-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, K4Nln0as3odSw372RjjGMNQYEweJqCSdjxPeMo60rE8JfQP4EVZyRnv0dH1f65YR LwuKf9gn+iB01M3BNR0Uzw== 0001169232-06-004864.txt : 20061228 0001169232-06-004864.hdr.sgml : 20061228 20061228143440 ACCESSION NUMBER: 0001169232-06-004864 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 2 FILED AS OF DATE: 20061228 DATE AS OF CHANGE: 20061228 GROUP MEMBERS: NIERENBERG INVESTMENT MANAGEMENT OFFSHORE, INC. GROUP MEMBERS: THE D3 FAMILY BULLDOG FUND, L.P. GROUP MEMBERS: THE D3 FAMILY FUND, L.P. GROUP MEMBERS: THE DIII OFFSHORE FUND, L.P. FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: NIERENBERG INVESTMENT MANAGEMENT CO CENTRAL INDEX KEY: 0001282683 IRS NUMBER: 911677205 FILING VALUES: FORM TYPE: SC 13D/A MAIL ADDRESS: STREET 1: 19605 NE 8TH ST CITY: CAMAS STATE: WA ZIP: 98607 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: ELECTRO SCIENTIFIC INDUSTRIES INC CENTRAL INDEX KEY: 0000726514 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS ELECTRICAL MACHINERY, EQUIPMENT & SUPPLIES [3690] IRS NUMBER: 930370304 STATE OF INCORPORATION: OR FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-34524 FILM NUMBER: 061302484 BUSINESS ADDRESS: STREET 1: 13900 NW SCIENCE PARK DR CITY: PORTLAND STATE: OR ZIP: 97229 BUSINESS PHONE: 5036414141 MAIL ADDRESS: STREET 1: 13900 NW SCIENCE PARK DRIVE CITY: PORTLAND STATE: OR ZIP: 97229-5497 SC 13D/A 1 d70336_13d-a.txt AMENDMENT NO. 4 SCHEDULE 13D UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 SCHEDULE 13D Under the Securities Exchange Act of 1934 (Amendment No. 4) ELECTRO SCIENTIFIC INDUSTRIES INC. (ESIO) (Name of Issuer) Common Stock (Title of Class of Securities) 285229100 (CUSIP Number) David Nierenberg The D3 Family Funds 19605 NE 8th Street Camas, WA 98607 (360) 604-8600 With a copy to: Henry Lesser, Esq. DLA Piper US LLP 2000 University Avenue East Palo Alto, CA 94303 (650) 833-2000 (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) December 27, 2006 (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D and is filing this schedule because of ss.ss. 240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the following box (TM). - -------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSON The D3 Family Fund, L.P. - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) |X| (b) |_| - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS* WC - -------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) |_| - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION Washington - -------------------------------------------------------------------------------- 7 SOLE VOTING POWER 486,682 Common shares (1.7 %) ----------------------------------------------------------------- NUMBER OF 8 SHARED VOTING POWER SHARES BENEFICIALLY 0 OWNED BY ----------------------------------------------------------------- EACH 9 SOLE DISPOSITIVE POWER REPORTING PERSON 486,682 WITH ----------------------------------------------------------------- 10 SHARED DISPOSITIVE POWER 0 - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON For the reporting person listed on this page, 486,682; for all reporting persons as a group, 2,759,484 shares (9.5 %) - -------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* |_| - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 9.5% - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON* PN - -------------------------------------------------------------------------------- *SEE INSTRUCTIONS BEFORE FILLING OUT! 2 - -------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSON The DIII Offshore Fund, L.P. - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) |X| (b) |_| - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS* WC - -------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) |_| - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION Bahamas - -------------------------------------------------------------------------------- 7 SOLE VOTING POWER 635,004 common shares (2.2%) ----------------------------------------------------------------- NUMBER OF 8 SHARED VOTING POWER SHARES BENEFICIALLY 0 OWNED BY ----------------------------------------------------------------- EACH 9 SOLE DISPOSITIVE POWER REPORTING PERSON 635,004 WITH ----------------------------------------------------------------- 10 SHARED DISPOSITIVE POWER 0 - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON For the reporting person listed on this page, 635,004; for all reporting persons as a group, 2,759,484 shares (9.5%) - -------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* |_| - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 9.5% - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON* PN - -------------------------------------------------------------------------------- *SEE INSTRUCTIONS BEFORE FILLING OUT! 3 - -------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSON The D3 Family Bulldog Fund, L.P. - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) |X| (b) |_| - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS* WC - -------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) |_| - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION