Exhibit 10.3

EXECUTIVE SEVERANCE AGREEMENT

BETWEEN

TIMOTHY STULTZ

AND

NANOMETRICS INCORPORATED

This Executive Severance Agreement (the “Severance Agreement”) is made and
entered into this     th day of July 2007 by and between Timothy Stultz
(“Mr. Stultz”) and Nanometrics Incorporated (the “Company”), a Delaware
corporation.

WHEREAS, Mr. Stultz has been hired by the Company as its new President and Chief
Executive Officer effective August     , 2007, and

WHEREAS, the Company wishes to allow Mr. Stultz to focus his attention upon his
new duties by providing him with a degree of financial security and income
protection in the event of an involuntary termination without Cause (as defined
herein) or a resignation for Good Reason (as defined herein), including in
connection with a Change of Control (as defined herein) of the Company.

NOW, THEREFORE, the parties hereby agree as follows:

1. This Severance Agreement is intended solely to set out the parties’
understanding with respect to the involuntary separation without Cause or the
resignation for Good Reason, including in connection with a Change of Control,
of Mr. Stultz and is not intended to constitute a contract of employment for any
period of time. Mr. Stultz understands that he is, and following the execution
of this Severance Agreement, remains an, at-will employee of the Company and may
be terminated at any time with or without cause or notice.

2. In the event Mr. Stultz’s employment with the Company terminates for any
reason, Mr. Stultz will be entitled to any (a) unpaid base salary accrued up to
the effective date of termination; (b) pay for accrued but unused vacation;
(c) benefits or compensation as provided under the terms of any employee benefit
and compensation agreements or plans applicable to Mr. Stultz (d) unreimbursed
business expenses required to be reimbursed to Mr. Stultz; and (e) rights to
indemnification Mr. Stultz may have under the Company’s Certificate of
Incorporation, Bylaws or separate indemnification agreement, as applicable In
addition, depending on the reason for termination, Mr. Stultz may be entitled to
the amounts and benefits specified in Sections 3, 4, 5 or 6 of this Severance
Agreement. Upon the termination of Mr. Stultz’s employment with the Company for
any reason, unless otherwise requested by the Company’s Board of Directors,
Mr. Stultz will be deemed to have resigned from the Board (and all other
positions held at the Company and its

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affiliates, including, without limitation, any boards of subsidiaries)
voluntarily, without any further required action by Mr. Stultz, as of the end of
the Mr. Stultz’s employment and Mr. Stultz, at the Board’s request, will execute
any documents necessary to reflect his resignation.

3. In the event that Mr. Stultz’s employment with the Company is terminated by
the Company without Cause or Mr. Stultz resigns for Good Reason during the
period beginning on Mr. Stultz’s hire date and concluding one year later, the
Company agrees, subject to Sections 7 through 11 of this Severance Agreement, as
a separation payment, (i) to pay to Mr. Stultz his annual salary (as in effect
immediately prior to such separation from employment), bonuses that have been
earned or accrued, on the Company’s normal paydays and (ii) to reimburse
Mr. Stultz for his premium payments under the Consolidated Omnibus Budget
Reconciliation Act (“COBRA”), in each case for a period of one (1) year from
date of separation from employment. If Mr. Stultz’s separation is for Cause, he
shall be due no separation payment.

4. In the event that Mr. Stultz’s employment with the Company is terminated by
the Company without Cause or Mr. Stultz resigns for Good Reason during the
period beginning one year and one day after Mr. Stultz’s hire date until two
years from Mr. Stultz’ hire date, the Company agrees, subject to Sections 7
through 11 of this Severance Agreement, as a separation payment, (i) to pay to
Mr. Stultz his annual salary (as in effect immediately prior to such separation
from employment), bonuses that have been earned or accrued, on the Company’s
normal paydays and (ii) to reimburse Mr. Stultz for his premium payments under
COBRA, in each case for a period of nine (9) months from the date of his
separation from employment. If Mr. Stultz’s separation is for Cause, he shall be
due no separation payment.

