2018
Non-Equity
Incentive Plan
Compensation
($)(1)
All Other
Compensation
($)(2)
Stock Awards
($)
Total ($)
—(3)
—(3)
$540,750
$1,752,211
$2,376,153
$218,216
$606,995
$881,164
$492,022(3)
$630,085
$410,653
$162,500
$357,120
$247,755
$5,000
$8,641
$6,363
$984,234
$1,305,461
$949,895
$55,953 —
$324,712 —
$309,615 —
$285,124 —
$299,615 —
$292,872(3)
$125,000
$3,800
$721,287
$321,083 —
$388,855(3)
$135,455
—
$249,885 —
$242,094
$235,072 —
$130,000
$146,436(3)
$159,202
$67,128
$83,333
$163,973
$75,400
$5,000
$4,767
$2,821
$479,029
$550,000
$42,308
$262,115
$299,615
$278,923
$279,039
$252,308
—
—
$100,000
—
—
—
—
—
$1,423,717(3)
$1,311,585
$2,232,200
$268,442(3)
$436,608
$318,659
$536,912(3)
$955,256
$566,500
$1,056,000
$52,885
$170,500
$288,000
$122,220
$198,000
$368,640
$4,417,547
$19,300
$1,200
$712,274
$27,046
$7,992
$970,159
$6,467
$845,393
$484,654
$700,036
$380,421
$6,886,793
$2,936,885
$2,428,593
$1,413,331
$1,051,269
$727,794
$1,984,110
$1,582,671
(1) The amounts for a given year represent the amount earned in respect of that year under Nanometrics’ or Rudolph’s annual cash
performance bonus awards, as applicable, notwithstanding the year in which it was paid. See “Compensation Discussion and Analysis
– Annual Cash Incentive Compensation” for further information.
(2) Refer to the All Other Compensation table for more detailed information about compensation reported in this column.
(3) Amounts reflect the grant date fair value for each share-based compensation award granted to the executive officer during the covered
year, calculated in accordance with FASB ASC Topic 718. The assumptions used in determining the grant date fair values of awards
are set forth in Note 2 to our consolidated financial statements, which are included in our Annual Report on Form 10-K filed with the
SEC on February 25, 2020. For 2019, the amount reported for each NEO includes the grant date fair value attributable to the 2019
awards. Dr. Lesaicherre had 2019 PSUs that vested at target at the Merger Date.
(4) The total compensation earned by Mr. Plisinski during 2019 while serving as Rudolph’s CEO, when added to the amount reported in
the Summary Compensation Table, results in total compensation for the full calendar year of $3,391,035. This adjustment included (i)
increasing his salary ($455,741), (ii) including the grant date fair value of a time-based equity award Mr. Plisinski received for Rudolph
prior to the 2019 Merger ($550,021), (iii) including 401(k) matching contributions earned prior to the 2019 Merger ($8,400) and
including insurance coverage paid by Rudolph prior to the 2019 Merger ($720).
(5) The total compensation earned by Mr. Roth during 2019 while serving as Rudolph’s CFO, when added to the amount reported in the
Summary Compensation Table, results in total compensation for the full calendar year of $1,391,819. This adjustment included (i)
increasing his salary ($306,518), (ii) including the grant date fair value of a time-based equity award Mr. Roth received for Rudolph
prior to the 2019 Merger ($195,017), (iii) including 401(k) matching contributions earned prior to the 2019 Merger ($8,400) and
including insurance coverage paid by Rudolph prior to the 2019 Merger ($720).
(6) Although employed by Nanometrics prior to 2019, Mr. Heidrich and Mr. Smedt were not NEOs prior to 2019.
(7) Mr. Swyt served as the Principal Financial Officer for Nanometrics from June 26, 2018 until the Merger Date.
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All Other Compensation
Name
Michael P. Plisinski
Steven R. Roth
Rollin Kocher
Kevin Heidrich
Rodney Smedt
Greg Swyt
Year
2019
2019
2019
2019
2019
2019
Former Officers (at December 31, 2019)
Pierre-Yves Lesaicherre, Ph.D. 2019
2019
Janet Taylor
2019
James Barnhart
Matching
Contribution
to 401(k) ($)
—
—
$5,000
$3,800
—
$5,000
$5,000
$5,000
$3,350
Insurance
($)(1)
$144
$144
—
—
—
—
—
—
—
Perquisites
and Other
Personal
Benefits ($)
—(2)
—(2)
—(2)
—(2)
—(2)
—(2)
$12,473
—(2)
—(2)
Value of
Accelerated
Equity Awards ($)(3)
$1,752,067
$606,851
—
—
—
—
Severance
Compensation ($)(4)
—
—
—
—
—
—
$3,550,330
$397,274
$636,809
$849,744
$310,000
$330,000
Total
($)
$1,752,211
$606,995
$5,000
$3,800
—
$5,000
$4,417,547
$712,274
$970,159
(1)
Insurance is the premium associated with coverage under the group term life insurance and accidental death
and dismemberment insurance plans provided to former Rudolph employees. Coverage is equal to the lesser of
two (2) times salary or $450,000. Former Nanometrics employees did not receive such insurance coverage.
(2) Value of aggregate perquisites and benefits for each NEO except Dr. Lesaicherre is less than $10,000, and
therefore, perquisites for these individuals are not required to be disclosed in accordance with SEC rules. Dr.
Lesaicherre’s perquisites included auto allowance of $12,000 and executive healthcare plan reimbursements.
(3) Reflects the value of equity awards that vested upon the change in control on the Merger Date. For Dr.
Lesaicherre, Ms. Taylor and Mr. Barnhart, this column does not include the acceleration of the equity grants
awarded in 2019, as the grant date fair value of such awards is included in the “Stock Awards” column of the
Summary Compensation Table.
(4) Reflects severance benefits that were paid to or became payable to these NEOs on the Merger Date.
72
Grants Of Plan-Based Awards In 2019
The following table sets forth information with respect to non-equity and equity incentive plan awards that were
granted during 2019 to the NEOs. Except for awards granted under the Rudolph Cash Incentive Compensation Plan,
for Messrs. Plisinski and Roth, the following table does not include awards granted by Rudolph prior to the 2019
Merger. No stock option awards were granted to any NEO in 2019.
Estimated Future Payouts Under
Non-Equity Incentive Plan
Awards ($) (1)
Estimated Future Payouts Under
Equity Incentive Plan Awards (#)
(2)
Threshold
$94,631
$38,188
—
Target Maximum Threshold
$540,750
$218,216
$195,000
$1,081,500
$436,432
$390,000
Target Maximum
—
—
—
—
—
—
$150,000
$300,000
$162,546
$325,092
$100,000
$200,000
$566,500
$1,133,000
$170,500
$341,000
$198,000
$396,000
2,471
24,709
37,064
All Other
Stock
Awards:
Number of
Shares of
Stocks or
Units (#) (3)
Grant Date
Fair Value
of Stock
and Option
Awards ($)
16,978
$492,022
10,106
$292,872
13,668
$388,855
5,053
$146,436
24,709
$471,767
$716,067
9,263
$268,442
18,527
$536,912
Name
Michael P. Plisinski
Steven R. Roth
Rollin Kocher
Kevin Heidrich
Rodney Smedt
Greg Swyt
Grant Date
2/6/2019
2/6/2019
3/11/2019
3/11/2019
3/11/2019
3/11/2019
3/11/2019
5/31/2019
3/11/2019
3/11/2019
Former Officers (at December 31, 2019)
Pierre-Yves Lesaicherre,
Ph.D.
Janet Taylor
James Barnhart
3/11/2019
3/11/2019
3/11/2019
3/11/2019
3/11/2019
3/11/2019
3/11/2019
(1) The amounts reported in these columns for each NEO except Mr. Plisinski and Mr. Roth represent the annual cash incentive
opportunities under the Nanometrics Incentive Compensation Plan for each of our Named Executive Officers for the 2019 performance
period. Mr. Plisinski’s and Mr. Roth’s annual cash incentive opportunities in 2019 were under the Rudolph 2019 Key Executive
Incentive Compensation Plan, which were paid at target by the Company in accordance with the Merger Agreement. The metrics
against which performance was measured under these plans, as well as other details regarding the plans, are discussed above in the
Compensation Discussion and Analysis under “Annual Cash Incentive Compensation.” The amounts actually earned by our NEOs
under the applicable plans are reflected in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation
Table above.
(2) The amounts reported in these columns represent the award opportunities under the Nanometrics 2019 PSU program. The metrics
against which performance was measured under this program, as well as other details regarding the plan, are discussed above in the
Compensation Discussion and Analysis under the heading “Long-Term Equity Incentive Plan.” This award was granted under the
Nanometrics 2005 Stock Plan. This award fully vested at target due to change of control at the Merger Date.
(3) The amounts reported in this column represent the awards of RSUs which are subject to service-based vesting conditions, as discussed
above in the Compensation Discussion and Analysis under the heading “Long-Term Equity Incentive Plan.” This award was granted
under the Nanometrics 2005 Stock Plan. These RSUs vest in 33.3% increments on each of the first three (3) anniversaries of the grant
date.
73
Outstanding Equity Awards At 2019 Year-End
The following table sets forth information with respect to outstanding equity awards held by the NEOs at December 31, 2019.
No stock option awards were outstanding at December 31, 2019.
Name
Michael P. Plisinski
Steven R. Roth
Rollin Kocher
Kevin Heidrich
Rodney Smedt
Greg Swyt
Grant
Date (1)
1/28/2015
1/27/2016
2/6/2017
2/8/2018
2/6/2019
1/28/2015
1/27/2016
2/6/2017
2/8/2018
2/6/2019
2/8/2017
2/23/2018
3/11/2019
2/8/2017
2/23/2018
3/11/2019
2/8/2017
2/23/2018
3/11/2019
6/2/2017
6/1/2018
3/11/2019
Stock Awards
Number of Shares
or Units of Stock
That Have Not
Vested (#)(2)
Market Value of
Units of Stock That
Have Not Vested
($)(3)
7,077
17,013
6,225
12,312
19,685
2,654
5,233
1,979
4,365
6,980
5,233
16,158
16,978
3,270
8,402
10,106
3,127
13,668
1,425
798
2,502
5,053
$258,594
$621,655
$227,462
$449,880
$719,290
$96,977
$191,214
$72,313
$159,497
$255,049
$191,214
$590,413
$620,376
$119,486
$307,009
$369,273
$114,261
$499,429
$52,070
$29,159
$91,423
$184,637
(1) For better understanding of this table, we have included an additional column showing the grant date of each stock award.
(2) Amount includes (i) service-based RSU awards and (ii) PSU awards that have been earned and remain subject to service-based vesting
requirements. PSUs and RSUs vest in accordance with the schedule below:
Grant Date
Grant Type
Vesting
1/28/2015
1/28/2015
1/27/2016
1/27/2016
Service-based RSU 1/5th per year on the anniversary of the grant date
Earned PSU
1/5th on February 19, 2016 and 1/5th per year on the anniversary of the grant date
Service-based RSU 1/5th per year on the anniversary of the grant date
Earned PSU
1/5th on February 16, 2017 and 1/5th per year on the anniversary of the grant date
2/6/2017 to 3/11/2019
Service-based RSU 1/3rd per year on the anniversary of the grant date
(3) Based on the Company’s common stock closing price of $36.54 per share on December 31, 2019.
74
Stock Vested In 2019
The following table sets forth information with respect to the value realized by the NEOs upon vesting of PSUs and RSUs
during 2019, and such values reflect the total pre-tax value realized by each NEO. Share amounts for transactions prior to the
Merger Date have been adjusted to give effect to the exchange ratio. For Messrs. Plisinski and Roth, this information relates
only to the PSUs that vested on the Merger Date and does not include RSUs that vested prior to the 2019 Merger. There were
no stock option exercises by any of the NEOs during 2019.
Name
Michael P. Plisinski
Steven R. Roth
Rollin Kocher
Kevin Heidrich
Rodney Smedt
Greg Swyt
Former Officers (at December 31, 2019)
Pierre-Yves Lesaicherre, Ph.D.
Janet Taylor
James Barnhart
Stock Awards
Number of
Shares Acquired
on Vesting (#)
Value
Realized on
Vesting ($)(1)
50,602
17,485
17,961
10,805
5,369
4,790
204,152
37,261
41,046
$1,801,457
$622,473
$528,042
$317,987
$154,961
$147,925
$7,089,940
$1,240,107
$1,398,507
(1) The aggregate dollar amount realized is based on the fair market value of the shares upon vesting.
Pension And Nonqualified Deferred Compensation
The Company does not have a defined benefit pension program, nor does it offer non-qualified deferred compensation.
Potential Payments Upon Termination Of Employment Or Change-In-Control
This section (including the following tables) summarizes each NEO’s estimated payments and other benefits that would be
received by the NEO or the NEO’s estate if his or her employment had terminated on December 31, 2019, under the hypothetical
circumstances set forth below.
Each of our NEOs would be entitled to certain termination payments upon his or her death or Disability, his or her involuntary
termination without Cause, or his or her voluntary termination with Good Reason as described below. Although the definitions
of each of these terms is specific to the NEO’s employment agreement or change-in-control agreement with the Company, the
terms generally have the following meanings:
•
•
•
“Disability” generally means that the executive, due to physical or mental impairment, is unable to perform his or her
duties to the Company for a specified period of time.
“Cause” generally means that the executive engaged in a crime, willful gross misconduct or other serious act involving
moral turpitude; materially breached an agreement between him or her and the Company; or otherwise materially
breached his or her obligations to the Company.
A voluntary termination for “Good Reason” generally means, depending on the particular executive’s agreement, that
the executive’s duties, responsibilities or status with the Company or its successor are materially reduced; his or her
primary place of work is moved to a location outside a predetermined radius; in particular cases, certain reduction in
compensation; or the Company materially breaches the terms of his or her agreement with the Company or any
successor fails to assume the executive’s change-in-control agreement.
75
NEO Employment Agreements
Mr. Plisinski’s employment agreement provides for the following:
Mr. Plisinski
•
•
In the event of any termination of Mr. Plisinski’s employment, he is entitled to payment of all base salary due and
owing through the termination date and an amount equal to all earned but unused vacation through the termination
date.
In the event Mr. Plisinski’s employment is terminated due to his death, his estate would be entitled to:
◦
Payment of his then-current base salary as if his employment had continued for three (3) months following his
death;
◦ Continued co-payment for a period of six (6) months following his death of amounts due under COBRA for
continuation of Company’s group health and other group benefits for his covered dependents, if the covered
dependents so elect;
◦
◦
Payment of his annual incentive cash bonus based on actual performance achievement, prorated for the time
employed preceding his death, to be paid out with the Company’s annual incentive plan payouts; and
Immediate vesting of stock options and SARs, and immediate vesting of RSU awards granted after his
appointment as CEO which by their terms would vest within twelve (12) months after death and, if a performance
award, based on actual performance achievement for such performance period completed within twelve (12)
months after death.
•
In the event Mr. Plisinski’s employment is terminated due to his Disability, he would be entitled to:
◦
Payment of his then-current base salary through the end of the month of such termination;
◦ Continued co-payment for a maximum period of six (6) months following his Disability of amounts due under
COBRA for continuation of Company’s group health and other group benefits, if he or his covered dependents,
as appropriate, so elects;
◦
◦
Payment of his annual incentive cash bonus based on actual performance achievement, prorated for the time
employed preceding his termination, to be paid out with the Company’s annual incentive plan payouts; and
Immediate vesting of stock options and SARs, and immediate vesting of RSU awards granted after his
appointment as CEO which by their terms would vest within twelve (12) months after termination for disability
and, if a performance award, based on actual performance achievement for such performance period completed
within twelve (12) months after termination.
•
In the event Mr. Plisinski’s employment is terminated by the Company without Cause or Mr. Plisinski terminates his
employment for Good Reason, he would be entitled to:
◦
Payment of two (2) times his then-current base salary for a period of twenty-four (24) months;
◦ Continued co-payment for a period of up to eighteen (18) months of amounts due under COBRA for continuation
of Company’s group health and other group benefits, if he so elects; and
◦ Vesting of any equity incentive awards outstanding as of the termination date that, by their terms:
(1) represent either unvested shares which were earned based on a completed performance period under a
performance-based award granted on or after the employment agreement effective date and which as of the
termination date are then subject to time-based vesting only, or shares under such an equity incentive award
granted on or after the employment agreement effective date which will be earned under a performance-based
award based on actual achievement under a performance period which has been completed on or prior to the
termination date but as to which performance period the actual number of shares earned against the award
performance goals has not yet been determined by the Company; and
(2) would have become vested based solely on the passage of time within the twelve (12) month period
immediately following the termination date had Mr. Plisinski continued in employment with the Company.
76
•
If, within eighteen (18) months following the occurrence of a Change-in-Control1, Mr. Plisinski’s employment is
terminated for any reason other than for Cause or Mr. Plisinski terminates his employment for Good Reason, he would
be entitled to:
◦
Payment of two (2) times the sum of his then-current base salary and target annual cash bonus for a period of
twenty-four (24) months;
◦ Continued co-payment by Company for a period of up to eighteen (18) months of amounts due under COBRA
for continuation of Company’s group health and other group benefits, if he so elects; and
◦
Immediate vesting of all unvested stock options, SARs and all unvested and outstanding performance-based (at
target) and service-based RSUs and other equity awards.
◦ To the extent that change-in-control termination payments made to Mr. Plisinski under his agreement are subject
to the excise tax imposed by Section 4999 of the Internal Revenue Code, Mr. Plisinski would either have to pay
the excise tax or have his benefits reduced so that no portion of his termination payments were subject to the
excise tax.
◦
In order to receive these termination or change-in-control termination payments, Mr. Plisinski would be required
to sign a general release of all known and unknown claims that he may have against the Company.
◦ As part of his employment agreement, Mr. Plisinski is subject to non-solicitation and non-competition
restrictions that limit his ability to compete with the Company during the term of the agreement and for a period
of two (2) years following his resignation or termination for any reason.
