-----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, LTc9pX9Jw8JLHHGEa3BjkrgHSAeMkZufoOcLt2AV4fGZyAs1FjaEqRXuv6w3Vxp4 tiGyCh+e528NEWmDv0Wv8Q== 0000940180-99-001172.txt : 19991018 0000940180-99-001172.hdr.sgml : 19991018 ACCESSION NUMBER: 0000940180-99-001172 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 13 FILED AS OF DATE: 19991005 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RUDOLPH TECHNOLOGIES INC CENTRAL INDEX KEY: 0001094392 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL INSTRUMENTS FOR MEASUREMENT, DISPLAY, AND CONTROL [3823] IRS NUMBER: 221628009 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: SEC FILE NUMBER: 333-86821 FILM NUMBER: 99722813 BUSINESS ADDRESS: STREET 1: ONE RUDOLPH RD CITY: FLANDERS STATE: NJ ZIP: 07836 BUSINESS PHONE: 9736911300 MAIL ADDRESS: STREET 1: ONE RUDOLPH RD CITY: FLANDERS STATE: NJ ZIP: 07836 S-1/A 1 AMENDMENT NO. 1 TO THE FORM S-1 As filed with the Securities and Exchange Commission on October 4, 1999 Registration No. 333-86821 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------ AMENDMENT NO. 1 TO FORM S-1 REGISTRATION STATEMENT Under The Securities Act of 1933 ------------------ RUDOLPH TECHNOLOGIES, INC. (Exact name of Registrant as specified in its charter) ------------------ Delaware 3823 22-1628009 (State or other (Primary Standard Industrial (I.R.S. Employer jurisdiction of Classification Code Number) Identification Number) incorporation or organization) ------------------ Rudolph Technologies, Inc. One Rudolph Road Flanders, NJ 07836 (973) 691-1300 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices) ------------------ PAUL F. MCLAUGHLIN President Rudolph Technologies, Inc. One Rudolph Road Flanders, NJ 07836 (973) 691-1300 (Name, address, including zip code, and telephone number, including area code, of agent for service) ------------------ Copies to: HENRY P. MASSEY, JR. PETER B. TARR TREVOR J. CHAPLICK JOHN M. WESTCOTT, JR. Wilson Sonsini Goodrich & Rosati Hale and Dorr LLP Professional Corporation 60 State Street 650 Page Mill Road Boston, MA 02109 Palo Alto, CA 94304 (617) 526-6000 (650) 493-9300 ------------------ Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box: [_] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: [_] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: [_] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: [_] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box: [_] ------------------ The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +The information in this prospectus is not complete and may be changed. We may + +not sell these securities until the registration statement filed with the + +Securities and Exchange Commission is effective. This prospectus is not an + +offer to sell securities, and we are not soliciting offers to buy these + +securities, in any state where the offer or sale is not permitted. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION, DATED OCTOBER 4, 1999 [Logo] 4,800,000 Shares Common Stock We are offering 4,800,000 shares of our common stock. This is our initial public offering and no public market currently exists for our shares. We have applied to have our common stock quoted on The Nasdaq National Market under the symbol "RTEC." We anticipate that the initial public offering price will be between $12 and $14 per share. -------------- Investing in our common stock involves risks. See "Risk Factors" beginning on page 5. --------------
Per Share Total ----- ----- Public offering price........................................... $ $ Underwriting discounts and commissions.......................... $ $ Proceeds to Rudolph Technologies, Inc. ......................... $ $
The Securities and Exchange Commission and state securities regulators have not approved or disapproved these securities, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. We have granted the underwriters a 30-day option to purchase up to an additional 720,000 shares of common stock to cover over-allotments. BancBoston Robertson Stephens expects to deliver the sharesof common stock to purchasers on , 1999. -------------- BancBoston Robertson Stephens Bear, Stearns & Co. Inc. CIBC World Markets The date of this prospectus is , 1999. You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus. We are offering to sell, and seeking offers to buy, shares of common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our common stock. In this prospectus, "Rudolph Technologies," "we," "us," and "our" refer to Rudolph Technologies, Inc., a Delaware corporation. Until , 1999, all dealers that buy, sell or trade our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This requirement is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotment or subscription. --------------------- TABLE OF CONTENTS
Page ---- Summary.................................................................. 1 Risk Factors............................................................. 6 Use of Proceeds.......................................................... 17 Dividend Policy.......................................................... 17 Capitalization........................................................... 18 Dilution................................................................. 20 Selected Financial Data.................................................. 21 Management's Discussion and Analysis of Financial Condition and Results of Operations.......................................................... 23 Business................................................................. 34 Management............................................................... 48 Certain Relationships and Related Transactions........................... 55 Principal Stockholders................................................... 59 Description of Capital Stock............................................. 61 Shares Eligible for Future Sale.......................................... 63 Underwriting............................................................. 64 Legal Matters............................................................ 66 Experts.................................................................. 66 Where You Can Find More Information...................................... 66 Index to Financial Statements............................................ F-1
--------------------- Rudolph Technologies, Inc. and the names of our systems are trademarks or tradenames of Rudolph Technologies, Inc. This prospectus also contains trademarks and tradenames of other companies. i PROSPECTUS SUMMARY The following summary highlights information which we present more fully elsewhere in this prospectus. You should read the entire prospectus carefully. This prospectus contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of factors described under the heading "Risk Factors" and elsewhere in this prospectus. Our Business Rudolph Technologies, Inc. is a worldwide leader in the design, development, manufacture and support of high-performance process control metrology systems used in semiconductor device manufacturing. Our proprietary systems measure the thickness and other properties of thin films applied during various steps in the manufacture of integrated circuits. We provide our customers with a full-fab metrology solution by offering families of systems that meet their transparent and opaque thin film measurement needs in various applications across the semiconductor fabrication process. Process control metrology is used by semiconductor device manufacturers to analyze product and process quality at critical steps in the integrated circuit manufacturing process in order to identify, diagnose and minimize fabrication defects. The semiconductor device manufacturing industry is experiencing several trends that are increasing the demand for process control metrology systems and heightening the need for metrology technology that can deliver a higher degree of accuracy and repeatability. These industry trends include: . transition to copper as the material of choice for creating the circuitry, or interconnect, to link the components of an integrated circuit; . development of thinner line widths and spaces, or feature sizes, on integrated circuits; . migration to larger 300 millimeter diameter wafers; . introduction of new manufacturing process steps, including chemical mechanical planarization; . transition to new insulating layers, or dielectrics; and . shortening of semiconductor device product life cycles. Our objective is to be the premier worldwide provider of thin film metrology systems to semiconductor device manufacturers. To extend our technology leadership position, we intend to continue our commitment to research and development. We also intend to capitalize on our technical heritage in thin film measurement to expand our relationships with existing customers and to continue to develop complementary metrology applications. In addition, we plan to focus our resources on understanding the needs of leading semiconductor device manufacturers in order to position ourselves as the system of choice when manufacturers upgrade their fabrication techniques in response to advances in semiconductor technology. Since 1940, our technological leadership has earned us a reputation for metrology excellence, and we believe that we have the largest installed base of the traditional metrology tools known as ellipsometers in the world. We maintain sales, service or applications offices throughout the world, including in California, New Jersey, Texas, Germany, Holland, Ireland, Israel, Korea and Taiwan. Our customers include most major semiconductor device manufacturers worldwide, including Intel, AMD, Chartered Semiconductor, Fujitsu, Hyundai, IBM, Lucent, Philips, Samsung, ST Microelectronics, Texas Instruments, TSMC, Toshiba and UMC. For the past four years, we have received the top ranking among our thin film metrology competitors in the annual VLSI Customer Satisfaction Survey. 1 The Reorganization Prior to this offering we had two classes of common stock, Class A common stock and Class B common stock, and two classes of preferred stock, Series A preferred stock and Series B preferred stock. In addition, we owned our predecessor through one of our subsidiaries. Immediately prior to the offering, we will effect a 35.66-for-one split of our outstanding Class A common stock and Class B common stock. Immediately following the stock split, all of our Class A common stock and Class B common stock will be exchanged for shares of one new class of common stock. In addition, we will merge our predecessor company into our wholly-owned subsidiary which owned it prior to this offering. Then we will merge that subsidiary into us. We will use a substantial portion of the net proceeds of this offering to repay all of our long term debt, including the indebtedness incurred in connection with the acquisition of our predecessor, which amounts to approximately $38.4 million including accrued interest. We will also use approximately $7.0 million of the proceeds to redeem our outstanding shares of Series A preferred stock and Series B preferred stock. See "Use of Proceeds" and "Certain Relationships and Related Transactions." Except where stated otherwise, all information in this prospectus (1) reflects our authorization of 50,000,000 shares of a new, single class of common stock and 5,000,000 shares of undesignated preferred stock, (2) reflects a 35.66-for-one split of all classes of our outstanding common stock, (3) reflects the exchange of each outstanding share of all classes of our common stock for one share of the new single class of common stock, (4) reflects the redemption for cash of each outstanding share of all series of our preferred stock, (5) reflects the issuance of 2,039,460 shares of common stock upon the exercise of warrants assuming an initial public offering price of $13.00, (6) reflects the merger of two of our subsidiaries into us, and (7) assumes no exercise of the underwriters' option to purchase additional shares. Our audited financial statements included elsewhere in this prospectus are called Consolidated Financial Statements because they were prepared prior to the merger of our two subsidiaries into us. The Offering The calculation of the shares of common stock outstanding in the table below is based on the number of shares outstanding as of July 31, 1999. The number of shares of common stock to be outstanding after the offering excludes (1) 693,951 shares of common stock underlying outstanding options granted under our 1996 stock option plan, (2) 2,000,000 shares of common stock that have been reserved for issuance under our 1999 stock plan and (3) 300,000 shares of common stock that have been reserved for purchase by employees under our employee stock purchase plan. Common stock offered by Rudolph Technologies.... 4,800,000 shares Common stock to be outstanding after the offering...................................... 13,942,825 shares Use of proceeds................................. Repayment of long term debt, including loans made to finance the acquisition of our predecessor company, redemption of preferred stock, potential acquisitions of technology or businesses, working capital and general corporate purposes Proposed Nasdaq National Market symbol.......... RTEC
2 Summary Financial Data (in thousands, except share and per share data) The following summary financial data should be read in conjunction with our Consolidated Financial Statements and the related Notes thereto appearing elsewhere in this prospectus, "Selected Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." All share and per share information has been restated for all periods presented to reflect a 35.66-for-one stock split. This split is contingent upon the closing of this offering.
Six Months Year Ended December 31, Ended June 30, ------------------------------ -------------------- Combined 1996 1997 1998 1998 1999 -------- --------- --------- --------- --------- Statement of Operations Data: Revenues................ $ 31,874 $35,339 $ 20,106 $11,872 $15,170 Cost of revenues (1).... 14,076 13,903 13,179 6,455 7,373 -------- --------- --------- --------- --------- Gross profit............ 17,798 21,436 6,927 5,417 7,797 Operating expenses: Research and development.......... 4,162 5,750 5,096 2,688 2,097 In-process research and development...... 3,821 -- -- -- -- Selling, general and administrative....... 8,484 9,475 7,077 3,306 3,537 Write-down of intangibles.......... 6,734 -- -- -- -- Amortization.......... 3,669 4,201 4,208 2,103 131 -------- --------- --------- --------- --------- Total operating expenses........... 26,870 19,426 16,381 8,097 5,765 -------- --------- --------- --------- --------- Operating (loss) income................. (9,072) 2,010 (9,454) (2,680) 2,032 Interest expense........ 2,068 3,717 4,210 2,135 2,148 Other income............ (182) (92) (199) (15) (29) -------- --------- --------- --------- --------- Loss before income taxes.................. (10,958) (1,615) (13,465) (4,800) (87) Provision (benefit) for income taxes........... 143 (614) 613 (699) 93 -------- --------- --------- --------- --------- Net loss................ (11,101) (1,001) (14,078) (4,101) (180) Preferred stock dividends.............. 239 468 507 247 269 -------- --------- --------- --------- --------- Loss available to common stockholders........... $(11,340) $ (1,469) $(14,585) $(4,348) $ (449) ======== ========= ========= ========= ========= Net loss per share available to common stockholders: Basic................. $ (0.56) $ (3.24) $(1.66) $(0.07) Diluted............... $ (0.56) $ (3.24) $(1.66) $(0.07) Weighted average common shares outstanding: Basic................. 2,617,373 4,503,396 2,617,373 6,767,415 Diluted............... 2,617,373 4,503,396 2,617,373 6,767,415 Pro forma net loss per share available to common stockholders: (2) Basic................. $(2.23) $(0.93) $(0.05) Diluted............... $(2.23) $(0.93) $(0.05) Pro forma weighted average common shares outstanding: (2) Basic................. 6,542,856 4,656,833 8,806,875 Diluted............... 6,542,856 4,656,833 8,806,875 Other Financial Data: EBITA (3)............... $6,303 $(5,047) $(562) $2,192 EBITDA (3).............. 6,751 (4,269) (299) 2,466 Net cash used in operating activities........... (1,959) (6,872) (2,934) (550) Net cash used in investing activities........... (586) (904) (508) (511) Net cash provided by financing activities........... 1,200 8,000 3,400 1,043
3
December 31, June 30, 1999 June 30, 1999 ---------------------------- ------------- ------------- Pro Forma As 1996 1997 1998 Actual Adjusted(4) -------- -------- -------- ------------- ------------- Balance Sheet Data: Cash and cash equivalents........... $ 1,578 $ 189 $ 431 $ 412 $12,311 Working capital (deficit)............. 4,262 3,134 (1,052) (279) 23,670 Total assets............ 27,013 28,513 21,121 22,924 34,823 Long-term debt, less current portion....... 26,000 24,000 25,370 26,290 -- Accumulated deficit..... (15,192) (16,661) (31,246) (31,695) (32,182) Total stockholders' equity (deficit)...... (13,707) (15,327) (26,759) (27,053) 29,692
- -------- (1) Our cost of revenues for the year ended December 31, 1998 includes a $1.4 million expense for the write-down of inventory to net realizable value. (2) The pro forma share and per share data have been prepared assuming the pro forma issuance of 2,039,460 shares of common stock upon the exercise of warrants. This exercise is assumed to have occurred at our inception. (3) "EBITA" is defined as income before provision for income taxes, interest expense and amortization of intangibles. "EBITDA" is defined as income before provision for income taxes, interest expense, depreciation and amortization. EBITA and EBITDA are presented as supplemental information and should not be considered as alternatives to net income or cash flow from operating activities as indicators of our operating performance or liquidity. We believe that EBITA and EBITDA are standard measures commonly reported and widely used by analysts, investors and other interested parties in the semiconductor capital equipment industry. However, EBITA and EBITDA as presented herein may not be comparable to similarly titled measures reported by other companies. (4) The Pro Forma As Adjusted amounts give effect to: (1) the exchange of all outstanding shares of our Class A common stock and Class B common stock for 7,103,365 shares of common stock; (2) the issuance of 2,039,460 shares of common stock upon the exercise of warrants; and (3) the sale of 4.8 million shares of common stock offered by us at an assumed initial public offering price of $13.00 per share and the application of the estimated net proceeds as set forth under "Use of Proceeds." The Pro Forma As Adjusted amounts also reflect an increase in accumulated deficit of $487,000 for an extraordinary loss related to the write-off of deferred financing costs due to our repayment out of the proceeds of the offering of a senior term loan, a subordinated term loan, a junior subordinated note and a senior revolving term loan. The statement of operations data set forth above as of and for the years ended December 31, 1997 and 1998 and the six months ended June 30, 1999 were derived from audited consolidated financial statements included elsewhere in this prospectus. The combined 1996 statement of operations data represent a combination, without adjustment, of the historical results of our predecessor company for the period from January 1, 1996 to June 13, 1996 and our historical results for the period from June 14, 1996 to December 31, 1996. The historical results for each of the periods January 1, 1996 to June 13, 1996 and June 14, 1996 to December 31, 1996 were also derived from audited financial statements included elsewhere in this prospectus. We are presenting the combined historical results for the year ended December 31, 1996 for convenience only, to assist investors in assessing our underlying business trends. These combined results exclude the full year effect of purchase accounting adjustments, specifically increased interest expense and amortization of intangibles. In addition, the predecessor company had a lower effective tax rate than we do because it was taxed as an S-corporation while we are taxed as a C-corporation. Further, our results of operations for the period from June 14, 1996 to December 31, 1996, which are a component of the combined 1996 results, include various non-recurring expenses including in-process research and development and the write-down of intangibles. As a result, the combined 1996 results of operations are not fully comparable to our historical results of operations for periods after 1996. 4 Our results of operations for the six months ended June 30, 1998 were derived from our unaudited financial statements and in our opinion reflect and include all adjustments consisting of normal recurring adjustments necessary for a fair presentation of such data. Our results of operations data for the six months ended June 30, 1999 are not necessarily indicative of the results that may be expected for the year ending December 31, 1999. Our headquarters are located at One Rudolph Road, Flanders, New Jersey 07836 and our telephone number is (973) 691-1300. 5 RISK FACTORS You should carefully consider the risks described below in analyzing an investment in our common stock. If any of the events described below occurs, our business, financial condition and results of operations would likely suffer, the trading price of our common stock could fall and you could lose all or part of the money you paid for our common stock. This prospectus contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of various factors, including those identified below as well as those discussed elsewhere in this prospectus. Risks Related to our Company Cyclicality in the semiconductor device industry may from time to time lead to substantial decreases in demand for our systems Our operating results will be subject to significant variation due to the cyclical nature of the semiconductor device industry. The semiconductor device industry recently experienced a downturn which has seriously harmed our recent operating results. 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 semiconductor device industry is cyclical and has historically experienced periodic downturns, which have often resulted in substantial decreases in the semiconductor device industry's demand for capital equipment, including its thin film metrology equipment. There is typically a six to twelve month lag between a change in the economic condition of the semiconductor device industry and the resulting change in the level of capital expenditures by semiconductor device manufacturers. In most cases, the resulting decrease in capital expenditures has been more pronounced than the precipitating downturn in semiconductor device industry revenues. The semiconductor device industry experienced downturns in 1998 and 1996, during which industry revenues declined by an estimated 8.4% and 6.4% as reported by Dataquest. Our revenues decreased from $35.3 million in 1997 to $20.1 million in 1998. Dataquest forecasts that sales of semiconductor capital equipment will decrease by approximately 1.7% in 1999 as compared to 1998. Although there are indications that the semiconductor device industry is recovering, . the semiconductor device industry may not continue to improve; . the semiconductor device industry may experience other, possibly more severe and prolonged, downturns in the future; and . any continued recovery of the semiconductor device industry may not result in an increased demand by semiconductor device manufacturers for capital equipment. Any future downturn in the semiconductor device industry, or any failure of that industry to fully recover from its recent downturn, will seriously harm our business, financial condition and results of operations. We have had significant net losses in the past, and we may have net losses in the future Prior to the second quarter of 1999, we had not reported net income since our predecessor company was acquired by our management and a group of investors in June 1996. We reported a net loss available to common stockholders for the first half of 1999 of $0.4 million and for 1998 of $14.6 million. Because of a recent downturn in the semiconductor device industry and a related downturn in the semiconductor capital equipment industry, weak economic conditions in the Asia Pacific region and other reasons, we expect to be only slightly profitable, if profitable at all, at least through the fourth quarter of 1999, and we cannot predict whether we will be able to achieve or sustain profitability in any subsequent period. 6 Our operating results have in the past varied and probably will in the future continue to vary significantly from quarter to quarter, causing volatility in our stock price Our quarterly operating results have varied significantly in the past and may continue to do so in the future, which could cause our stock price to decline. Some of the factors that may influence our operating results and subject our stock to extreme price and volume fluctuations include: . 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 those of our customers and changes in our product offerings; . seasonal variations in customer demand, including the tendency of European sales to slow significantly in the third quarter of each year; . the timing, cancellation or delay of customer orders and shipments; . the effects of competitive pressures, such as the introduction or announcement of new products by our competitors, on the prices of our systems and the level of discounts we grant to our customers; . our failure to meet the performance estimates of securities analysts; . fluctuations in the availability and cost of components, subassemblies and production capacity; . expenses incurred in connection with litigation; . 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. During any quarter, a significant portion of our revenue may be derived from the sale of a relatively small number of systems. Our transparent film measurement systems range in price from approximately $200,000 to $1.0 million per system and our opaque film measurement systems range in price from approximately $900,000 to $1.6 million per system. Accordingly, a small change in the number of systems we sell may also cause significant changes in our operating results. The market price of our common stock may also fluctuate significantly for reasons unrelated to our performance. 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 thus our business, financial condition and operating results, 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 film metrology systems and many people are involved in the evaluation process. We expend significant resources educating and providing information to 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: . the efforts of our sales force and our independent sales representatives and distributors; . 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 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, if ever, varies widely in length. Our 7 sales cycles, including the time it takes for us to build a product to customer specifications after receiving an order, typically range from six to 15 months. Sometimes our sales cycles can be much longer, particularly with customers in Japan. 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, and then evaluate its performance 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 a customer's capacity requirements. The period between a customer's initial purchase and any subsequent purchases can vary from six 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. Our largest customers account for a significant portion of our revenues, and our business and operating results could be harmed by the loss of one or more of these customers or by reductions or delays in their purchases of our systems Historically, a significant portion of our revenues in each quarter and year has been derived from sales to relatively few customers, and we expect this trend to continue. If any of our key customers were to purchase significantly fewer of our systems in the future, or if a large order were delayed, our revenues would significantly decline. In 1998 and in the six months ended June 30, 1999, sales to customers that individually represented at least five percent of our revenues accounted for 43.2% and 44.3% of our revenues. In 1998, sales to Intel and Advanced Micro Devices accounted for 19.8% and 11.1% of our revenues. In the six months ended June 30, 1999, sales to Intel accounted for 37.3% of our revenues. There are only a limited number of mostly large companies operating in the highly concentrated, capital intensive semiconductor device manufacturing industry. Accordingly, we expect that we will continue to depend on a small number of large customers for a significant portion of our revenues for the foreseeable future. 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. If we are not successful in developing new and enhanced products for the semiconductor device manufacturing industry, or if our new products do not gain general market acceptance, our business and operating results will be seriously harmed We operate in an industry that is 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. Approximately 70% of our revenues in the first half of 1999 were derived from the sale of systems that we did not begin selling until the first quarter of 1997 or later. To be competitive in our demanding market, we must continually design, develop and introduce in a timely manner new film metrology 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. 