5. In the event that Mr. Stultz’s employment with the Company is terminated by
the Company without Cause or Mr. Stultz resigns for Good Reason during the
period beginning two years and one day from Mr. Stultz’ hire date or thereafter,
the Company agrees, subject to Sections 7 through 11 of this Severance
Agreement, as a separation payment, (i) to pay to Mr. Stultz his annual salary
(as in effect immediately prior to such separation from employment), bonuses
that have been earned or accrued, on the Company’s normal paydays and (ii) to
reimburse Mr. Stultz for his premium payments under COBRA, in each case for a
period of six (6) months from the date of his separation from employment. If
Mr. Stultz’s separation is for Cause, he shall be due no separation payment.

6. In the event that Mr. Stultz’s employment with the Company is terminated by
the Company without Cause or Mr. Stultz resigns for Good Reason from all of his
employment positions with the Company and its subsidiaries, in each case within
twelve (12) months following a Change of Control, the Company agrees, subject to
Sections 7 through 11 of this Severance Agreement, as a separation payment and
in lieu of any payments and benefits that otherwise might be due him pursuant to
Sections 3, 4 or 5 of this Severance Agreement, (i) to pay to Mr. Stultz his
annual salary (as in effect immediately prior to such separation from
employment), bonuses that have been earned or accrued, on the Company’s normal
paydays; (ii) to reimburse Mr. Stultz for his premium payments under COBRA, in
each case for a period of one (1) year from the date of his separation from
employment; and (iii) one hundred percent (100%) of the unvested shares subject
to Mr. Stultz’s then outstanding equity awards will immediately vest and, if
applicable, become exercisable. If Mr. Stultz’s separation is for Cause or he
relinquishes his positions voluntarily without Good Reason, he shall be due no
separation payment.

 

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7. Notwithstanding anything in this Severance Agreement to the contrary,
reimbursement for premiums paid under COBRA pursuant to this Severance Agreement
shall be paid only if Mr. Stultz validly elects to continue coverage under COBRA
and shall be reimbursed only until the earlier of (i) the termination date set
forth in Section 3, 4, 5 or 6 of this Severance Agreement, as applicable;
(ii) the date upon which Mr. Stultz and Mr. Stultz’s eligible dependents become
otherwise covered under similar plans; (iii) the date upon which Mr. Stultz and
Mr. Stultz’s eligible dependents cease to be eligible for coverage under COBRA.

8. Notwithstanding anything to the contrary in this Severance Agreement, if
Mr. Stultz is a “specified employee” within the meaning of Section 409A of the
Code and any final regulations and guidance promulgated thereunder (“Section
409A”) at the time of Mr. Stultz’s separation from employment, then any
severance payments payable pursuant to this Severance Agreement and any other
severance payments or separation benefits which may be considered deferred
compensation under Section 409A (together, the “Deferred Compensation Separation
Benefits”) otherwise due to Mr. Stultz on or within the six (6) month period
following Mr. Stultz’s separation from employment will accrue during such six
(6) month period and will become payable in a lump sum payment on the date six
(6) months and one (1) day following the date of Mr. Stultz’s separation from
employment. All subsequent payments, if any, will be payable in accordance with
the payment schedule applicable to each payment or benefit. It is the intent of
this Severance Agreement to comply with the requirements of Section 409A so that
none of the severance payments and benefits to be provided hereunder will be
subject to the additional tax imposed under Section 409A, and any ambiguities
herein will be interpreted to so comply.

9. The severance payments and benefits provided herein shall be conditioned on
the following:

(a) The receipt of any severance or other benefits pursuant to this Severance
Agreement will be subject to (i) Mr. Stultz signing and not revoking a release
of claims in a form acceptable to the Company; (ii) Mr. Stultz’s promptly
resigning from all positions with the Company as requested; and (iii) Mr. Stultz
continuing to comply with the terms of any Confidential Information Agreement by
which he is then bound. No severance or other benefits will be paid or provided
until the release agreement becomes effective.