The following table reflects the potential payments to Mr. Plisinski in the event of his termination or his termination following
a change-in-control:
Potential Payments To Mr. Plisinski Upon Termination Or Change-In-Control
Cash Severance
Termination Circumstance as of 12/31/2019
By the Company without Cause
Executive resignation for Good Reason
Death
Base Salary
$1,081,500
(2x salary)
$1,081,500
(2x salary)
$135,188
(3 mos. salary)
Within 18 months following Change-in-Control:
Disability
$ -
Management
Incentive
Bonus
$ -
$ -
$540,750
(1x bonus)
$540,750
(1x bonus)
Value of
Accelerated
Unvested
Equity
Benefits
Continuation
$1,261,617
$36,265
$1,261,617
$36,265
$1,261,617
$12,088
$1,261,617
$12,088
By the Company without Cause
By the executive with Good Reason
$1,081,500
(2x salary)
$1,081,500
(2x salary)
$1,081,500
(2x bonus)
$1,081,500
(2x bonus)
$2,276,880
$36,265
$2,276,880
$36,265
1 For Mr. Plisinski, a “Change-in-Control” would generally be considered to have occurred if:
•
•
•
•
•
a merger or consolidation of the Company or an acquisition by the Company involving the issuance of its securities as consideration
for the acquired business results in the stockholders of the Company following such transactions having less than fifty percent (50%)
of combined voting power of the surviving entity;
any person or persons becomes the beneficial owner of thirty percent (30%) or more of our outstanding shares;
all or substantially all assets of the Company are disposed of pursuant to a plan of liquidation of the Company;
all or substantially all of our assets are sold; or
during any twelve (12) month consecutive period the individuals who presently make up our Board or who become members of our
Board with the approval of at least a majority of our existing Board cease to constitute at least a majority of the Board; provided any
transaction or event described above will not constitute a change-in-control under the agreement unless it qualifies as a “change-in-
control” under Section 409A of the Internal Revenue Code.
77
Mr. Roth’s employment agreement provides for the following:
Mr. Roth
•
In the event Mr. Roth’s employment is terminated as a result of his death or Disability, he or his estate would be
entitled to:
◦
◦
Payment of all base salary due and owing through the termination date and amount equal to all earned but unused
vacation through the termination date;
Payment of an amount equal to Mr. Roth’s bonus as was paid or payable for the most recent completed bonus
period; and
◦ Accelerated vesting of all outstanding and unvested stock options, performance-based and service-based RSUs
or other equity awards.
•
In the event Mr. Roth’s employment is terminated without Cause or Mr. Roth terminates his employment for Good
Reason, he would be entitled to:
◦
◦
Payment of all base salary due and owing through the termination date and an amount equal to all earned but
unused vacation through the termination date;
Payment for over a period of one (1) year of one (1) times Mr. Roth’s:
* Then-current base salary; and
* Bonus as was paid or payable for the most recent completed bonus period;
◦ Accelerated vesting of all unvested stock options and all unvested and outstanding performance based and
service-based RSUs and other equity awards.
•
If, within one (1) year following the occurrence of a change-in-control2, Mr. Roth’s employment is terminated for any
reason other than for Cause or Mr. Roth terminates his employment for Good Reason, he would be entitled to:
◦
◦
Payment of all base salary due and owing through the termination date and including an amount equal to all
earned but unused vacation through the termination date;
Payment over a period of one (1) year of one (1) times Mr. Roth’s:
* Then-current base salary; and
* Bonus as was paid for the most recent completed bonus period;
◦ Accelerated vesting of all unvested stock options and all unvested and outstanding performance-based and
service-based RSUs and other equity awards; and
◦ Maintenance of Mr. Roth’s and his dependents’ health care benefit coverage to the same extent provided for by
and with the same Company/Executive payment contribution percentages under Company’s group plans at the
2 For Mr. Roth, a “Change-in-Control” would generally be considered to have occurred if:
•
•
•
•
•
any person or persons becomes the beneficial owner of twenty-five percent (25) or more of our outstanding voting shares;
during any two (2) consecutive year period individuals who presently make up our Board or who become members of our Board
with the approval of at least two-thirds of our existing Board (other than a new director who assumes office in connection with an
actual or threatened election contest) cease to be at least a majority of the Board;
a merger or consolidation of the Company is consummated with another entity (unless outstanding voting securities of the Company
immediately prior to the termination would continue to represent more than fifty-one percent (51%) of the combined voting power
of the surviving entity and had the power to elect as least a majority of the board of the surviving entity);
our stockholders approve a plan of liquidation of the company or an agreement for the sale of all or substantially all of our assets; or
any other event occurs of a nature that would be required to be reported as a “change-in-control” under Schedule 14A of the Exchange
Act, provided any transaction or event described above will not constitute a change-in-control under the agreement unless it qualifies
as a “change-in-control” under Section 409A of the Internal Revenue Code.
78
time of termination. Such coverage shall extend for a term of one (1) year from the Termination Date unless he
becomes covered as an insured under another employer’s or spousal health care plan.
•
•
•
To the extent that termination or change-in-control payments made to Mr. Roth under his agreement are subject to the
excise tax imposed by Section 4999 of the Internal Revenue Code, Mr. Roth would either have to pay the excise tax
or have his benefits reduced so that no portion of his termination payments were subject to the excise tax.
In order to receive these termination or change-in-control payments, Mr. Roth would be required to sign a general
release of all known and unknown claim the he may have against the Company.
As part of his employment agreement, Mr. Roth is subject to non-competition and non-solicitation restrictions that
limit his ability to compete with the Company during the term of the Agreement and for a period of one (1) year
following his resignation or termination for any reason.
The following table reflects the potential payments to Mr. Roth in the event of his termination or his termination following a
change-in-control:
Potential Payments To Mr. Roth Upon Termination Or Change-In-Control
Cash Severance
Termination Circumstance as of 12/31/2019
By the Company without Cause
Executive resignation for Good Reason
Base Salary
$363,693
(1x salary)
$363,693
(1x salary)
Death
Disability
$ -
$ -
Within 12 months following Change-in-Control:
Management
Incentive
Bonus
$218,216
(1x bonus)
$218,216
(1x bonus)
$218,216
(1x bonus)
$218,216
(1x bonus)
Value of
Accelerated
Unvested
Equity
$775,050
$775,050
$775,050
$775,050
Benefits
Continuation
$ -
$ -
$ -
$ -
By the Company without cause
By the executive with good reason
$363,693
(1x salary)
$363,693
(1x salary)
$218,216
(1x bonus)
$218,216
(1x bonus)
$775,050
$24,177
$775,050
$24,177
Messrs. Kocher, Heidrich, Smedt and Swyt
The executive general severance and change-in-control agreements for Messrs. Kocher, Heidrich, Smedt and Swyt provide for
the following:
•
In the event Mr. Kocher’s, Mr. Heidrich’s, Mr. Smedt’s or Mr. Swyt’s employment is terminated as a result of a
“Covered Termination”3, the executive or his estate would be entitled to:
◦
◦
◦
Payment of all base salary due and owing through the termination date, any unreimbursed business expenses and
an amount equal to all earned but unused vacation through the termination date;
Payment of his then-current base salary for a period of six (6) months (paid over a period of six (6) months); and
Provided that the executive is eligible and has made the necessary elections for continuation coverage pursuant
to COBRA under a health, dental, or vision plan sponsored by the Company, payment of his and his dependent’s
applicable premiums for such continued benefits. Such coverage shall extend for a term of six (6) months from
the termination date.
3 For Messrs. Kocher, Heidrich, Smedt and Swyt, a “Covered Termination” would generally be considered to have occurred in the event of
the executive’s:
•
•
dismissal or discharge by the Company for reasons other than Cause and other than as a result of death or disability; or
resignation for Good Reason within ninety (90) days of the occurrence of the Good Reason action, which occurs outside of twelve
(12) months of a Change-in-Control event.
79
•
If, within one (1) year following the occurrence of a Change-in-Control4, Mr. Kocher’s, Mr. Heidrich’s, Mr. Smedt’s
or Mr. Swyt’s employment is terminated for any reason other than for Cause or Mr. Kocher, Mr. Heidrich, Mr. Smedt
or Mr. Swyt terminates his employment for Good Reason, the executive would be entitled to:
◦
◦
Payment of all base salary due and owing through the termination date, any unreimbursed business expenses and
an amount equal to all earned but unused vacation through the termination date;
Payment in a single lump sum following the effective date for his Release of his:
* Then-current annual base salary; and
* 100% of his target annual bonus in effect for the fiscal year in which the termination date occurs;
◦ Accelerated vesting of all unvested stock options and all unvested and outstanding performance-based and
service-based RSUs and other equity awards; and
◦
Provided that executive is eligible and has made the necessary elections for continuation coverage pursuant to
COBRA under a health, dental, or vision plan sponsored by the Company, payment of his and his dependent’s
applicable premiums for such continued benefits. Such coverage shall extend for a term of twelve (12) months
from the termination date.
•
•
To the extent that change-in-control termination payments made to Mr. Kocher, Mr. Heidrich, Mr. Smedt or Mr. Swyt
are subject to the excise tax imposed by Section 4999 of the Internal Revenue Code, Mr. Kocher, Mr. Heidrich, Mr.
Smedt or Mr. Swyt would either have to pay the excise tax or have his benefits reduced so that no portion of his
termination payments were subject to the excise tax.
In order to receive these change-in-control termination payments, Mr. Kocher, Mr. Heidrich, Mr. Smedt or Mr. Swyt
would be required to sign a general release of all known and unknown claims that he may have against the Company.
Each of Mr. Kocher, Mr. Heidrich, Mr. Smedt and Mr. Swyt, have entered into a separate agreement upon employment with
the Company that subjects the executive to non-competition and non-solicitation restrictions, which limit his ability to compete
with the Company during his employment and for a period of one (1) year following his resignation or termination for any
reason.
4 For Messrs. Kocher, Heidrich, Smedt and Swyt, a “Change-in-Control” would generally be considered to have occurred upon any of the
following:
•
•
•
any person or persons becomes the beneficial owner of fifty percent (50%) or more of the total voting power represented by the
Company’s then outstanding voting securities;
during any two (2) year, any action or event occurs in which less than a majority of the directors who are either (A) directors of the
Company as of the date of the executive’s agreement, or (B) elected, or nominated for election, to the Board with the affirmative
votes of a majority of the Incumbent Directors at the time of such election or nomination (but does not include an individual whose
election or nomination is in connection with an actual or threatened proxy contest relating to the election of directors to the
Company);
the consummation of a merger or consolidation of the Company with any other corporation, other than a merger or consolidation
which would result in the outstanding voting securities of the Company immediately prior thereto continuing to represent at least
fifty percent (50%) of the outstanding voting securities of the Company or such surviving or resulting entity immediately after such
merger or consolidation; or
the consummation of the sale, lease or other disposition by the Company of all or substantially all the Company’s assets.
•
To the extent required for compliance with Code Section 409A, in no event will a change-in-control be deemed to have occurred if such
transaction is not also a “change in the ownership or effective control of” the Company or a “change in the ownership of a substantial
portion of the assets of” the Company, as determined under Treasury Regulations Section 1.409A-3(i)(5)
80
The following table reflects the potential payments to Mr. Kocher in the event of his termination or his termination
following a change-in-control:
Potential Payments To Mr. Kocher Upon Termination Or Change-In-Control
Termination Circumstance as of 12/31/2019
Within 12 months following Change-in-Control:
By the Company without Cause
Base Salary
$162,500
(6 months
salary)
Cash Severance
Management
Incentive
Bonus
Value of
Accelerated
Unvested
Equity
Benefits
Continuation
n/a
n/a
$17,664
By the Company without Cause
By the executive with Good Reason
$325,000
(1x salary)
$325,000
(1x salary)
$195,000
(1x bonus)
$195,500
(1x bonus)
$1,402,003
$35,328
$1,402,003
$35,328
The following table reflects the potential payments to Mr. Heidrich in the event of his termination or his termination
following a change-in-control:
Potential Payments To Mr. Heidrich Upon Termination Or Change-In-Control
Termination Circumstance as of 12/31/2019
By the Company without Cause
Base Salary
$150,000
(6 months
salary)
Within 12 months following Change-in-Control:
Cash Severance
Management
Incentive
Bonus
Value of
Accelerated
Unvested
Equity
Benefits
Continuation
n/a
n/a
$17,664
By the Company without Cause
By the executive with Good Reason
$300,000
(1x salary)
$300,000
(1x salary)
$150,000
(1x bonus)
$150,000
(1x bonus)
$795,768
$35,328
$795,768
$35,328
The following table reflects the potential payments to Mr. Smedt in the event of his termination or his termination
following a change-in-control:
Potential Payments To Mr. Smedt Upon Termination Or Change-In-Control
Termination Circumstance as of 12/31/2019
Within 12 months following Change-in-Control:
By the Company without Cause
Base Salary
$162,500
(6 months
salary)
Cash Severance
Management
Incentive
Bonus
Value of
Accelerated
Unvested
Equity
Benefits
Continuation
n/a
n/a
$17,664
By the Company without Cause
By the executive with Good Reason
$325,000
(1x salary)
$325,000
(1x salary)
$162,500
(1x bonus)
$162,500
(1x bonus)
$665,759
$35,328
$665,759
$35,328
81
The following table reflects the potential payments to Mr. Swyt in the event of his termination or his termination
following a change-in-control:
Potential Payments To Mr. Swyt Upon Termination Or Change-In-Control
Termination Circumstance as of 12/31/2019
Within 12 months following Change-in-Control:
By the Company without Cause
Base Salary
$125,000
(6 months
salary)
Cash Severance
Management
Incentive
Bonus
Value of
Accelerated
Unvested
Equity
Benefits
Continuation
n/a
n/a
$13,374
By the Company without Cause
By the executive with Good Reason
$250,000
(1x salary)
$250,000
(1x salary)
$100,000
(1x bonus)
$100,000
(1x bonus)
$305,219
$26,748
$305,219
$26,748
Retention Bonus Agreements
In June 2018, upon Mr. Swyt assuming the role as Principal Financial and Accounting Officer, Nanometrics entered into a
Retention Bonus Agreement with him pursuant to which Mr. Swyt would receive a retention bonus of $50,000 provided that
he remained employed by the company and performed his duties and responsibilities in a satisfactory manner, through February
28, 2019. Mr. Swyt met the objectives and the retention bonus was paid.
No other NEO entered into a Retention Bonus Agreement with Nanometrics, Rudolph or the Company.
Executive Officers
Set forth below is certain information regarding the executive officers of the Company and their ages as of March 31, 2020.
Information relating to Michael P. Plisinski is set forth above under the caption “PROPOSAL 1 - ELECTION OF
DIRECTORS” The Company is unaware of any arrangements or understandings between the executive officers of the
Company and other person(s) pursuant to which an executive officer was or is to be selected, except that Mr. Plisinski was
appointed as CEO of the Company pursuant to the Merger Agreement.
Named Executive Officers (NEOs)
Steven R. Roth Senior Vice President, Finance and Administration and Chief Financial Officer Age: 59
• Mr. Roth has served the Company in his current role since the Merger Date and previously served in the same role at
•
Rudolph since February 2002.
Prior Experience:
◦
September 1996 to February 2002: Vice President, Finance and Administration and Chief Financial Officer, Rudolph
Technologies, Inc.
◦ August 1991 to August 1996: Director of Corporate Finance, Bell Communications Research.
• Mr. Roth is a C.P.A. and holds a B.S. in Accounting from Villanova University.
Rollin Kocher Senior Vice President, Field Operations Age: 54
• Mr. Kocher has served the Company in his current role since the Merger Date and previously with Nanometrics as Senior
•
Vice President, Sales and Marketing since January 2018.
Prior Experience:
◦
◦ March 2013 to September 2016: Vice President, Global Sales, Nanometrics Incorporated
◦
September 2016 to January 2018: Senior Vice President, Commercial Operations, Nanometrics Incorporated
Prior to joining Nanometrics in 2013, Mr. Kocher spent thirteen (13) years at KLA Tencor Corporation in a variety
of senior management roles including Director of Business Development for Films and Optical Critical Dimension
Business Unit, Senior Account Manager for Texas Instruments Business Unit, his last position being General
Manager of the Samsung Business Unit.
82
• Mr. Kocher holds a B.S. degree in Electrical and Electronic Engineering from the University of North Texas and an A.S.
degree in Laser Electro Optics Technology from Texas State Technical College, holds a Finance for Senior Executives
Certification from Harvard Business School and served in the U.S Army from 1983 to 1986.
Kevin Heidrich Senior Vice President, Marketing & Corporate Development Age: 49
• Mr. Heidrich has served the Company in his current role since the Merger Date and previously with Nanometrics as
•
Senior Vice President, Corporate Development since January 2018.
Prior Experience:
◦
September 2012 to January 2018: Senior Vice President, Strategic Marketing & Business Development, Nanometrics
Incorporated
◦ May 2009 to September 2012: Vice President, Business Development & Marketing, Nanometrics Incorporated
◦ May 2007 to May 2009: Sr. Director, Business Development, Nanometrics Incorporated
◦ April 2006 to May 2007: Director, New Product Development, Nanometrics Incorporated
◦
Prior to joining Nanometrics in 2006, Mr. Heidrich spent a decade at Intel Corporation in a variety of roles including
in process research and development at Intel’s Technology Development facility.
• Mr. Heidrich holds a B.S. and M.S. degree from the Colorado School of Mines in Chemical Engineering.
Rodney Smedt Senior Vice President & General Manager, Metrology Business Unit Age: 57
• Mr. Smedt has served the Company in his current role since the Merger Date and previously with Nanometrics as Senior
•
Vice President, R&D since March 2018.
Prior Experience:
◦ November 2014 to March 2018: Vice President, R&D, Nanometrics Incorporated
◦ April 2005 to November 2014: Vice President, Engineering, ReVera Incorporated
◦
Prior to 2005, Mr. Smedt served as Vice President, Engineering for both Therma-Wave Corporation and Sensys
Instrument as well as held several senior management and engineering roles with several companies including KLA
Tencor Corporation and Trigon-Adcotech Industries.
• Mr. Smedt attended San Jose State University and studied mechanical engineering.
Greg Swyt Vice President, Finance Age: 59
•
• Mr. Swyt has served the Company in his current role since the Merger Date and previously with Nanometrics in this role
since August 2016 and as its Principal Financial Officer from December 5, 2017 until February 22, 2018 and from June
26, 2018 to the Merger Date.