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 metrology system design flaws. We are developing our Matrix Metrology systems, which are thin film metrology systems specifically designed for use in the CMP, etch, diffusion and other portions of the semiconductor device manufacturing process where we do not currently have significant market share. We may experience difficulties or delays in our development efforts with respect to these or other new systems, and we may not ultimately be successful in developing them. Any significant delay in releasing new systems could adversely affect our reputation, give a competitor a first-to-market advantage or cause a competitor to achieve greater market share. In addition, any new systems introduced by us may not achieve a significant degree of market acceptance or, once accepted, may fail to sell well for any significant period. Conversely, competition from our new Matrix Metrology systems could have a negative effect on our sales of our other transparent thin film metrology systems, including our SpectraLASER and FOCUS systems, and the prices we could charge for 8 these systems. We may also divert sales and marketing resources from our current systems in order to successfully launch and promote our new Matrix Metrology systems. This diversion of resources could have a further negative effect on sales of our current systems. Any of the foregoing events could cause our business, financial condition and results of operations to suffer. We expect to spend a significant amount of time and resources to develop new systems and refine 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 new systems. Our ability to commercially introduce and successfully market new systems is subject to a wide variety of challenges during this 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 do materialize may be cancelled. As a result, we may not be able to realize sufficient sales of our systems in order to recoup research and development expenditures. If our relationships with our large customers deteriorate, our product development activities could be jeopardized 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 any of our current relationships is impaired, or if we are unable to develop similar collaborative relationships with customers in the future, we will be hindered in our ability to produce commercially successful systems. Our ability to reduce costs is limited by our ongoing need to invest in research and development Our industry is characterized by the need for continual investment in research and development as well as customer service and support. As a result of our need to maintain our spending levels in these areas, our operating results could be materially harmed if our revenues fall below expectations. In addition, because of our emphasis on research and development and technological innovation, our operating costs may increase further in the future. We expect our level of research and development expenses to increase in absolute dollar terms for the foreseeable future. Our business could be harmed if we are unable to protect our proprietary technology 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, trade secret and trademark law to protect that technology. We own or have licensed a number of patents relating to our transparent and opaque thin film metrology systems, and have filed applications for additional patents. Any of our pending patent applications may be rejected, and we may not in the future be able to develop additional proprietary technology that is patentable. In addition, the patents 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. Third parties may also design around these patents. Any of the foregoing could harm our business, financial condition and results of operations. 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. However, in the event that these agreements may be breached, we may not have adequate remedies. Our confidential and proprietary information and technology might also be independently developed by or become otherwise known to third parties. 9 Our business could be harmed if we infringe the proprietary technology of others Our commercial success depends in part on our ability to avoid infringing or misappropriating patents or other proprietary rights owned by third parties. If we are found to infringe or misappropriate a third party's patent or other proprietary rights, we could be required to pay damages to the third party, alter our systems or processes, obtain a license from the third party or cease activities utilizing the third party's proprietary rights, including making or selling any of our systems that use the third party's proprietary rights. If we are required to do any of the foregoing, we may not be able to do so on commercially favorable terms or at all. Our inability to do any of the foregoing on commercially favorable terms could seriously harm our business. Protection of our intellectual property rights, or the efforts of third parties to enforce their own intellectual property rights against us, has in the past resulted and may in the future result in costly and time-consuming litigation 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. In addition, we may be subject to lawsuits by third parties seeking to enforce their own intellectual property rights. Any such litigation, regardless of outcome, could be expensive and time consuming, and could subject us to significant liabilities or require us to re- engineer our product or obtain expensive licenses from third parties. For example, we are presently involved in a patent interference proceeding with Therma-Wave, Inc. in the United States Patent Office. In this proceeding, we are defending our patent rights with respect to some of the multiple angle, multiple wavelength ellipsometry technology we use in our transparent thin film measurement systems. Therma-Wave requested the proceeding be initiated in 1993 by filing a reissue application for one of its own patents, and the proceeding was initiated in June 1998. If we lose the interference, a reissue patent will be granted to Therma-Wave permitting Therma-Wave to assert patent rights against the ellipsometers we use in our transparent thin film measurement systems. In that event, we would either have to pay future royalties to Therma- Wave or redesign our transparent thin film measurement systems. Either of these events could harm our business, financial condition and results of operations. See "Business--Legal Proceedings." In addition, in a letter dated February 10, 1998, Therma-Wave asked us to review our technology for possible infringement of several of Therma-Wave's patents. We denied any such infringement in a letter to Therma-Wave dated March 10, 1998. In a letter dated March 13, 1998, Therma-Wave requested further information regarding the basis for our belief that our technology did not infringe Therma-Wave's patents. There has been no further correspondence between us and Therma-Wave regarding Therma-Wave's patent inquiries. Although we do not believe that we are infringing any of Therma-Wave's patents, Therma-Wave could nevertheless initiate an infringement action against us, which would be costly and distracting regardless of its outcome. In a letter dated December 3, 1998, Axic, Inc. asked us to review our technology for possible infringement of one of Axic's patents. We denied any such infringement in a letter to Axic dated December 22, 1998. There has been no further correspondence between us and Axic regarding its patent infringement claims. Our efforts to protect our intellectual property may be less effective in some foreign countries where intellectual property rights are not as well protected as in the United States The laws of some foreign countries 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 in such countries, some of which are countries in which we have sold and continue to sell systems. There is a risk that our means of protecting our proprietary rights may not be adequate in these countries. For example, our competitors in these countries may independently develop similar technology or duplicate our systems. If we fail to adequately protect our intellectual property in these countries, it would be easier for our competitors to sell competing products in those countries. We compete against many larger companies in the semiconductor capital equipment industry We operate in the highly competitive semiconductor capital equipment industry and face competition from a number of companies, many of which have greater financial, engineering, manufacturing, marketing and customer support resources and broader product offerings than we do. Moreover, there has been significant 10 merger and acquisition activity among our competitors and potential competitors, particularly during the recent downturn in the semiconductor device and semiconductor capital equipment industries. 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 device manufacturing industry are large companies that require global support and service for their semiconductor capital equipment. While we believe that our global support and service infrastructure is sufficient to meet the needs of our customers and potential customers, our larger 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 ours. 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. Our systems may not be able to compete successfully with those of our competitors. Competitive conditions in our industry may cause us to reduce our prices Due to intense competitive conditions in the thin film metrology industry, 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. To the extent that any of our metrology systems are not distinguished from those of our competitors by significant technological advantages, we are likely to experience increased price competition or loss of market share with respect to those systems. Because of the high cost of switching equipment vendors in our markets, it is sometimes difficult for us to win 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 customer once it has selected another vendor's capital equipment for an application. We must attract and retain key personnel with knowledge of semiconductor device manufacturing and metrology equipment 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 management, engineering, sales and marketing, customer support, finance and manufacturing personnel. The loss of any of these key personnel, who would be extremely difficult to replace, could harm our business and operating results. During downturns in our industry, we have often experienced significant employee attrition, and we may experience further attrition in the event of a future downturn. Although we have employment and noncompetition agreements with key members of our senior management team, including Messrs. McLaughlin, Loiterman and Roth, these individuals or other key employees may nevertheless leave our company. 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. 11 We obtain some of the components and subassemblies included in our systems from a single source or a limited group of suppliers, and the partial or complete loss of one of these suppliers could cause production delays and harm our operating results. Coherent, Inc. is our sole supplier of the lasers we use in some of our systems, and we also obtain some of the other components and subassemblies included in our systems from a single supplier or a limited group of suppliers. Although our supply agreement with Coherent has expired, we are currently negotiating a follow-on contract with Coherent. We do not have long-term contracts with many of our suppliers. Our dependence on sole source suppliers of components exposes 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 four months. In addition, the lead time required to qualify new suppliers for lasers 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 included in our systems could seriously harm our results of operations. We manufacture all of our systems at a single facility, and any prolonged disruption in the operations of that facility could have a material adverse effect on our business We produce all of our systems in our manufacturing facility located in Ledgewood, New Jersey. 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 facility, whether due to technical or labor difficulties, destruction of or damage as a result of a fire or any other reason, could seriously harm our business, financial condition and results of operations. We rely upon independent sales representatives and distributors for a significant portion of our sales, and a disruption in our relationships with these representatives or distributors could have a negative impact on our sales and operating results Historically, a substantial portion of our sales have been made through independent sales representatives and distributors. We expect that sales through independent sales representatives and distributors will represent a material portion of our sales for the foreseeable future. In particular, all of our sales in Japan will continue to be made through an independent distributor for the foreseeable future, and all our sales in Taiwan, China and Singapore will continue to be made through independent sales representatives for the foreseeable future. In 1998, sales to Tokyo Electron Limited, our exclusive distributor in Japan, accounted for 17.6% of our revenues. In some locations, including Japan, our independent sales representatives or distributors also provide field service to our customers. The activities of these representatives and distributors are not within our control. A reduction in the sales or service efforts or financial viability of any of our independent sales representatives and distributors, or a termination of our relationships with them, could harm our sales, our financial results and our ability to support our customers. Although we believe that we maintain good relations with our independent sales representatives and distributors, such relationships may nevertheless deteriorate in the future. Because we derive a significant portion of our revenues from sales in Asia, our sales and results of operations could be adversely affected by the instability of Asian economies Our sales to customers in Asian markets represented approximately 24.6% and 41.7% of our revenues in the first half of 1999 and in 1998. Countries in the Asia Pacific region, including Japan, Korea and Taiwan, each of which accounted for a significant portion of our business in that region, have experienced currency, banking and equity market weaknesses over the last 18 months. These weaknesses began to adversely affect our 12 sales to semiconductor device and capital equipment manufacturers located in these regions in the fourth quarter of 1997, and continued to adversely affect our sales in 1998 and the first half of 1999. Although we have recently received an increased level of orders from customers in the Asia Pacific region, we expect that turbulence in the Asian markets could adversely affect our sales in future periods. We are subject to operational, financial and political risks due to our significant level of international sales International sales accounted for approximately 57.9% and 58.2% of our revenues in the first half of 1999 and in 1998. We anticipate that international sales will continue to account for a significant portion of our revenue for the foreseeable future. Due to the significant level of our international sales, we are subject to material risks which include: .unexpected changes in regulatory requirements; .tariffs and other market barriers; .political and economic instability; .potentially adverse tax consequences; .outbreaks of hostilities; .difficulties in accounts receivable collection; .extended payment terms; .difficulties in managing foreign sales representatives and distributors; and .difficulties in staffing and managing foreign branch operations. In addition, the laws of countries in which our systems are or may be sold may not afford our systems and intellectual property rights the same degree of protection as the laws of the United States. A substantial portion of our international sales are denominated in U.S. dollars. As a result, changes in the values of foreign currencies relative to the value of the U.S. dollar can render our systems more expensive. Such conditions could negatively impact our international sales. Our acquisition strategy could cause financial or operational problems 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 may choose to acquire new and complementary businesses, products, or technologies 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 do not know if we will be able to complete any acquisitions, or whether we will be able to successfully integrate any acquired business, operate it profitably or retain its key employees. Integrating any business, product or technology we acquire could be expensive and time-consuming, could disrupt our ongoing business and could distract our management. In addition, in order to finance any acquisitions, we might need to raise additional funds through public or private equity or debt financings. 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. If we are unable to integrate any acquired entities, products or technologies effectively, our business, financial condition and operating results will suffer. In addition, any amortization of goodwill or other assets or charges resulting from the costs of acquisitions could harm our business and operating results. 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 sometimes have contained errors, defects and bugs when introduced. If we deliver systems with errors, defects or bugs, our credibility and the market acceptance and sales of our systems could be harmed. Further, if our systems contain errors, defects or bugs, we may be required to expend significant capital and resources to alleviate such 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 13 customers in some circumstances against liability arising from defects in our systems. A successful product liability claim could seriously harm our business, financial condition and results of operations. A small group of major stockholders will continue to have significant influence over our business after this offering, and could delay, deter or prevent a change of control or other business combination Upon completion of this offering, Liberty Partners, Riverside Partners and Paul F. McLaughlin will hold approximately 59.7% of our outstanding stock, or 56.8% if the underwriters' option to purchase additional shares is exercised in full. We anticipate that five of the eight directors on our board following this offering will be representatives of these stockholders. In addition, prior to this offering, these stockholders intend to enter into an agreement under which each party will agree to vote its shares in favor of one nominee of each other party to serve on our board of directors. The interests of these stockholders may not always coincide with our interests or those of our other stockholders. By virtue of their stock ownership and board representation, these stockholders will continue to have a significant influence over all matters submitted to our board and our stockholders, including the election of our directors, and will be able to exercise significant control over our business, policies and affairs. Through their concentration of voting power, these stockholders, acting individually or together, could cause us to take actions that we would not consider absent their influence, or could delay, deter or prevent a change of control of our company or other business combination that might otherwise be beneficial to our public stockholders. Provisions of our charter documents and Delaware law could discourage potential acquisition proposals and could delay, deter or prevent a change in control of our company Provisions of our certificate of incorporation and bylaws 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 the 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 . the authority of our board to issue, without stockholder approval, preferred stock with such terms as the board may determine. We will also be afforded the protections of Section 203 of the Delaware General Corporation Law, which could have similar effects. See "Description of Capital Stock." If we are forced to devote substantial resources to Year 2000 remediation efforts, if we incur significant liability due to Year 2000 problems in our products, or if Year 2000 problems among our suppliers or customers cause delays in our shipping or receipt of systems, our business and operating results could be harmed We have implemented a multi-phase Year 2000 project consisting of assessment, remediation and testing following remediation. Despite our efforts, however, we may not have identified all of the potential risks. Our failure to identify and remediate all material Year 2000 risks could adversely affect our business, financial condition and results of operations. The Year 2000 risks facing us include: . the entities on whom we rely for important goods and services may not be successful in addressing all of their software and systems problems in order to operate without disruption in the year 2000 and beyond; . our customers or potential customers may be affected by Year 2000 issues that may, among other things: . cause a reduction, delay or cancellation of customer orders; 14 . cause a delay in payments for products shipped; and . cause customers to expend significant resources on Year 2000 compliance matters rather than investing in our systems; and . we have not developed a contingency plan related to a failure of our or a third-party's Year 2000 remediation efforts, and we may not be adequately prepared for such an event. We have made efforts to identify any Year 2000 compliance problems in our existing systems, and to make available to our customers who have purchased such systems software revisions or plug-ins correcting any Year 2000 problems. Nevertheless, these customers may assert claims against us alleging that our systems should have been Year 2000 compliant at the time of purchase, which could result in costly litigation and divert our management's attention. We have agreed to indemnify our customers in some circumstances against liability arising from Year 2000-related defects in our systems. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Year 2000 Issue." Risks Related to this Offering We expect to use a substantial portion of the net proceeds of this offering to repay indebtedness and, as a result, we may be unable to meet our future capital and liquidity requirements We expect to use a substantial portion of the net proceeds of this offering to repay indebtedness we incurred in connection with the acquisition of our predecessor company by our management and a group of investors in 1996, and to redeem the preferred stock we issued in connection with that transaction. As a result, only a limited portion of the net proceeds will be available to fund our future operations. We expect that our principal sources of funds following this offering will be cash generated from our operating activities and, if necessary, borrowings under a bank credit facility which we intend to obtain prior to this offering. We believe that these funds will provide us with sufficient liquidity and capital resources for us to meet our current and future financial obligations, as well as to provide funds for our working capital, capital expenditures and other needs, for the twelve months following this offering. Despite our expectations, however, we may require additional equity or debt financing to meet our working capital requirements or to fund our research and development efforts. This financing may not be available when required or, may be available only on terms unsatisfactory to us. Further, if we issue equity securities, the ownership percentage of our stockholders will be reduced, and the new equity securities may have rights senior to those of the common stock to be issued in this offering. Our stock price may be volatile and our stock may be thinly traded, which could cause investors to lose all or part of their investments in our stock The stock market in general, and the stock prices of technology companies in particular, have recently experienced volatility which has often been unrelated to the operating performance of any particular company or companies. If market or industry-based fluctuations continue, our stock price could decline regardless of our actual operating performance and investors could lose all or part of their investments. In addition, prior to this offering, our stock could not be bought or sold on a public market. If an active public market for our stock does not develop, or if such a market is not sustained after this offering, it may be difficult to resell our stock. We could be subject to class action litigation due to stock price volatility, which, if it occurs, will distract our management and could result in substantial costs or large judgments against us In the past, securities class action litigation has often been brought against companies following periods of volatility in the market prices of their securities. We may be the target of similar litigation in the future. Securities litigation could result in substantial costs and divert our management's attention and resources, which could cause serious harm to our business, financial condition and results of operations. 15 Purchasers of our common stock will experience immediate and significant dilution upon purchasing shares in this offering because the initial public offering price of those shares will exceed their book value Because the initial public offering price is substantially higher than the book value per share of our common stock, purchasers of the common stock in this offering will be subject to immediate dilution of $11.10 per share. See "Dilution." Future sales of our stock could depress its market price Future sales of our stock on the public markets could depress its market price. Upon completion of this offering, we expect that: . the 4,800,000 shares of common stock, or 5,520,000 shares if the underwriters' option to purchase additional shares is exercised in full, sold in this offering will be freely tradable without restriction under the Securities Act unless they are held by one of our "affiliates;" and . 9,142,825 shares of common stock held by our existing stockholders will be eligible for sale into the public market, subject to compliance with the resale volume limitations and other restrictions of Rule 144 under the Securities Act, beginning 180 days after the date of this prospectus. In addition, beginning 180 days after the completion of this offering, the holders of approximately 9,048,882 shares of our stock will have limited rights to require us to register their shares under the Securities Act for public resale at our expense. The forward-looking statements contained in this prospectus are based on our predictions of future performance, and as a result, purchasers of our common stock should not place undue reliance on them This prospectus contains forward-looking statements that involve risks and uncertainties, including, without limitation, statements concerning conditions in the semiconductor and semiconductor capital equipment industries and our business, financial condition and operating results, including in particular statements relating to our business and growth strategies and our product development efforts. We use words like "believe," "expect," "anticipate," "intend," "future" and other similar expressions to identify forward-looking statements. Purchasers of our common stock should not place undue reliance on these forward-looking statements, which speak only as of their dates. These forward-looking statements are based on our current expectations, and are subject to a number of risks and uncertainties, including, without limitation, those identified under "Risk Factors" and elsewhere in this prospectus. Our actual operating results could differ materially from those predicted in these forward-looking statements, and any other events anticipated in the forward- looking statements may not actually occur. 16 USE OF PROCEEDS We expect to receive proceeds of approximately $57,232,000 from the sale of the 4,800,000 shares of common stock at an assumed initial public offering price of $13.00 per share, after deducting the underwriting discount and our estimated offering expenses, or approximately $65,936,800 if the underwriters exercise in full their option to purchase additional shares. We expect to use approximately $38.4 million of the net proceeds to repay several loans from the State Board of Administration of Florida, a related party. That amount includes $9.9 million to repay a senior revolving loan which bears interest at a rate of prime plus 1.5% and matures on December 31, 2002, $11.1 million to repay a senior term loan which bears interest at the rate of prime plus 1.75% and matures on December 31, 2002, $11.0 million to repay a senior subordinated loan which bears interest at a rate of prime plus 4.0% and matures on December 31, 2003 and $6.4 million to repay a junior subordinated note which bears interest at a rate of 14.0% and matures on July 31, 2001. All of these loans were made, and all of our preferred stock was issued, to finance the acquisition of our predecessor company in 1996 or for working capital and general corporate purposes. We also expect to use approximately $7.0 million of the net proceeds to redeem all of our outstanding Series A preferred stock and Series B preferred stock, which accrue cumulative dividends at 8% per annum and are held by related parties. Although we may use a portion of the net proceeds to acquire technology or businesses that are complimentary to our business, we have no current plans in this regard. We expect to use the remaining net proceeds of this offering for working capital and general corporate purposes, including expenditures for research and development of new products. DIVIDEND POLICY We have never declared or paid cash dividends on our common stock. We do not currently anticipate paying any cash dividends on our common stock in the foreseeable future, and we intend to retain any future earnings for use in the expansion of our business and for general corporate purposes. Additionally, our current debt instruments limit the payment of dividends. 17 CAPITALIZATION The following table summarizes our capitalization as of June 30, 1999 . on an actual basis; . on a pro forma basis to give effect to the exchange of all outstanding Class A common stock and Class B common stock for 7,103,365 shares of a new single class of common stock and the issuance of 2,039,460 shares of common stock upon the exercise of warrants, which we expect to occur immediately prior to this offering; and . on a pro forma as adjusted basis to give effect to the sale of 4.8 million shares of common stock offered by us at an assumed initial public offering price of $13.00 per share and the application of the estimated net proceeds as set forth under "Use of Proceeds," and an increase in accumulated deficit of $487,000 to reflect the write-off of deferred financing costs related to our repayment from the proceeds of this offering of a senior term loan, a senior subordinated term loan, a junior subordinated loan and a senior revolving term loan.