(b) During the period of Mr. Stultz’s employment with the Company and the
Continuance Period (as defined herein), Mr. Stultz will not knowingly and
materially disparage, criticize, or otherwise make any derogatory statements
regarding the Company or any officer, director or agent of the Company nor will
the Company knowingly and materially disparage, criticize, or otherwise make any
derogatory statements regarding Mr. Stultz. Notwithstanding the foregoing,
nothing contained in this Severance Agreement will be deemed to restrict
Mr. Stultz, the Company or any of the Company’s current or former officers
and/or directors from providing information to any governmental or regulatory
agency (or in any way limit the content of any such information) to the extent
they are requested or required to provide such information pursuant to
applicable law or regulation.

 

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(c) Mr. Stultz acknowledges that the nature of the Company’s business is such
that if Mr. Stultz were to become employed by, or substantially involved in, the
business of a competitor of the Company during the twelve (12) months following
the termination of Mr. Stultz’s employment with the Company, it would be very
difficult for Mr. Stultz not to rely on or use the Company’s trade secrets and
confidential information. Thus, to avoid the inevitable disclosure of the
Company’s trade secrets and confidential information, Mr. Stultz agrees and
acknowledges that Mr. Stultz’s right to receive the separation payments set
forth in Sections 3, 4 and 5 of this Severance Agreement (to the extent
Mr. Stultz is otherwise entitled to such payments) shall be conditioned upon
Mr. Stultz not directly or indirectly engaging in (whether as an employee,
consultant, agent, proprietor, principal, partner, stockholder, corporate
officer, director or otherwise), nor having any ownership interested in or
participating in the financing, operation, management or control of, any person,
firm, corporation or business that competes with Company or is a customer of the
Company. Upon any breach of this section, all severance payments pursuant to
this Severance Agreement shall immediately cease.

(d) Until the date one (1) year after the termination of Mr. Stultz’s employment
with the Company for any reason, Mr. Stultz agrees and acknowledges that
Mr. Stultz’s right to receive the separation payments set forth in Sections 3, 4
and 5 of this Severance Agreement (to the extent Mr. Stultz is otherwise
entitled to such payments) shall be conditioned upon Mr. Stultz not either
directly or indirectly soliciting, inducing, attempting to hire, recruiting,
encouraging, taking away, hiring any employee of the Company or causing an
employee to leave his or her employment either for Mr. Stultz or for any other
entity or person.

10. All payments made pursuant to this Severance Agreement will be subject to
standard deductions and the withholding of applicable taxes.

11. In the event that the severance and other benefits provided for in this
Severance Agreement or otherwise payable to Mr. Stultz (i) constitute “parachute
payments” within the meaning of Section 280G of the Code and (ii) but for this
Section, would be subject to the excise tax imposed by Section 4999 of the Code,
then Mr. Stultz’s separation payments under this Severance Agreement will be
either:

(a) delivered in full, or

(b) delivered as to such lesser extent which would result in no portion of such
severance benefits being subject to excise tax under Section 4999 of the Code,

whichever of the foregoing amounts, taking into account the applicable federal,
state and local income taxes and the excise tax imposed by Section 4999 of the
Code, results in the receipt by Mr. Stultz on an after-tax basis, of the
greatest amount of severance benefits, notwithstanding that all or some portion
of such severance benefits may be taxable under Section 4999 of the Code. Unless
the Company and Mr. Stultz otherwise agree in writing, any determination
required under this Section will be made in writing by the independent public
accountants who are primarily used by the Company (the “Accountants”), whose
determination will be conclusive and binding upon Mr. Stultz and the Company for
all purposes. For purposes of making the calculations required by this Section,
the Accountants may make reasonable assumptions and approximations concerning

 

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applicable taxes and may rely on reasonable, good faith interpretations
concerning the application of Sections 280G and 4999 of the Code. The Company
and Mr. Stultz will furnish to the Accountants such information and documents as
the Accountants may reasonably request in order to make a determination under
this Section. The Company will bear all costs the Accountants may reasonably
incur in connection with any calculations contemplated by this Section.