Prior Experience:
◦
◦ April 2011 to June 2014: Senior Director of Finance, Thin Film Equipment Group, Intevac, Inc.
◦ May 2008 to April 2011: Senior Director of Finance, Intevac Photonics, Inc.
◦ November 2007 to February 2008: Senior Director, Finance Operations and Planning, 2Wire, Inc.
◦
Prior to 2007, Mr. Swyt held several financial director roles with Hewlett Packard / Mercury Interactive and Applied
Materials, Inc.
July 2013 to August 2016: Managing Director of Finance, Global Finance Controller, Intevac, Inc.
• Mr. Swyt holds a B.S. in Finance and a M.S. in Business Administration, both from San Jose State University and served
in the U.S. Navy from 1980 to 1984 and the U.S. Naval Reserves from 1984 to 1992.
Pierre-Yves Lesaicherre, Ph.D. Former President, Chief Executive Officer & Director Age: 56
•
•
•
Dr. Lesaicherre served Nanometrics as its President, Chief Executive Officer and Director from November 2017 until the
Merger Date.
Prior Experience:
◦
◦ Prior to 2012, Dr. Lesaicherre held senior executive positions at NXP Semiconductors N.V. from 2006 to 2012 and
January 2012 to February 2017: Chief Executive Officer; Lumileds Holding B.V.
before NXP, Dr. Lesaicherre was with Philips Semiconductors.
Dr. Lesaicherre holds an MBA with a focus on international business and strategy from INSEAD and has MS and Ph.D.
degrees in Material Science from the National Polytechnic Institute of Grenoble.
83
James Barnhart Former Senior Vice President, Operations Age: 57
• Mr. Barnhart served Nanometrics as its Senior Vice President, Operations from March 2018 until the Merger Date.
•
Prior Experience:
◦ April 2010 to March 2018: Senior Vice President, Global Operations, Cymer Light Sources
◦ Mr. Barnhart left Applied Materials in 2006 to serve in senior operational roles at Johnson & Johnson and AREVA
Solar as Senior Vice President, Global Operations.
◦ After completing U.S. Naval Nuclear Power postgraduate school, Mr. Barnhart spent 17 years with Applied Materials
where he held progressively higher positions including Strategic Worldwide Account Operations General Manager,
Chief Operating Officer of the etch products business group, and Managing Director of corporate asset services.
• Mr. Barnhart holds a B.S. in Electrical Engineering from Washington State University and an MBA from the University
of California at Berkeley, Walter A. Haas School of Business.
Janet Taylor Former General Counsel Age: 62
Prior Experience:
◦
◦
• Ms. Taylor served Nanometrics as its General Counsel from July 2015 until the Merger Date.
•
June 2005 to June 2015: Senior Vice President, General Counsel, STATS ChipPAC Ltd.
Prior to joining STATS ChipPAC Ltd., Ms. Taylor was engaged in transactional practices at international law firms
in New York, Singapore and London.
• Ms. Taylor holds a J.D. from the Harvard Law School and a B.A. in History from the University of Texas at Austin and
is admitted to practice in New York and in Singapore.
Other Executive Officers
Elvino da Silveira Vice President & General Manager, Lithography Business Unit Age: 60
• Mr. da Silveira has served the Company in his current role has served the Company in his current role since the Merger
•
Date and previously served in the same role at Rudolph since June 2019.
Prior Experience:
◦ August 2017 to June 2019: Vice President, Business Development, Rudolph Technologies, Inc.
◦ November 2015 to July 2017: Vice President, Marketing and Product Management, Rudolph Technologies, Inc.
◦ December 2012 to October 2015: Vice President and General Manager of the Display Products Lithography Business
Unit and Chief Technical Officer of the Lithography Systems Group, Rudolph Technologies, Inc.
◦ March 1999 to December 2012: President and Chief Executive Officer, Azores Corporation.
◦ Other prior roles included various senior management roles with the latest being Vice President of Operations and
Worldwide Customer Support for MRS Technology, Inc., a former manufacturer of capital equipment for the flat
panel display industry.
• Mr. da Silveira holds a B.S. in Mechanical Engineering from Northeastern University.
Robert Fiordalice Vice President & General Manager, Wafer Business Unit Age: 58
• Mr. Fiordalice has served the Company in his current role since the Merger Date and previously with Nanometrics as
•
General Manager, Materials Characterization Group since August 2017.
Prior Experience:
◦ October 2013 to July 2017: General Manager, Advanced Packaging, Nanometrics Incorporated
◦ August 2006 to August 2013: Vice President, Account Technology, Intermolecular, Inc.
◦
Prior to 2006, Mr. Fiordalice held technology management roles with both KLA Tencor Corporation and Motorola
Inc.
• Mr. Fiordalice holds a B.S. in Genetics from University of California at Berkley and a M.S. in Physics from Syracuse
University.
Barry Hartunian Global Vice President Human Resources Age: 57
• Mr. Hartunian has served the Company in his current role since joining the Company in December 2019.
•
Prior Experience:
84
◦ October 2016 to May 2018: Vice President, People & Culture, Toast, Inc.
◦ December 2013 to April 2016: Chief People Officer, Veson Nautical Corporation
◦
◦
February 2010 to January 2014: Chief Talent Officer/Advisor, Communispace Corporation
Prior roles since 1989 have included various director and vice-presidential roles in Human Resources for an array of
companies including GenRad, Inc., Art Technology Group (ATG), Digimarc Corporation, Spotfire, Inc. and Vanue,
Inc.
• Mr. Hartunian holds a B.A. in Psychology from Boston College and has received a Graduate Business Certification from
Harvard University and an Executive Program Certification from the Tuck School of Business, Dartmouth College.
Dean Iacopetti Vice President, Manufacturing Operations Age: 64
• Mr. Iacopetti has served the Company in his current role since the Merger Date and previously with Nanometrics as Vice
•
President, Supply Chain since September 2018.
Prior Experience:
◦ May 2013 to October 2015: Vice President, EUV Operations, Cymer Inc., a subsidiary of ASML Holding N.V.
◦
◦ May 2009 to May 2011: President, Paragon Prime Consulting
◦
Prior roles since 1979 have included various vice-presidential and senior vice-presidential roles in Operations and in
Finance with Ingersoll Rand, Honeywell Aerospace and Mattel as well as other positions in Finance with Mattel.
June 2011 to May 2013: Vice President, Supply Chain, Cymer Inc.
• Mr. Iacopetti holds a B.S. in Business Administration (Finance/Accounting) from California University at Long Branch.
Ju Jin, Ph.D. Vice President & General Manager, Inspection Business Unit Age: 55
•
•
•
Dr. Jin has served the Company in his current role since the Merger Date and previously with Rudolph since July 2019.
Prior Experience:
◦ August 2016 to July 2019: Sr. Director of Marketing & Business Development, Orbotech Ltd., a subsidiary of KLA
Corporation.
◦ April 2009 to August 2016: President and CEO, Applied Electro-Optics Inc.
◦ March 2004 to April 2009: Director and General Manager, Accretech USA
Dr. Jin holds a B.S. from Xian Jiatong University in China, a M.S. from Nagaoka University of Technology in Japan and
a Ph.D. from the University of Tokyo in Japan, all in Mechanical Engineering.
Robert A. Koch Vice President & General Counsel Age: 58
• Mr. Koch has served the Company in his current role since the Merger Date and previously with Rudolph since May
•
2003.
Prior Experience:
◦ April 1986 to May 2003: In-house counsel, last serving as Director of Legal Affairs, Howmedica Osteonics Corp.,
the subsidiary of Stryker Corporation.
• Mr. Koch holds a B.S. in Chemical Engineering and a M.S. in Biomedical Engineering, both from Rutgers University.
Mr. Koch earned his J.D. from Rutgers School of Law - Newark in 1991 and is admitted to practice in New Jersey and
New York.
Leonard LaBua Vice President and General Manager, Enterprise Business Unit Age: 58
• Mr. LaBua has served the Company in his current role since the Merger Date and previously with Rudolph as Vice
•
President & General Manager for its Integrated Solutions Group since October 2017.
Prior Experience:
◦ March 2013 to September 2017: Director of Customer Solutions, Rudolph Technologies, Inc.
◦
◦ Mr. LaBua also previously held positions with several other corporations including IBM, KLA-Tencor, and ADE
Prior roles with Rudolph since 2006 included Sr. Manager Analysis Applications and Applications Manager.
Corporation.
• Mr. LaBua holds a B.S. in Chemical Engineering from Worcester Polytechnic Institute and a M.S. in Computer Science
from Marist College.
85
CEO Pay Ratio
As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item 402(u) of
Regulation S-K, we are providing the following information about the relationship of the annual total compensation of our
employees and the annual total compensation of Michael P. Plisinski, our CEO, following the 2019 Merger and former Rudolph
CEO.
For 2019, our last completed year:
• The median of the annual total compensation of all employees of our Company (other than our CEO), was $97,617; and
• The annual total compensation for our CEO was $2,292,993(1).
(1) We had two individuals in the role of CEO during 2019. We elected to use the compensation of Mr. Plisinski, the active CEO as
of December 31, 2019, for purposes of determining the CEO pay ratio. Mr. Plisinski became CEO on the Merger Date. In
determining Mr. Plisinski’s annual total compensation, we used the amount reported in the “Total” column of the Summary
Compensation Table included in this proxy statement as adjusted for amounts earned by Mr. Plisinski during 2019 while serving
as Rudolph’s CEO and to exclude compensation resulting from accelerated PSUs due to the 2019 Merger. For further discussion
refer to the footnotes to the Summary Compensation Table.
Based on this information, the ratio of the annual total compensation of our CEO to the median employee’s annual total
compensation is 23 to 1.
This pay ratio is a reasonable estimate calculated in good faith, in a manner consistent with Item 402(u) of Regulation S-K,
based on our payroll and employment records and the methodology described below. The Securities and Exchange Commission
(“SEC”) rules for identifying the “median employee” and calculating the pay ratio based on that employee’s annual total
compensation allow companies to adopt a variety of methodologies, to apply certain exclusions, and to make reasonable
estimates and assumptions that reflect their compensation practices. As such, the pay ratios reported by other companies may
not be comparable to the pay ratio set forth above, as other companies may have different employment and compensation
practices and may utilize different methodologies, exclusions, estimates and assumptions in calculating their own pay ratios.
To identify the employee with the median of the annual total compensation of all our employees that is used for the year ended
2019, we used the following methodology and made the following material assumptions, adjustments and estimates:
• We determined that as of December 31, 2019, our employee population consisted of approximately 1,300 individuals
located in the U.S. and in countries in Europe and Asia. This population consisted of our full-time, part-time and
temporary employees. We excluded a limited number of temporary agency employees and independent contractors, who
are employees of, and whose compensation is determined by third parties unaffiliated with the Company and as such are
not considered our employees for the purposes of the pay ratio calculation.
• To identify the “median employee” from our employee population, we used a consistently applied compensation measure
which included annual salary as reflected in our payroll records including amounts paid by Rudolph to former Rudolph
employees, as well as stock awards and non-equity incentive plan compensation earned in 2019, which was our
measurement period. We applied a foreign currency to U.S. dollar exchange rate to the compensation paid in foreign
currency and we did not make any cost-of-living adjustments. We selected this compensation measure because it is
readily available in our existing payroll records and because it is a reasonable proxy for total compensation for purposes
of determining the “median employee.”
Once we identified our “median employee,” we calculated the elements of such employee’s compensation for 2019 in
accordance with the requirements of Item 402(c)(2)(x) of Regulation S-K. The median employee’s annual total compensation
of $97,617 may include as applicable salary, stock awards and non-equity incentive plan compensation, as well as Company
matching contributions to the 401(k) employee savings plan, and the cost of Company paid premiums associated with coverage
under the group term life insurance and accidental death and dismemberment insurance plan.
86
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information with respect to beneficial ownership of the Company’s Common Stock as of
March 13, 2020 (except as otherwise indicated), by (i) each individual or group known by the Company to own beneficially
more than five percent (5%) of the Common Stock; (ii) each of the NEOs; (iii) each of the Company’s directors and director
nominees; and (iv) all directors, director nominees and executive officers as a group. Except as indicated in the footnotes to
this table, the persons named in the table have sole voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by them, subject to community property laws where applicable.
Name and Address of Beneficial Owner
BlackRock, Inc. (3)
55 East 52nd Street, New York, NY 10055
The Wellington Group (4)
c/o Wellington Management Company LLP, 280 Congress Street, Boston, MA 02210
Dimensional Fund Advisors, LP (5)
Building One, 6300 Bee Cave Road, Austin, TX 78746
The Vanguard Group (6)
100 Vanguard Boulevard, Malvern, PA 19355
Michael P. Plisinski
Steven R. Roth
Rollin Kocher
Kevin Heidrich
Rodney Smedt
Greg Swyt
Pierre-Yves Lesaicherre, Ph.D. (7)
Janet Taylor (8)
James Barnhart (8)
Jeffrey A. Aukerman (9)
Leo Berlinghieri
Edward J. Brown, Jr.
Vita A. Cassese
Robert G. Deuster
David B. Miller
Bruce C. Rhine
Christopher A. Seams
Timothy J. Stultz, Ph.D.
Christine A. Tsingos
John R. Whitten
All directors and executive officers as a group (twenty (24) persons)
* Less than 1%
Amount and Nature of
Beneficial Ownership(1)
Percent of Class(2)
8,099,875
16.1%
3,533,008
3,325,492
3,018,789
262,227
51,161
31,187
26,611
14,850
4,324
108,564
30,110
27,046
20,463
15,279
37,439
3,136
12,476
13,912
665,417
23,229
209,143
30,509
18,618
1,649,387
7.0%
6.6%
6.0%
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
1.3%
*
*
*
*
3.3%
(1)
Includes 27,543 shares subject to restricted stock units vesting within 60 days of March 13, 2020 for all directors and executive officers
as a group.
(2) Applicable percentage ownership is based on 50,381,691 shares of Common Stock outstanding as of March 13, 2020. Beneficial
ownership of shares is determined in accordance with the rules of the SEC and generally includes shares as to which a person holds
sole or shared voting or investment power. Shares of Common Stock subject to RSUs which will vest within sixty (60) days of March
13, 2020 are deemed to be beneficially owned by the person holding such RSUs for the purpose of computing the percentage
ownership of such person but are not treated as outstanding for the purpose of computing the percentage ownership of any other
person. Unless otherwise noted, the address for the stockholders named in this table is c/o Onto Innovation Inc., 16 Jonspin Road,
Wilmington, Massachusetts 01887.
Information provided herein is based on the Schedule 13G/A that was filed by BlackRock, Inc. on February 4, 2020.
Information provided herein is based on the Schedule 13G/A that was filed by Wellington Management Group LLP, Wellington Group
Holdings LLP, Wellington Investment Advisors Holdings LLP and Wellington Management Company LLP on January 28, 2020.
Information provided herein is based on the Schedule 13G/A that was filed by Dimensional Fund Advisors LP on February 12, 2020.
Information provided herein is based on the Schedule 13G/A that was filed by The Vanguard Group on February 12, 2020.
Information provided herein is based on the Form 4/A that was filed on November 12, 2019.
Information provided herein is based on the Form 4 that was filed on October 29, 2019.
Includes shares held by Aukerman Investments LLC.
(5)
(6)
(7)
(8)
(9)
(3)
(4)
87
DELINQUENT SECTION 16(A) REPORTS
Section 16(a) of the Exchange Act requires the Company’s executive officers, directors and persons who own more than ten
percent (10%) of a registered class of the Company’s equity securities to file an initial report of ownership on Form 3 and
changes in ownership on Form 4 or Form 5 with the SEC. Based solely on its review of Section 16 filings made with the SEC,
or written representations from certain reporting persons that no Section 16 filings were required, the Company believes that,
during the year ended December 31, 2019 and through the record date of March 13, 2020, all officers, directors and greater
than ten percent (10%) beneficial owners complied with all Section 16(a) filing requirements, except that Chun Hoy Chan, Ju
Jin and Michael Plisinski each filed one Form 4 on October 30, 2019 on an untimely basis to report the conversion of Rudolph
common stock and equity awards upon the consummation of the 2019 Merger on October 25, 2019
OTHER MATTERS
The Company knows of no other matters to be submitted to the Annual Meeting. If any other matters properly come before the
Annual Meeting, it is the intention of the persons named in the enclosed Proxy to vote the shares they represent as the Board
of Directors may recommend.
ADDITIONAL INFORMATION
Stockholders may obtain a copy of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019,
including financial statements and schedules included in the Annual Report on Form 10-K, without charge, by visiting the
Company’s website at https://investors.ontoinnovation.com/ or by writing to:
Michael Sheaffer
Sr. Director, Investor Relations & Market Research
16 Jonspin Road
Wilmington, Massachusetts 01887
Upon written request to the Company, at the above address for Investor Relations, the exhibits set forth on the exhibit index of
the Company’s Annual Report on Form 10-K will be made available at reasonable charge (which will be limited to our
reasonable expenses in furnishing such exhibits).
BY ORDER OF THE BOARD OF DIRECTORS
Robert A. Koch
Secretary
Dated: April 3, 2020
88
ONTO INNOVATION INC.
2020 STOCK PLAN
Appendix A
1.
Purposes of the Plan. The purposes of this 2020 Stock Plan are:
•
•
•
to attract and retain the best available personnel for positions of substantial responsibility,
to provide additional incentive to Employees, Directors and Consultants, and
to promote the success of the Company’s business.
The Plan permits the grant of Incentive Stock Options, Nonstatutory Stock Options, Stock Appreciation
Rights, Restricted Stock, Restricted Stock Units, Performance Units and Performance Shares.
2.
Definitions. As used herein, the following definitions shall apply:
(a)
“Administrator” means the Committee or the Board, as applicable.
(b)
“Affiliate” means any corporation or any other entity (including, but not limited to, partnerships and
joint ventures) controlling, controlled by, or under common control with the Company.
(c)
“Applicable Laws” means any applicable law, including without limitation, provisions of the Code,
the Securities Act of 1933, as amended, the Exchange Act and any rules or regulations thereunder; corporate,
securities, tax or other laws, statutes, rules, requirements or regulations, whether federal, state or local; and rules of
any securities exchange or automated quotation system on which the Stock is listed, quoted or traded; and the
applicable laws of any foreign country or jurisdiction where Awards are, or will be, granted under the Plan.