Washington - -------------------------------------------------------------------------------- 7 SOLE VOTING POWER 1,637,798 common shares (5.6%) ----------------------------------------------------------------- NUMBER OF 8 SHARED VOTING POWER SHARES BENEFICIALLY 0 OWNED BY ----------------------------------------------------------------- EACH 9 SOLE DISPOSITIVE POWER REPORTING PERSON 1,637,798 WITH ----------------------------------------------------------------- 10 SHARED DISPOSITIVE POWER 0 - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON For the reporting person listed on this page, 1,637,798; for all reporting persons as a group, 2,759,484 shares (9.5%) - -------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* |_| - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 9.5% - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON* PN - -------------------------------------------------------------------------------- *SEE INSTRUCTIONS BEFORE FILLING OUT! 4 - -------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSON Nierenberg Investment Management Company, Inc. - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) |X| (b) |_| - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS* WC - -------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) |_| - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION Washington - -------------------------------------------------------------------------------- 7 SOLE VOTING POWER 0 ----------------------------------------------------------------- NUMBER OF 8 SHARED VOTING POWER SHARES BENEFICIALLY 2,759,484 shares (9.5%) OWNED BY ----------------------------------------------------------------- EACH 9 SOLE DISPOSITIVE POWER REPORTING PERSON 0 WITH ----------------------------------------------------------------- 10 SHARED DISPOSITIVE POWER 2,759,484 shares - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON For the reporting person listed on this page, 2,759,484; for all reporting persons as a group, 2,759,484 shares (9.5%) - -------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* |_| - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 9.5% - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON* PN - -------------------------------------------------------------------------------- *SEE INSTRUCTIONS BEFORE FILLING OUT! 5 - -------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSON Nierenberg Investment Management Offshore, Inc. - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) |X| (b) |_| - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS* WC - -------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) |_| - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION Bahamas - -------------------------------------------------------------------------------- 7 SOLE VOTING POWER 0 ----------------------------------------------------------------- NUMBER OF 8 SHARED VOTING POWER SHARES BENEFICIALLY 635,004 common shares (2.2%) OWNED BY ----------------------------------------------------------------- EACH 9 SOLE DISPOSITIVE POWER REPORTING PERSON 0 WITH ----------------------------------------------------------------- 10 SHARED DISPOSITIVE POWER 635,004 common shares - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON For the reporting person listed on this page, 635,004 for all reporting persons as a group, 2,759,484 shares (9.5%) - -------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* |_| - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 9.5% - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON* PN - -------------------------------------------------------------------------------- *SEE INSTRUCTIONS BEFORE FILLING OUT! 6 This Amendment No. 4 to Schedule 13D (this "Amendment") amends the below-indicated items from the Schedule 13D previously filed by or on behalf of the undersigned parties (the "Reporting Persons") (the "Schedule 13D"), by supplementing such Items with the information below: Item 4. Purpose of Transaction On December 27, 2006, the letter attached as Exhibit 1 to this Amendment was sent to the Chairman of the Board of ESIO proposing a special one-time cash dividend of $4.00 per share. Such letter is incorporated by reference into this Item 4. The Reporting Persons understand from ESIO's Chairman that their dividend proposal will be considered at the meeting of ESIO's Board to be held in mid-January 2007 and will await the outcome of that meeting before making any decisions as to any future action they might take with respect to their proposal. By reporting the information contained in this Amendment, the Reporting Persons do not intend to solicit, nor are they soliciting, proxies or consents from, nor seeking or requesting any other action by, any of the other stockholders of ESIO. The Reporting Persons have made no decisions as to whether or not they may in the future solicit proxies from any of the other stockholders on any matter that might be brought before the stockholders nor as to whether or not any such solicitation, if made, would be effected as an exempt solicitation under