12. The following capitalized terms shall the meanings set forth herein:

(a) Cause. For purposes of this Severance Agreement, “Cause” means
(i) Mr. Stultz’s willful gross misconduct; (ii) Mr. Stultz’s unjustifiable
neglect of his duties (as determined in the good faith judgment of the Board);
(iii) Mr. Stultz’s acting in any manner that has a direct, substantial and
adverse effect on the Company or its reputation, (iv) Mr. Stultz’s repeated
material failure or repeated refusal to comply with reasonable written policies,
standards and regulations established by the Company from time to time which
failure, if curable, is not cured to the reasonable satisfaction of the Board
during the thirty (30) day period following written notice of such failure from
the Company; (v) any tortious act, unlawful act or malfeasance which causes or
reasonably could cause (for example, if it became publicly known) material harm
to the Company’s standing, condition or reputation; (vi) any material breach by
Mr. Stultz of the provisions of any confidential information agreement with the
Company or other material improper disclosure of the Company’s confidential or
proprietary information, (vii) Mr. Stultz’s theft, dishonesty, or falsification
of any Company records; (viii) Mr. Stultz being found liable in any Securities
and Exchange Commission or other civil or criminal securities law action or
entering any cease and desist order with respect to such action (regardless of
whether or not Mr. Stultz admits or denies liability); or (ix) Mr. Stultz
(A) obstructing or impeding; (B) endeavoring to influence, obstruct or impede,
or (C) failing to materially cooperate with, any investigation authorized by the
Board or any governmental or self-regulatory entity (an “Investigation”).
However, Mr. Stultz’s failure to waive attorney-client privilege relating to
communications with Mr. Stultz’s own attorney in connection with an
Investigation will not constitute “Cause

(b) Change of Control. For purposes of this Severance Agreement, “Change of
Control” means the occurrence of any of the following:

(i) Any “person” (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended) becomes the “beneficial owner” (as
defined in Rule 13d-3 under said Act), directly or indirectly, of securities of
the Company representing 50% or more of the total voting power represented by,
or 50% or more of the fair value of, the Company’s then outstanding voting
securities; or

(ii) Any action or event occurring within a two-year period, as a result of
which less than a majority of the directors are Incumbent Directors. “Incumbent
Directors” will mean directors who either (A) are directors of the Company as of
the date hereof, or (B) are 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 will 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); or

 

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(iii) 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 voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving or resulting entity, including any
parent holding company) at least fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such surviving or
resulting entity outstanding immediately after such merger or consolidation; or

(iv) The consummation of the sale, lease or other disposition by the Company of
all or substantially all the Company’s assets.

(c) Code. For purposes of this Severance Agreement, “Code” means the Internal
Revenue Code of 1986, as amended.

(d) Continuance Period. For purposes of this Severance Agreement, “Continuance
Period” will mean the period of time beginning on the date of the termination of
Mr. Stultz’s employment and ending on the date on which Mr. Stultz is no longer
entitled to receive severance payments under this Severance Agreement.