(d)
“Award” means a grant under the Plan of Options, Stock Appreciation Rights, Restricted Stock,
Restricted Stock Units, Shares pursuant to Section 4(e), Performance Units or Performance Shares.
(e)
“Award Agreement” means the written or electronic agreement setting forth the terms and provisions
applicable to each Award granted under the Plan. The Award Agreement is subject to the terms and conditions of
the Plan.
(f)
“Board” means the Board of Directors of the Company.
(g)
“Cause” means, in the absence of any employment agreement then in effect between a Participant and
the Company (or the Affiliate employing the Participant) otherwise defining Cause:
(i)
acts of personal dishonesty, gross negligence or willful misconduct on the part of a Participant
in the course of his or her employment or services;
(ii)
a Participant’s engagement in conduct that results, or could reasonably be expected to result, in
material injury to the reputation or business of the Company or its Affiliates;
(iii) misappropriation by a Participant of the assets or business opportunities of the Company or its
Affiliates;
(iv)
embezzlement or fraud committed by a Participant, or at his or her direction, or with his or her
personal knowledge;
A-1
(v)
a Participant’s conviction by a court of competent jurisdiction of, or pleading “guilty” or “no
contest” to:
(A)
a felony (or its state law equivalent); or
any other criminal charge (other than minor traffic violations) that has, or could be
reasonably expected to have, an adverse impact on the performance of the Participant’s duties to the Company or
its Affiliates; or
(B)
(vi)
failure by a Participant to follow the lawful directions of a superior officer or manager or the
Board.
In the event there is then in effect an employment agreement between a Participant and the Company or Affiliate
employing Participant defining Cause, “Cause” will have the meaning provided in such agreement.
(h)
“Change-in-Control” means the occurrence of any of the following events:
(i)
A change in the ownership of the Company which occurs on the date that any one person or
more than one person acting as a group (“Person”) acquires ownership of the stock of the Company that, together
with the stock held by such Person, constitutes more than fifty percent (50%) of the total voting power of the stock
of the Company; provided, however, that for purposes of this subsection 2(h)(i), the acquisition of additional stock
by any Person, who is considered to own more than fifty percent (50%) of the total voting power of the stock of the
Company, will not be considered a Change-in-Control; or
(ii) A change in the effective control of the Company which occurs on the date that a majority of
members of the Board is replaced during any twelve (12) month period by Directors whose appointment or election
is not approved by a majority of the members of the Board prior to the date of the appointment or election. For
purposes of this subsection 2(h)(ii), if any Person is considered to be in effective control of the Company, the
acquisition of additional control of the Company by the same Person will not be considered a Change-in-Control;
or
(iii) A change in the ownership of a substantial portion of the Company’s assets which occurs on the
date that any Person acquires (or has acquired during the twelve (12) month period ending on the date of the most
recent acquisition by such Person or Persons) assets from the Company that have a total gross fair market value
equal to or more than fifty percent (50%) of the total gross fair market value of all of the assets of the Company
immediately prior to such acquisition; provided, however, that for purposes of this subsection 2(h)(iii), the following
will not constitute a change in the ownership of a substantial portion of the Company’s assets:
the transfer; or
(A)
a transfer to an entity that is controlled by the Company’s stockholders immediately after
(B)
a transfer of assets by the Company to:
(1)
a stockholder of the Company (immediately before the asset transfer) in exchange
for or with respect to the Company’s stock;
(2)
an entity, fifty percent (50%) or more of the total value or voting power of which
is owned, directly or indirectly, by the Company;
(3)
a Person, that owns, directly or indirectly, fifty percent (50%) or more of the total
value or voting power of all the outstanding stock of the Company; or
(4)
an entity, at least fifty percent (50%) of the total value or voting power of which is
owned, directly or indirectly, by a Person described in subsection 2(h)(iii)(B)(3).
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For purposes of this subsection 2(h)(iii), gross fair market value means the value of the assets of the Company, or
the value of the assets being disposed of, determined without regard to any liabilities associated with such assets.
For purposes of this definition, “group” shall have the meaning under Section 13 of the Exchange Act.
In the event that this Section 2(h) is inconsistent with the definition of Change-in-Control under
Section 409A of the Code and the regulations thereunder, the definition under Section 409A of the Code and
regulations shall apply.
(i)
“Code” means the Internal Revenue Code of 1986, as amended. Any reference to a section of the
Code herein will be a reference to any successor or amended section of the Code.
(j)
“Committee” means the Compensation Committee of the Board or other committee appointed by the
Board to administer the Plan, in either case, the composition of which shall at all times satisfy the provisions of
Rule 16b-3 and applicable stock exchange rules, except that, if for any reason the Committee does not meet the
requirements of Rule 16b-3, such noncompliance with the requirements of Rule 16b-3 shall not affect the validity
of the Awards, interpretations or other actions of the Committee. If no committee of the Board has been established
to administer the Plan, the Board shall exercise all of the powers of the Committee granted herein, and, in any event,
the Board may in its discretion exercise any or all of such powers.
(k)
“Common Stock” means the common stock of the Company, $0.001 par value per share.
(l)
assigns.
“Company” means Onto Innovation Inc., a Delaware corporation, and its Subsidiaries, successors and
(m)
“Consultant” means any person, including an advisor, engaged by the Company or its Affiliates to
render services to such entity.
(n)
“Director” means a member of the Board.
(o)
“Disability” means a determination that the Participant or Service Provider is unable to engage in any
substantial gainful activity by reason of any medically determinable physical or mental impairment that can be
expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, as
determined by the Administrator upon the basis of such evidence as the Administrator deems appropriate or
necessary. A determination that a Participant or Service Provider is eligible for full long-term disability under any
long-term disability plan, as may then be in effect at the Company, will be conclusive evidence of Disability.
(p)
“Effective Date” has the meaning set forth in Section 18.
(q)
“Employee” means any person, including Officers and Directors, employed by the Company or its
Affiliates. Neither service as a Director nor payment of a Director’s fee by the Company shall be sufficient to
constitute “employment” by the Company.
(r)
(s)
“Exchange Act” means the Securities Exchange Act of 1934, as amended.
“Exchange Program” means a program, which may be applicable to a single Award or Participant or
multiple Awards or Participants, under which, subject to stockholder approval thereof:
(i)
outstanding Options or Stock Appreciation Rights are surrendered or cancelled when the
exercise price per Share exceeds the Fair Market Value of one Share in exchange for Awards of the same type,
Awards of a different type, and/or cash (other than in connection with a merger, acquisition or similar transaction);
(ii)
the exercise price of an outstanding Option or Stock Appreciation Right is reduced; and/or
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(iii)
any other action is taken with respect to an Award that would be treated as a repricing under the
rules and regulations of the national securities exchange on which the Shares are then listed.
(t)
“Fair Market Value” means, as of any date, the value of Common Stock determined as follows:
(i)
If the Common Stock is listed on any established stock exchange or a national market system,
including without limitation the New York Stock Exchange, its Fair Market Value shall be the closing sales price
for such stock (or the closing bid, if no sales were reported) on such exchange or system on the day of determination,
as reported in The Wall Street Journal or such other source as the Administrator deems reliable;
(ii)
If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are
not reported, the Fair Market Value of a Share of Common Stock shall be the mean between the high bid and low
asked prices for the Common Stock on the day of determination, as reported in The Wall Street Journal or such
other source as the Administrator deems reliable; or
(iii)
In the absence of an established market for the Common Stock, the Fair Market Value shall be
determined in good faith by the Administrator.
(u)
“Family Member” means any child, stepchild, grandchild, parent, stepparent, grandparent, spouse,
former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law,
or sister-in-law (including adoptive relationships) of the Employee, any person sharing the Employee’s household
(other than a tenant or employee), a trust in which these persons (or the Employee) have more than fifty percent
(50%) of the beneficial interest, a foundation in which these persons (or the Employee) control the management of
assets, and any other entity in which these persons (or the Employee) own more than fifty percent (50%) of the
voting interests.
(v)
“Fiscal Year” means the fiscal year of the Company.
(w)
“Incentive Stock Option” means an Option intended to qualify as an incentive stock option within the
meaning of Section 422 of the Code and the regulations promulgated thereunder.
(x)
(y)
“Nonstatutory Stock Option” means an Option not intended to qualify as an Incentive Stock Option.
“Officer” means a person who is an officer of the Company within the meaning of Section 16 of the
Exchange Act and the rules and regulations promulgated thereunder.
(z)
“Option” means a stock option granted pursuant to the Plan.
(aa)
“Outside Director” means a Director who is not an Employee.
(bb)
“Parent” means a “parent corporation,” whether now or hereafter existing, as defined in Section 424(e)
of the Code.
(cc)
“Participant” means the holder of an outstanding Award.
(dd)
“Performance Share” means an Award denominated in Shares which may be earned in whole or in
part upon attainment of performance goals or other vesting criteria as the Administrator may determine pursuant to
Section 10 and which may be settled for Shares.
(ee)
“Performance Period” shall have the meaning set forth in Section 10(b) of the Plan.
(ff)
“Performance Unit” means an Award denominated in units, which may be earned in whole or in part
upon attainment of performance goals or other vesting criteria as the Administrator may determine and which may
be settled for cash, Shares or other securities or a combination of the foregoing pursuant to Section 10.
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(gg)
“Period of Restriction” means the period during which the transfer of Shares of Restricted Stock is
subject to restrictions, and therefore, the Shares are subject to a substantial risk of forfeiture. Such restrictions may
be based on the passage of time, the achievement of target levels of performance, or the occurrence of other events
as determined by the Administrator, subject to Section 4(d) of the Plan.
(hh)
“Plan” means this 2020 Stock Plan.
(ii)
“Prior Plans” means the Nanometrics Incorporated 2005 Equity Incentive Plan and the Rudolph
Technologies, Inc. 2018 Stock Plan.
(jj)
“Restricted Stock” means shares of Common Stock issued pursuant to Section 7 of the Plan subject to
certain restrictions and risk of forfeiture.
(kk)
“Restricted Stock Unit” means a bookkeeping entry representing one Share, granted pursuant to
Section 8. Each Restricted Stock Unit represents an unfunded and unsecured obligation of the Company.
(ll)
“Rule 16b-3” means Rule 16b-3 of the Exchange Act or any successor to Rule l6b-3.
(mm) “Section 16(b)” means Section 16(b) of the Exchange Act.
(nn)
“Service Provider” means an Employee, Director or Consultant.
(oo)
“Share” means a share of the Common Stock, as may be adjusted in accordance with Section 14 of the
Plan.
(pp)
“Specified Employee” is a Participant or Service Provider who, as of the Participant's or Service
Provider’s date of termination, is a key employee of the Company within the meaning of Section 416(i)(1)(A)(i),
(ii), or (iii) of the Code (applied in accordance with the regulations thereunder and disregarding Section 416(i)(5))
at any time during the twelve (12) month period ending on a Specified Employee Identification Date. If a Participant
or Service Provider is a key employee as of a Specified Employee Identification Date, the Participant or Service
Provider is treated as a key employee for purposes of the Plan for the entire twelve (12) month period beginning on
the Specified Employee Effective Date.
(qq)
“Specified Employee Effective Date” is the date as set forth in Treasury Regulation Section 1.409A-
1(i)(4).
(rr)
“Specified Employee Identification Date” shall mean December 31 of each year.
(ss)
“Stock Appreciation Right” means an Award, granted alone or in connection with an Option, that,
pursuant to Section 9, is designated as a Stock Appreciation Right.
(tt)
“Subsidiary” means a “subsidiary corporation”, whether now or hereafter existing, as defined in
Section 424(f) of the Code.
(uu)
“Substitute Awards” has the meaning set forth in Section 3(e) of the Plan.
3.
Stock Subject to the Plan.
(a)
Share Reserve. Subject to the provisions of Section 14 of the Plan, the maximum number of Shares
that may be issued under the Plan is 3,500,000 Shares. Upon the Effective Date, no further awards shall be granted
under the Prior Plans. If, after the Effective Date, any Shares subject to awards granted under a Prior Plan would
again become available for new awards under the terms of such plan if such plan were still in effect and without
regard to any termination thereof, then those Shares will be available for the purpose of granting Awards under this
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Plan, thereby increasing the limit in the preceding sentence. The Shares issued pursuant to Awards under the Plan
may be authorized, but unissued, or reacquired Common Stock.
(b)
Certain Adjustments to Share Reserve.
(i)
To the extent that an Award terminates, expires or becomes unexercisable without having been
exercised in full, is surrendered pursuant to an Exchange Program approved by stockholders, or, with respect to
Restricted Stock, Restricted Stock Units, Performance Units or Performance Shares, is terminated or forfeited in
whole or in part due to failure to vest, the Shares (or for Awards other than Options or Stock Appreciation Rights,
the forfeited Shares) which were subject to such terminated, expired, unexercised, surrendered or forfeited Award
shall become available for future grant or issuance under the Plan. To the extent that the full number of Shares
subject to an Award of Performance Units, Performance Shares or other Award subject to performance-based
vesting criteria is not issued by reason of failure to achieve maximum performance goals, the number of Shares not
issued shall be shall become available for future grant or issuance under the Plan.
(ii) All Shares subject to a Stock Appreciation Right (not the number of net Shares actually issued
pursuant to a Stock Appreciation Right upon any exercise) will be counted against the number of Shares available
for issuance under Section 3(a).
(iii)
Shares used to pay the exercise price of an Award or to satisfy the tax withholding obligations
related to an Award will not again become available for future grant or sale under the Plan.
(iv) To the extent an Award under the Plan is paid out in cash rather than Shares, such cash payment
will not result in reducing the number of Shares available for issuance under the Plan.
(v) Any dividend equivalent denominated in Shares will be counted against the number of Shares
available for issuance under Section 3(a) in such amount and at such time as the dividend equivalent first constitutes
an unconditional obligation to issue Shares.
(c)
Incentive Stock Option Limit. Notwithstanding the foregoing and, subject to adjustment as provided
in Section 14, the maximum number of Shares that may be issued upon the exercise of Incentive Stock Options will
equal the aggregate Share number stated in the first sentence of subsection 3(a) above, plus, to the extent allowable
under Section 422 of the Code and the Treasury Regulations promulgated thereunder, any Shares that become
available for issuance under the Plan pursuant to Sections 3(a) and 3(b) above.
(d)
Individual Award Limits.
(i)
Outside Directors. For any calendar year, the value of Awards granted to an individual Outside
Director may not exceed $600,000, calculating the value of any such Awards based on the grant date fair value of
such Awards for financial reporting purposes.
(ii) All Service Providers Other than Outside Directors. For any calendar year, the value of all
Awards granted to any individual Service Provider other than an Outside Director may not exceed $5,000,000,
calculating the value of any such Awards based on the grant date fair value of such Awards for financial reporting
purposes. Notwithstanding the foregoing, any Award of Performance Units or Performance Shares or any other
Award subject to performance-based vesting criteria shall be taken into account assuming target performance
achievement under the terms of such Award for purposes of applying this annual limit.
(e)
Substitute Awards.
(i)
In connection with an entity’s merger or consolidation with the Company or any Subsidiary or
the direct or indirect acquisition by the Company or any Subsidiary of an entity’s property or stock, the Committee
may grant Awards in substitution or exchange for any options or other stock or stock-based awards granted before
such merger or consolidation by such entity or its affiliate (“Substitute Awards”). Substitute Awards may be granted
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on such terms and conditions as the Committee deems appropriate, notwithstanding any limitations on Awards in
the Plan, including, but not limited to, the limitation under Section 4(d). Substitute Awards will not count against
the aggregate Share reserve in Section 3(a), except that Shares acquired by exercise of substitute Incentive Stock
Options will count against the maximum number of Shares that may be issued pursuant to the exercise of Incentive
Stock Options under the Plan.
(ii) Additionally, in the event that a company acquired by the Company or any Subsidiary, or with
which the Company or any Subsidiary combines by merger, consolidation or otherwise, has shares available under
a pre-existing plan approved by its stockholders and not adopted in contemplation of such acquisition or
combination as determined by the Administrator, the shares available for grant pursuant to the terms of such pre-
existing plan (as appropriately adjusted to reflect the transaction) may be used for Awards under the Plan and shall
not reduce the Shares authorized for grant under the Plan under Section 3(a) (and shares subject to such Awards,
which, for the avoidance of doubt, excludes Substitute Awards, may again become available for Awards under the
Plan as provided under Section 3(b) above); provided that Awards using such available Shares (or any Shares that
again become available for issuance under the Plan under Section 3(b) above) shall not be made after the date
awards or grants could have been made under the terms of the pre-existing plan absent the acquisition or
combination, and shall only be made to individuals who were employees or directors of such acquired or combined
company or any of its subsidiaries prior to such acquisition or combination.
4.
Administration of the Plan.