June 30, 1999 ------------------------------- Pro Pro Forma Actual Forma As Adjusted -------- -------- ----------- (in thousands) Cash.......................................... $ 412 $ 412 $ 12,311 ======== ======== ======== Current portion of obligations payable to stockholders................................ $ 2,750 $ 2,750 -- Obligations payable to stockholders, less current portion: Senior term loan............................ 9,000 9,000 -- Subordinated term loan...................... 11,000 11,000 -- Junior subordinated note increased $110 for unamortized original issue discount....... 6,400 6,400 -- Senior revolving term loan.................. 9,300 9,300 -- Series A preferred stock, $0.01 par value: 45,875 shares authorized and 45,875 shares issued and outstanding, Actual and Pro Forma; no shares authorized, issued and outstanding, Pro Forma As Adjusted.......... 5,848 5,848 -- Series B preferred stock, $0.01 par value: 10,125 shares authorized and 8,125 shares outstanding, Actual and Pro Forma; no shares authorized, issued and outstanding, Pro Forma As Adjusted........................... 1,035 1,035 -- -------- -------- -------- 45,333 45,333 -- -------- -------- -------- Stockholders' (deficit) equity: Class A common stock, $0.01 par value: 6,874,976 shares designated and 4,802,291 shares outstanding, Actual; no shares designated, issued and outstanding, Pro Forma and Pro Forma As Adjusted........... 2 -- -- Class B common stock, $0.01 par value: 3,035,705 shares designated and 2,301,095 shares outstanding, Actual; no shares designated, issued and outstanding, Pro Forma and Pro Forma As Adjusted........... -- -- -- Preferred stock, par value $0.001 per share; 5,000,000 shares authorized; no shares issued and outstanding, Actual, Pro Forma and Pro Forma As Adjusted................. -- -- -- Common stock, par value $0.001 per share; 50,000,000 shares authorized; no shares issued and outstanding, Actual; 9,142,825 shares issued and outstanding Pro Forma; 13,942,825 shares issued and outstanding, Pro Forma As Adjusted..................... 9 14 Additional paid-in capital.................... 4,886 4,879 62,106 Accumulated other comprehensive loss.......... (246) (246) (246) Accumulated deficit........................... (31,695) (31,695) (32,182) -------- -------- -------- Total stockholders' (deficit) equity...... (27,053) (27,053) 29,692 -------- -------- -------- Total capitalization................... $ 18,280 $ 18,280 $ 29,692 ======== ======== ========
18 This table excludes the following shares: . 589,550 shares of our common stock issuable upon exercise of stock options outstanding under our 1996 stock option plan and 109,380 shares of common stock reserved for future issuance under this plan; . 2,000,000 shares of common stock reserved for future issuance under our 1999 stock plan. . 300,000 shares of common stock reserved for future issuance under our 1999 employee stock purchase plan. 19 DILUTION Our pro forma net tangible book deficit as of June 30, 1999 was approximately $30.7 million, or $3.36 per share of common stock. Pro forma net tangible book value (deficit) per share represents the amount of our total assets less intangible assets, deferred financing costs and total liabilities divided by the pro forma number of shares of common stock outstanding as of June 30, 1999. The pro forma number of shares of common stock outstanding increases actual shares outstanding to reflect: (1) the exchange of all Class A common stock and Class B common stock for 7,103,365 shares of a new single class of common stock; and (2) the issuance of 2,039,460 shares of common stock upon the exercise of warrants. Without taking into account any changes in pro forma net tangible book value other than those described above, our sale of the 4,800,000 shares of common stock in this offering and the receipt and application of the net proceeds therefrom, our as adjusted pro forma net tangible book value as of June 30, 1999 would have been approximately $26.5 million, or $1.90 per share of common stock. This represents an immediate increase in pro forma net tangible book value of $5.26 per share to existing stockholders and an immediate dilution in pro forma net tangible book value of $11.10 per share to investors purchasing common stock in this offering. The following table illustrates this per share dilution: Assumed initial public offering price per share.................. $13.00 Pro forma net tangible book value (deficit) per share as of June 30, 1999................................................ $(3.36) Increase per share attributable to new investors............... 5.26 ------ As adjusted pro forma net tangible book value per share after this offering.................................................. 1.90 ------ Dilution per share to new investors.............................. $11.10 ======
The following table summarizes, on a pro forma basis as of June 30, 1999, the difference between the number of shares of common stock purchased from us, the total consideration paid and the average price per share paid by existing stockholders and by new investors, assuming an initial public offering price of $13.00 per share.
Total Cash Shares Purchased Consideration ------------------ ------------------ Average Price Number Percent Amount Percent Per Share ---------- ------- ---------- ------- ------------- Existing stockholders....... 9,142,825 65.6% $4,748,077 7.1% $ 0.52 New investors............... 4,800,000 34.4 62,400,000 92.9 $13.00 ---------- ----- ---------- ----- Total...................... 13,942,825 100.0% 67,148,077 100.0% ========== ===== ========== =====
The foregoing table assumes no exercise of the underwriters' option to purchase additional shares and no issuance of shares of common stock underlying outstanding options. We have outstanding options to purchase 693,951 shares of common stock, including options to purchase 104,401 shares of common stock granted in July 1999, net of options to purchase 3,481 shares of common stock that were cancelled and reissued, at a weighted average exercise price of $0.66 per share. To the extent that these options are exercised, new investors will experience further dilution. 20 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 prospectus, and "Management's Discussion and Analysis of Financial Condition and Results of Operations." The selected financial data set forth below as of and for the years ended December 31, 1997 and 1998, the six months ended June 30, 1999, and for the periods from January 1, 1996 to June 13, 1996 and June 14, 1996 to December 31, 1996 were derived from audited consolidated financial statements included elsewhere in this prospectus. The selected financial data as of December 31, 1996 and for each of the years ended December 31, 1994 and 1995 were derived from audited financial statements not included herein. The results of operations for the six months ended June 30, 1998 were derived from our unaudited financial statements included elsewhere in this prospectus, and, in our management's opinion, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of such data. Our results of operations for the six months ended June 30, 1999 are not necessarily indicative of the results that may be expected for the year ending December 31, 1999. The table below sets forth our selected financial data as well as that of our predecessor company. Our results of operations and those of our predecessor company are not directly comparable because we revalued the assets and liabilities of our predecessor company in connection with its acquisition pursuant to the provisions of APB No. 16, and because our results of operations for the period from June 14, 1996 to December 31, 1996 include various non- recurring expenses for acquired in-process research and development and the write-down of intangibles. In addition, because our predecessor company was taxed as an S-corporation and we are taxed as a C-corporation, the effective tax rate reflected in our historical results of operations is significantly higher than the tax rate reflected in the historical results of operations of our predecessor company. Further, we changed our business strategy immediately after the acquisition. Finally, the financial information of our predecessor company excludes the effects of purchase accounting adjustments, including increased interest expense and amortization.
Predecessor Company Rudolph Technologies ----------------------------- ------------------------------------------------------- Period from Period from Year Ended January 1 June 14 to Year Ended Six Months Ended December 31, to June 13, December 31, December 31, June 30, ---------------- ----------- ------------ -------------------- -------------------- 1994 1995 1996 1996 1997 1998 1998 1999 ------- ------- ----------- ------------ --------- --------- --------- --------- (In thousands) (In thousands, except share and per share data) Statement of Operations Data: Revenues................ $22,555 $29,436 $17,501 $ 14,373 $35,339 $ 20,106 $11,872 $15,170 Cost of revenues (1).... 10,042 13,655 7,497 6,579 13,903 13,179 6,455 7,373 ------- ------- ------- --------- --------- --------- --------- --------- Gross profit............ 12,513 15,781 10,004 7,794 21,436 6,927 5,417 7,797 Operating expenses: Research and development........... 1,542 2,888 1,817 2,345 5,750 5,096 2,688 2,097 In-process research and development........... -- -- -- 3,821 -- -- -- -- Selling, general and administrative........ 6,651 7,125 4,144 4,340 9,475 7,077 3,306 3,537 Write-down of intangibles........... -- -- -- 6,734 -- -- -- -- Amortization........... 10 10 19 3,650 4,201 4,208 2,103 131 ------- ------- ------- --------- --------- --------- --------- --------- Total operating expenses............... 8,203 10,023 5,980 20,890 19,426 16,381 8,097 5,765 ------- ------- ------- --------- --------- --------- --------- --------- Operating income (loss)................. 4,310 5,758 4,024 (13,096) 2,010 (9,454) (2,680) 2,032 Interest expense........ 130 113 55 2,013 3,717 4,210 2,135 2,148 Other income............ (2) (38) (26) (156) (92) (199) (15) (29) ------- ------- ------- --------- --------- --------- --------- --------- Income (loss) before income taxes........... 4,182 5,683 3,995 (14,953) (1,615) (13,465) (4,800) (87) Provision (benefit) for income taxes........... 234 274 143 -- (614) 613 (699) 93 ------- ------- ------- --------- --------- --------- --------- --------- Net income (loss)....... $ 3,948 $ 5,409 $ 3,852 (14,953) (1,001) (14,078) (4,101) (180) ======= ======= ======= Preferred stock dividends.............. 239 468 507 247 269 --------- --------- --------- --------- --------- Loss available to common stockholders........... $(15,192) $(1,469) $(14,585) $(4,348) $ (449) ========= ========= ========= ========= ========= Net loss per share available to common stockholders: Basic.................. $(5.80) $(0.56) $(3.24) $(1.66) $(0.07) Diluted................ $(5.80) $(0.56) $(3.24) $(1.66) $(0.07) Weighted average common shares outstanding: Basic.................. 2,617,373 2,617,373 4,503,396 2,617,373 6,767,415 Diluted................ 2,617,373 2,617,373 4,503,396 2,617,373 6,767,415 Pro forma net loss per share available to common stockholders: (2) Basic.................. $(2.23) $(0.93) $(0.05) Diluted................ $(2.23) $(0.93) $(0.05) Pro forma weighted average common shares outstanding: (2) Basic.................. 6,542,856 4,656,833 8,806,875 Diluted................ 6,542,856 4,656,833 8,806,875
21
Predecessor Company Rudolph Technologies ----------------------------- ------------------------------------------------------- Period from Period from Year Ended January 1 June 14 to Year Ended Six Months Ended December 31, to June 13, December 31, December 31, June 30, ---------------- ----------- ------------ -------------------- -------------------- 1994 1995 1996 1996 1997 1998 1998 1999 ------- ------- ----------- ------------ --------- --------- --------- --------- (In thousands) (In thousands, except share and per share data) Other Financial Data: EBITA (3)............... $4,322 $5,806 $4,069 $1,265 $ 6,303 $(5,047) $ (562) $2,192 EBITDA (3).............. 4,569 6,212 4,256 1,470 6,751 (4,269) (299) 2,466 Net cash provided by (used in) operating activities............ 768 7,016 1,592 1,160 (1,959) (6,872) (2,934) (550) Net cash provided by (used in) investing activities............ (311) (975) (171) (107) (586) (904) (508) (511) Net cash provided by (used in) financing activities............ (507) (4,234) (3,286) 525 1,200 8,000 3,400 1,043 December 31, June 30, ------------------------------- --------- 1996 1997 1998 1999 --------- --------- --------- --------- Balance Sheet Data: (in thousands) Cash and cash equivalents............ $ 1,578 $ 189 $ 431 $ 412 Working capital (deficit).............. 4,262 3,134 (1,052) (279) Total assets............ 27,013 28,513 21,121 22,924 Long-term debt, less current portion........ 26,000 24,000 25,370 26,290 Accumulated deficit..... (15,192) (16,661) (31,246) (31,695) Total stockholders' deficit................ (13,707) (15,327) (26,759) (27,053)
- ------- (1) Our cost of revenues for 1998 includes a $1.4 million expense for the write-down of inventory to net realizable value. (2) Our pro forma share and per share data has been prepared assuming the issuance of 2,039,460 shares of common stock upon the exercise of warrants. This exercise is assumed to have occurred at our inception. (3) "EBITA" is defined as income before provision for income taxes, interest expense and amortization. "EBITDA" is defined as income before provision for income taxes, interest expense, depreciation and amortization. EBITA and EBITDA are presented as supplemental information and should not be considered as alternatives to net income or cash flow from operating activities as indicators of our operating performance or liquidity. We believe that EBITA and EBITDA are standard measures commonly reported and widely used by analysts, investors and other interested parties in the semiconductor capital equipment industry. However, EBITA and EBITDA as presented herein may not be comparable to similarly titled measures reported by other companies. 22 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our Financial Statements and the Notes thereto included elsewhere in this prospectus. Our discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives and intentions. Our actual results may differ materially from those predicted in such forward-looking statements. See "Risk Factors--The forward-looking statements contained in this prospectus are based on our predictions of future performance, and as a result, purchasers of our common stock should not place undue reliance on them." Overview We are a worldwide leader in the design, development, manufacture and support of high-performance process control metrology systems used in semiconductor device manufacturing. Our proprietary systems measure the thickness and other properties of thin films applied during various steps in the manufacture of integrated circuits, enabling semiconductor device manufacturers to improve yields and reduce overall production costs. We provide our customers with a flexible full-fab metrology solution by offering families of systems that meet their transparent and opaque thin film measurement needs in various applications across the fabrication process. Our two primary families of metrology solutions offer leading-edge metrology technology, flexible systems cost-effectively designed for specific manufacturing applications and a common production-worthy automation platform, all backed by worldwide support. Our predecessor company was founded in 1940 as Rudolph Research Corporation, and for the past fifty-nine years we have built a reputation for metrology excellence. We began our association with the semiconductor industry by selling research instruments in the 1950s and 1960s to pioneers in solid state electronics, including Bell Laboratories. We believe we have the largest installed base of ellipsometers in the world. Our customers include most of the major semiconductor device manufacturers worldwide, including Intel, AMD, Chartered Semiconductor, Fujitsu, Hyundai, IBM, Lucent, Philips, Samsung, ST Microelectronics, Texas Instruments, TSMC, Toshiba and UMC. In June 1996, our predecessor company was purchased in a leveraged transaction by our management and a group of investors. The acquisition resulted in our incurring a significant amount of debt. At the time of the transaction, we changed our name to Rudolph Technologies and changed our corporate strategy to focus exclusively on the production semiconductor metrology business. Our strategy was to capitalize on our reputation for accuracy and repeatability in the measurement of very thin films, primarily in the diffusion phase of the semiconductor device manufacturing process, to gain market share in other areas of the semiconductor device manufacturing process. We addressed our market opportunity by increasing our investment in research and development to expand our product offerings and increase our infrastructure. During 1996 and 1998, the semiconductor device industry began unforeseen periods of reduced capital equipment purchases. The related industry-wide downturns in the semiconductor capital equipment industry led to decreased sales of our products as many customers delayed shipments or canceled orders altogether. We incurred significant losses in 1998 not only because of the downturn in our industry but also because we continued to invest in research and development and in building our infrastructure. We record revenue from product and parts sales at the time of shipment to the customer, which occurs after the customer has tested and approved the equipment. We record a provision for the estimated cost of fulfilling warranty and installation obligations at the time we recognize the related revenue. We recognize service revenue ratably over the period of the contract. Historically, a significant portion of our revenues in each quarter and year has been derived from sales to relatively few customers, and we expect this trend to continue. In the combined year 1996, in 1997 and 1998 and in the six months ended June 30, 1999, sales to customers that individually represented at least five percent 23 of our revenues accounted for 18.0%, 7.7%, 43.2% and 44.3% of our revenues. In the combined year 1996 and in 1997, no individual customer accounted for more than 10% of our revenues. In 1998, sales to Intel and Advanced Micro Devices accounted for 19.8% and 11.1% of our revenues. In the six months ended June 30, 1999, sales to Intel accounted for 37.3% of our revenues. In addition, a significant portion of our revenues in each quarter and year has been derived from sales to particular distributors. These distributors purchase our products for ultimate distribution to customers in particular geographic regions. In the combined year ended December 31, 1996, sales to Tokyo Electron Limited or TEL, our exclusive distributor in Japan, accounted for 31.4% of our revenues. In 1997, sales to TEL accounted for 29.9% of our revenues. In 1998, sales to TEL and distributor Metron Technology accounted for 17.6% and 15.3% of our revenues. In the six months ended June 30, 1999, sales to Metron Technology accounted for 14.0% of our revenues. Currently, the only distributor we use is TEL. We expect that sales to TEL will continue to account for a significant portion of our revenues for the foreseeable future. We do not have purchase contracts with any of our customers or distributors that obligate them to continue to purchase our products, and they could cease purchasing products from us at any time. A delay in purchase or cancellation by any of our large customers could cause quarterly revenues to vary significantly. In addition, during a given quarter, a significant portion of our revenue may be derived from the sale of a relatively small number of systems. Our transparent film measurement systems range in price from approximately $200,000 to $1.0 million per system and our opaque film measurement systems range in price from approximately $900,000 to $1.6 million per system. Accordingly, a small change in the number of systems we sell may also cause significant changes in our operating results. Because fluctuations in the timing of orders from our major customers or distributors or in the number of our individual systems we sell could cause our revenues to fluctuate significantly in any given quarter or year, we do not believe that period-to- period comparisons of our financial results are necessarily meaningful, and they should not be relied upon as an indication of our future performance. A significant portion of our revenues has been derived from customers outside of the United States, and we expect this trend to continue. In 1997, approximately 66.0% of our revenues were derived from customers outside of the United States, of which 57.9% were derived from customers in Asia and 8.0% were derived from customers in Europe. In 1998, approximately 58.2% of our revenues were derived from customers outside of the United States, of which 41.8% were derived from customers in Asia and 16.4% were derived from customers in Europe. In the six months ended June 30, 1999, approximately 57.9% of our revenues were derived from customers outside of the United States, of which 24.6% were derived from customers in Asia, 21.5% were derived from customers in Europe, and 11.8% were derived from customers in other international markets. Substantially all of our revenues to date have been denominated in United States dollars. The sales cycle for our systems typically ranges from six to 15 months, and can be longer when our customers are evaluating new technology. Due to the length of these cycles, we invest significantly in research and development and sales and marketing in advance of generating revenues related to these investments. Additionally, the rate and timing of customer orders may vary significantly from month to month. Accordingly, if sales of our products do not occur when we expect, and we are unable to adjust our estimates on a timely basis, our expenses and inventory levels may increase relative to revenues and total assets. 24 Results of Operations The following table sets forth our statements of operations data and those of our predecessor company for the periods indicated. The results of operations of our predecessor company are not directly comparable to ours because we revalued the assets and liabilities of our predecessor company in connection with its acquisition pursuant to the provisions of APB No. 16. In addition, because our predecessor company was taxed as an S corporation and we are taxed as a C corporation, the effective tax rate reflected in our historical results of operations is significantly higher than the tax rate reflected in the historical results of operations of our predecessor company. Further, we changed our business strategy immediately after the acquisition. The combined results of operations for 1996 represent a combination, without adjustment, of the historical results of our predecessor company for the period from January 1, 1996 to June 13, 1996 and our historical results for the period from June 14, 1996 to December 31, 1996. We are presenting these combined historical results for convenience only, to assist investors in assessing our underlying business trends. These combined results exclude the full year effect of purchase accounting adjustments, specifically increased interest expense and amortization of intangibles. In addition, our results of operations for the period from June 14, 1996 to December 31, 1996, which are a component of the combined 1996 results, include non-recurring expenses for acquired in-process research and development and the write-down of intangibles. As a result, the combined 1996 results of operations are not fully comparable to our historical results of operations for periods after 1996.