the proxy rules of the Securities and Exchange Commission. The statements in the letter referred to above as to the views of the Reporting Persons regarding their investment in ESIO represent solely their own analyses and judgments, based on publicly-available information and their own internal evaluation thereof. Those statements are not intended, and should not be relied on, as investment advice to any other investor or prospective investor. To the extent those statements reflect assessments of possible future developments, those assessments are inherently subject to the uncertainties associated with all assessments of future events; actual developments may materially differ as a result of circumstances affecting ESIO and/or extrinsic factors such as developments in the company's industry and the economic environment. The Reporting Persons reserve the right to change their internal evaluation of this investment in the future , as well as to increase or decrease their investment depending on their evaluation, without further amending their Schedule 13D except as required by applicable rules. Item 5. Interest in Securities of the Issuer (a, b) The Reporting Persons, in the aggregate, beneficially own 2,759,484 common shares, constituting approximately 9.5% of the outstanding shares. (c) During the past sixty (60) days the following purchases of Shares were made by D3 Family Funds in open market transactions: 7 Fund Transaction Date Shares Bought Price ---- ---------------- ------------- ----- D3 Family Bulldog Fund LP 11/27/2006 9,630 19.41 D3 Family Fund LP 11/1/2006 241 19.75 D3 Family Fund LP 11/2/2006 2,500 19.48 D3 Family Fund LP 11/27/2006 4,000 19.41 DIII Offshore Fund LP 11/2/2006 1,729 19.48 Item 7. Material to be filed as Exhibits Exhibit 1 to this Amendment is the letter referred to in Item 4. 8 SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, each of the undersigned certifies that the information set forth in the Statement is true, complete and correct. D3 Family Fund, L.P., and D3 Bulldog Fund, L.P. By: Nierenberg Investment Management Company, Inc. Its: General Partner December 28, 2006 By: /s/ David Nierenberg ----------------------------------------- David Nierenberg, President DIII Offshore Fund, L.P. By: Nierenberg Investment Management Offshore, Inc. Its: General Partner December 28, 2006 By: /s/ David Nierenberg ----------------------------------------- David Nierenberg, President Nierenberg Investment Management Company, Inc. December 28, 2006 By: /s/ David Nierenberg ----------------------------------------- David Nierenberg, President Nierenberg Investment Management Offshore, Inc. December 28, 2006 By: /s/ David Nierenberg ----------------------------------------- David Nierenberg, President 9 EX-1 2 d70336_ex1.txt UNDERWRITING AGREEMENT Exhibit 1 THE D(3) FAMILY FUNDS D(3) [LOGO] December 27, 2006 Mr. Jon D. Tompkins, Chairman of the Board of Directors Electro Scientific Industries, Inc. 13900 NW Science Park Drive Portland, Oregon 97229 Dear Jon, Anticipating that Electro Scientific Industries' (ESI) Board of Directors may meet before the company announces second quarter earnings, we respectfully request that ESI pay a one time dividend of $4.00 per share to all shareholders. Paying such a dividend would demonstrate powerfully ESI's commitment to maximizing both shareholder value and return on equity (ROE). We see no adverse consequences from such a dividend. (To be clear, we do not favor a share repurchase or an ongoing dividend. All we seek is a one time dividend similar to that paid by Microsoft. In our experience, repurchase and ongoing dividend programs are often more symbolic than real.) When we visited you October 5th, after the company's annual shareholder meeting, you put your finger on exactly what has been troubling us about ESI: the stagnation of its share price. We discussed three things which you and the company could do to increase director ownership of ESI shares. Unfortunately most of what we discussed has not occurred, at least not yet, and what has occurred has been minor. Aggregate outright ownership of ESI shares by its eight outside directors has risen from zero to only 4,000 shares, an average of only 500 shares per director. Since we see little evidence that ESI is requiring outside directors to have meaningful "skin in the game," we have decided to stop pushing it. We will focus, instead, on the fundamental issue: the stagnation of ESI's share price, much of which we attribute to sub-optimal allocation of capital. ESI's share price has fluctuated around $20 per share for a decade. One can contend persuasively that ESI deserves better than being a stock market "flat-liner." You and the other outside directors bring strong industry experience. ESI has a solid management team. We believe that Nick Konidaris is a terrific CEO and we have been positively impressed in our discussions with Tom Wu and John Metcalf, both of whom Nick hired. ESI enjoys leading market shares in its major businesses, where it solves the problems of sophisticated global customers. ESI is good corporate citizen in Oregon. Recently, ESI has introduced exciting new products, reinvigorating its existing businesses, and, we hope, launching several promising new 10 ones. And the company enjoys a fortress balance sheet, fed and protected by a business model which should generate positive operating cash flow, even during downturns. But ESI's balance sheet also depresses ROE and may encourage loose spending. 