(a)
Powers of the Administrator. Subject to the provisions of the Plan, the Administrator shall have the
authority, in its discretion:
(i)
to determine the Fair Market Value;
(ii)
to select the Service Providers to whom Awards may be granted hereunder;
(iii)
to determine the number of Shares to be covered by each Award granted hereunder;
(iv)
to approve forms of Award Agreements for use under the Plan;
(v)
to determine the terms and conditions, not inconsistent with the terms of the Plan, of any Award
granted hereunder. Such terms and conditions may include, but are not limited to, the exercise price; the vesting
period of Awards or the time or times when Awards may be exercised (which may be based in whole or in part on
performance criteria), which shall be established in accordance with Section 4(d); any vesting acceleration or waiver
of forfeiture restrictions (notwithstanding Section 4(d) to the contrary); any restriction or limitation regarding any
Award or the Shares relating thereto and any and all other Award terms and conditions;
(vi)
to interpret, construe and administer the Plan and Awards granted pursuant to the Plan, including
the adoption of rules, modifications, procedures and sub-plans as may be necessary or desirable for administration
of the Plan, including for purposes of granting Awards to Participants in foreign countries and qualifying any such
Awards for preferential tax treatment under Applicable Law; the Administrator may correct any defect or supply
any omission or reconcile any inconsistency in the Plan or in any Award in the manner and to the extent the
Administrator deems necessary or desirable to carry it into effect. Any action or decision of the Administrator in
the interpretation or administration of the Plan, as described herein, shall be within its sole and absolute discretion
and shall be final, conclusive and binding on all parties concerned;
(vii)
to prescribe, amend and rescind rules and regulations relating to the Plan, including rules and
regulations relating to sub-plans established for the purpose of satisfying applicable foreign laws;
(viii) to modify or amend each Award (subject to Section 19 of the Plan), including, but not limited
to, the discretionary authority to extend the post-termination exercisability or vesting period of Awards (but in no
event shall such period of exercisability be extended beyond the expiration of the term of the Award);
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(ix)
to allow Participants to satisfy withholding tax obligations in such a manner as prescribed in
Section 15;
(x)
to authorize any person to execute on behalf of the Company any instrument required to effect
the grant of an Award previously granted by the Administrator;
(xi)
delegate to a committee of one or more Outside Directors or, to the extent permitted by
Applicable Law, to one or more officers or a committee of officers, the authority to grant Awards to, and to cancel
or take any other action in respect of, any Awards to Employees or Consultants of the Company who are not
Directors or Officers;
(xii)
to allow a Participant to defer the receipt of the payment of cash or the delivery of Shares that
would otherwise be due to such Participant under an Award, subject to compliance with Section 409A of the Code;
and
(xiii) to make all other determinations deemed necessary or advisable for administering the Plan.
Notwithstanding the foregoing, other than pursuant to Section 14, no Exchange Program may be implemented
by the Administrator without the prior approval of the Company’s stockholders.
(b)
Effect of Administrator’s Decision. All decisions, determinations, interpretations or actions of the
Administrator made or taken pursuant to grants of authority under the Plan shall be made or taken in the sole
discretion of the Administrator and shall be final, conclusive and binding on all persons for all purposes. The
Administrator’s decisions and determinations under the Plan need not be uniform and may be made selectively
among Participants, whether or not such Participants are similarly situated.
(c)
No Liability. Under no circumstances shall the Company, its Affiliates, the Administrator, the Board,
any Director or any Officer of the Company incur any liability, including for any direct, indirect, incidental,
consequential or special damages (including lost profits) of any form, whether or not foreseeable, with respect to
the Plan or the Company’s, its Affiliates’, the Administrator’s, the Board’s or any Director’s or Officer’s roles, acts,
omissions, determinations or interpretations in connection with the Plan or any Award.
(d) Minimum Vesting. All Awards granted to all Participants under the Plan shall be subject to a minimum
vesting period of not less than one year from the date of grant; provided, however, the Administrator may provide
for the grant of Awards to Participants without regard to the foregoing minimum vesting requirement with respect
to a maximum of five percent (5%) of the total number of Shares authorized for issuance under the Plan pursuant
to Section 3(a), as may be adjusted under Section 14(a).
5.
Eligibility. Nonstatutory Stock Options, Restricted Stock, Restricted Stock Units, Performance Units, and
Performance Shares may be granted to Service Providers. Incentive Stock Options may be granted only to
employees of the Company or any Parent or Subsidiary of the Company.
6.
Stock Options.
(a)
Limitations. Each Option shall be designated in the Award Agreement as either an Incentive Stock
Option or a Nonstatutory Stock Option. However, notwithstanding such designation, to the extent that the aggregate
Fair Market Value of the Shares with respect to which Incentive Stock Options are exercisable for the first time by
the Participant during any calendar year (under all plans of the Company and any Parent or Subsidiary) exceeds one
hundred thousand dollars ($100,000), such Options shall be treated as Nonstatutory Stock Options. For purposes
of this subsection 6(a), Incentive Stock Options shall be taken into account in the order in which they were granted.
The Fair Market Value of the Shares shall be determined as of the time the Option with respect to such Shares is
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granted. No dividends or dividend equivalents may be granted in respect of any Option, and holders of Options
carry no voting rights.
(b)
Term of Option. The term of each Option shall be stated in the Award Agreement. In the case of an
Incentive Stock Option, the term shall be ten (10) years from the date of grant or such shorter term as may be
provided in the Award Agreement. Moreover, in the case of an Incentive Stock Option granted to a Participant
who, at the time the Incentive Stock Option is granted, owns stock representing more than ten percent (10%) of the
total combined voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the
Incentive Stock Option shall be five (5) years from the date of grant or such shorter term as may be provided in the
Award Agreement. In the case of a Nonqualified Stock Option, the term shall be ten (10) years from the date of
grant or such shorter term as may be provided in the Award Agreement.
(c)
Option Exercise Price and Consideration.
(i)
Exercise Price. The per share exercise price for the Shares to be issued pursuant to exercise of
an Option shall be determined by the Administrator, but will be no less than one hundred percent (100%) of the
Fair Market Value per Share on the date of the grant. In addition, in the case of an Incentive Stock Option granted
to an employee of the Company or any Parent or Subsidiary of the Company who, at the time the Incentive Stock
Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock
of the Company or any Parent or Subsidiary, the per Share exercise price shall be no less than one hundred ten
percent (110%) of the Fair Market Value per Share on the date of grant.
(ii) Vesting Period. At the time an Option is granted, the Administrator shall fix the period within
which the Option may be exercised and shall determine any conditions that must be satisfied before the Option may
be exercised. Any vesting period shall be established in accordance with Section 4(d) of the Plan.
(d)
Exercise of Option.
(i)
Procedure for Exercise; Rights as a Stockholder. Any Option granted hereunder shall be
exercisable according to the terms of the Plan and the Award Agreement and at such times and under such conditions
as determined by the Administrator and set forth in the Award Agreement. An Option may not be exercised for a
fraction of a Share.
An Option shall be deemed exercised when the Company receives:
the person entitled to exercise the Option, and
(A)
notice of exercise (in such form as the Administrator may specify from time to time) from
applicable withholding taxes). Full payment shall be made:
(B)
full payment for the Shares with respect to which the Option is exercised (together with
(1)
immediately available funds;
in cash or by personal check, certified check or bank check or wire transfer of
other Shares provided that such Shares have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said Option is exercised, provided that
accepting such Shares will not result in any adverse accounting consequences to the Company, as the Administrator
determines in its sole discretion;
(2)
by delivery of a properly executed exercise notice together with any other
documentation as the Administrator and the Participant’s broker, if applicable, require to effect an exercise of the
Option and delivery to the Company of the sale or other proceeds (as permitted by Applicable Law) required to pay
the exercise price;
(3)
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Option (“net exercise”);
(4)
by withholding Shares otherwise issuable in connection with the exercise of the
in its discretion or permitted by the Award Agreement, the Plan and Applicable Law; or
(5)
such other consideration and method of payment authorized by the Administrator
(6)
any combination of the foregoing methods of payment.
Shares issued upon exercise of an Option shall be issued in the name of the Participant or, if requested by the
Participant, in the name of the Participant and his or her spouse. Until the Shares are issued (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to
vote or receive dividends or any other rights as a stockholder shall exist with respect to the Shares subject to an
Option, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such Shares
promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the
record date is prior to the date the Shares are issued, except as provided in Section 14 of the Plan.
Exercising an Option in any manner shall decrease the number of Shares thereafter available under
the Option by the number of Shares as to which the Option is exercised.
(ii)
Termination of Relationship as a Service Provider. If a Participant ceases to be a Service
Provider, other than for Cause or due to the Participant’s death or Disability, the Participant may exercise his or her
Option within such period of time as is specified in the Award Agreement to the extent that the Option is vested on
the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Award
Agreement). In the absence of a specified time in the Award Agreement, any vested portion of the Option shall
remain exercisable for three (3) months following the Participant’s termination (but in no event later than the
expiration of the term of such Option as set forth in the Award Agreement). Unless otherwise provided by the
Administrator or in the Award Agreement, if on the date of termination, the Participant is not vested as to all or any
portion of his or her Option, the unvested portion of the Option shall terminate. If after termination, the Participant
does not exercise his or her Option within the time period specified by the Administrator or in the Award Agreement,
the Option shall terminate at the end of such period.
(iii) Disability of Participant. If a Participant ceases to be a Service Provider as a result of the
Participant’s Disability, the Participant may exercise his or her Option within such period of time as is specified in
the Award Agreement to the extent the Option is vested on the date of termination (but in no event later than the
expiration of the term of such Option as set forth in the Award Agreement). In the absence of a specified time in
the Award Agreement, any vested portion of the Option shall remain exercisable for twelve (12) months following
the Participant’s termination (but in no event later than the expiration of the term of such Option as set forth in the
Award Agreement). Unless otherwise provided by the Administrator or in the Award Agreement, if on the date of
termination the Participant is not vested as to all or any portion of his or her Option, the unvested portion of the
Option shall terminate. If after termination the Participant does not exercise his or her Option within the time period
specified by the Administrator or in the Award Agreement, the Option shall terminate at the end of such period.
(iv) Death of Participant. If a Participant dies while a Service Provider, the Option may be exercised
following the Participant’s death within such period of time as is specified in the Award Agreement to the extent
that the Option is vested on the date of death (but in no event later than the expiration of the term of such Option as
set forth in the Award Agreement). In the absence of a specified time in the Award Agreement, any vested portion
of the Option shall remain exercisable for twelve (12) months following the Participant’s death (but in no event
later than the expiration of the term of such Option as set forth in the Award Agreement). The Option may be
exercised by the Participant’s designated beneficiary, provided such beneficiary has been designated prior to
Participant’s death in a form acceptable by the Administrator. If no such beneficiary has been designated by the
Participant, then such Option may be exercised by the personal representative of the Participant’s estate or by the
person or persons to whom the Option is transferred pursuant to the Participant’s will or in accordance with the
laws of descent and distribution. Unless otherwise provided by the Administrator or in the Award Agreement, if at
the time of death the Participant is not vested as to all or any portion of his or her Option, the unvested portion of
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the Option shall terminate. If the Option is not so exercised within the time period specified by the Administrator
or in the Award Agreement, the Option shall terminate at the end of such period.
(v)
Termination for Cause. If a Participant’s status as a Service Provider is terminated for Cause,
then the Option, whether vested or unvested, will immediately terminate upon such termination.
7.
Restricted Stock.
(a)
Grant of Restricted Stock. Subject to the terms and provisions of the Plan, the Administrator, at any
time and from time to time, may grant Shares of Restricted Stock to Service Providers in such amounts as the
Administrator, in its sole discretion, will determine.
(b)
Restricted Stock Agreement. Each Award of Restricted Stock will be evidenced by an Award
Agreement that will specify the Period of Restriction, which shall be established in accordance with Section 4(d)
of the Plan; the number of Shares granted; and such other terms and conditions as the Administrator, in its sole
discretion, will determine. Unless the Administrator determines otherwise, the Company (or its designee) as escrow
agent will hold Shares of Restricted Stock (or a stop-transfer restriction will be placed on any Shares of Restricted
Stock issued in book-entry form) until the restrictions on such Shares have lapsed.
(c)
Transferability. Except as provided in this Section 7 and Section 13, Shares of Restricted Stock may
not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated until the end of the applicable
Period of Restriction.
(d) Other Restrictions. The Administrator, in its sole discretion, may impose such other restrictions on
Shares of Restricted Stock as it may deem advisable or appropriate.
(e)
Removal of Restrictions. Except as otherwise provided in this Section 7, Shares of Restricted Stock
granted under the Plan will be released from these restrictions as soon as practicable after the last day of the Period
of Restriction, as provided in the Award Agreement or at such other time as the Administrator may determine.
Notwithstanding the foregoing, the Administrator is authorized, in its sole discretion, to allow participants to cause
their otherwise vested Restricted Stock to be deferred pursuant to the terms of any nonqualified deferred
compensation program as may be established by the Company from time to time in its discretion for eligible
employees or Directors. Notwithstanding any provision of the Plan to the contrary, including but not limited to
Section 4(d), in the event of the death, Disability, retirement or other termination of service of a Service Provider
or a Change-in-Control, the Administrator, in its discretion, may accelerate or otherwise modify the time at which
any restrictions will lapse or be removed.
(f)
Voting Rights. During the Period of Restriction, Participants holding Shares of Restricted Stock
granted hereunder may exercise full voting rights with respect to those Shares, unless the Administrator determines
otherwise.
(g) Dividends. The Administrator may, in its sole discretion, provide that Awards of Restricted Stock
earn dividends paid with respect to such Shares. Any such dividends shall be accumulated and credited to an account
for the Participant, settled in cash or shares of Stock as determined by the Administrator, and shall be subject to the
same terms and conditions, including vesting restrictions, as the Award with respect to which the dividends are
credited. The Administrator may determine that any dividends so credited to a Participant’s account shall accrue
interest at a rate per annum specified by the Administrator. Any credited dividends and accrued interest, if any,
shall be paid as soon as administratively practicable following the time the related shares of Restricted Stock vest
and are paid to the Participant. For the avoidance of doubt, no dividends or accrued interest, if any, may be paid
before the underlying Restricted Stock vests, and to the extent an Award of Restricted Stock is terminated, cancelled
or forfeited in whole or in part, due to failure to meet performance conditions or otherwise, any dividends and
accrued interest, if any, credited with respect to such Award shall be terminated, cancelled or forfeited at the same
time and to the same extent as such Award.
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(h)
Termination of Restricted Stock Award. On the date set forth in, and otherwise subject to the terms
and conditions of, the Award Agreement or as provided by the Administrator, the Restricted Stock for which
restrictions have not lapsed will be forfeited to the Company.
8.
Restricted Stock Units.
(a)
Grant. Restricted Stock Units may be granted at any time and from time to time as determined by the
Administrator. After the Administrator determines that it will grant Restricted Stock Units under the Plan, it will
advise the Participant in an Award Agreement of the terms, conditions, and restrictions related to the grant, including
the number of Restricted Stock Units.
(b) Vesting Criteria and Other Terms. The Administrator will set the vesting period, which shall be
established in accordance with Section 4(d) of the Plan, and the vesting criteria in its discretion, which may be
service-based and/or performance-based vesting criteria. The Administrator may set vesting criteria based upon
the achievement of Company-wide, business unit, or individual goals (including, but not limited to, continued
employment), or any other basis determined by the Administrator in its discretion.
(c)
Earning Restricted Stock Units. Upon meeting the applicable vesting criteria, the Participant will be
entitled to receive a payout as determined by the Administrator. Notwithstanding any provision of the Plan to the
contrary, including but not limited to Section 4(d), in the event of the death, Disability, retirement or other
termination of service of a Service Provider or a Change-in-Control at any time after the grant of Restricted Stock
Units, the Administrator, in its sole discretion, may reduce or waive any vesting criteria that must be met to receive
a payout.
(d)
Form and Timing of Payment. Payment of earned Restricted Stock Units will be made as soon as
practicable, and in no event later than sixty (60) days, after the date(s) set forth in, and otherwise subject to the
terms and conditions of, the Award Agreement or as provided by the Administrator. The Administrator, in its sole
discretion, may settle earned Restricted Stock Units in cash, Shares, or a combination of both, as provided in the
Award Agreement. Notwithstanding the foregoing to the contrary, the Administrator is authorized, in its sole
discretion from time to time, to allow participants to further defer receipt of the Shares or cash issued in settlement
of Restricted Stock Units pursuant to the terms of any nonqualified deferred compensation program as may be
established by the Company from time to time in its discretion for eligible employees or Directors.
(e)
Cancellation. On the date set forth in, and otherwise subject to the terms and conditions of, the Award
Agreement or as provided by the Administrator, all unearned Restricted Stock Units will be terminated and forfeited
to the Company.
(f)
Dividend Equivalents. The Administrator is authorized to grant to Participants dividend equivalents
based on the dividends declared on Shares that are subject to any outstanding Restricted Stock Unit. Unless
otherwise provided by the Administrator or in the Award Agreement, for an Award of Restricted Stock Units that
is subject to performance-based vesting conditions, dividend equivalents shall be accrued only with respect to the
target number of Restricted Stock Units, and additional dividend equivalents will not be earned for any Restricted
Stock Units earned in excess of target. Dividend equivalents shall be credited as of dividend payment dates during
the period between the date the Restricted Stock Unit Award is granted and the date the Restricted Stock Unit
Award is vested, paid or expired. Such dividend equivalents shall be converted to cash, Shares or additional
Restricted Stock Units by such formula and at such time and subject to such limitations as may be determined by
the Administrator. Dividend equivalents accruing on unvested Restricted Stock Units shall, as provided in the
Award Agreement, either (i) be reinvested in the form of additional Shares, which shall be subject to the same
vesting provisions as provided for in the Restricted Stock Unit Award or (ii) be held by the Company under the
same vesting provisions in an account allocated to the Participant and accumulated, with or without interest in the
Administrator’s discretion, until the date upon which the Restricted Stock Unit Award becomes vested. For the
avoidance of doubt, no dividend equivalents or accrued interest, if any, may be paid before the underlying Restricted
Stock Units vest, and to the extent an Award of Restricted Stock Units is terminated, cancelled or forfeited in whole
or in part, due to failure to meet performance conditions or otherwise, any dividend equivalents and accrued interest,
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if any, credited with respect to such Award shall be terminated, cancelled or forfeited at the same time and to the
same extent as such Award.
9.
Stock Appreciation Rights.
(a)
Grant of Stock Appreciation Rights. Subject to the terms and conditions of the Plan, a Stock
Appreciation Right may be granted to Service Providers at any time and from time to time as determined by the
Administrator, in its sole discretion. No dividends or dividend equivalents may be granted in respect of any Stock
Appreciation Right, and holders of Stock Appreciation Rights carry no voting rights.
(b) Number of Shares. The Administrator will have complete discretion to determine the number of Stock
Appreciation Rights granted to any Service Provider.
(c)
Exercise Price and Other Terms. The per share exercise price for the Shares to be issued pursuant to
exercise of a Stock Appreciation Right will be determined by the Administrator and will be no less than one hundred
percent (100%) of the Fair Market Value per Share on the date of grant. Otherwise, the Administrator, subject to
the provisions of the Plan, will have complete discretion to determine the terms and conditions of Stock
Appreciation Rights granted under the Plan. Any vesting period for a Stock Appreciation Right shall be established
in accordance with Section 4(d) of the Plan.