Six Months Ended Year Ended Dec. 31, June 30, --------------------------- ---------------- Combined 1996 1997 1998 1998 1999 -------- ------- -------- ------- ------- (in thousands) Revenues....................... $ 31,874 $35,339 $ 20,106 $11,872 $15,170 Cost of revenues............... 14,076 13,903 13,179 6,455 7,373 -------- ------- -------- ------- ------- Gross profit................... 17,798 21,436 6,927 5,417 7,797 -------- ------- -------- ------- ------- Operating expenses: Research and development...... 4,162 5,750 5,096 2,688 2,097 In-process research and development................. 3,821 -- -- -- -- Selling, general and administrative.............. 8,484 9,475 7,077 3,306 3,537 Write-down of intangibles..... 6,734 -- -- -- -- Amortization.................. 3,669 4,201 4,208 2,103 131 -------- ------- -------- ------- ------- Total operating expenses..... 26,870 19,426 16,381 8,097 5,765 -------- ------- -------- ------- ------- Operating income (loss)........ (9,072) 2,010 (9,454) (2,680) 2,032 Interest expense............... 2,068 3,717 4,210 2,135 2,148 Other income................... (182) (92) (199) (15) (29) -------- ------- -------- ------- ------- Loss before income taxes....... (10,958) (1,615) (13,465) (4,800) (87) Provision (benefit) for income taxes........................ 143 (614) 613 (699) 93 -------- ------- -------- ------- ------- Net loss....................... (11,101) (1,001) (14,078) (4,101) (180) Preferred stock dividends...... 239 468 507 247 269 -------- ------- -------- ------- ------- Loss available to common stockholders................. $(11,340) $(1,469) $(14,585) $(4,348) $ (449) -------- ------- -------- ------- -------
25 The following table sets forth, for the periods indicated, our statements of operations data as percentages of our revenues. Our results of operations are reported as a one reportable business segment.
Six months Year Ended December Ended 31, June 30, ----------------------- ------------- Combined 1996 1997 1998 1998 1999 -------- ----- ----- ----- ----- Revenues............................ 100.0% 100.0% 100.0% 100.0% 100.0% Cost of revenues.................... 44.2 39.3 65.5 54.4 48.6 ----- ----- ----- ----- ----- Gross profit........................ 55.8 60.7 34.5 45.6 51.4 Operating expenses: Research and development........... 13.1 16.3 25.3 22.6 13.8 In-process research and development...................... 12.0 -- -- -- -- Selling, general and administrative................... 26.6 26.8 35.2 27.8 23.3 Write-down of intangibles.......... 21.1 -- -- -- -- Amortization....................... 11.5 11.9 21.0 17.8 0.9 ----- ----- ----- ----- ----- Total operating expenses.......... 84.3 55.0 81.5 68.2 38.0 ----- ----- ----- ----- ----- Operating income (loss)............. (28.5) 5.7 (47.0) (22.6) 13.4 Interest expense.................... 6.5 10.5 20.9 18.0 14.2 Other expense (income).............. (0.6) (0.3) (1.0) (0.1) (0.2) ----- ----- ----- ----- ----- Income (loss) before income taxes... (34.4) (4.5) (67.0) (40.5) (0.6) Provision (benefit) for income taxes............................. 0.4 (1.7) 3.0 (5.9) 0.6 ----- ----- ----- ----- ----- Net loss............................ (34.8) (2.8) (70.0) (34.6) (1.2) Preferred stock dividends........... 0.8 1.3 2.5 2.1 1.8 ----- ----- ----- ----- ----- Income (loss) available to common stockholders...................... (35.6)% (4.1)% (72.5)% (36.7)% (3.0)% ===== ===== ===== ===== =====
Results of Operations for the Six Months Ended June 30, 1998 and 1999 Revenues. Our revenues are derived from the sale of our metrology systems, services and spare parts. Our revenues were $11.9 million and $15.2 million in the six months ended June 30, 1998 and 1999. This change represents an increase of 27.8% and was primarily due to increases in unit volume shipments to existing customers and expanded sales of new products. Revenues from international customers represented 62.6% and 57.9% of our revenues in the six months ended June 30, 1998 and 1999. Revenues from international customers decreased as a percentage of revenues from 1998 to 1999 as a result of increased sales to a significant domestic customer in 1999 and reduced revenues from Asian customers in 1998 due to the Asian economic crisis. See "Risk Factors--Because we derive a significant portion of our revenues from sales in Asia, our sales and results of operations could be adversely affected by the instability of Asian economies." Cost of Revenues and Gross Profit. Cost of revenues consists of the labor, material and overhead costs of manufacturing our systems, spare parts cost and the cost associated with our worldwide service support infrastructure. Our gross profit was $5.4 million and $7.8 million in the six months ended June 30, 1998 and 1999. This change represents an increase of 43.9%. Our gross profit represented 45.6% and 51.4% of our revenues in the six months ended June 30, 1998 and 1999. The increase in gross profit margin from 1998 to 1999 resulted from increased revenues covering a larger portion of fixed costs and changes in product mix to higher margin products. The increase in gross profit dollars was the result of higher unit sales. In 1999, we initiated a supply chain improvement program designed to reduce time to market, manufacturing inefficiencies and inventories. There can be no assurances that such improvement programs will be effective or materially increase our gross profit margins. Research and Development. 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, prototype equipment expenses and the cost of related supplies. Our research and development expenses were $2.7 million and $2.1 million in the six months ended June 30, 1998 and 1999. This change 26 represents a decrease of 22.0%. Research and development expense represented 22.6% and 13.8% of our revenues for the six months ended June 30, 1998 and 1999. The decrease in dollars resulted from the timing of purchases of new materials and supplies for engineering projects and a reduction of outside software development consulting services. The decrease in research and development as a percentage of revenues resulted from cost savings in our research and development operations along with higher revenues in the six months ended June 30, 1999. Selling, General and Administrative. Selling, general and administrative expense is primarily comprised of salaries and related costs for sales, marketing, and general and administrative personnel, as well as commissions, royalties for licensed technology and other non-personnel related expenses. Our selling, general and administrative expense was $3.3 million and $3.5 million in the six months ended June 30, 1998 and 1999. This change represents an increase of 7.0%. Selling, general and administrative expense represented 27.8% and 23.3% of revenues for the six months ended June 30, 1998 and 1999. The increase in dollars resulted from higher general business costs. Amortization. Amortization expense is related to the core technology and goodwill we acquired from our predecessor company in 1996. See Note 5 of Notes to Financial Statements. Amortization expense was $2.1 million and $0.1 million in the six months ended June 30, 1998 and 1999. Amortization expense decreased in 1999 because we completed our amortization of acquired technology in 1998. Loss on Early Extinguishment of Debt. In the fourth quarter of 1999 we expect to record an expense of approximately $450,000 for the write-off of unamortized deferred financing costs we incurred in connection with the acquisition of our predecessor company in 1996 and the financing we completed in November 1998. We will recognize these expenses as a result of our repayment, from the proceeds of this offering, of all the debt we incurred in connection with these transactions. Income Taxes. We use the liability method of accounting for income taxes prescribed by Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes. See Note 12 of Notes to Financial Statements. Our effective federal and state tax rates differ from the statutory rates because of a deferred tax valuation equal to the tax effect of temporary differences adjusted for amounts currently refundable or payable. Since we generated a loss in the six months ended June 30, 1998, we recorded an income tax benefit of $0.7 million for federal tax purposes to reflect the carryback for income taxes paid in 1997. The provision for income taxes of $0.1 million in the six months ended June 30, 1999 is the result of state tax obligations resulting from the acquisition of our predecessor company in 1996 that cannot be applied against tax net operating losses. Preferred Stock Dividends. We accrued cumulative dividends on our 8% preferred stock of $247,000 and $269,000 in the six months ended June 30, 1998 and 1999. The increase in accrued dividends resulted from the compounding of dividends that accrued in prior periods. To date, we have not declared or paid any dividends. Results of Operations for the Combined Year Ended December 31, 1996 and the Years Ended December 31, 1997 and 1998 Revenues. Our revenues were $31.9 million, $35.3 million, and $20.1 million in the combined year 1996 and in 1997 and 1998. These changes represent an increase of 10.9% from 1996 to 1997 and a decrease of 43.1% from 1997 to 1998. The increase in revenues from 1996 to 1997 was primarily due to the introduction of our MetaPULSE and SpectraLASER families in the second half of 1997 and increased sales of our 300 millimeter wafer measurement products in 1997. The decrease in revenues from 1997 to 1998 was primarily due to lower sales volume resulting from the downturn in the semiconductor device industry in 1998, which resulted in reduced capital spending by semiconductor device manufacturers. Revenues from customers outside of the United States represented 73.8%, 66.0% and 58.2% of our revenues in the combined year 1996 and in 1997 and 1998. Revenues from customers outside of the United States decreased as a percentage of revenues 27 from 1997 to 1998 as a result of reduced sales to existing customers in Asia due to an economic downturn in a number of Asian countries. We expect that revenues generated from customers outside of the United States will continue to account for a significant percentage of our revenues. See "Risk Factors-- Because we derive a significant portion of our revenues from sales in Asia, our sales and results of operations could be adversely affected by the instability of Asian economies." Cost of Revenues and Gross Profit. Our gross profit was $17.8 million, $21.4 million and $6.9 million in the combined year 1996 and in 1997 and 1998. These changes represent an increase of 20.4% from 1996 to 1997 and a decrease of 67.7% from 1997 to 1998. Our gross profit represented 55.8%, 60.7%, and 34.5% of our revenues in the combined year 1996 and in 1997 and 1998. The increase in gross profit margin from 1996 to 1997 resulted primarily from improved manufacturing efficiencies and lower customer service costs. In 1998, we recorded an expense of $1.4 million for the writedown of inventory consisting of excess parts for older product lines and parts which design and engineering advancements had rendered obsolete. The inventory writedown expense reduced our gross profit margin for 1998 by 7.0% compared to our gross profit margin in 1997. The decrease in gross profit margin from 1997 to 1998 was also attributable in part to the spreading of relatively fixed manufacturing and service costs over lower revenues and the expansion of our service infrastructure, including the opening of a branch office in Taiwan. Research and Development. Our research and development expenditures were $4.2 million, $5.8 million and $5.1 million in the combined year 1996 and in 1997 and 1998. These changes represent an increase of 38.2% from 1996 to 1997 and a decrease of 11.4% from 1997 to 1998. Research and development expenditures represented 13.1%, 16.3% and 25.3% of revenues in the combined year 1996 and in 1997 and 1998. The increases in dollars and percentage in 1997 resulted from increased headcount and prototype equipment cost related to new product development. The increase in research and development expenditures as a percentage of revenues in 1998 resulted from lower revenues and our decision to maintain research and development spending during the downturn in our industry. The decrease in dollars in 1998 resulted from the cost for prototype equipment incurred in 1997 with no significant prototype equipment cost recurring in 1998. We anticipate that our research and development expenses will increase in the future due to planned increases in personnel, consultants and material costs. In-Process Research and Development. The acquisition of our predecessor company resulted in our recording a one-time expense of approximately $3.8 million in 1996 for the write-off of in-process research and development, or IPRD. The IPRD we acquired related to an optical acoustic metrology technology that our predecessor company had exclusively licensed in 1995 from the Brown University Research Foundation. At the time of the acquisition, we determined that the IPRD had not reached technological feasibility and that it did not have an alternative future use. Accordingly, we concluded that our ability to derive future benefit from the IPRD was highly uncertain. After licensing the technology from Brown, our predecessor company was able to advance the technology toward technological feasibility by proving, under laboratory conditions, that the pulsing of ultra-fast lasers could generate sound waves that could be used to measure multiple layers of metal or opaque film. At the time of the acquisition we determined that approximately 25% of the research and development effort required to commercialize the technology still remained, as we still needed to overcome design and engineering requirements before a commercial product could be developed. These design and engineering requirements included developing a compact advanced cooling system to eliminate laser overheating, laser beam compression systems to reduce the size of the equipment and automation to handle the movement of materials. The technology which our predecessor company licensed from Brown ultimately led to the introduction of our MetaPULSE systems in 1997. Our MetaPULSE systems provides us with competitive advantages by enabling our customers to measure multiple layers of metal and opaque thin films simultaneously. Our other systems do not have this functionality. We began testing the MetaPULSE prototype in November 1996, and we sold our first MetaPULSE system commercially in May 1997. We incurred total research and development costs in developing the MetaPULSE product, excluding the IPRD expense, of approximately $3.7 million. 28 In valuing the IPRD, we performed a discounted cash flow analysis of our expected annual revenues from the MetaPULSE technology over a period of approximately four years. We chose a four-year period based on the historic revenue trends of our new product introductions. We used expected annual revenues ranging from approximately $14 million to $23 million, and a risk rated discount rate of 30.0%. Selling, General and Administrative. Our selling, general and administrative expense was $8.5 million, $9.5 million and $7.1 million in the combined year 1996 and in 1997 and 1998. These changes represent an increase of 11.7% from 1996 to 1997 and a decrease of 25.3% from 1997 to 1998. Selling, general and administrative expense represented 26.6%, 26.8%, and 35.2% of revenues in the combined year 1996 and in 1997 and 1998. The increase in dollars in 1997 resulted from the addition of sales and marketing cost in the United States as we ended our relationship with our domestic sales representative and established a direct sales force. The decrease in dollars in 1998 resulted from a reduction in commissions paid to foreign sales representatives as a result of the semiconductor device industry slowdown and the Asian economic crisis. This decrease was partially offset by an increase in royalty costs associated with licensed technology included in one of our new systems. In 1999, we expect to increase the dollar amount we spend on selling, general and administrative expenses. Write-Down of Intangibles. During 1996, after the acquisition of our predecessor company, the semiconductor device industry began an unforeseen period of reduced capital equipment purchases. The related industry-wide downturn in the semiconductor capital equipment industry led to decreased sales of our products as many customers delayed shipments or canceled orders altogether. At the same time, we also initiated the development of next generation systems. In light of these developments, we assessed the recoverability of one of our intangible assets and a pro-rata share of the goodwill we acquired from our predecessor company using undiscounted future cash flows from operations. Based on this analysis, we determined an impairment for these assets had occurred. We then used discounted expected future cash flows to determine the net realizable value of these assets, and recorded a $6.7 million expense to reduce the book value of these assets to their net realizable value. Amortization. Our expense for amortization was $3.7 million, $4.2 million and $4.2 million in the combined year 1996 and in 1997 and 1998. Interest Expense. Interest expense was $2.1 million, $3.7 million and $4.2 million in the combined year 1996 and in 1997 and 1998, and results from the substantial debt incurred to finance the purchase of our predecessor company in June 1996. Other Income. Included in other income is interest income on cash balances, miscellaneous nonrecurring income resulting from the disposal of capital equipment and several other nonrecurring transactions. Other income was $182,000, $92,000, and $199,000 in the combined year 1996 and in 1997 and 1998. Provision (Benefit) for Income Taxes. Our provision (benefit) for income taxes was a provision of $143,000 in combined 1996, a benefit of $614,000 in 1997 and a provision of $613,000 in 1998. The effective income tax rate for 1996 was reduced by our predecessor company's election to be taxed as a S corporation, thereby resulting only in the incurrence of state taxes. In addition, we recorded a partial deferred tax valuation allowance for various temporary differences including a net operating loss carryforward. We computed our effective tax rate for 1997 and 1998 based on prevailing federal and state rates adjusted for increases in our deferred tax valuation accounts and for current taxes payable or refundable during the carryback period. Preferred Stock Dividends. We accrued cumulative dividends on our 8% preferred stock of $0.2 million, $0.5 million, and $0.5 million in the combined year 1996 and in 1997 and 1998. The increase from 1996 to 1997 resulted primarily from the preferred stock being outstanding for only part of the year in 1996 and for the entire year in 1997. To date no dividends have been declared or paid. 29 Quarterly Results of Operations The following tables set forth our unaudited selected quarterly results of operations data for the eight quarters in the period ended June 30, 1999, and such data expressed as percentages of our revenues for the same periods. This information has been prepared on the same basis as the audited consolidated financial statements appearing elsewhere in this prospectus and, in our management's opinion, contains all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the unaudited quarterly results of operations set forth below. Results of operations for any previous quarter are not necessarily indicative of the results to be expected for the entire year or any future period.