(e) Good Reason. For purposes of this Severance Agreement, “Good Reason” means
the occurrence of one or more of the following events without his written
consent: (i) a reduction of Mr. Stultz’ base salary in any one year; (ii) the
relocation of Mr. Stultz to a facility that is more than fifty (50) miles from
his current location; (iii) the failure of the Company to obtain assumption of
this Severance Agreement by any successor; and (iv) the willful breach by the
Company of any material element of the then current employment agreement or a
material provision of this Severance Agreement

13. This Severance Agreement will be binding upon and inure to the benefit of
(a) the heirs, executors and legal representatives of Mr. Stultz upon
Mr. Stultz’s death and (b) any successor of the Company. Any such successor of
the Company will be deemed substituted for the Company under the terms of this
Severance Agreement for all purposes. For this purpose, “successor” means any
person, firm, corporation or other business entity which at any time, whether by
purchase, merger or otherwise, directly or indirectly acquires all or
substantially all of the assets or business of the Company. None of the rights
of Mr. Stultz to receive any form of compensation payable pursuant to this
Severance Agreement may be assigned or transferred except by will or the laws of
descent and distribution. Any other attempted assignment, transfer, conveyance
or other disposition of Mr. Stultz’s right to compensation or other benefits
will be null and void.

14. This Severance Agreement constitutes the entire agreement between the
parties pertaining to the separation of Mr. Stultz from employment with the
Company and its subsidiaries, is intended to apply to the exclusion of all other
remedies in the event of such separation and supersedes all prior or
contemporaneous agreements whether written or oral. The Company and Mr. Stultz
agree to work together in good faith to consider amendments to this Severance
Agreement and to take such reasonable actions which are necessary, appropriate
or desirable to avoid imposition of any additional tax or income recognition
under Section 409A prior to actual payment to Mr. Stultz. No waiver, alteration,
or modification of any of the provisions of this Severance Agreement will be
binding unless in writing and signed by duly authorized representatives of the
parties hereto.

 

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15. In the event that any provision hereof becomes or is declared by a court of
competent jurisdiction to be illegal, unenforceable or void, this Severance
Agreement will continue in full force and effect without said provision.

16. This Severance Agreement shall be governed by and construed in accordance
with the laws of the State of California (with the exception of its conflict of
laws provisions).

17. In the event of disagreement, the parties agree to attempt to work out their
differences in good faith. In the event the parties are unable to so work out
their differences, any controversy or claim arising out of or relating to this
Severance Agreement, or the breach thereof, shall be settled by arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association, and judgment upon the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction thereof. The parties agree that such
arbitration shall be held in Santa Clara County, California and that the Company
shall reimburse Mr. Stultz’s reasonable costs and attorneys’ fees.

18. Mr. Stultz acknowledges and agrees that Mr. Stultz is executing this
Severance Agreement voluntarily and without any duress or undue influence by the
Company or anyone else. Mr. Stultz further acknowledges and agrees that he has
carefully read this Severance Agreement and that he has asked any questions
needed for him to understand the terms, consequences and binding effect of this
Severance Agreement and fully understand it, including that he is waiving his
right to a jury trial. Finally, Mr. Stultz agrees that he has been provided an
opportunity to seek the advice of an attorney of his choice before signing this
Severance Agreement.

19. This Severance Agreement may be executed in counterparts, and each
counterpart will have the same force and effect as an original and will
constitute an effective, binding agreement on the part of each of the
undersigned.

20. All notices, requests, demands and other communications called for hereunder
will be in writing and will be deemed given (a) on the date of delivery if
delivered personally, (b) one (1) day after being sent overnight by a well
established commercial overnight service, or (c) four (4) days after being
mailed by registered or certified mail, return receipt requested, prepaid and
addressed to the parties or their successors at the following addresses, or at
such other addresses as the parties may later designate in writing:

If to the Company:

Attn: Chairman of the Compensation Committee

c/o Corporate Secretary

Nanometrics Incorporated

1550 Buckeye Drive

Milpitas, CA 95035

If to Executive:

at the last residential address known by the Company.

 

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Executed as of the date first above written.

 

NANOMETRICS INCORPORATED

By:  

 

  Bruce C. Rhine   Chief Executive Officer

 

AGREED TO AND ACCEPTED:

 

Timothy J. Stultz

 

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