(d)
Stock Appreciation Right Agreement. Each Stock Appreciation Right grant will be evidenced by an
Award Agreement that will specify the exercise price, the term of the Stock Appreciation Right, the conditions of
exercise, and such other terms and conditions as the Administrator, in its sole discretion, will determine.
(e)
Expiration of Stock Appreciation Rights. A Stock Appreciation Right granted under the Plan will
expire upon the date determined by the Administrator, in its sole discretion, and set forth in the Award Agreement
or as provided by the Administrator. Notwithstanding the foregoing, Stock Appreciation Rights shall be subject to
a maximum term of ten (10) years and to the provisions of subsection 6(d) relating to exercise.
(f)
Payment of Stock Appreciation Right Amount. Upon exercise of a Stock Appreciation Right, a
Participant will be entitled to receive payment from the Company in an amount determined by multiplying:
(i)
The difference between the Fair Market Value of a Share on the date of exercise over the
exercise price; times
(ii)
The number of Shares with respect to which the Stock Appreciation Right is exercised.
As provided in the Award Agreement or except as otherwise determined by the Administrator, the
payment to the Participant upon exercise of a Stock Appreciation Right may be in cash, in Shares of equivalent
value, or in some combination thereof.
10.
Performance Units and Performance Shares.
(a)
Grant of Performance Units and/or Performance Shares. Performance Units and Performance Shares
may be granted to Service Providers at any time and from time to time, as determined by the Administrator, in its
sole discretion. The Administrator will have complete discretion in determining the number of Performance Units
and Performance Shares granted to each Participant. The Administrator may, in its sole discretion, provide that
Awards of Performance Shares and Performance Units earn dividends or dividend equivalents, as applicable, in
accordance with, and subject to the restrictions of, Section 7(g) and Section 8(f), respectively. For the avoidance of
doubt, no dividends or dividend equivalents or accrued interest, if any, earned with respect to a Performance Unit Award or a
Performance Share Award may be paid before the underlying Award vests, and to the extent an Award of Performance Units
or Performance Shares is terminated, cancelled or forfeited in whole or in part, due to failure to meet performance conditions
or otherwise, any dividends, dividend equivalents and accrued interest if any, credited with respect to such Award shall be
terminated, cancelled or forfeited at the same time and to the same extent as such Award.
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(b)
Performance Objectives and Other Terms. The Administrator will set performance objectives and/or
other vesting provisions (including, without limitation, continued status as a Service Provider) in its discretion
which, depending on the extent to which they are met, will determine the number or value of Performance Units or
Performance Shares that will be paid out to the Service Providers. The time period during which the performance
objectives or other vesting provisions must be met will be called the “Performance Period.” Each Award of
Performance Units and Performance Shares will be evidenced by an Award Agreement that will specify the
Performance Period, vesting period (which shall be established in accordance with Section 4(d)) and such other
terms and conditions as the Administrator, in its sole discretion, will determine. The Administrator may set
performance objectives, which may be based on financial, strategic or operational goals or any other performance
goals or metrics determined by the Administrator in its discretion. Such performance objectives may be based upon
the achievement of Company-wide, divisional, or individual goals, measured on an absolute or relative basis, or
any other goals, metrics or bases determined by the Administrator in its discretion.
(c)
Earning of Performance Units and Performance Shares. After the applicable Performance Period has
ended, the holder of Performance Units or Performance Shares will be entitled to receive a payout of the number of
Performance Units or Performance Shares earned by the Participant over the Performance Period, to be determined
as a function of the extent to which the corresponding performance objectives or other vesting provisions have been
achieved, as determined by the Committee. After the grant of a Performance Units or Performance Shares,
notwithstanding any provision of the Plan to the contrary, including but not limited to Section 4(d), the
Administrator may, in its sole discretion, reduce or waive any performance objectives or other vesting provisions
for such Performance Unit or Performance Share.
(d)
Form and Timing of Payment of Performance Units and Performance Shares. Payment of earned
Performance Units and Performance Shares will be made as soon as practicable after the expiration of the applicable
Performance Period, and in no event later than sixty (60) days after the date(s) set forth in, and otherwise subject to
the terms and conditions of, the Award Agreement or as provided by the Administrator. The Administrator, in its
sole discretion, may pay earned Performance Units and Performance Shares in the form of cash, in Shares, or a
combination thereof.
(e)
Cancellation of Performance Units and Performance Shares. On the date set forth in, and otherwise
subject to the terms and conditions of, the Award Agreement or as otherwise provided by the Administrator, all
unearned or unvested Performance Units and Performance Shares will be forfeited to the Company.
11.
Compliance With Code Section 409A.
(a)
Awards are intended to operate in a manner that they are either exempt from the application of, or
comply with, the requirements of Code Section 409A such that the grant, payment, settlement or deferral will not
be subject to the additional tax or interest applicable under Code Section 409A, except as otherwise determined in
the sole discretion of the Administrator, provided no warranty of such compliance or exemption is hereby made.
The Plan and each Award Agreement under the Plan is intended to meet the requirements of Code Section 409A
and will be construed and interpreted in accordance with such intent, except as otherwise determined in the sole
discretion of the Administrator. To the extent that an Award or payment, or the settlement or deferral thereof, is
subject to Code Section 409A, the Award is intended to be granted, paid, settled or deferred in a manner that will
meet the requirements of Code Section 409A, and the Plan and Award Agreements shall be interpreted and
administered accordingly, though no guarantee or warranty of such compliance is made to any individual. The
parties agree that this Plan may be amended, as determined in the discretion of the Administrator, and as may be
necessary or advisable to comply with Section 409A of the Code and all related rules and regulations in order to
preserve the payments and benefits provided hereunder.
(b) Notwithstanding anything in the Plan or in any Award Agreement to the contrary, to the extent that
any amount or benefit that would constitute non-exempt “deferred compensation” for purposes of Section 409A of
the Code would otherwise be payable or distributable under the Plan or any Award Agreement by reason of the
occurrence of a Change-in-Control, or the Participant’s Disability or separation from service, such amount or benefit
will not be payable or distributable to the Participant by reason of such circumstance unless (i) the circumstances
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giving rise to such Change-in-Control, Disability or separation from service meet any description or definition of
“change-in-control event”, “disability” or “separation from service,” as the case may be, in Section 409A of the
Code and applicable regulations (without giving effect to any elective provisions that may be available under such
definition), or (ii) the payment or distribution of such amount or benefit would be exempt from the application of
Section 409A of the Code by reason of the short-term deferral exemption or otherwise. This provision does not
prohibit the vesting of any Award. If this provision prevents or delays the payment or distribution of any amount or
benefit, such payment or distribution shall be made on the next earliest payment or distribution date or event
specified in the Award Agreement that is permissible under Section 409A of the Code.
(c)
Notwithstanding anything in the Plan or in any Award Agreement to the contrary, if any amount or
benefit that would constitute non-exempt “deferred compensation” for purposes of Section 409A of the Code would
otherwise be payable or distributable under this Plan or any Award Agreement by reason of a Participant’s
separation from service during a period in which the Participant is a Specified Employee, then, subject to any
permissible acceleration of payment by the Administrator under Treas. Reg. Section 1.409A-3(j)(4)(ii) (domestic
relations order), (j)(4)(iii) (conflicts of interest), or (j)(4)(vi) (payment of employment taxes):
(i)
if the payment or distribution is payable in a lump sum, the Participant’s right to receive payment
or distribution of such non-exempt deferred compensation will be delayed until the earlier of the Participant’s death
or the first day of the seventh month following the Participant’s separation from service; and
(ii)
if the payment or distribution is payable over time, the amount of such non-exempt deferred
compensation that would otherwise be payable during the six-month period immediately following the Participant’s
separation from service will be accumulated and the Participant’s right to receive payment or distribution of such
accumulated amount will be delayed until the earlier of the Participant’s death or the first day of the seventh month
following the Participant’s separation from service, whereupon the accumulated amount will be paid or distributed
to the Participant and the normal payment or distribution schedule for any remaining payments or distributions will
resume.
For purposes of this Plan, the term “Specified Employee” has the meaning in Section 2(pp) of the Plan, provided,
however, that, as permitted in such final regulations, the Company’s Specified Employees and its application of the
six-month delay rule of Section 409A(a)(2)(B)(i) of the Code shall be determined in accordance with any rules
adopted by the Board or any committee of the Board, which shall be applied consistently with respect to all
nonqualified deferred compensation arrangements of the Company, including this Plan.
(d)
If any one or more Awards granted under the Plan to a Participant could qualify for any separation pay
exemption described in Treas. Reg. Section 1.409A-1(b)(9), but such Awards in the aggregate exceed the dollar
limit permitted for the separation pay exemptions, the Administrator may determine which Awards or portions
thereof will be subject to such exemptions.
(e)
If, pursuant to an Award, a Participant is entitled to a series of installment payments, such Participant’s
right to the series of installment payments shall be treated as a right to a series of separate payments and not to a
single payment. For purposes of the preceding sentence, the term “series of installment payments” has the meaning
provided in Treas. Reg. Section 1.409A-2(b)(2)(iii) (or any successor thereto).
12.
Leaves of Absence/Transfer Between Locations. Unless the Administrator provides otherwise, vesting of
Awards granted hereunder will be suspended during any unpaid leave of absence. A Participant will not cease to
be an Employee in the case of:
(a)
any leave of absence approved by the Company; or
(b)
transfers between locations of the Company or between the Company, its Parent, or any Subsidiary.
For purposes of Incentive Stock Options, no such leave may exceed three (3) months, unless reemployment upon
expiration of such leave is guaranteed by statute or contract. If reemployment upon expiration of a leave of absence
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approved by the Company is not so guaranteed, then six (6) months following the first day of such leave, any
Incentive Stock Option held by the Participant will cease to be treated as an Incentive Stock Option and will be
treated for tax purposes as a Nonstatutory Stock Option.
13.
Transferabilitv of Awards. Unless determined otherwise by the Administrator, an Award may not be sold,
pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution or as otherwise provided in this Section 13 and may be exercised, during the lifetime of the
Participant, only by the Participant. If the Administrator makes an Award transferable, including, without
limitation, for estate planning purposes by instrument to an inter vivos or testamentary trust in which the Awards
are to be passed to beneficiaries upon the death of the trustor (settlor) or by gift to Family Members, or pursuant to
a domestic relations order (as defined in the Code) or other court-ordered marital settlement agreement, such Award
shall be subject to the terms of the Plan and the Award Agreement and shall contain such additional terms and
conditions as the Administrator deems appropriate. Notwithstanding the foregoing, under no circumstance may
unvested or unexercised Awards be transferred for value or consideration.
14. Adjustments; Dissolution or Liquidation; Merger or Change-in-Control.
(a)
Adjustments. In the event that any dividend (other than ordinary cash dividends) or other distribution
(whether in the form of cash, Shares, other securities, or other property), recapitalization, stock split, reverse stock
split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of Shares or
other securities of the Company, or other change in the corporate structure of the Company affecting the Shares
occurs, the Administrator, in order to prevent diminution or enlargement of the benefits or potential benefits
intended to be made available under the Plan, will adjust, in such equitable manner as the Administrator deems
appropriate, the number and class of Shares issuable under the Plan and/or the number, class and, if applicable,
exercise price, of Shares subject to each outstanding Award.
(b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company,
the Administrator shall notify each Participant as soon as practicable prior to the effective date of such proposed
transaction. To the extent it has not been previously exercised, an Award will terminate immediately prior to the
consummation of such proposed action.
(c)
Change-in-Control.
(i)
In the event of a Change-in-Control, then notwithstanding any other provision of the Plan or an
Award to the contrary, including without limitation Section 4(d), each outstanding Award shall be treated as the
Administrator determines in its discretion without a Participant’s consent, including, without limitation:
(A) Awards may be assumed, or substantially equivalent Awards may be substituted, by the
acquiring or succeeding entity or an affiliate thereof (for purposes of this Section 14, the “successor”) with
appropriate adjustments as to the number and kind of shares and prices;
prior to the consummation of such Change-in-Control;
(B)
upon written notice to a Participant, the Participant’s Awards will terminate immediately
(C) Awards will vest and become exercisable, realizable, or payable, or restrictions
applicable to an Award will lapse, in whole or in part, prior to or upon consummation of such Change-in-Control,
and, to the extent the Administrator determines, terminate upon the effectiveness of such Change-in-Control;
(D)
(1) Awards will terminate in exchange for an amount of cash and/or property, if any,
equal to the amount (if any) that would have been attained upon the exercise of such Award or realization of the
Participant’s rights as of the date of the occurrence of the transaction (and, for the avoidance of doubt, if as of the
date of the occurrence of the transaction the Administrator determines in good faith that no amount would have
been attained upon the exercise of such Award or realization of the Participant’s rights, then such Award may be
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terminated by the Company without payment), or (2) the replacement of such Award with other rights or property
selected by the Administrator in its sole discretion; or
(E)
any combination of the foregoing.
In taking any of the actions permitted under this subsection 14(c), the Administrator will not be obligated to treat
all Awards, all Awards held by a Participant, or all Awards of the same type, similarly.
(ii)
If, in the event of a Change-in-Control, the successor elects not to assume or substitute an
Award, as determined by the Administrator, then upon the effective date of the Change-in-Control, the Participant
shall fully vest in and have the right to exercise all of his or her outstanding Options and Stock Appreciation Rights;
all restrictions on then outstanding Restricted Stock and Restricted Stock Units will lapse; and, with respect to then
outstanding Performance Units, Performance Shares and any other Awards subject to performance-based vesting
conditions, all performance goals or other vesting conditions will be deemed achieved at one hundred percent
(100%) of target levels and all other terms and conditions met. In addition, if an Option or Stock Appreciation
Right is not assumed or substituted by the successor in the event of a Change-in-Control, as determined by the
Administrator, the Administrator may notify the Participant in writing or electronically that the Option or Stock
Appreciation Right shall be exercisable for a period of time determined by the Administrator in its sole discretion
(but in no event later than the expiration of the term of such Option as set forth in the Award Agreement), and the
Option or Stock Appreciation Right shall terminate upon the expiration of such period.
(d) Outside Director Awards. With respect to Awards granted to an Outside Director that are assumed or
substituted by a successor (in each case as determined by the Administrator), if, on the date of or following such
assumption or substitution, the Participant’s status as a Director or a director of the successor, as applicable, is
terminated other than upon a voluntary resignation by the Participant (unless such resignation is at the request of
the successor), then the Participant will fully vest in and have the right to exercise Options and/or Stock
Appreciation Rights as to all of the Shares underlying such Award for a period of one year following such
termination (but in no event later than the expiration of the term of such Option as set forth in the Award
Agreement); all restrictions on Restricted Stock and Restricted Stock Units will lapse; and, with respect to
Performance Units, Performance Shares and any other Awards subject to performance-based vesting conditions, all
performance goals or other vesting conditions will be deemed achieved at one hundred percent (100%) of target
levels and all other terms and conditions met.
(e)
Assumption, Conversion or Substitution of Awards. For the purposes of Sections 14(c) and 14(d), a
successor will be deemed to have “assumed or substituted” an Award under this Plan if the surviving entity
substitutes an Award under this Plan with an award under a plan of the surviving entity having substantially
equivalent value to and terms and conditions not materially less favorable than the original Award, or otherwise
assumes the obligations under and/or equitably adjusts such original Award. The Administrator or the Board shall
have sole and complete authority and discretion (which authority and discretion the Administrator or Board may
exercise prior to the Change-in-Control, in which case such exercise of authority and discretion shall be final and
binding) to determine whether the proposed assumption or substitution of an Award by a successor meets the
requirements provided for in this paragraph. Notwithstanding anything in this Section 14(e) to the contrary, an
Award that vests, is earned or paid out upon the satisfaction of one or more performance goals will not be considered
assumed or substituted if, as determined by the Administrator or the Board, the Company or its successor modifies
any of such performance goals without the Participant’s consent; provided, however, a modification to such
performance goals only to reflect the successor’s post-Change-in-Control corporate structure will not be deemed to
invalidate an otherwise valid Award assumption, as determined by the Administrator or the Board.
15.
Tax Withholding.
(a) Withholding Requirements. Prior to the delivery of any Shares or cash pursuant to an Award (or
exercise thereof), the Company will have the power and the right to deduct or withhold, or require a Participant to
remit to the Company, an amount sufficient to satisfy any federal, state, local, foreign or other taxes (including the
Participant’s FICA obligation) required to be withheld with respect to such Award (or exercise thereof).
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(b) Withholding Arrangements. The Administrator, in its sole discretion and pursuant to such procedures
as it may specify from time to time, may permit a Participant to satisfy such tax withholding obligation, in whole
or in part by (without limitation):
(i)
paying cash;
(ii)
electing to have the Company withhold otherwise deliverable cash or Shares having a Fair
Market Value equal to the minimum statutory amount required to be withheld (or such other amount in the
Administrator’s discretion that does not cause the Award to be treated as a liability instrument under generally
accepted accounting principles); or
(iii)
delivering to the Company already-owned Shares having a Fair Market Value equal to the
minimum statutory amount required to be withheld (or such other amount in the Administrator’s discretion that
does not cause the Award to be treated as a liability instrument under generally accepted accounting principles).
The Fair Market Value of the Shares to be withheld or delivered will be determined as of the date that the taxes are
required to be withheld.
16. No Effect on Employment or Service. Neither the Plan nor any Award shall confer upon a Participant any
right with respect to continuing the Participant’s relationship as a Service Provider with the Company, nor shall
they interfere in any way with the Participant’s right or the Company’s right to terminate such relationship at any
time, with or without cause, to the extent permitted by Applicable Laws.
17. Date of Grant. The date of grant of an Award shall be, for all purposes, the date on which the Administrator
(or its delegee, to the extent permitted by the Plan) makes the determination granting such Award, or such other
later date as is determined by the Administrator (or its delegee, to the extent permitted by the Plan). Notice of the
determination shall be provided to each Participant within a reasonable time after the date of such grant.
18.
Term of Plan. Following the Board’s adoption of the Plan, the Plan will become effective upon its approval
by the Company’s stockholders (the “Effective Date”). It will continue in effect for a term of ten (10) years from
the Effective Date, unless terminated earlier under Section 19 of the Plan.