Three Months Ended -------------------------------------------------------------------------- Sep. 30, Dec. 31, Mar. 31, June 30, Sep. 30, Dec. 31, Mar. 31, 1997 1997 1998 1998 1998 1998 1999 -------- -------- -------- -------- -------- -------- -------- Statement of Operations: (in thousands) Revenues......................................... $ 9,664 $7,472 $ 6,452 $ 5,420 $ 2,853 $ 5,381 $6,532 Cost of revenues................................. 3,575 3,858 3,300 3,155 2,212 4,512 3,229 ------- ------ ------- ------- ------- ------- ------ Gross Profit..................................... 6,089 3,614 3,152 2,265 641 869 3,303 Operating expenses: Research and development........................ 2,199 1,372 1,225 1,463 1,154 1,254 1,043 Selling, general and administrative............. 2,569 2,261 1,640 1,666 1,502 2,269 1,604 Amortization.................................... 1,052 1,051 1,052 1,051 1,053 1,052 66 ------- ------ ------- ------- ------- ------- ------ Total operating expenses....................... 5,820 4,684 3,917 4,180 3,709 4,575 2,713 ------- ------ ------- ------- ------- ------- ------ Operating income (loss).......................... 269 (1,070) (765) (1,915) (3,068) (3,706) 590 Interest expense................................. 904 951 994 1,141 1,065 1,010 1,038 Other income..................................... (9) (31) (8) (7) (32) (152) (3) ------- ------ ------- ------- ------- ------- ------ Income (loss) before income taxes............... (626) (1,990) (1,751) (3,049) (4,101) (4,564) (445) Provision (benefit) for income taxes............ 298 (1,558) -- (699) -- 1,312 93 ------- ------ ------- ------- ------- ------- ------ Net income (loss)............................... (924) (432) (1,751) (2,350) (4,101) (5,876) (538) Preferred stock dividends....................... 119 121 122 125 129 131 133 ------- ------ ------- ------- ------- ------- ------ Net income (loss) available to common stockholders.................................. $(1,043) $ (553) $(1,873) $(2,475) $(4,230) $(6,007) $ (671) ======= ====== ======= ======= ======= ======= ====== Three Months Ended -------------------------------------------------------------------------- Sep. 30, Dec. 31, Mar. 31, June 30, Sep. 30, Dec. 31, Mar. 31, 1997 1997 1998 1998 1998 1998 1999 -------- -------- -------- -------- -------- -------- -------- As a Percentage of Revenues: Revenues......................................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Cost of revenues................................. 37.0 51.6 51.1 58.2 77.5 83.9 49.4 ------- ------ ------- ------- ------- ------- ------ Gross Profit..................................... 63.0 48.4 48.9 41.8 22.5 16.1 50.6 Operating expenses: Research and development........................ 22.8 18.4 19.0 27.0 40.5 23.3 16.0 Selling, general and administrative............. 26.6 30.3 25.4 30.7 52.6 42.2 24.6 Amortization.................................... 10.8 14.1 16.3 19.4 36.9 19.6 1.0 ------- ------ ------- ------- ------- ------- ------ Total operating expenses....................... 60.2 62.8 60.7 77.1 130.0 85.0 41.6 ------- ------ ------- ------- ------- ------- ------ Operating income (loss).......................... 2.8 (14.4) (11.8) (35.3) (107.5) (68.9) 9.0 Interest expense................................. 9.4 12.7 15.4 21.1 37.3 18.8 15.9 Other income..................................... (0.1) (0.4) (0.1) (0.1) (1.1) (2.8) (0.1) ------- ------ ------- ------- ------- ------- ------ Income (loss) before income taxes............... (6.5) (26.7) (27.1) (56.3) (143.7) (84.9) (6.8) Provision (benefit) for income taxes............ 3.1 (20.9) -- (12.9) -- 24.4 1.4 ------- ------ ------- ------- ------- ------- ------ Net income (loss)............................... (9.6) (5.8) (27.1) (43.4) (143.7) (109.3) (8.2) Preferred stock dividends....................... 1.2 1.6 1.9 2.3 4.5 2.4 2.0 ------- ------ ------- ------- ------- ------- ------ Net income (loss) available to common stockholders.................................. (10.8)% (7.4)% (29.0)% (45.7)% (148.2)% (111.7)% (10.2)% - -------------------------------------------------- ======= ====== ======= ======= ======= ======= ====== June 30, 1999 -------- Statement of Operations: Revenues......................................... $8,638 Cost of revenues................................. 4,144 -------- Gross Profit..................................... 4,494 Operating expenses: Research and development........................ 1,054 Selling, general and administrative............. 1,933 Amortization.................................... 65 -------- Total operating expenses....................... 3,052 -------- Operating income (loss).......................... 1,442 Interest expense................................. 1,110 Other income..................................... (26) -------- Income (loss) before income taxes............... 358 Provision (benefit) for income taxes............ -- -------- Net income (loss)............................... 358 Preferred stock dividends....................... 136 -------- Net income (loss) available to common stockholders.................................. $ 222 ======== June 30, 1999 -------- As a Percentage of Revenues: Revenues......................................... 100.0% Cost of revenues................................. 48.0 -------- Gross Profit..................................... 52.0 Operating expenses: Research and development........................ 12.2 Selling, general and administrative............. 22.4 Amortization.................................... 0.8 -------- Total operating expenses....................... 35.4 -------- Operating income (loss).......................... 16.6 Interest expense................................. 12.9 Other income..................................... (0.3) -------- Income (loss) before income taxes............... 4.0 Provision (benefit) for income taxes............ -- -------- Net income (loss)............................... 4.0 Preferred stock dividends....................... 1.6 -------- Net income (loss) available to common stockholders.................................. 2.4% - -------------------------------------------------- ========
Our operating results have historically been subject to significant quarterly and annual fluctuations. We anticipate that factors affecting our future operating results will include the timing of significant orders, the timing of new product announcements and releases by us or our competitors, patterns of capital spending by 30 customers, market acceptance of new and enhanced versions of our products, changes in pricing by us or in our industry or the markets served by our customers. In addition, the timing and level of our research and development expenditures could cause quarterly results to fluctuate. We derive a substantial portion of our annual revenues from the sales of a relatively small number of process control metrology systems. Our revenues and operating results for a period may be affected by the timing of orders received or orders shipped during a period. See "Risk Factors--Our largest customers account for a significant portion of our revenues, and our business and operating results could be harmed by the loss of one or more of these customers or by reductions or delays in their purchases of our systems." Our quarterly revenues and gross profit margins decreased quarter over quarter for the third and fourth quarters of 1997 and the first, second and third quarters of 1998 as a result of the recent downturn in the semiconductor device and equipment industries. Our gross profit as a percentage of revenues decreased in the fourth quarter of 1998 as a result of a $1.4 million charge for the writedown of inventory consisting of excess parts for older product lines and parts which design and engineering advances rendered obsolete. Our research and development expenses were high in the third quarter of 1997 due to increased prototype development costs and in the second quarter of 1998 due to increased material costs for engineering projects. Amortization of intangibles decreased in the first quarter of 1999 because we completed the amortization of some of the technology we acquired from our predecessor company in 1998. Liquidity and Capital Resources Since the purchase of our predecessor company in 1996, we have financed our operations from internally generated funds, sales of equity, and both a revolving credit facility and long term loans with a related party. Our principal liquidity requirements are the financing of working capital, inventories, capital expenditures and debt service. Net cash generated by operating activities was $1.2 million for the period from June 14, 1996 to December 31, 1996. Net cash used in operating activities was $2.0 million, $6.9 million and $0.6 million for 1997, 1998 and for the six months ended June 30, 1999. The increase in cash used by operating activities from 1997 to 1998 was due primarily to our funding of net losses and fluctuations in accounts receivable, inventory and current liabilities. The decrease from 1998 to June 30, 1999 was due primarily to a decrease in our net losses as well as the cash impact of fluctuations in accounts receivable, inventory and current liabilities. Net cash used in investing activities was $0.1 million, $0.6 million, $0.9 million, and $0.5 million for the period from June 14, 1996 to December 31, 1996, for 1997 and 1998, and for the six months ended June 30, 1999. Capital expenditures for 1997 were primarily used to upgrade computer systems and for leasehold improvements to our sales and service facility in California. Capital expenditures for 1998 and 1999 were primarily used to establish our new manufacturing and customer training facility in New Jersey. Capital expenditures for 1999 are not expected to exceed $1.0 million. Net cash provided by financing activities was $0.5 million, $1.2 million, $8.0 million and $1.0 million for the period June 14, 1996 to December 31, 1996, the years ended December 31, 1997 and 1998, and the six months ended June 30, 1999, and was principally provided by loans and an equity investment by a related party. In June 1996, our predecessor company was purchased in a leveraged transaction. In order to finance the transaction, we issued a senior term note and a senior subordinated note in the principal amounts of $16.0 million and $11.0 million. We also issued $1.5 million of common stock and $5.4 million of preferred stock. The senior term note bears interest at an annual rate of prime plus 1.75%, with the principal required to be repaid on a quarterly basis from 1997 to 2002. The senior subordinated note bears interest at an annual rate of prime plus 4.0%, with the principal to be repaid in its entirety in 2003. Our preferred stock accrues dividends cumulatively at a rate of 8% per year. No dividends on the preferred stock have been declared or paid. In conjunction with our issuance of the senior notes, we obtained a revolving line of credit with the same related party in an aggregate principal amount not to exceed $8.0 million. The maximum amount of the revolving line of credit was increased to $12.0 million in 1998. At June 30, 1999, available borrowings under this revolving line of credit totaled $2.7 million. 31 In July 1998, we issued 4,115,021 shares of Class A common stock and Class B common stock with proceeds of $3.0 million. The shares of common stock were offered to our existing stockholders in a private transaction. The proceeds from the issuance of the capital stock were used for general corporate purposes. In November 1998, we issued a junior subordinated note in the principal amount of $7.0 million, of which we had been advanced a total of $6.4 million as of June 30, 1999. The unpaid principal amount of the junior subordinated note bears interest at an annual rate of 14%. The junior subordinated note matures on July 31, 2001. We may at any time prepay, without premium or penalty, all or any portion of our outstanding debt. We intend to apply a substantial portion of the net proceeds of this offering to the repayment in full of the principal and accrued interest on our outstanding debt. See "Use of Proceeds." We believe that the net proceeds from this offering, a working capital line of credit which we expect to obtain before this offering and cash generated from operations, if any, will be adequate to meet our anticipated cash needs for working capital and capital expenditures for the twelve months following this offering. Historically, we have received financial support from our stockholders. Because of the operating losses we reported in 1998 and 1999, we would not have been in compliance with the financial ratios we are required to maintain under the terms of our outstanding debt had our lender not waived such noncompliance through June 30, 1999. We anticipate that we will not be in compliance with these ratios through the date of this offering. Our future capital requirements will depend on many factors, including the timing and amount of our revenues and our investment commitments, which will affect our ability to generate additional cash. 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. Year 2000 Issue The "Year 2000 Issue" refers generally to the problems that some software may have in determining the correct century of the year. Many existing electronic systems, including computer systems, use only the last two digits to refer to a year. Therefore, these systems may recognize a date using "00" as 1900 rather than the year 2000. If not corrected, these electronic systems could fail or create erroneous results when addressing dates on and after January 1, 2000. In assessing the potential effect of the Year 2000 Issue on us, we determined that we needed to evaluate four general areas: .Supplier relationships; .Internal infrastructure; .Products sold to customers; and .Other third-party relationships. Supplier Relationships. We identified our significant suppliers and subcontractors and asked them to provide us with an assessment of their Year 2000 readiness. To date, we have received responses from a substantial majority of our key suppliers, most of which indicated that they are in the process of developing and implementing remediation plans. However, we have no means of ensuring that suppliers and subcontractors will be Year 2000 ready. The inability of suppliers or subcontractors to complete their Year 2000 resolution process in a timely fashion could seriously harm our operating results. We are unable to determine the effect of non-compliance by suppliers or subcontractors. 32 Internal Infrastructure. The Year 2000 Issue could also affect our internal systems, including both our information technology and non-information technology systems. We have completed an assessment of our material internal information technology systems, including third-party software and hardware technology. Based upon representations received from these third-party software and hardware suppliers, and in some instances the implementation of Year 2000 software upgrades, we do not believe that our material internal information technology systems will be affected by the Year 2000 Issue. We have also initiated an assessment of our non-information technology internal systems, such as our test equipment. Based on our preliminary assessment, we do not believe that our non-information technology internal systems will be affected by the Year 2000 Issue. However, we may experience serious unanticipated problems and costs caused by undetected errors or defects in the technology used in our internal information technology and non-information technology systems. Products Sold to Customers. We have completed our inventory and assessment of our products' Year 2000 readiness utilizing testing guidelines prepared by Sematech, a consortium of suppliers to worldwide semiconductor manufacturers. Our new products are designed to be Year 2000 ready, but some of our older products will require upgrades for Year 2000 readiness. We have completed upgrades for our product, and have made these upgrades available to our customers. Notwithstanding such efforts, any failure of our products to perform, including system malfunctions due to the onset of Year 2000, could result in claims against us, which could distract our management and seriously harm our business and operating results. Moreover, our customers could choose to convert to other Year 2000 ready products in order to avoid such malfunctions, which could also seriously harm our business and operating results. We do not currently have any information concerning the Year 2000 compliance status of our customers. Our current or future customers may incur significant expenses to achieve Year 2000 compliance. If our customers are not Year 2000 compliant, they may experience significant costs to remedy problems, or they may face litigation costs. In either case, the Year 2000 Issue could reduce or eliminate the budgets that current or potential customers could have for purchases of our products and services. As a result, our business and operating results could be seriously harmed. Other Third-Party Relationships. We rely on outside vendors for utilities and telecommunication services as well as climate control, building access and other infrastructure services. We are not capable of independently evaluating the Year 2000 compliance of the systems utilized to supply these services. We cannot assure you that these suppliers will resolve any or all Year 2000- related problems with these systems before the occurrence of a material disruption to our business. Any failure of these third parties to resolve Year 2000-related problems with their systems in a timely manner could harm our business and operating results. We have not developed a contingency plan to address situations that may result if we are unable to achieve Year 2000 readiness of our critical operations, and we do not plan to do so in the future. Any investigations we have undertaken with respect to the Year 2000 Issue have been funded from available cash, and these costs have not been separately accounted for. To date, these costs have not been significant, and we do not expect that our future expenditures for Year 2000 remediation will be material. Impact of Recent Accounting Pronouncements During June 1998, as amended in July 1999 for Statement No. 137, the Financial Accounting Standards Board issued Statement No. 133, "Accounting for Derivative Investments and Hedging Activities," known as SFAS 133. Based on our current operations, we have concluded that the future adoption of SFAS 133 will have no impact on our operations or financial position. 33 BUSINESS Overview We are a worldwide leader in the design, development, manufacture and support of high-performance process control metrology systems used in semiconductor device manufacturing. Our proprietary systems measure the thickness and other properties of thin films applied during various steps in the manufacture of integrated circuits, enabling semiconductor device manufacturers to improve yields and reduce overall production costs. We provide our customers with a full-fab metrology solution by offering families of systems that meet their transparent and opaque thin film measurement needs in various applications across the fabrication process. Our two primary families of metrology solutions offer leading-edge metrology technology, flexible systems cost-effectively designed for specific manufacturing applications and a common production-worthy automation platform, all backed by worldwide support. Our objective is to be the premier worldwide provider of thin film metrology systems to semiconductor device manufacturers. To extend our technology leadership position, we intend to continue to invest in research and development. In addition, we plan to focus our resources, including our global support network, on understanding the needs of leading semiconductor device manufacturers in order to best position ourselves to be the system of choice when device manufacturers and foundries upgrade their fabrication techniques in response to advances in semiconductor technology. We also intend to leverage our technical heritage and extensive thin film measurement expertise to expand our customer relationships and to continue to develop complementary metrology applications. Since 1940, our technological leadership has earned us a reputation for metrology excellence, and we believe that we have the largest installed base of ellipsometers in the world. Our customers include most major semiconductor device manufacturers worldwide, including Intel, AMD, Chartered Semiconductor, Fujitsu, Hyundai, IBM, Lucent, Philips, Samsung, ST Microelectronics, Texas Instruments, TSMC, Toshiba and UMC. Industry Background Growth of the Semiconductor Market The semiconductor industry has experienced significant growth over the past decade. Industry analysts estimate that despite year-to-year fluctuations, worldwide semiconductor sales will increase from approximately $124 billion in 1998 to approximately $229 billion in 2002. This increase in demand is driven by growth in traditional markets for semiconductors such as data processing, including personal computers, and telecommunications, especially wireless communications. The explosive growth of Internet usage and the proliferation of advanced consumer electronic products have also increased demand, and have made semiconductors virtually ubiquitous in most electronic products. The Semiconductor Device Manufacturing Process Semiconductor integrated circuits, commonly called ICs or chips, consist of components, typically transistors, along with interconnect circuitry that connects the components. ICs are manufactured on silicon bases called wafers, which are processed through a series of machines where they are ground smooth and chemically polished. They then become the starting material for fabrication, the central process in manufacturing integrated circuits. Fabrication involves several complex and repetitive processing steps, including diffusion, photolithography, deposition, etching, chemical mechanical planarization (CMP) and ion implantation, during which numerous copies of an integrated circuit are formed on a single wafer. These processes are constantly monitored and wafers are measured at each step to ensure that chips are fabricated to exacting specifications in a cost-effective manner. The fabrication process typically creates eight to 30 very thin patterned layers on each wafer, which are then cut into individual chips or die. 34 [Diagram of the fabrication process] Initially, a wafer is pre-cleaned using high-purity, low-particle chemicals and then heated and exposed to ultra-pure oxygen in diffusion furnaces under carefully controlled conditions. This diffusion process forms a silicon dioxide film of uniform thickness on the surface of the wafer. The wafer is then subjected to deposition, a process in which very thin films of either electrically insulating or electrically conductive material are deposited on its surface. Insulating films, or dielectrics, are primarily transparent, while conductive films are primarily opaque. The three principal methods of deposition are chemical vapor deposition (CVD), physical vapor deposition (PVD) and electrofill. Deposition of multiple layers of thin films creates electrically active regions in the wafer and on its surface. Depending on the specific design of an integrated circuit, film thickness will vary and different numbers of layers and film types will be utilized to achieve a targeted performance level. The deposition of these film layers occurs in series with other processes that create circuit patterns, remove portions of film layers, implant electrically charged ions and perform other functions such as heat treatment, measurement and inspection. Photolithography, for example, is used to create circuit patterns on the face of the wafer. A light-sensitive film, called photoresist, is applied to the wafer, which is exposed to intense light. The wafer is then "developed" when the exposed photoresist is removed to expose newly created circuit patterns. The developed wafer may be exposed to a chemical solution or plasma so that areas not covered by the hardened photoresist are etched away. This etching process selectively removes material from the surface of the wafer to create device structures. To meet the processing challenges posed by new materials such as copper, manufacturers are increasingly using a new process step, CMP, in place of etching. CMP removes uneven film material from the wafer, creating an extremely flat surface for the patterning of subsequent film layers. The wafer can also be subjected to an ion implantation process, in which electrically charged ions are introduced into selected areas on the wafer to alter the electrical characteristics of the resulting device. This series of processes is repeated several times until the last layer of structures on the wafer is completed. After completion of the last layer, a passivation coating is applied to protect the circuit from damage and contamination. Openings are etched in this film to allow access to the top layer of metal by electrical probes and wire bonds. The functionality of each chip on the wafer is then inspected and tested before shipment. Rising Demand for Process Control Metrology Systems Process control metrology is used by semiconductor device manufacturers to analyze product and process quality at critical steps in the integrated circuit manufacturing process in order to identify, diagnose and minimize fabrication defects. Dataquest estimates that sales of process control metrology systems and tools will increase at a compound annual growth rate of 22.9% from approximately $1.8 billion in 1998 to approximately $4.1 billion in 2002. We believe that thin film measurement metrology constitutes between 15% and 25% of this market. 