38% of ESI's current share price sits in cash and marketable securities, long awaiting deployment, earning only a 4% pre-tax return. For more than six years, ESI has carried over $4 per share in cash and marketable securities on its balance sheet. Since the beginning of 2000, ESI's total cash and marketable securities has nearly quadrupled, through a secondary offering and retained earnings. ESI's most recent balance sheet showed $7.33 in cash and marketable securities per issued and outstanding share. We believe that just two factors drive a company's long term share price: growth in earnings per share and its ROE. While ESI's recent investments in R&D are beginning to drive higher sales and profits, it will be very difficult for ESI to reach and sustain a mid-teens ROE with cash-bloated shareholders equity of nearly $400 million. Even if ESI were to earn $1.00 per share in calendar 2007, this accomplishment would only drive a 7% ROE, half the level we consider appropriate for an enterprise with ESI's management quality and market share. We are convinced that unless ESI pays out a large special dividend, the company cannot reach and sustain an acceptable ROE. And, without a strong ROE, ESI's share price will continue to languish. One of a Board's primary responsibilities is to be the ultimate allocator of capital. We are convinced that when a company retains too much cash, and does not use it for a long time, its other allocations of capital may be distorted by its wealth, further diminishing investor returns. For example, companies flush with cash may pour too much money into real estate, such as manufacturing facilities, laboratories, and offices. The current trend toward outsourcing makes such investments particularly ill-timed. Companies may sink too much money into expensive software system deployments, without adequate payback. They may even begin to act like diversified investment funds, putting the shareholders' money into other operating companies. The lesson of our experience is that cash is spent most wisely when there is less of it. Paying out $4.00 cash per share will not stress or impair ESI. The company remains profitable; it is further reducing costs; and it should generate profits and positive operating cash flow in most foreseeable circumstances. Paying a special cash dividend should not jeopardize employee retention or customer or vendor relationships. Nor would paying such a dividend put ESI's growth strategy at risk. Even after paying out a $4.00 per share cash dividend, ESI would retain nearly $100 million of cash and $211 million of net working capital and have zero debt. Should the company find an acquisition, it still would have plenty of dry powder. Moreover, to fund a large acquisition, the company could issue stock to pay the seller; it could sell additional equity in a private placement or a secondary offering; and it could borrow. You may recall from our prior discussions with you and management that our concerns about capital allocation and ROE are neither new nor casual. We also have been sharing these concerns with some of the company's large shareholders and some of the analysts who follow the company. Seven investment firms own almost half the company's shares. You can expect us to continue discussions with ESI's largest shareholders, as only five or six months remain before we must decide whether and how to bring our concerns before the next annual shareholders meeting. It is possible that we may press for the dividend in several 11 different ways, such as by introducing a resolution at the annual meeting or even by nominating our own outside director candidates. Our strong preference, like yours, would be to conserve time and money by avoiding an electoral contest, but we raise these possibilities here today to demonstrate the gravity of our concern and our willingness to invest in preparing, if necessary, a campaign of persuasion. In conclusion, we want to reiterate our enthusiasm for ESI and note that our concern about allocation of capital is an issue which transcends the company. Too many public technology companies today are cocooned in green blankets. In allocating capital they often are fighting the last war, driven by memories of an era when growth was faster and cyclicality steeper. While understandable, this mindset undervalues what ESI management has done, and is doing, to reduce cost, broaden revenues, and diminish cyclicality. It is time for ESI's Board to share the green blanket with its ultimate owners, your shareholders. We are happy to discuss this issue further with you at any time. Thank you for listening to our concerns. Sincerely yours, /s/:David Nierenberg 12 -----END PRIVACY-ENHANCED MESSAGE-----