19. Amendment and Termination of the Plan.
(a)
Amendment and Termination. The Board may at any time amend, alter, suspend or terminate the Plan.
(i)
Stockholder Approval. The Company shall obtain stockholder approval of any Plan
amendment to the extent required by Applicable Laws or otherwise in the Board’s discretion.
(ii)
Effect of Amendment or Termination. Subject to Section 19(c), no amendment, alteration,
suspension or termination of the Plan shall impair the rights of any Participant under any then outstanding Award,
unless mutually agreed otherwise between the Participant and the Administrator, which agreement must be in
writing and signed by the Participant and the Company. Termination of the Plan shall not affect the Administrator’s
ability to exercise the powers granted to it hereunder with respect to Awards granted under the Plan prior to the date
of such termination.
(b) Awards Previously Granted. The Administrator may waive any conditions or restrictions under, amend
or modify the terms and conditions of, or cancel or terminate any outstanding Award at any time, in connection
with any termination of service of a Service Provider or otherwise and notwithstanding any provision of the Plan to
the contrary, including but not limited to Section 4(d); provided, however, subject to Section 19(c) and the
provisions of the applicable Award Agreement, no such amendment, modification, cancellation or termination shall
impair the rights of a Participant under an Award unless mutually agreed between the Participant and the
Administrator, which agreement must be in writing and signed by the Participant and the Company.
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(c)
Compliance Amendments. Notwithstanding any other provision of this Section 19, the Plan or any
Award Agreement to the contrary, the Administrator may, in its sole discretion and without the consent of any
Participant, amend the Plan or any Award Agreement, to take effect retroactively or otherwise, as it deems necessary
or advisable in order for the Company, the Plan, an Award or an Award Agreement to satisfy or conform to any
present or future Applicable Law (including, without limitation, Code Section 409A) or to meet the requirements
of any accounting standard.
20.
Conditions Upon Issuance of Shares.
(a)
Legal Compliance. Shares shall not be issued pursuant to the exercise of an Award unless the exercise
of such Award and the issuance and delivery of such Shares shall comply with Applicable Laws and shall be further
subject to the approval of counsel for the Company with respect to such compliance.
(b)
Investment Representations. As a condition to the exercise of an Award, the Company may require
the person exercising such Award to represent and warrant at the time of any such exercise that the Shares are being
purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion
of counsel for the Company, such a representation is required.
21.
Inability to Obtain Authority. The inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company’s counsel to be necessary to the lawful issuance
and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained.
22.
Recoupment. A Participant’s rights with respect to any Award hereunder shall in all events be subject to (i)
any right that the Company may have under any Company clawback or recoupment policy as may be in effect from
time to time or any other clawback or recoupment agreement or arrangement applicable to a Participant; or (ii) any
right or obligation that the Company may have regarding the recoupment of “incentive-based compensation” under
Section 10D of the Exchange Act and any applicable rules and regulations promulgated thereunder from time to
time by the U.S. Securities and Exchange Commission.
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ONTO INNOVATION INC.
2020 EMPLOYEE STOCK PURCHASE PLAN
Appendix B
1.
Purpose of the Plan. The purpose of the Plan is to provide employees of the Company and its Designated
Subsidiaries with an opportunity to purchase Common Stock of the Company. It is the intention of the Company to
have the Plan qualify as an “Employee Stock Purchase Plan” under Section 423 of the Code. The provisions of the
Plan shall, accordingly, be construed in a manner consistent with the requirements of that section of the Code.
2.
Definitions. As used herein, the following definitions shall apply:
(a)
(b)
(c)
(d)
“Board” shall mean the Board of Directors of the Company.
“Code” shall mean the Internal Revenue Code of 1986, as amended.
“Common Stock” shall mean the common stock of the Company.
“Company” shall mean Onto Innovations Inc., a Delaware corporation.
(e)
“Compensation” shall mean the total compensation paid to an Employee, including all salary,
wages (including amounts elected to be deferred by the Employee, that would otherwise have been paid, under any
cash or deferred arrangement or other deferred compensation program established by the Company or the
Employer), overtime pay, commissions, bonuses, and other remuneration paid directly to the Employee, but
excluding referral and hiring bonuses, profit sharing, the cost of employee benefits paid for by the Company or the
Employer, education, tuition or other similar reimbursements, imputed income arising under any Company group
insurance or benefit program, traveling expenses, business and moving expense reimbursements, income received
in connection with stock options, restricted stock grants, or other equity based awards, contributions made by the
Company or the Employer under any employee benefit plan, and similar items of compensation.
(f)
“Continuous Status as an Employee” shall mean the absence of any interruption or termination of
service as an Employee. Continuous Status as an Employee shall not be considered interrupted in the case of sick
leave or other leave of absence agreed to in writing by the Company or the Employer, provided that such leave is
for a period of not more than ninety (90) days or reemployment upon the expiration of such leave is guaranteed by
contract, statute or as a matter of local law.
(g)
(h)
“Contributions” shall mean all amounts credited to the account of a participant pursuant to the Plan.
“Designated Subsidiary” shall mean any Subsidiary that has been designated by the Board, or a
committee named by the Board, from time to time in its sole discretion as eligible to participate in the Plan.
(i)
“Employee” shall mean any person, including an Officer, who is customarily employed for at least
twenty (20) hours per week and more than five (5) months in a calendar year by the Company or a Designated
Subsidiary, provided that, in certain jurisdictions outside the United States, the term “Employee” may, if so provided
by the Company in writing, also include a person employed for less than twenty (20) hours per week or less than
five (5) months in a calendar year if such person must be permitted to participate in the Plan pursuant to local laws
(as determined by the Company).
(j)
“Employer” shall mean the Designated Subsidiary that employs a participant, if the employer is not
the Company.
(k)
“Enrollment Date” shall mean the first Trading Day of each Offering Period.
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(l)
“Exchange Act” shall mean the U.S. Securities Exchange Act of 1934, as amended.
(m)
“Exercise Date” shall mean the last Trading Day of each Offering Period.
(n)
“Fair Market Value” shall mean, as of any date, the value of Common Stock determined as
follows:
(i)
If the Common Stock is listed on any established stock exchange or a national market
system, including without limitation the New York Stock Exchange, its Fair Market Value shall be the closing sales
price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system on the date
of determination, as reported in The Wall Street Journal or such other source as the Board deems reliable;
(ii)
If the Common Stock is regularly quoted by a recognized securities dealer but selling prices
are not reported, its Fair Market Value shall be the mean of the closing bid and asked prices for the Common Stock
on the date of determination, as reported in The Wall Street Journal or such other source as the Board deems
reliable; or
(iii)
In the absence of an established market for the Common Stock, the Fair Market Value
thereof shall be determined in good faith by the Board.
(o)
“Offering Periods” shall mean the periods of approximately six (6) months during which an option
granted pursuant to the Plan may be exercised, commencing on the first Trading Day on or after May 1st and
November 1st of each year and terminating on the last Trading Day in the periods ending six (6) months later. The
duration and timing of Offering Periods may be changed pursuant to Section 4 of this Plan.
(p)
“Officer” shall mean a person who is an officer of the Company within the meaning of Section 16
of the Exchange Act and the rules and regulations promulgated thereunder.
(q)
“Parent” shall mean a “parent corporation”, domestic or foreign, whether now or hereafter existing,
as defined in Section 424(e) of the Code.
(r)
(s)
“Plan” shall mean this 2020 Employee Stock Purchase Plan.
“Purchase Price” shall mean an amount equal to 85% of the Fair Market Value of a Share of
Common Stock on the Exercise Date; provided however that Purchase Price may be adjusted by the Board
pursuant to Section 19.
(t)
“Reserves” shall mean the number of Shares covered by each option under the Plan which have not
yet been exercised and the number of Shares which have been authorized for issuance under the Plan but not yet
placed under option.
(u)
of the Plan.
“Share” shall mean a share of Common Stock, as may be adjusted in accordance with Section 19
(v)
“Subsidiary” shall mean a “subsidiary corporation”, domestic or foreign, whether now or hereafter
existing, as defined in Section 424(f) of the Code.
(w)
“Trading Day” shall mean a day on which national stock exchanges are open for trading.
3.
Eligibility.
(a)
Any person who is an Employee as of the beginning of any given Offering Period shall be eligible
to participate in such Offering Period under the Plan, subject to the requirements of Section 5(a) and the limitations
imposed by Section 423(b) of the Code.
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(b)
Any provisions of the Plan to the contrary notwithstanding, no Employee shall be granted an option
under the Plan:
(i)
if, immediately after the grant, such Employee (or any other person whose stock would be
attributed to such Employee pursuant to Section 424(d) of the Code) would own stock and/or hold outstanding
options to purchase stock possessing five percent (5%) or more of the total combined voting power or value of all
classes of stock of the Company, any Subsidiary or any Parent; or
(ii)
if such option would permit his or her rights to purchase stock under all employee stock
purchase plans (described in Section 423 of the Code) of the Company, any Subsidiary or any Parent to accrue at a
rate which exceeds Twenty-Five Thousand Dollars ($25,000) of Fair Market Value of such stock (determined at
the time such option is granted) for each calendar year in which such option is outstanding at any time.
Offering Periods. The Plan shall be implemented by consecutive Offering Periods with a new Offering
4.
Period commencing on the first Trading Day on or after May 1st and November 1st each year, or on such other date
as the Board shall determine, and continuing thereafter. The Plan shall continue until terminated in accordance with
Section 19 hereof. The Board shall have the power to change the duration and/or the frequency of Offering Periods
(including the commencement dates thereof) with respect to future offerings without shareholder approval if such
change is announced prior to the scheduled beginning of the first Offering Period to be affected.
5.
Participation.
(a)
An eligible Employee may become a participant in the Plan by completing a subscription
agreement on the form provided by the Company and filing it with the Company’s payroll office prior to the
applicable Enrollment Date, unless an earlier time for filing the subscription agreement is set by the Board for all
eligible Employees with respect to a given offering. The subscription agreement shall set forth the percentage of
the participant’s Compensation (subject to Section 6(a) below) to be credited as Contributions pursuant to the
Plan.
(b)
An eligible Employee may contribute to the Plan by means of payroll deductions, unless payroll
deductions are not permitted under local law, as determined by the Company, in which case eligible Employees
may be permitted to contribute to the Plan by an alternative method, as determined by the Company. Payroll
deductions, or, if payroll deductions are not permitted under local law, payments made under an alternative method,
shall commence as of the first payday following the Enrollment Date and shall end on the last payday paid on or
prior to the Exercise Date of the Offering Period to which the subscription agreement is applicable, unless the
Employee’s participation is sooner terminated as provided in Section 10.
6.
Method of Payment of Contributions.
(a)
Where permitted under local law, the participant shall elect to have payroll deductions made on
each payday during the Offering Period in an amount not less than one percent (1%) and not more than fifteen
percent (15%) of such participant’s Compensation on each such payday (or such other maximum percentage as the
Board may establish from time to time before an Enrollment Date). Where payroll deductions are not permitted
under local law, the participant may be permitted to contribute to the Plan by an alternative method, as determined
by the Company. All payroll deductions or other payments made by a participant shall be credited to his or her
account under the Plan. A participant may not make any additional payments into such account.
(b)
A participant may discontinue his or her participation in the Plan as provided in Section 10, or,
during an Offering Period, may decrease the rate of his or her Contributions during the applicable Period by
completing and filing with the Company a new subscription agreement. The Board may, in its discretion, limit the
number of participation rate changes during any Offering Period. The change in rate shall be effective as soon as
administratively practicable following the date of filing of the new subscription agreement; provided that any
change elected on a new subscription agreement filed within twenty-one (21) days of the end of any Offering Period
shall not take effect earlier than the beginning of the first new Offering Period to commence after the date of that
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filing. A participant may change the rate of his or her Contributions effective as of the beginning of any Offering
Period by filing a new subscription agreement prior to the beginning of such Offering Period; provided that any
change elected within twenty-one (21) days prior to the beginning of that Offering Period shall be given effect as
soon as administratively practicable on or after the first day of that Offering Period. A participant’s subscription
agreement shall remain in effect for successive Offering Periods unless terminated as provided in Section 10 hereof.
(c)
Notwithstanding the foregoing, to the extent necessary to comply with Section 423(b)(8) of the
Code and Section 3(b) herein, a participant’s payroll deductions or other payments may be decreased to zero percent
(0%) at any time during an Offering Period, as applicable. Payroll deductions or other payments shall re-commence
at the rate provided in such participant’s subscription agreement at the beginning of the first Offering Period, as
applicable, which is scheduled to end in the following calendar year, unless the participant’s participation is
terminated as provided in Section 10. In addition, a participant’s payroll deductions or other payments may be
decreased by the Company to zero percent (0%) at any time during an Offering Period in order to avoid contributions
in excess of the maximum Share limit set forth in Section 7(a), in which case payroll deductions or payments shall
re-commence at the rate provided in such participant’s subscription agreement at the beginning of the next Offering
Period, unless terminated by the participant as provided in Section 10.
(d)
As may be further specified in the subscription agreement, at the time the option is exercised, in
whole or in part, or at the time some or all of the Company’s Common Stock issued under the Plan is disposed of,
the participant must make adequate provision for the Company’s and/or the Employer’s federal, state, or other tax
and social insurance withholding obligations, if any, which arise upon the exercise of the option or the disposition
of the Common Stock. At any time, the Company and the Employer may, but shall not be obligated to, withhold
from the participant’s compensation the amount necessary for the Company and/or the Employer to meet applicable
withholding obligations, including any withholding required to make available to the Company or the Employer
any tax deductions or benefits attributable to sale or early disposition of Common Stock by the participant.
7.
Grant of Option. On the Enrollment Date of each Offering Period, each eligible Employee participating in
such Offering Period shall be granted an option to purchase on each Exercise Date occurring within the Offering
Period a number of Shares determined by dividing such Employee’s Contributions accumulated prior to such
Exercise Date and retained in the participant’s account as of the Exercise Date by the applicable Purchase Price;
provided however, that the maximum number of Shares an Employee may purchase during any one Offering Period
shall be 3,000 Shares, subject to adjustment as provided in Section 18, and provided further that such purchase shall
be subject to the limitations set forth in Sections 3(b) and 12. The Board may, for future Offering Periods, increase
or decrease, in its absolute discretion, the maximum number of shares of the Company’s Common Stock an
Employee may purchase during such Offering Period. The option shall expire on the last day of the Offering Period.
8.
Exercise of Option.
(a)
Unless a participant’s participation is terminated as provided in Section 10, his or her option for
the purchase of Shares will be exercised automatically on the Exercise Date of an Offering Period, and the maximum
number of full Shares subject to the option will be purchased at the applicable Purchase Price with the accumulated
Contributions in his or her account (subject to such limitations as are specified in the Plan). The Shares purchased
upon exercise of an option hereunder shall be deemed to be transferred to the participant on the Exercise Date.
During his or her lifetime, a participant’s option to purchase Shares hereunder is exercisable only by him or her.
(b)
No fractional Shares shall be purchased. Any payroll deductions or other payments accumulated in
a participant’s account which are not sufficient to purchase a full Share shall be retained in the participant’s account
for the subsequent Offering Period, subject to earlier withdrawal by the participant or termination of such
participant’s participation as provided in Section 10 below. Any other amounts left over in a participant’s account
after an Exercise Date shall be returned to the participant.
9.
Delivery. As promptly as practicable after each Exercise Date of each Offering Period, the Company shall
arrange the delivery to each participant (by electronic or other means), as appropriate, of a certificate representing
the Shares purchased upon exercise of his or her option. Notwithstanding the foregoing, the Board may require that
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all Shares purchased under the Plan be held in an account (the participant’s “ESPP Stock Account”) established in
the name of the participant (or in the name of the participant and his or her spouse, as designated by the participant
on his or her subscription agreement), subject to such rules as determined by the Board and uniformly applied to all
participants, including designation of a brokerage or other financial services firm (an “ESPP Broker”) to hold such
Shares for the participant’s ESPP Stock Account with registration of such Shares in the name of such ESPP Broker
for the benefit of the participant (or for the benefit of the participant and his or her spouse, as designated by the
participant on his or her subscription agreement).
10.
Voluntary Withdrawal: Termination of Employment.
(a)
A participant may withdraw all, but not less than all the Contributions credited to his or her account
under the Plan, by giving notice of withdrawal from the Plan in accordance with the withdrawal procedures then in
effect, not less than twenty-one (21) days prior to the last day of the Offering Period for which such election is to
be given effect. All of the participant’s Contributions credited to his or her account will be paid to him or her
promptly after receipt of his or her notice of withdrawal and his or her option for that Offering Period will be
automatically terminated, and no further Contributions for the purchase of Shares may be made by the participant
for that Offering Period.
(b)
Upon termination of the participant’s Continuous Status as an Employee prior to the last day of an
Offering Period for any reason, including retirement or death, the Contributions credited to his or her account will
be promptly returned to him or her or, in the case of his or her death, to the person or persons entitled thereto under
Section 14, if any; his or her option for that Offering Period will be automatically terminated; and no further
Contributions for the purchase of Shares may be made by the participant for that Offering Period. If a Subsidiary
ceases to be a Subsidiary, each person employed by that Subsidiary will be deemed to have terminated employment
for purposes of the Plan, unless the person continues as an employee of the Company or another Designated
Subsidiary.
(c)
In the event an Employee fails to remain in Continuous Status as an Employee for at least twenty
(20) hours per week during an Offering Period in which the Employee is a participant, unless such Employee is on
an approved leave of absence or a temporary reduction of hours, or unless otherwise required by local law, he or
she will be deemed to have elected to withdraw from the Plan; the Contributions credited to his or her account will
be returned to him or her; his or her option for that Offering Period will be automatically terminated; and no further
Contributions for the purchase of Shares may be made by the participant for that Offering Period.
(d)
A participant’s withdrawal from an Offering Period will not have any effect upon his or her
eligibility to participate in a succeeding Offering Period or in any similar plan which may hereafter be adopted by
the Company.
Interest. No interest shall accrue on the Contributions of a participant in the Plan, unless required by local
11.
law.
12.
Stock.
(a)
Subject to adjustment as provided in Section 18, the maximum number of Shares of the
Company’s Common Stock which shall be made available for sale under the Plan shall be 1,500,000 Shares.