35 The semiconductor device manufacturing industry is experiencing several trends that are increasing the demand for process control metrology systems and heightening the need for metrology technology that can deliver a higher degree of accuracy and repeatability: Transition to Copper. Copper metal layers are increasingly replacing aluminum as the interconnect of choice for advanced integrated circuits. While copper has greater performance potential than aluminum, its use requires new challenging processing methodologies. Development of Smaller Feature Geometries. The development of smaller feature geometries, 0.18 micron and below, enables device manufacturers to produce greater numbers of integrated circuits, or die, per wafer. Yet as geometry linewidths decrease, manufacturing yields become increasingly sensitive to the magnitude of processing defects. Migration to 300 Millimeter Wafers. The migration to larger wafer sizes, 200 millimeter wafers today and moving to 300 millimeters, scales the rate at which semiconductor device manufacturers can produce integrated circuits, also known as throughput, by vastly increasing the number of die per wafer. Nevertheless, processing larger wafers both expands the complexity of manufacturing and increases the cost of manufacturing process mistakes. Introduction of Chemical Mechanical Planarization. The introduction of new manufacturing processes, such as CMP in place of etch, is increasing the complexity of some processing steps, heightening the need for more accurate measurement and process control. Transition to New Dielectrics. Semiconductor device manufacturers are utilizing new materials such as low-k and high-k dielectrics to improve device performance. Both memory and logic device manufacturers are requiring new metrology solutions to help control the electrical capacitance of these advanced transparent films. Shortening of Product Life Cycles. The product life cycles of semiconductor devices continues to shorten, making the early achievement of high manufacturing yields critical to device manufacturers' profitability. The maximization of yields, or the number of good die per wafer, requires the use of metrology across the fab to ensure that manufacturing processes are accurate and can be repeated on a consistent basis without a disqualifying level of defects, known as repeatability. Traditional Process Control Metrology Systems and Their Limitations Metal and Opaque Thin Film Metrology Systems. Traditional process control metrology systems for measuring metal and other opaque thin films can generally be divided into contact and non-contact techniques. Contact techniques include: . four-point probes, which are instruments that measure the resistivity of thin films by contacting the film with four closely spaced metal probes; . sectioning technologies, which analyze samples made by cutting the wafer for measurement; and .profilometry, in which a stylus is scanned over the surface of a test wafer. Existing non-contact, non-destructive metal and opaque metrology techniques include surface acoustic and x-ray technologies. Traditional metrology systems utilizing these technologies have had limited success meeting the accuracy and repeatability demands of new manufacturing processes such as CMP and new materials such as copper. The efficacy of these systems is further strained by the ever shrinking feature sizes and geometries of integrated circuits. In addition, while semiconductors composed of multi- layer film stacks are becoming increasingly common, existing metrology systems are generally incapable of simultaneously measuring more than two layers in these stacks. Finally, the industry is moving away from using contact techniques, which require the use of non-productive test wafers, toward using non-contact techniques to measure product wafers. The transition to 36 measuring product wafers is being driven by manufacturers' inability to adequately control the manufacturing process using test wafers alone as well as the costs associated with the processing and destruction of test wafers. Transparent Thin Film Metrology Systems. The most widely used technologies to measure the thickness and properties of transparent thin films have been reflection spectrometry and ellipsometry. Reflection spectrometers, or reflectometers, use software algorithms to analyze the wavelength of light reflected from the surface of a wafer after the light has passed through one or more transparent films. Ellipsometers measure the change of polarization of reflected light from the surface of a wafer. Both ellipsometry and reflection spectrometry suffer from accuracy and efficiency problems analogous to those posed for metal and opaque metrology systems. In the case of transparent thin films these problems are exacerbated by the fact that recent generations of film deposition tools are depositing several films at one time, requiring measurements of stacked multi-layer films. However, in most applications reflectometers are more suitable for measuring thicker films whereas ellipsometers are more suitable for measuring very thin films. Thus, neither system alone generates sufficient data to simultaneously determine the thicknesses and other properties of film stacks with the precision and repeatability device manufacturers demand. The Rudolph Full-Fab Solution We are a worldwide leader in the design, development, manufacture and support of high-performance process control metrology systems used in semiconductor device manufacturing. Our proprietary systems non-destructively measure the thickness and other properties of thin films applied during various steps in the manufacture of integrated circuits, enabling semiconductor device manufacturers to increase yields and lower overall production costs. We provide our customers with a flexible full-fab metrology solution by offering families of systems that meet their transparent and opaque thin film measurement needs in various applications across the fabrication process. Our two primary families of metrology solutions offer leading-edge metrology technology, flexible systems cost-effectively designed for specific manufacturing applications and a common production-worthy automation platform, all backed by worldwide support. We design our systems with the flexibility to allow our customers to mix and match tools both within and across our product lines to provide cost- effective solutions that meet their specific manufacturing applications. Our primary transparent and opaque thin film measurement systems are all built on our production-worthy Vanguard common automation platform, which has been in production since the spring of 1997. The Vanguard platform, which provides a common software system, user interface, and hardware base for our systems, received the Editor's Choice Award for Best Product by Semiconductor International in 1998. We also provide our customers with direct service and application support worldwide, which is dedicated to ensuring tool uptime and promoting additional applications for our solutions across the fab. Metal and Opaque Thin Film Measurement Solutions. Our MetaPULSE family of metrology systems incorporates our proprietary technology for optical acoustic metrology, which allows customers to simultaneously measure the thickness and other properties of up to six metal or other opaque film layers in a non- contact manner on product wafers. By minimizing the need for test wafers, MetaPULSE enables our customers to achieve significant cost savings. We believe that we currently offer the only systems that can non-destructively measure up to six metal film layers with the degree of accuracy semiconductor device manufacturers demand. Our MetaPULSE systems use ultra-fast lasers to generate sound waves that pass down through a stack of metal or opaque films such as copper and aluminum, sending back to the surface an echo which is detected and analyzed. These systems precisely measure the films with Angstrom accuracy and sub-Angstrom repeatability at high throughputs. This accuracy and repeatability is critical to semiconductor device manufacturers' ability to achieve higher manufacturing yields with the latest fabrication processes. 37 In addition to measuring thickness, MetaPULSE systems provide critical information about the properties of a film stack, such as detection of missing layers during deposition, which is not available from traditional single-layer test wafer metrology. We therefore believe that MetaPULSE offers significant cost and performance advantages to customers depositing multi-layer film stacks. As the industry moves toward the widespread adoption of copper metalization, we believe that MetaPULSE systems will become even more widely used to control device process parameters. Transparent Film Measurement Solutions. Our SpectraLASER line of transparent film metrology systems provides precise and repeatable measurements of an ever-increasing library of new thin films by incorporating our proprietary and patented ellipsometer technology. Our patented technology, which uses four lasers operating simultaneously at multiple angles and wavelengths, provides our systems with an inherently stable design, significantly improving the repeatability of the original manufacturing process. In addition, our use of long life solid state lasers rather than the traditional white light sources of competitive systems reduces maintenance costs and minimizes the cost and time required to re-qualify a light source when it is replaced. SpectraLASER systems can also incorporate reflectometry technology, which is often more suitable for measuring thicker films. The addition of reflectometry technology to our SpectraLASER systems allows simultaneous measurement using both technologies, addressing a trend in the industry to use film stacks composed of an increasing number of layers of different films without compromising throughput in the fab. To complement our SpectraLASER family of transparent film metrology systems, we have developed our Matrix Metrology family of systems, which we plan to introduce in September 1999 at the Semicon Taiwan industry conference. These systems incorporate advanced ellipsometry and reflectometry technologies. Each model is specifically configured in its hardware and software architecture to provide an optimized metrology solution for a specific semiconductor process application, such as CMP, diffusion or etch. Our Matrix Metrology line, when combined with our existing families of metrology systems, is designed to provide customers with a flexible full-fab line of metrology solutions for transparent and opaque thin films, all built on our award-winning Vanguard automation platform. Strategy Our objective is to be the premier worldwide provider of advanced thin film measurement metrology solutions for the semiconductor device manufacturing industry. Key elements of this strategy include: Extend Technology Leadership. We believe that our proprietary technology and our extensive metrology expertise provide us with a technological advantage over competing thin film metrology system manufacturers. We further believe that technical innovation will continue to be one of the leading drivers for market acceptance of new metrology systems in an industry characterized by rapid product life cycles and continuous semiconductor performance gains. Accordingly, we intend to continue to invest in research and development to extend our technology leadership position. We currently have 15 holders of Ph.D. degrees and six holders of M.S. degrees on our 45-member development staff, representing over 40% of this staff. In addition, we maintain a close relationship with Brown University, which we use to leverage our technology development efforts. We may also acquire complementary technologies and form new strategic alliances to further expand our technology expertise. Focus on Understanding the Needs of Leading Semiconductor Device Manufacturers. We intend to maintain our emphasis on the needs of leading semiconductor device manufacturers. We focus our resources on understanding selected customers through close technical relationships at the operating and management levels. We believe this strategy provides us with a first-mover advantage in developing and qualifying products at each technology inflection point when our customers alter their fabrication techniques in response to advances in semiconductor technology. Due to the high costs of technical modifications and production line downtime, semiconductor device manufacturers are reluctant to switch to competing vendors' technologies during the life of a production line, which underscores the importance of being selected for next- generation products. Further, 38 the selection of our systems by recognized industry leaders is an endorsement which enhances our ability to market our metrology systems to a broader set of semiconductor device manufacturers. Increase Sales to Existing Customers. We intend to continue to develop and expand our extensive customer relationships in order to increase sales of new systems. Tracing our technical heritage to 1940, we have developed a longstanding reputation for technological leadership as a global producer of highly accurate and reliable systems. We believe that we have the largest installed base of ellipsometers in the world, and that our ellipsometry metrology systems are used by most major semiconductor device manufacturers. Our access to such a wide base of current customers and our brand-name recognition provide an opportunity for increased sales of additional systems to our customers without the extensive efforts that would otherwise be required when approaching new customers. Seek Opportunities for Strategic Alliances and Joint Development Arrangements. We expect to continue to strengthen our existing customer relationships by seeking opportunities for strategic alliances and joint development arrangements with our customers. Our customers include virtually all of the leading semiconductor device manufacturers with their world-class research and development organizations. We believe that we can significantly leverage our resources in this area through alliances with these customers. Further, we believe that pursuing joint development arrangements with these leading manufacturers will provide us with critical insight into semiconductor industry trends, and could lead to the development of new systems with broad market appeal. Develop Complementary Metrology Applications. We plan to leverage our extensive thin film measurement expertise to develop complementary metrology applications. The addition of complementary product offerings will enhance our ability to provide a full-fab solution for a variety of metrology applications. We have, for example, built upon our dominance in metrology used for the diffusion process to develop our Matrix Metrology line of systems optimized for the CMP, diffusion and etch processes. In addition, we have applied our technology for the semiconductor device manufacturing process to develop applications for the magnetic storage industry, such as measuring the thin films applied during the manufacture of hard disk drive storage heads. The modular architecture of the Vanguard platform is designed to enable incorporation of new applications with our current systems in a rapid and cost- effective manner, thereby decreasing downtime and increasing productivity of our customers. Capitalize on Our Global Customer Support Network. We presently maintain a worldwide network of sales, service, and applications centers with a highly trained technical and commercial support staff. We intend to continue to invest in this worldwide customer support network. This network, combined with our core team of product technical specialists in New Jersey, has led to our receiving the top ranking among our thin film metrology competitors for the past four years in the annual VLSI Customer Satisfaction Survey. We will continue to provide our customers with dedicated, comprehensive support before, during and after the sale of our systems. Technology We believe that our expertise in engineering, research and development enables us to rapidly develop new technologies and products in response to emerging industry trends. The breadth of our technology enables us to offer our customers a combination of measurement technologies, which we believe is critical for today's advanced thin film metrology applications. Optical Acoustics. Optical acoustic metrology involves the use of ultra- fast laser induced sonar for metal and opaque thin film measurement. This technology sends ultrasonic waves into multi-layer opaque films, then analyzes the resulting echoes to determine the thickness of each individual layer simultaneously. The echo's amplitude and phase can be used to detect film properties, missing layers and interlayer problems. Since different phenomena affect amplitude and phase uniquely, a variety of interlayer problems can be detected and measured. 39 The use of optical acoustics to measure multi-layer metal and opaque films was pioneered by scientists at Brown University in collaboration with us. The proprietary optical acoustic technology in our MetaPULSE systems measures the thickness of single or multi-layer opaque films ranging from less than 20 Angstroms to greater than five microns. It provides these measurements at a rate of 60 wafers per hour with one to two percent accuracy and 0.5% repeatability. Our optical acoustic technology also enables our MetaPULSE systems to measure film properties on product wafers at existing test sites by using small measurement spots of only ten microns in combination with pattern recognition software algorithms. Ellipsometry. Ellipsometry is a non-contact, non-destructive optical technique for transparent thin film measurement. When a surface or interface is struck by polarized light, ellipsometers measure the change in the reflected light's polarization. By measuring at multiple wavelengths, an ellipsometer can determine multiple properties of transparent films. The combination of multiple angles of incidence and multiple wavelength ellipsometry also allows accurate and reliable measurement across a wide range of thicknesses and a wide variety of films and film stacks. Since 1977, when we introduced our AutoEL, the industry's first production- oriented, microprocessor-based ellipsometer, we have been an industry leader in ellipsometry technology. We hold patents on several ellipsometry technologies developed by our engineers, including our proprietary technique which uses four lasers for multiple angle of incidence, multiple wavelength ellipsometry. Incorporating this proprietary technology, our SpectraLASER systems provide the accuracy and analytical power of research-grade spectroscopic ellipsometers together with the high throughput required for production applications. Reflectometry. For applications requiring broader spectrum coverage, some ellipsometry tools are also equipped with a reflectometer. Reflectometry uses white light to determine the properties of transparent thin films by analyzing the wavelength of light reflected from the surface of a wafer. This light is analyzed with software algorithms to determine film thickness and, in some cases, other material properties of the measured film. Reflectometry is often more suitable for measuring thicker films, whereas ellipsometry is often more suitable for measuring very thin films. Thus, neither system alone is capable of accurate and reliable measurements over the full range of film thickness. Using state-of-the-art deep ultraviolet reflectometers along with our proprietary ellipsometry tools, our SpectraLASER systems have the ability to simultaneously measure the thickness and optical properties of films ranging in thickness from 20 Angstroms to several microns. When introduced, our Matrix Metrology systems will also incorporate next-generation reflectometry technology to enhance their metrology performance in a broad range of semiconductor device manufacturing applications. Products Our thin film measurement systems are non-contact, non-destructive metrology systems capable of measuring thin film properties across the wafer with a high degree of precision and repeatability. Our thin film measurement solutions consist of five product families, three of which are built on our Vanguard automation platform. In 1977 we introduced the industry's first production-oriented, microprocessor-based ellipsometer, the AutoEL. As semiconductor device manufacturing technology continued to advance rapidly, we developed our second product family, the FOCUS ellipsometer. More recently, we introduced two additional product families, the SpectraLASER family of transparent thin film measurement systems and the MetaPULSE family of systems for measuring metal and other opaque films. Finally, at the Semicon Taiwan industry conference in September 1999, we plan to introduce our new line of Matrix Metrology systems optimized for the CMP, diffusion and etch processes. All of our SpectraLASER, MetaPULSE and Matrix Metrology systems will be produced on our common Vanguard automation platform. 40 The following table summarizes various features of our principal products:
Year of Product Line Introduction Principal Applications Price Range - ---------------- ------------ ------------------------- --------------------- MetaPULSE Systems 1997 $900,000-$1.6 million MetaPULSE 200 (five models) Deposition, CMP, CVD, PVD MetaPULSE 300 (five models) Deposition, CMP, CVD, PVD SpectraLASER Systems 1997 $350,000-$900,000 SpectraLASER CMP, Diffusion, CVD, PVD, 200 (four Lithography, Etch models) SpectraLASER CMP, Diffusion, CVD, PVD, 300 (four Lithography, Etch models) Matrix Metrology Systems 1999 $400,000-$1.0 million Matrix Metrology S200 CMP CMP Matrix Metrology S200 Etch Etch Matrix Metrology S200 Diffusion Diffusion Matrix Metrology S300 CMP CMP Matrix Metrology S300 Etch Etch Matrix Metrology S300 Diffusion Diffusion FOCUS Series 1991 $200,000-$600,000 FOCUS FE III Diffusion, Etch, CMP, CVD FOCUS FE VII Diffusion, Etch, CMP, CVD CALIBER 300 Diffusion, Etch, CMP, CVD AutoEL Series 1977 $20,000-$100,000 AutoEL III Ellipsometer Diffusion, Thin Films AutoEL IV Ellipsometer Diffusion, Thin Films
MetaPULSE Our MetaPULSE product family uses non-destructive optical acoustic technology to simultaneously measure up to six layers of metal or other opaque thin films with a broad range of thicknesses. Because it requires only a ten micron measurement spot, MetaPULSE is able to deliver reliable measurement on existing test spots on product wafers, reducing the cost associated with using test wafers. MetaPULSE can also detect many problems and film properties that remain invisible to traditional single-layer metrology systems. To date, we have sold or received orders for over 35 MetaPULSE systems worldwide, including some that have been deployed in copper interconnect production applications. MetaPULSE 200. Our MetaPULSE 200 system is the first production metal and opaque thin film metrology system that simultaneously measures up to six layers in a multi-layer metal film stack while providing early detection of problems due to missing layers, poor adhesion and interlayer reaction and the roughness of top and buried layers. It delivers the Angstrom accuracy and sub-Angstrom repeatability demanded by semiconductor device manufacturers at high throughput of up to 60 product wafers per hour. MetaPULSE 300. Our MetaPULSE 300 incorporates all of the features of our MetaPULSE 200 system and is configured to measure 300 millimeter product wafers. SpectraLASER Our SpectraLASER family of transparent thin film measurement systems incorporates our proprietary ellipsometry techniques, which uses multiple angle of incidence, multiple wavelength ellipsometry to deliver the accuracy and analytical power of research-grade spectroscopic ellipsometers with the high throughput required for production applications. SpectraLASER's four-laser array provides ellipsometry at wavelengths across the spectrum from deep blue to near infrared, a broader range of wavelengths than most competitive systems. These features give our SpectraLASER systems the analytical power to quickly and easily characterize new processes, solve film metrology problems and qualify new process tools. Our SpectraLASER systems combine these ellipsometry technologies with a deep ultraviolet reflectometer, enabling them to measure a 41 broader range of film thicknesses and enhancing their ability to handle current and future generation lithography applications. The laser light sources employed by our SpectraLASER systems allow them to provide repeatable measurements for powerful transparent film process control. Intense laser light allows fast, small-spot measurements on product wafers in CMP, CVD, diffusion, lithography and etch applications. Unlike the white light sources used in many competing products, which begin to degrade in weeks and require lamp changes every few months, the solid state lasers in our SpectraLASER systems deliver stable light output for two to three years. In addition, because a laser light source is preconfigured to emit light at a particular wavelength, users of our SpectraLASER systems need not undergo a lengthy recalibration process each time they replace a light source. SpectraLASER 200. Our SpectraLASER 200 simultaneously emits laser light at multiple wavelengths and uses multiple angles of incidence for data acquisition, measuring a spectrum of optical properties at each wavelength. The SpectraLASER 200 accepts 100 millimeter and 200 millimeter wafers at throughput of up to 100 wafers per hour. SpectraLASER 300. Our SpectraLASER 300 incorporates all of the features of our SpectraLASER 200 product, and accepts 200 millimeter and 300 millimeter cassettes or 300 millimeter pod loaders at throughput of up to 80 wafers per hour. Matrix Metrology Systems Our Matrix Metrology systems will further enhance our full-fab solution and allow our customers to mix and match technologies to fit their production needs. We plan to offer several specialized Matrix Metrology systems designed for use in specific semiconductor device manufacturing applications. These Matrix Metrology systems will include: Matrix Metrology S200 CMP. Our Matrix Metrology S200 CMP system, designed for use in the CMP phase of the semiconductor device manufacturing process, will offer a high throughput 120 wafer-per-hour visible reflectometer and a 110 wafer-per-hour long life helium neon gas laser ellipsometer. Matrix Metrology S200 Etch. Our Matrix Metrology S200 Etch system, designed for use in the etch phase of the semiconductor device manufacturing process, will have all of the features of the S200 CMP product, and will also provide customers with a 780 nanometer ellipsometer. Matrix Metrology S200 Diffusion. Our Matrix Metrology S200 Diffusion system, designed for use in the diffusion phase of the semiconductor device manufacturing process, will have all of the features of our S200 Etch and S200 CMP systems, along with a 458 nanometer ellipsometer and a deep ultraviolet 190-470 nanometer reflectometer. Matrix Metrology S300 CMP, Etch and Diffusion. Our Matrix Metrology S300 CMP, Etch and Diffusion systems will incorporate all of the features of our Matrix Metrology S200 CMP, Etch and Diffusion systems and will be configured to measure 300 millimeter product wafers. Vanguard Automation Platform Our Vanguard automation platform provides a common hardware, software and automation system for our MetaPULSE, SpectraLASER and Matrix Metrology families. The modular nature of the Vanguard platform will enable our customers to upgrade their MetaPULSE, SpectraLASER and Matrix Metrology systems and integrate new applications into their existing systems in a rapid and cost- effective manner. By using the same Vanguard platform, our customers can minimize the amount of equipment configuration and employee training required to modify their metrology systems in response to changing production demands. Our Vanguard automation platform was awarded the Editor's Choice Award for Best Product by Semiconductor International in 1998. 42 FOCUS Series In the early 1990s, semiconductor manufacturing technology advanced rapidly with the proliferation of 200 millimeter wafers and line widths under one micron. In response to this industry trend, we introduced the FOCUS ellipsometer family. Based on our patented Focused Beam measurement technology, our FOCUS series of ellipsometers offered increased repeatability and accuracy as well as a greater degree of automation and cleanliness for our customers. We believe that the ability to handle complex applications has made our FOCUS ellipsometers an industry standard in film thickness metrology. FOCUS FE III. Our FOCUS FE III system provides a low cost 100 to 200 millimeters automated ellipsometer using our dual wavelength Focused Beam technology. It directly measures sample wafers with a small spot at multiple angles of incidence. FOCUS FE VII. Our FOCUS FE VII system is designed for high volume, sub- micron device manufacturing requiring superior film thickness and index of refraction measurements in diffusion, etch, CMP and CVD applications. Using the same type of Focused Beam technology as the FOCUS FE III, our FOCUS FE VII can provide accurate results for both film composition and film thickness. CALIBER 300. Our Caliber 300 was one of the first commercial, production- oriented ellipsometers to measure 300 millimeter wafers. Caliber 300 combines our patented Focused Beam technology with an ultra-fast wafer handler. AutoEL Series In 1977, our predecessor company developed the industry's first production- oriented, microprocessor-based ellipsometer, the AutoEL. Our AutoEL series of ellipsometers offers customers a fully automated desktop solution with long- term repeatability and thin film precision. Using our proprietary Ellipto MAP software, the AutoEL family of ellipsometers can display maps of film thickness, refractive index and absorption, as well as the optical constants of bare substrates. Film thicknesses and refractive index data points measured and calculated by the AutoEL can be automatically downloaded to a personal computer where the data can be displayed immediately or stored on a disk for off-line processing. AutoEL III Ellipsometer. Our AutoEL III family of ellipsometers provides low-cost tabletop automatic tools for routine measurements of thickness and index. Its operating wavelength is 633 nanometers. AutoEL IV Ellipsometer. Our AutoEL IV ellipsometers have the same specifications as our AutoEL III and operate at wavelengths of 405 nanometers, 546 nanometers and 633 nanometers. Customers We sell our products worldwide to over 100 semiconductor device manufacturers, including both independent semiconductor device manufacturers and foundries throughout the world. We seek to establish and maintain close and mutually beneficial relationships with our customers by consistently providing them with superior service and support. In each of the years from 1996 through 1999, we received the number one ranking among our competitors in the annual VLSI Customer Satisfaction Survey. Customers from which we have received a total of at least $1.0 million in revenues since January 1, 1997 include:
Anam IBM Siemens Advanced Micro Devices Intel Texas Instruments Applied Materials LSI Logic TSMC Fujitsu NEC Toshiba Hitachi Nippon Steel Phillips Winbond Electronics
43 We believe that our top customers are among the fastest growing manufacturers in the semiconductor device industry. In addition, we have a diverse customer base in terms of both geographic location and type of semiconductor device manufactured. Our customers are located in 24 different countries. As part of our strategy of developing complementary metrology applications for our systems, we have built on our technology for the semiconductor device manufacturing process to develop applications for the magnetic storage industry. Our customers include Seagate Technology and other leading magnetic storage device manufacturers. We depend on a relatively small number of customers for a large percentage of our revenues. In the combined year 1996, in 1997 and 1998 and in the six months ended June 30, 1999, sales to customers that individually represented at least five percent of our revenues accounted for 18.0%, 7.7%, 43.2% and 44.3% of our revenues. In the combined year 1996 and in 1997, no individual customer accounted for more than 10% of our revenues. In 1998, sales to Intel and Advanced Micro Devices accounted for 19.8% and 11.1% of our revenues. In the six months ended June 30, 1999, sales to Intel accounted for 37.3% of our revenues. In addition, a significant portion of our revenues in each quarter and year has been derived from sales to particular distributors. These distributors purchase our products for ultimate distribution to customers in particular geographic regions. We do not have purchase contracts with any of our customers or distributors that obligate them to continue to purchase our products, and these customers and distributors could cease purchasing our products at any time. See "Risk Factors--Our largest customers account for a significant portion of our revenues, and our business and operating results could be harmed by the loss of one or more of these customers or by reductions or delays in their purchases of our systems" and "Risk Factors--We rely on independent sales representatives and distributors for a significant portion of our sales, and a disruption in our relationships with these representatives or distributors could have a negative impact on our sales." Research and Development The thin film transparent and opaque process control metrology market is 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. At July 31, 1999, our research and development staff was comprised of 45 persons, including 15 holders of Ph.D. degrees and six holders of M.S. degrees. The efforts of our research and development engineers have consistently received significant industry recognition. For example, our Vanguard automation platform was awarded the Editor's Choice Award for Best Product by Semiconductor International in 1998, and our MetaPULSE product received Photonics magazine's Circle of Excellence Product of the Year Award in 1999. The core competencies of our research and development team include metrology systems for high volume manufacturing, ellipsometry, ultra-fast optics, picosecond acoustic and optical design, advanced metrology application development and algorithm development. We have been granted or hold exclusive licenses to eleven U.S. and foreign patents covering technology in the transparent thin film measurement, altered material characterization and picosecond ultrasonic areas. We also have 15 pending regular and provisional applications in the U.S. and in other countries. To leverage our internal research and development capabilities, we maintain close relationships with leading research institutions in the metrology field including Brown University. Our four year partnership with Brown University has resulted in the development of the optical acoustic technology underlying our MetaPULSE product line. We have been granted exclusive licenses from Brown University Research Foundation, subject to rights returned by Brown and the United States government for their own non-commercial uses for several patents relating to this technology. The terms of these exclusive licenses are equal to the lives of the patents. We also have the right to support patent activity with respect to new ultra-fast acoustic technology developed by Brown scientists, and to acquire exclusive licenses to this technology. Our research and development expenditures in 1997, 1998 and the first half of 1999 were $5.8 million, $5.1 million and $2.1 million. We plan to continue our strong commitment to new product development in the future, and we expect that our level of research and development expenses will increase in absolute dollar terms in future periods. 44 Sales, Customer Service and Application Support Our strategy is to develop and expand our close relationships with leading semiconductor device manufacturers worldwide in order to promote customer satisfaction and the ongoing sale of our products. To this end, we maintain an extensive network of direct sales, customer service and application support offices in several locations throughout the world. We maintain sales, service or applications offices in California, New Jersey, Texas, Germany, Holland, Ireland, Israel, Korea, and Taiwan. To leverage the capabilities of our direct sales, customer service and application support team of 51 employees, we make use of leading independent sales organizations in selected geographic regions. We believe that these organizations significantly enhance our sales capabilities in the regions they serve without requiring a significant capital outlay from us. For example, in Japan we have maintained a close relationship with Tokyo Electron Limited, or TEL, the largest semiconductor capital equipment manufacturer in Japan, for more than ten years. TEL purchases our products directly for ultimate distribution to customers throughout Japan, and maintains a dedicated sales, service and applications organization of 18 professionals to support our products. TEL has offices at several locations in close proximity to our customers and other Japanese device manufacturers. We also work through sales representatives that maintain support facilities near our customers in Singapore and China, and we make some of our sales through independent representatives in Taiwan and Korea. We provide our customers with comprehensive support before, during and after the delivery of our products. For example, in order to facilitate the smooth integration of our tools into our customers' operations, we often assign dedicated, site-specific field service and applications engineers to provide long-term support at selected customer sites. We also provide comprehensive service and applications training for customers at our new training facility in Ledgewood, New Jersey and at customer locations. In addition, we maintain a group of highly skilled applications scientists at strategically located facilities throughout the world and at selected customer locations. Our customer support operation also offers customers an array of fee-based support services including preventive maintenance, on-call service and applications and service training programs. Our products are normally covered under warranty for a period of twelve months. After the warranty period, customers may enter into support agreements for continuing service and applications support. Intellectual Property Our success depends in part upon our ability to protect our intellectual property. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or obtain and use information that we regard as proprietary. We rely in part on patents to protect our intellectual property. We have been granted or hold exclusive licenses to eleven U.S. and foreign patents. The patents we own or exclusively license have expiration dates ranging from 2005 to 2017. We also have 15 pending regular and provisional applications in the U.S. and other countries. Our patents and applications principally cover various aspects of the transparent thin film measurement and altered material characterization. We have been granted exclusive licenses from Brown University Research Foundation, subject to rights retained by Brown and the United States government for their own non-commercial uses, for several patents relating to the optical acoustic technology underlying our MetaPULSE product family. The terms of these exclusive licenses are equal to the lives of the patents. We pay royalties to Brown based upon a percentage of our revenues from the sale of systems that incorporate technology covered by the Brown patents. We also have the right to support patent activity with respect to new ultra-fast acoustic technology developed by Brown scientists, and to acquire exclusive licenses to this technology. Brown may terminate the licenses if we fail to pay royalties to Brown or if we materially breach our license agreement with Brown. 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, 45 trademarks, trade secret laws, contractual provisions and licenses. We also enter into confidentiality agreements with our employees and some of our consultants and customers, and seek to control access to and distribution of our proprietary information. 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. We are now involved with a patent interference proceeding with Therma-Wave, Inc. In addition, we may in the future be subject to lawsuits by third parties seeking to enforce their own intellectual property rights. Such litigation, regardless of outcome, could be expensive and time consuming, and could subject us to significant liabilities or require us to reengineer our product or obtain expensive licenses from third parties. See "Risk Factors--Protection of our intellectual property rights, or the efforts of third parties to enforce their own intellectual property rights against us, has in the past resulted and may in the future result in costly and time-consuming litigation." The laws of some foreign countries 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 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. Manufacturing Our manufacturing strategy is to produce high-quality thin film transparent and opaque process control metrology systems in a cost-effective manner. In order to decrease production costs, we are continuing to focus our internal manufacturing activities on processes that add significant value or require unique technology or specialized knowledge. Our core manufacturing competencies include electrical, optical and mechanical assembly and testing as well as the management of new product transitions. We expect to rely increasingly on subcontractors and turnkey suppliers to fabricate components, build assemblies and perform other non-core activities in a cost-effective manner. Our principal manufacturing activities include assembly, final test and calibration. These activities are conducted in our new state-of-the-art manufacturing and service facility in Ledgewood, New Jersey. While we use standard components and subassemblies wherever possible, most mechanical parts, metal fabrications and critical components used in our products are engineered and manufactured to our specifications. Some of these components and subassemblies, including the lasers we use in some of our products, are obtained from a limited group of suppliers, and occasionally from a single source supplier. The partial or complete loss of one of these suppliers could cause production delays and harm our operating results. See "Risk Factors--We obtain some of the components and subassemblies included in our products from a single source or a limited group of suppliers, and the partial or complete loss of one of these suppliers could cause production delays and harm our operating results." We use our Vanguard modular system architecture to produce metrology equipment for both transparent and opaque films. We have realized significant economies of scale in the manufacturing, service inventory, service training and customer repair areas by combining these activities using the common Vanguard architecture. Competition The market for semiconductor capital equipment is highly competitive. We face substantial competition from established companies in each of the markets that we serve. We principally compete with KLA-Tencor, Philips Analytical Instruments and Therma-Wave. We compete to a lesser extent with companies such as Dai Nippon Screen, Nanometrics and Sopra. Each of our product lines also competes with products that use 46 different metrology 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. Significant competitive factors in the market for metrology systems include system performance, ease of use, reliability, cost of ownership, technical support and customer relationships. We believe we compete favorably on the basis of these factors in each of the markets we serve. There has in the past been merger and acquisition activity among our competitors and potential competitors. Acquisitions by our competitors and potential competitors could enable them to expand their product offerings in order to meet a broader range of customer needs. The greater resources, including financial, marketing and support resources, of competitors engaged in these acquisitions could also permit them to accelerate the development and commercialization of new products and to further enlarge their installed customer bases. Accordingly, business combinations and acquisitions involving our competitors could have a detrimental impact on both our market share and the pricing of our products, either of which could cause our business and results of operations to suffer. Employees As of July 31, 1999, we had 164 employees, including 45 employees engaged in research and development, 55 engaged in sales, marketing and customer support, 49 engaged in manufacturing and 15 engaged in general and administrative activities. Our employees are not represented by any collective bargaining agreements, and we have never experienced a work stoppage. We believe our employee relations are good. Properties We own our 20,000 square foot executive office building in Flanders, New Jersey, and we lease our 31,000 square foot manufacturing facility in Ledgewood, New Jersey pursuant to a lease agreement that expires in 2009. We also lease space for our sales, service and applications offices in California, Texas, Korea, Taiwan and various other 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. Legal Proceedings We are presently involved in a patent interference proceeding with Therma- Wave, Inc. in the United States Patent Office. In this proceeding, we are defending our patent rights with respect to some of the multiple angle, multiple wavelength ellipsometry technology we use in our transparent thin film measurement systems. Therma-Wave requested that the proceeding be initiated in 1993 by filing a reissue application for one of its own patents, in which it sought to broaden the original issued claims. The proceeding was initiated by the Patent Office in June 1998. Preliminary motions and statements have been filed, and we are presently awaiting a decision by the Patent Office on those motions. If we lose the interference, a reissue patent will be granted to Therma-Wave permitting Therma-Wave to assert patent rights against the ellipsometers we use in our transparent thin film measurement systems. In that event, we could assert a defense of intervening rights against Therma-Wave's reissued patent since we relied on the restricted claims of Therma-Wave's original patent. If the intervening rights defense and other defenses fail, we would either have to pay royalties to Therma-Wave or redesign our SpectraLASER and other transparent thin film measurement systems. Either of these events could harm our business, financial condition and results of operations. In addition, from time to time we are subject to legal proceedings and claims in the ordinary course of business. Other than the Therma-Wave patent interference proceeding discussed above, we are not now involved in any material legal proceedings. 47 MANAGEMENT Directors, Executive Officers and Key Employees Our directors, executive officers and key employees and their ages as of June 30, 1999 are as follows:
Name Age Position - ---- --- -------- Directors and Executive Officers: Paul F. McLaughlin............... 53 Chief Executive Officer, President and Director Robert M. Loiterman.............. 40 Vice President, Engineering Steven R. Roth................... 39 Vice President, Finance and Administration and Chief Financial Officer David Belluck.................... 37 Director Daniel H. Berry (1).............. 53 Director Paul Craig (2)................... 42 Director Stephen J. Fisher................ 36 Director Carl E. Ring, Jr (2)............. 61 Director Richard F. Spanier............... 59 Chairman of the Board of Directors Aubrey C. Tobey (1).............. 74 Director Key Employees: George J. Collins................ 51 Director of Marketing Ajay Khanna...................... 40 Director of International Sales Walter R. Knott.................. 47 Director of Manufacturing John B. Sheridan................. 49 Director of Customer Support Matthew J. Smith................. 38 Director of North American Sales
- -------- (1)Member of the audit committee of the board of directors. (2)Member of the compensation committe of the board of directors. All references to "our" in the biographical information set forth below include our predecessor company. Biographical information for directors and executive officers: Paul F. McLaughlin has served as our President, Chief Executive Officer and as a director since June 1996. From 1994 to June 1996, Mr. McLaughlin served as an associate at Riverside Partners, Inc., where he structured and implemented leveraged transactions. Mr. McLaughlin holds a B.S. in Metallurgical Engineering from Rensselaer Polytechnic Institute, an M.S. in Metallurgy and Materials Science from Lehigh University and an M.B.A. from Harvard University, Graduate School of Business Administration. Robert M. Loiterman has served as our Vice President of Engineering since June 1996. From June 1993 to June 1996, Mr. Loiterman served as our Director of Engineering, from January 1990 to June 1993 he served as a Project Manager and from January 1988 to January 1990 he served as a design engineer. Mr. Loiterman holds a B.S. in Electrical Engineering from Rutgers University. Steven R. Roth has served as our Vice President, Finance and Administration and Chief Financial Officer since September 1996. From August 1991 to August 1996, Mr. Roth served as a Director of Corporate Finance for Bell Communications Research, now called Telcordia, a research and development company serving the telecommunications industry. Mr. Roth is a C.P.A. and holds a B.S. in Accounting from Villanova University. David Belluck has served as one of our directors since June 1996. Since February 1989, Mr. Belluck has been a general partner of Riverside Partners, Inc., a private equity investment firm. Mr. Belluck holds a B.A from Harvard University and an M.B.A. from Harvard University, Graduate School of Business Administration. Mr. Belluck is currently a director of Atchison Casting, Evergreen Electronics and Riverside Partners, Inc. Daniel H. Berry has served as one of our directors since October 1998. Since May 1999, Mr. Berry has served as President and Chief Operating Officer of Ultratech Stepper, Inc., a lithography tool supplier. From 48 August 1998 to May 1999 he served as Executive Vice President and Chief Operating Officer of Ultratech Stepper and from January 1994 to August 1999, he served as a Senior Vice President of Sales and Marketing of that company. Mr. Berry holds a B.S. in Electrical Engineering from the Polytechnic Institute of Brooklyn. Paul Craig has served as one of our directors since June 1996. Since February 1989, Mr. Craig has served as a general partner and the director of Riverside Partners, Inc., a private equity investment firm. He is also a member of the board of directors of Evergreen Electronics. Mr. Craig holds a B.A. from Harvard University. Stephen J. Fisher has served as one of our directors since June 1996. Since July 1998, Mr. Fisher has served as a partner of Liberty Partners, L.P., a private equity investment firm. From June 1994 to July 1998, Mr. Fisher served as a Vice President of Liberty Capital Partners, Inc. Mr. Fisher holds a B.S. and an M.B.A. from Washington University and a J.D. from Boston University School of Law. Mr. Fisher is currently a director of Medical Logistics and Gallaher Paper Company. Carl E. Ring, Jr. has served as one of our directors since June 1996. He is a founding partner of Liberty Partners, L.P.. Mr. Ring holds a B.A. in mathematics from George Washington University and an M.B.A. from Harvard University, Graduate School of Business Administration. Mr. Ring is a director of Monaco Coach Corporation and Gallaher Paper Company. Richard F. Spanier has served as our Chairman of the Board of Directors since September 1966. From September 1966 to June 1996, Mr. Spanier served as our President and Chief Executive Officer. Mr. Spanier holds a B.S. in Physics, an M.S. in Physical Chemistry and a Ph.D. in Chemical Physics from Stevens Institute of Technology. Aubrey C. Tobey has served as one of our directors since October 1998. Since April 1987, Mr. Tobey has served as President of ACT International Consulting, Inc., a company which provides marketing and management services for high technology companies. Mr. Tobey holds a B.S. in Mechanical Engineering from Tufts University and an M.S. in Mechanical Engineering from the University of Connecticut. Biographical information for key employees: George J. Collins has served as our Director of Marketing since April 1996. From April 1994 to April 1996, Mr. Collins served as Marketing Manager for Topometrix Corporation. Mr. Collins holds a B.S. in Chemistry from Thiel College, and a Ph.D. in Food Science and an M.B.A. from Rutgers University. Ajay Khanna has served as our International Sales Director since August 1996. From June 1988 to July 1996, he served as our International Sales Manager. Mr. Khanna holds a B.S. in Electrical Engineering from Clarkson University and an M.B.A. from the University of Michigan. Walter R. Knott has served as our Director of Manufacturing since 1997. From 1996 to 1997, Mr. Knott served as Manager of Operations and Shared Resources for Philips Electronics, a manufacturer of electron microscopes. From 1991 to 1996, he served as Vice President of Operations for Whatman Incorporated, a manufacturer of filtration, purification, and chromatography equipment and supplies. Mr. Knott holds a B.S. from Rutgers University and an M.B.A. from Fairleigh Dickinson University. John B. Sheridan has served as our Director of Customer Support since November 1998. From 1996 to 1998, Mr. Sheridan served as the Director of Customer Service for Plasma-Therm, Inc., a manufacturer of dry etch systems. From 1988 to 1995, Mr. Sheridan served as president of Beta Squared, Inc., an equipment engineering and technical services company and now a subsidiary of Photronics, Inc. Mr. Sheridan holds a B.S. from the University of Phoenix. Matthew J. Smith has served as our Director of North American Sales since July 1999. From April 1998 to July 1999, Mr. Smith served as the Director of Sales for the Semiconductor Equipment Group of Leica, Inc., a manufacturer of microscopes and other optical metrology equipment. From September 1994 to March 1998, Mr. Smith was the Director of Business Development at the Semiconductor Equipment Group of Leica. Mr. Smith studied optical instrumentation and photography at the Rochester Institute of Technology. 49 Under an agreement we entered into with Liberty Partners and Riverside Partners in connection with the acquisition of our predecessor company, Messrs. Fisher and Ring were designated to serve on our board of directors by Liberty Partners, and Messrs. Belluck and Craig were designated to serve on our board of directors by Riverside Partners. Prior to the offering, Liberty Partners, Riverside Partners and Mr. McLaughlin intend to enter into an agreement under which each party will agree to vote his or its shares in favor of one nominee of each other party to serve on our board of directors. Our certificate of incorporation and bylaws to be effective upon this offering provide that our board of directors will be divided into three classes. Each class will consist of two or three directors. The terms of office of the class I, class II and class III directors will expire at our 2000, 2001, and 2002 annual meetings of stockholders. Our initial class I directors will be Messrs. Craig, Ring and McLaughlin, our initial class II directors will be Messrs. Berry, Fisher and Spanier and our initial class III directors will be Messrs. Belluck and Tobey. At each annual meeting of stockholders at which the term of office of a particular class of directors first expires, the persons elected to serve as directors of that class will be elected to serve until the third annual meeting following election. Any additional directorships resulting from an increase in the number of directors will be distributed among the three classes of directors so that, as nearly as possible, each class will consist of one-third of the directors. This classification of the board of directors may have the effect of delaying or preventing changes in our control or management. There are no family relationships among any of our directors or officers. Compensation Committee Interlocks and Insider Participation The members of the compensation committee of our board of directors are Messrs. Craig and Ring. Neither of them has at any time been an officer or employee of Rudolph Technologies. In addition, none of our executive officers serves on the board of directors or compensation committee of any entity which has one or more executive officers serving as a member of our board of directors or compensation committee. Director Compensation Employee directors receive no compensation for their services as members of the board of directors. Directors who are, or who are employed by, significant stockholders receive cash compensation of $20,000 per year. Non-employee directors who are not, and are not employed by, significant stockholders receive cash compensation of $20,000 per year and are eligible to receive annual stock option grants under our 1999 stock plan at the discretion of the compensation committee of our board of directors. See "Management--Stock Plans." Committees of the Board of Directors Our compensation committee currently consists of Messrs. Craig and Ring. The compensation committee reviews and approves the compensation and benefits for our executive officers and makes recommendations to the board of directors regarding such matters. Our audit committee currently consists of Messrs. Berry and Tobey. The audit committee makes recommendations to the board of directors regarding the selection of independent auditors, reviews the results and scope of the audit and other services provided by our independent auditors and reviews and evaluates our audit and control functions. 50 Executive Compensation The following table sets forth the compensation that we paid to our executive officers during 1998. Summary Compensation Table
Long-term Annual Compensation Compensation --------------------------- --------------------- Name and Principal Other Annual Securities Underlying All Other Positions Salary Bonus Compensation Options Compensation - ------------------ -------- ----- ------------ --------------------- ------------ Paul F. McLaughlin....... $220,014 -- -- 382,098 -- President and Chief Executive Officer Robert M. Loiterman...... $148,514 -- -- 42,052 -- Vice President, Engineering Steven R. Roth........... $111,300 -- -- 28,035 -- Vice President, Finance and Administration and Chief Financial Officer
Option Grants The following table sets forth information relating to stock options granted during 1998 to our executive officers. All of these options were granted under our 1996 stock option plan at an exercise price equal to the fair market value of our common stock at the time of the grant, as determined by our board of directors, and have a term of ten years from the date of grant.