(b)
If the Board determines that, on a given Exercise Date, the number of Shares with respect to
which options are to be exercised may exceed:
(i) the number of Shares that were available for sale under the Plan on the Enrollment Date of the
applicable Offering Period; or
(ii) the number of Shares available for sale under the Plan on such Exercise Date, the Board may
in its sole discretion provide:
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(x) that the Company shall make a pro rata allocation of the Shares of Common Stock
available for purchase on such Enrollment Date or Exercise Date, as applicable, in as uniform a manner as shall be
practicable and as it shall determine in its sole discretion to be equitable among all participants exercising options
to purchase Common Stock on such Exercise Date, and continue the Offering Period then in effect, or
(y) that the Company shall make a pro rata allocation of the Shares available for purchase
on such Enrollment Date or Exercise Date, as applicable, in as uniform a manner as shall be practicable and as it
shall determine in its sole discretion to be equitable among all participants exercising options to purchase Common
Stock on such Exercise Date, and terminate the Offering Period then in effect pursuant to Section 19 below.
The Company may make pro rata allocation of the Shares available on the Enrollment Date of any applicable
Offering Period pursuant to the preceding sentence, notwithstanding any authorization of additional Shares for
issuance under the Plan by the Company’s stockholders subsequent to such Enrollment Date.
(c) The participant will have no interest or voting right in Shares covered by his or her option until such
option has been exercised and such Shares have actually been delivered to and held of record by the participant. No
adjustment will be made for dividends or other rights as a stockholder for which a record date is prior to such date
of delivery.
(d) Shares to be delivered (by electronic or other means) to a participant under the Plan will be registered
in the name of the participant or in the name of the participant and his or her spouse, as designated by the participant
in his or her subscription agreement; provided that if the Board has determined that Shares shall be held in an ESPP
Stock Account held by an ESPP Broker in accordance with Section 9, Shares shall be registered in the name of such
ESPP Broker for the benefit of the participant or the participant and his or her spouse, as designated by the
participant in his or her subscription agreement.
13.
Administration.
(a)
The Board, or a committee named by the Board, shall supervise and administer the Plan and shall
have full power to adopt, amend and rescind any rules deemed desirable and appropriate for the administration of
the Plan and not inconsistent with the Plan, to construe and interpret the Plan, and to make all other determinations
necessary or advisable for the administration of the Plan. Any action taken by, or inaction of, the Company, any
Subsidiary, the Board or a Board committee relating or pursuant to the Plan and within its authority hereunder or
under applicable law shall be within the absolute discretion of that entity or body and shall be conclusive and binding
upon all persons.
(b)
The Board or Board committee has discretion to adopt any rules regarding administration of the
Plan to conform to local laws. Without limiting the generality of the foregoing, the Board or a Board committee is
specifically authorized to adopt rules and procedures regarding handling of payroll deductions, payment of interest
and handling of stock certificates which vary according to local requirements. The Board or a Board committee has
the authority to suspend or limit participation in the Plan by employees of any particular Subsidiary for any reason,
including administrative or economic reasons. The Board or a Board committee may also adopt rules, procedures
or sub-plans applicable to particular Subsidiaries or locations, which sub-plans may be designed to be outside the
scope of Section 423 of the Code.
(c)
In making any determination or in taking or not taking any action under the Plan, the Board or a
Board committee may obtain and may rely upon the advice of experts, including professional advisors to the
Company. No director, officer or agent of the Company or any Subsidiary shall be liable for any such action or
determination taken or made or omitted in good faith. The Board or a Board committee may delegate ministerial,
non-discretionary functions relating to the Plan to individuals who are officers or employees of the Company or a
Subsidiary.
(d)
Neither the Board nor any Board committee, nor any member thereof or person acting at the
direction thereof, shall be liable for any act, omission, interpretation, construction or determination made in good
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faith in connection with the Plan, and all such persons shall be entitled to indemnification and reimbursement by
the Company in respect of any claim, loss, damage or expense (including, without limitation, attorneys’ fees) arising
or resulting therefrom to the fullest extent permitted by law and/or under any directors and officers liability
insurance coverage that may be in effect from time to time.
14.
Designation of Beneficiary.
(a)
Unless otherwise determined by the Company, a participant may file a written designation of a
beneficiary who is to receive any Shares and cash, if any, from the participant’s account under the Plan in the event
of such participant’s death subsequent to the end of an Offering Period, as applicable, but prior to delivery to him
or her of such Shares and/or cash. In addition, unless otherwise determined by the Company, a participant may file
a written designation of a beneficiary who is to receive any cash from the participant’s account under the Plan in
the event of such participant’s death prior to the Exercise Date of an Offering Period. If a participant is married and
the designated beneficiary is not the spouse, spousal consent shall be required for such designation to be effective.
(b)
Unless otherwise determined by the Company, such designation of beneficiary may be changed by
the participant (and his or her spouse, if any) at any time by written notice to the Company in a manner acceptable
to the Company. In the event of the death of a participant and in the absence of a beneficiary validly designated
under the Plan who is living at the time of such participant’s death, the Company shall deliver such Shares and/or
cash to the executor or administrator of the estate of the participant, or if no such executor or administrator has been
appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such Shares and/or cash
to the spouse or to any one or more dependents or relatives of the participant, or if no spouse, dependent or relative
is known to the Company, then to such other person as the Company may designate or determine to be the
appropriate recipient of the Shares and/or cash under applicable local law.
Transferability. Neither Contributions credited to a participant’s account nor any rights with regard to the
15.
exercise of an option or to receive Shares under the Plan may be assigned, transferred, pledged or otherwise disposed
of in any way (other than by will, the laws of descent and distribution, or as provided in Section 14) by the
participant. Any such attempt at assignment, transfer, pledge or other disposition shall be without effect, except that
the Company may treat such act as an election to withdraw funds in accordance with Section 10.
16.
Use of Funds. All Contributions received or held by the Company under the Plan may be used by the
Company for any corporate purpose, and the Company shall not be obligated to segregate such Contributions, unless
required by local law.
17.
Reports. Individual accounts will be maintained for each participant in the Plan. Statements of account will
be given or made available to participating Employees as promptly as practically feasible following the Exercise
Date, which statements will set forth the amounts of Contributions, the per Share Purchase Price, the number of
Shares purchased and the remaining cash balance, if any.
18.
Adjustments Upon Changes in Capitalization: Corporate Transactions.
(a)
Adjustment. Subject to any required action by the stockholders of the Company, the Reserves, the
maximum number of Shares an Employee may purchase during each Offering Period as well as the price per Share
and the number of Shares covered by each option under the Plan which has not yet been exercised shall be
proportionately adjusted for any increase or decrease in the number of issued Shares resulting from a stock split,
reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or
decrease in the number of Shares effected without receipt of consideration by the Company; provided, however,
that conversion of any convertible securities of the Company shall not be deemed to have been “effected without
receipt of consideration.” Such adjustment shall be made by the Board, whose determination in that respect shall
be final, binding and conclusive. Except as expressly provided herein, no issue by the Company of shares of stock
of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason
thereof shall be made with respect to, the number or price of Shares subject to an option.
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(b)
Corporate Transactions. In the event of the proposed dissolution or liquidation of the Company,
the Plan, any Offering Period then in progress, and any outstanding option granted with respect to such Offering
Period will terminate immediately prior to the consummation of such proposed action, unless otherwise provided
by the Board. If a participant’s option is terminated pursuant to the preceding sentence, the Contributions then
credited to such participant’s account will be paid to him or her in cash without interest. In the event of a proposed
sale of all or substantially all of the assets of the Company, or the merger of the Company with or into another
corporation, unless otherwise determined by the Board, each option under the Plan shall be assumed or an equivalent
option shall be substituted by such successor corporation or a parent or subsidiary of such successor corporation,
or, if not so assumed or substituted, the Offering Period then in progress shall be shortened and the Board shall set
a new Exercise Date (the “New Exercise Date”). The New Exercise Date shall be on or before the date of
consummation of the transaction and the Board shall notify each participant in writing, at least ten (10) days prior
to the New Exercise Date, that the Exercise Date for his or her option (including for purposes of determining the
Purchase Price of such option) has been changed to the New Exercise Date and that his or her option will be
exercised automatically on the New Exercise Date, unless prior to such date he or she has withdrawn from the
Offering Period as provided in Section 10. For purposes of this paragraph, an option granted under the Plan shall
be deemed to be assumed if, following the sale of assets or merger, the option confers the right to purchase, for each
Share subject to the option immediately prior to the sale of assets or merger, the consideration (whether stock, cash
or other securities or property) received in the sale of assets or merger by holders of Common Stock for each Share
held on the effective date of the transaction (and if such holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the outstanding Shares of Common Stock); provided, however,
that if such consideration received in the sale of assets or merger was not solely common stock of the successor
corporation or its parent (as defined in Section 424(e) of the Code), the Board may, with the consent of the successor
corporation and the participant, provide for the consideration to be received upon exercise of the option to be solely
common stock of the successor corporation or its parent equal in Fair Market Value to the per Share consideration
received by holders of Common Stock and the sale of assets or merger.
(c)
The Board may, if it so determines in the exercise of its sole discretion, also make provision for
adjusting the Reserves, as well as the price per Share covered by each outstanding option, in the event that the
Company effects one or more reorganizations, recapitalizations, rights offerings or other increases or reductions of
shares of its outstanding Common Stock, and in the event of the Company being consolidated with or merged into
any other corporation.
19.
Amendment or Termination.
(a)
The Board may at any time and for any reason terminate, suspend or amend the Plan. Except as
provided in Section 13(b) and 18, no such termination of the Plan may affect options previously granted, provided
that the Plan or an Offering Period may be terminated by the Board on any Exercise Date or by the Board’s setting
a new Exercise Date with respect to an Offering Period then in progress if the Board determines that termination of
the Plan and/or the Offering Period is in the best interests of the Company and the stockholders or if continuation
of the Plan and/or the Offering Period would cause the Company to incur adverse accounting charges as a result of
a change after the effective date of the Plan in the generally accepted accounting rules applicable to the Plan. If any
Offering Period is terminated prior to its scheduled expiration (without setting a new Exercise Date), all amounts
that have not been used to purchase Shares will be returned to participants, without interest, as soon as
administratively practicable. Except as provided in Section 18 and in this Section 19, no amendment to the Plan
shall make any change in any option previously granted which adversely affects the rights of any participant without
such participant’s written consent. In addition, to the extent necessary to comply with the requirements of Rule 16b-
3 under the Exchange Act, Section 423 of the Code (or any successor rule or provision or any applicable law or
regulation) or any stock exchange on which the Shares are then listed, the Company shall obtain stockholder
approval in such a manner and to such a degree as so required.
(b)
Without stockholder consent and without regard to whether any participant rights may be
considered to have been adversely affected, the Board shall be entitled to change the Offering Periods, limit the
frequency and/or number of changes in the amount withheld during an Offering Period, establish the exchange ratio
applicable to amounts withheld in a currency other than U.S. dollars, permit payroll withholding in excess of the
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amount designated by a participant in order to adjust for delays or mistakes in the Company’s processing of properly
completed withholding elections, establish reasonable waiting and adjustment periods and/or accounting and
crediting procedures to ensure that amounts applied toward the purchase of Shares for each participant properly
correspond with amounts withheld from the participant’s Compensation, and establish such other limitations or
procedures as the Board determines in its sole discretion advisable which are consistent with the Plan.
20.
Notices. All notices or other communications by a participant to the Company under or in connection with
the Plan shall be deemed to have been duly given when received in the form specified by the Company at the
location, or by the person, designated by the Company for the receipt thereof.
21.
Conditions Upon Issuance of Shares. The Company shall have no obligation to issue Shares with respect
to an option unless the exercise of such option and the issuance and delivery of such Shares pursuant thereto shall
comply with all applicable provisions of law, domestic or foreign, including, without limitation, the U.S. Securities
Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the Shares may then be listed, and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
As a condition to the exercise of an option, the Company may require the person exercising such option to represent
and warrant at the time of any such exercise that the Shares are being purchased only for investment and without
any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a
representation is required by any of the aforementioned applicable provisions of law.
22.
Term of Plan; Effective Date. The Plan shall become effective upon the earlier to occur of its adoption by
the Board or its approval by the stockholders of the Company. The Plan shall continue in effect for a term of ten
(10) years unless sooner terminated under Section 19.
23.
Additional Restrictions of Rule 16b-3. The terms and conditions of options granted hereunder to, and the
purchase of Shares by, persons subject to Section 16 of the Exchange Act shall comply with the applicable
provisions of Rule 16b-3. This Plan shall be deemed to contain, and such options shall contain, and the Shares
issued upon exercise thereof shall be subject to, such additional conditions and restrictions as may be required by
Rule 16b-3 to qualify for the maximum exemption from Section 16 of the Exchange Act with respect to Plan
transactions.
No Employment Rights. Nothing in the Plan (or in any subscription agreement or other document related
24.
to this Plan) will confer upon any Employee or participant any right to continue in the employ or other service of
the Company or any Subsidiary, constitute any contract or agreement of employment or other service or effect an
employee’s status as an employee at will, nor shall interfere in any way with the right of the Company or any
Subsidiary to change such person’s compensation or other benefits or to terminate his or her employment or other
service, with or without cause. Nothing contained in this Section 24, however, is intended to adversely affect any
express independent right of any such person under a separate employment or service contract other than a
subscription agreement.
25.
No Right to Assets of the Company. No participant or other person will have any right, title or interest in
any fund or in any specific asset (including Shares) of the Company or any Subsidiary by reason of any option
hereunder. Neither the provisions of the Plan (or of any subscription agreement or other document related to the
Plan), nor the creation or adoption of the Plan, nor any action taken pursuant to the provisions of the Plan will
create, or be construed to create, a trust of any kind or a fiduciary relationship between the Company or any
Subsidiary and any participant, beneficiary or other person. To the extent that a participant, beneficiary or other
person acquires a right to receive payment pursuant to the Plan, such right will be no greater than the right of any
unsecured general creditor of the Company.
26. Miscellaneous.
B-9
(a)
The Plan, the options, subscription agreements and other documents related to the Plan shall be
governed by, and construed in accordance with, the laws of the State of Delaware. If any provision of the Plan shall
be held by a court of competent jurisdiction to be invalid and unenforceable, the remaining provisions of the Plan
shall continue in effect.
(b)
Captions and headings are given to the sections of the Plan solely as a convenience to facilitate
reference. Such captions and headings shall not be deemed in any way material or relevant to the construction of
interpretation of the Plan or any provision hereof.
(c)
The adoption of the Plan shall not affect any other Company or Subsidiary compensation or
incentive plans in effect. Nothing in the Plan will limit or be deemed to limit the authority of the Board or a Board
committee:
(i)
to establish any other forms of incentives or compensation for employees of the Company
or any Subsidiary (with or without reference to the Common Stock), or
to grant or assume options (outside the scope of and in addition to those contemplated by
the Plan) in connection with any proper corporate purpose, to the extent consistent with any other plan or authority.
(ii)
Benefits received by a participant under an option granted pursuant to the Plan shall not be deemed a part of the
participant’s compensation for purposes of the determination of benefits under any other employee welfare or
benefit plans or arrangements, if any, provided by the Company or any Subsidiary, except where the Board or Board
committee (or the Board of Directors of the Subsidiary that sponsors such plan or arrangement, as applicable)
expressly otherwise provides or authorizes in writing.
B-10
SHAREHOLDER I NFORMATION
LOCATIONS
INVESTOR INFORMATION
HEADQUARTERS
Onto Innovation
16 Jonspin Road
Wilmington, Massachusetts 01887
Phone 978.253.6200
ontoinnovation.com
OTHER LOCATIONS
View all locations on our website:
https://ontoinnovation.com/company/locations
General Shareholder and
Investor Questions may be
directed to:
Mike Sheaffer
Investor Relations,
Corporate Communications
Onto Innovation
16 Jonspin Road
Wilmington, Massachusetts
01887
investors@ontoinnovation.com
Independent Registered Public
Accounting Firm
Ernst & Young, LLP
Iselin, New Jersey
Registrar and Transfer Agent
Computershare Trust
Company, N.A.
P.O. Box 505000
Louisville, Kentucky 40233
Phone 800.368.5948
www.computershare.com
Stock Symbol
Common stock is traded on the
New York Stock Exchange
under the symbol, ONTO
Annual Meeting
Stockholders are invited to
attend the Annual Meeting
at 1000 am on Tuesday,
May 12, 2020 at our corporate
headquarters, located at
16 Jonspin Road
Wilmington, Massachusetts
01887
Form 10K
The Annual Report on Form
10K filed with the Securities
and Exchange Commission is
available without charge upon
written request to Investor
Relations at our corporate
headquarters address.
BOARD OF DIRECTORS
Christopher A. Seams
Chairman of the Board
Former Chief Executive
Officer
Deca Technologies
Jeffery A. Aukerman
Former Partner
Deloitte & Touche, LLP
Leo Berlinghieri
Former Chief Executive
Officer and President
MKS Instruments, Inc.
Edward J. Brown, Jr.
Former Chief Executive
Officer
Cymer Light Source
Vita A. Cassese
Chief Executive Officer
Mardon Management
Advisors
Robert G. Deuster
Former Chief Executive
Officer
Collectors Universe, Inc.
David B. Miller
Former President
DuPont Electronics &
Communications
Michael P. Plisinski
Chief Executive Officer
Bruce C. Rhine
Former Chief Strategy
Officer
Nanometrics Incorporated
Timothy J. Stultz, Ph.D.
Former Chief Executive
Officer
Nanometrics Incorporated
Christine A. Tsingos
Former Executive Vice
President and Chief Financial
Officer
Bio-Rad Laboratories
John R. Whitten
Former Chief Financial
Officer, Vice President and
Treasurer
Applied Industrial
Technologies, Inc.
EXECUTIVE OFFICERS
Michael P. Plisinski
Chief Executive Officer
Steven R. Roth
Senior Vice President,
Finance and Administration
and Chief Financial Officer
Robert A. Koch
Vice President and General
Counsel
NYSE
ONTO
Onto Innovation Inc.
16 Jonspin Road
Wilmington MA 01887
978.253.6200
ontoinnovation.com
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