Option Grants in 1998 ------------------------------------------- Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Option Term (2) ------------------------- % of Total Number of Options Securities Granted to Underlying Employees in Exercise Options Fiscal Or Base Expiration Name Granted Year (1) Price Date 5% 10% - ---- ---------- ------------ -------- ---------- ------------ ------------ Paul F. McLaughlin...... 382,098 61.9% $0.73 7/20/08 $ 175,195 $ 443,979 Robert M. Loiterman..... 42,052 6.8 0.73 7/20/08 19,280 48,860 Steven R. Roth.......... 28,035 4.5 0.73 7/20/08 12,854 32,574
- -------- (1) Based on a total of 617,726 shares underlying options granted to employees and directors during 1998. (2) The potential realizable value is calculated assuming that the fair market value of our common stock on the date of grant appreciates at the indicated annual rate compounded annually for the entire ten-year term of the option, and that the option is exercised and the shares issued are sold on the last day of its term at the appreciated stock price. 51 Option Exercises and Values The following table sets forth information for our executive officers relating to the number and value of securities underlying exercisable and unexercisable options they held at December 31, 1998. All options were granted under our 1996 stock option plan. Year-End Option Exercises and Values
Number of Securities Underlying Unexercised Value of Unexercised Options In-the-Money Options at at December 31, 1998 December 31, 1998 (1) ------------------------- ------------------------- Shares Acquired on Value Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable - ---- -------- -------- ----------- ------------- ----------- ------------- Paul F. McLaughlin...... -- -- 312,580 312,580 $18,943 $18,943 Robert M. Loiterman..... -- -- 34,400 34,400 2,085 2,085 Steven R. Roth.......... -- -- 22,933 22,933 1,390 1,390
- -------- (1) Based on the fair market value of $0.73 per share of common stock as of December 31, 1998 as determined by our board of directors, minus the exercise price, multiplied by the number of shares underlying the option. Stock Plans 1996 Non-Qualified Stock Option Plan In 1996, we adopted the 1996 Non-Qualified Stock Option Plan. Under the 1996 plan, we may grant options to purchase up to 1,069,902 shares of Class B common stock to employees and certain other individuals. The 1996 plan is administered by a committee of our board of directors. This committee has the power to determine the terms of the options granted. The options granted pursuant to the 1996 plan generally expire ten years from the date of grant and become exercisable after nine years or sooner upon the achievement of financial targets over a period of six years. Upon this offering, the options that we have granted will become fully vested. Options granted to date have exercise prices equal to the fair value of the Class B common stock on the date of grant. As of July 31, 1999, we had granted options to purchase 1,064,945 shares of our Class B common stock. 1999 Stock Plan The board of directors adopted the 1999 plan in August 1999, and the stockholders are expected to approve the 1999 plan prior to closing this offering. The 1999 plan provides for the grant of incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, to employees, and for the grant of nonstatutory stock options and stock purchase rights to employees, directors and consultants. As of the date of this offering, a total of 2,000,000 shares of common stock will be reserved for issuance pursuant to the 1999 plan, none of which will have been issued. The 1999 plan provides for annual increases in the number of shares available for issuance thereunder, on the first day of each year, effective beginning with 2001, equal to the lesser of 2% of the outstanding shares of common stock on the first day of the year, 400,000 shares or a lesser amount as the board may determine. The board of directors or a committee of the board administers the 1999 plan. In the case of options intended to qualify as "performance-based compensation" within the meaning of Section 162(m) of the Internal Revenue Code, the committee will consist of two or more "outside directors" within the meaning of Section 162(m) of the Internal Revenue Code. The administrator has the power to determine the terms of the options or stock purchase rights granted, including the exercise price, the number of shares subject to each option or stock purchase right, the exercisability of the options and the form of consideration payable upon exercise. The administrator determines the exercise price of nonstatutory stock options granted under the 1999 plan, but with respect to nonstatutory stock options intended to qualify as "performance- based compensation" within the 52 meaning of Section 162(m) of the Internal Revenue Code, the exercise price must at least be equal to the fair market value of the common stock on the date of grant. The exercise price of all incentive stock options granted under the 1999 plan must be at least equal to the fair market value of the common stock on the date of grant and the term of such options may not exceed ten years. With respect to any participant who owns stock possessing more than 10% of the voting power of all classes of our outstanding capital stock, the exercise price of any incentive stock option granted must equal at least 110% of the fair market value on the grant date and the term of such incentive stock option must not exceed five years. The administrator determines the term of all other options. No optionee may be granted an option to purchase more than 500,000 shares in any fiscal year. In connection with his or her initial service, an optionee may be granted an option to purchase up to an additional 500,000 shares, which shall not count against the yearly limit set forth in the previous sentence. An optionee generally must exercise an option granted under the 1999 plan at the time set forth in the optionee's option agreement after termination of the optionee's status as our employee, director or consultant. Generally, in the case of the optionee's termination by death or disability, the option will remain exercisable for 12 months. In all other cases, the option will generally remain exercisable for a period of three months. However, an option may never be exercised later than the expiration of the option's term. The administrator determines the exercise price of stock purchase rights granted under the 1999 plan. In the case of stock purchase rights, unless the administrator determines otherwise, the restricted stock purchase agreement entered into in connection with the exercise of the stock purchase right shall grant us a repurchase option that we may exercise upon the voluntary or involuntary termination of the purchaser's service with us for any reason, including death or disability. The purchase price for shares we repurchase pursuant to restricted stock purchase agreements will generally be the original price paid by the purchaser and may be paid by cancellation of any indebtedness of the purchaser to us. The repurchase option will lapse at a rate that the administrator determines. The 1999 plan provides that in the event of our merger with or into another corporation or a sale of substantially all of our assets, the successor corporation will assume or substitute each option or stock purchase right. If the outstanding options or stock purchase rights are not assumed or substituted, the administrator shall provide notice to the optionee that he or she has the right to exercise the option or stock purchase right as to all of the shares subject to the option or stock purchase right, including shares which would not otherwise be exercisable, for a period of 15 days from the date of the notice. The option or stock purchase right will terminate upon the expiration of the 15-day period. Unless terminated sooner, the 1999 plan will terminate automatically in 2009. In addition, the board of directors has the authority to amend, suspend or terminate the 1999 plan, provided that no such action may affect any share of common stock previously issued and sold or any option previously granted under the 1999 plan. An optionee generally may not transfer options and stock purchase rights granted under the 1999 plan and only the optionee may exercise an option and stock purchase right during his or her lifetime. 1999 Employee Stock Purchase Plan Our 1999 employee stock purchase plan was adopted by our board of directors in August 1999 and is expected to be approved by our stockholders prior to this offering. A total of 300,000 shares of common stock has been reserved for issuance under the stock purchase plan, none of which will have been issued as of the date of this offering. The number of shares reserved for issuance under the stock purchase plan will be subject to an annual increase on the first day of each of our fiscal years, beginning in 2001, equal to the lesser of (1) 300,000 shares of common stock, (2) 2% of our outstanding common stock on the first day of the year, or (3) such other amount as may be determined by the board of directors. The stock purchase plan will be administered by the board of directors or by a committee appointed by the board. The stock purchase plan, which is intended to qualify under Section 423 of the Internal Revenue Code, will be implemented by a series of overlapping offering periods of 24 months' duration. Each offering period includes four 6- month purchase periods. The offering periods generally start on the first trading day on or after 53 May 1 and November 1 of each year, except for the first such offering period which will commence on the first trading day on or after the effective date of this offering and will end on the last trading day on or before October 31, 2001. Employees are eligible to participate if they are customarily employed by us or any participating subsidiary for at least 20 hours per week and more than five months in any calendar year. However, any employee (1) who immediately after grant owns stock possessing 5% or more of the total combined voting power or value of all classes of our capital stock, or (2) whose rights to purchase stock under all of our employee stock purchase plans accrues at a rate that exceeds $25,000 worth of stock for each calendar year may not be granted an option to purchase stock under the stock purchase plan. The stock purchase plan permits participants to purchase common stock through payroll deductions of up to 15% of the participant's eligible compensation which includes the participant's base salary, wages, overtime pay, commissions, bonuses and other compensation remuneration paid directly to the employee. The maximum number of shares a participant may purchase during a six-month purchase period is 3,000 shares. Amounts deducted and accumulated by the participant are used to purchase shares of common stock at the end of each six-month purchase period. The price of stock purchased under the stock purchase plan is 85% of the lower of the fair market value of the common stock at the beginning of an offering period or at the end of a purchase period. In the event the fair market value at the end of a purchase period is less than the fair market value at the beginning of the offering period, participants will be withdrawn from the current offering period following their purchase of shares on the purchase date and will be automatically re-enrolled in a new offering period. Participants may end their participation at any time during an offering period, and they will be paid their payroll deductions to date. Participation ends automatically upon termination of employment with us. A participant may not transfer rights granted under the stock purchase plan other than by will, the laws of descent and distribution or as otherwise provided under the stock purchase plan. The stock purchase plan provides that, in the event of our merger with or into another corporation or a sale of all or substantially all of our assets, a successor corporation may assume or substitute for each outstanding option. If the successor corporation refuses to assume or substitute for the outstanding options, the offering period then in progress will be shortened, and a new exercise date will be set. The stock purchase plan will terminate in 2009. However, the board of directors has the authority to amend or terminate the stock purchase plan, except that, subject to certain exceptions described in the stock purchase plan, no such action may adversely affect any outstanding rights to purchase stock under the stock purchase plan. Employment Agreements and Change in Control Arrangements In 1996, we entered into management agreements with Paul F. McLaughlin, Robert M. Loiterman, and Steven R. Roth, pursuant to which each executive receives an annual base salary ranging from $111,000 to $220,000, subject to annual increases. In addition, each executive is eligible for an annual bonus ranging from 20% to 30% of his base salary. The management agreements with Mr. Loiterman and Mr. Roth provide for terms of one year with automatic renewals for additional one-year terms unless we or the executive deliver a notice of non-renewal to the other party. Mr. McLaughlin's management agreement provides for an initial term of two years with automatic renewals for additional two year terms. For our protection, the management agreements prohibit the executives from competing with us in any way or soliciting our employees during their terms of employment and for two years after termination of their employment. The management agreements provide that if we terminate an executive's employment without cause or if the executive retires with good cause, we will be required to pay that executive his base salary for one year. The agreements with Mr. McLaughlin and Mr. Loiterman also provide that in the event of the termination of their employment within three months from the date of a change in control, they will each be entitled to receive their base salary for one year. In this context, a change of control would occur if we were sold to an independent third party and that independent third party acquired enough of our stock to elect a majority of our board of directors, or that independent third party acquired all, or substantially all, of our assets. 54 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Acquisition and Related Financing We were incorporated on June 13, 1996 to acquire all of the stock of our predecessor company. On June 14, 1996, we, through our wholly-owned subsidiary, agreed to purchase all of the outstanding stock of our predecessor company from its stockholders. We paid approximately $36.3 million in cash for this stock, and incurred approximately $1.6 million in fees and expenses in connection with the acquisition. The purchase price was determined based on arms'-length negotiations between our predecessor company and the investors who purchased our predecessor company through us.We acquired our predecessor company using a combination of equity and debt financing provided by the State Board of Administration of Florida; Liberty Partners Holdings 11, L.L.C., an affiliate of Liberty Partners; Riverside Rudolph, L.L.C., an affiliate of Riverside Partners; Richard F. Spanier, a former stockholder of our predecessor company and the chairman of our board of directors; Paul F. McLaughlin, our President and Chief Executive Officer; Robert M. Loiterman, our Vice President, Engineering; and others. The State Board is a significant equity owner of Liberty Partners Holdings 11, L.L.C., and under an investment management agreement, Liberty Partners has voting and dispositive power over the shares of our preferred stock held by the State Board. The following table sets forth the sources and uses of funds in connection with the acquisition (in thousands): Sources: Senior Revolving Loan from the State Board...................... $ 4,500 Senior Term Loan from the State Board........................... 16,000 Senior Subordinated Loan from the State Board................... 11,000 Loan from Richard Spanier....................................... 600 Sale of Preferred Stock to the State Board, Spanier and Others.. 5,400 Sale of Common Stock and Warrants to Liberty Partners, Riverside Partners, Spanier and Others.................................. 1,500 ------- Total........................................................... $39,000 ======= Uses: Purchase Price.................................................. $36,285 Fees and Expenses............................................... 1,574 Cash for Working Capital........................................ 1,141 ------- Total........................................................... $39,000 =======
In connection with the acquisition, Liberty Partners and Riverside Partners agreed to provide management services to us for an aggregate fee of $200,000 per year. Our obligation to pay management fees to Liberty Partners and Riverside Partners will cease upon this offering. In addition, under a stockholders agreement we entered into in connection with the acquisition, from the time of the acquisition until this offering, Liberty Partners was entitled to designate four directors with a total of ten votes, and Riverside Partners was entitled to designate two directors, to serve on our board of directors. To finance the acquisition, we borrowed from the State Board (1) $4.5 million under a senior revolving loan, which bears interest at a rate of prime plus 1.5% and matures on December 31, 2002; (2) $16.0 million under a senior term loan which bears interest at a rate of prime plus 1.75% and matures on December 31, 2002; and (3) $11.0 million under a senior subordinated loan which bears interest at a rate of prime plus 4.0% and matures on December 31, 2003. In addition, we, through our subsidiary, borrowed $600,000 from Richard Spanier under a junior subordinated loan which bore interest at a rate of 14% and had a maturity date of March 31, 2004. Approximately $28.3 million of these amounts were paid directly to the stockholders of our predecessor company and $8.0 million was placed in escrow to cover liabilities of our predecessor company. $6.3 million of the escrow amount was subsequently released to the stockholders of our predecessor company, $661,000 was paid to us and $1.0 million remains in escrow. We repaid the junior subordinated loan from Mr. Spanier in full in 1997. 55 In connection with the acquisition, the State Board Liberty Partners, Riverside Partners, Messrs. Spanier, McLaughlin and Loiterman and others purchased equity interests in us. The State Board purchased 44,195 shares of Series A preferred stock for a purchase price of $4,419,529. Others, including Messrs. McLaughlin and Loiterman, purchased in the aggregate 1,680 shares of Series A preferred stock for an aggregate purchase price of $168,000. Mr. Spanier purchased 8,125 shares of Series B preferred stock, which constitutes all of the issued and outstanding Series B preferred stock, for a purchase price of $812,471. Liberty Partners purchased 1,571,294 shares of Class A common stock for a purchase price of $900,498. We also granted a warrant to Liberty Partners to purchase shares of Class A common stock equal to 15% of our outstanding common stock on a fully diluted basis, then 534,951 shares, at an exercise price of $.0003 per share. Riverside Partners, Messrs. Spanier, McLaughlin and Loiterman and others purchased a total of 1,046,079 shares of our Class B common stock for an aggregate purchase price of $599,503. Messrs. Spanier, McLaughlin and Loiterman purchased their stock at the same price paid by other investors. No other stock was issued in connection with the acquisition. The preferred stock accrues cumulative dividends at a rate of 8% per annum and is entitled to a liquidation preference over the common stock. The preferred stock may be redeemed by us or by a vote of the majority of the preferred stock upon the occurrence of a change in ownership, merger or sale of assets. The preferred stock is not convertible into common stock. Holders of the Series A preferred stock are entitled to vote on all matters together with the holders of the common stock, except as provided by law and in connection with the election of the Class A directors, as discussed below. The Series B preferred stock is identical to the Series A preferred stock except that it does not have any voting rights. From the time of the acquisition until this offering, holders of the Class A common stock, voting separately as a class, were entitled to elect two of the eight directors on our board of directors. These directors were each entitled to four votes each on any matter on which they voted, while each other director was entitled to one vote. The Class B common stock is identical to the Class A common stock except that it does not entitle the holders to vote as a class for the election of any directors. In January 1997, Messrs. McLaughlin and Loiterman and Steven R. Roth, our Vice President, Finance and Chief Financial Officer, each purchased from one of our prior stockholders 53 shares of Series A preferred stock for $5,333 and 2,318 shares of Class B common stock for $1,333. On July 20, 1998, some of our stockholders, including Liberty Partners, Riverside Partners and Messrs. McLaughlin, Loiterman, and Roth, purchased additional shares of our Class A common stock and Class B common stock. Liberty Partners purchased an additional 3,230,997 shares of Class A common stock for a purchase price of $2,355,508. Riverside Partners purchased 733,310 shares of Class B common stock for a purchase price of $534,626. Messrs. McLaughlin, Loiterman and Roth and others purchased an aggregate of 150,714 shares of our Class B common stock for an aggregate purchase price of $109,866. Messrs. McLaughlin, Loiterman and Roth purchased their stock at the same price paid by other investors. These transactions caused an antidilution adjustment to the warrant we granted to Liberty Partners in 1996, which resulted in an additional 945,740 shares of Class A common stock becoming subject to this warrant. In a series of transactions occurring on or around November 1, 1998, we issued to the State Board a junior subordinated note with a maximum principal amount of $7.0 million, which bears interest at a rate of 14.0% and matures on July 31, 2001. As of June 30, 1999 we had been advanced a total of $6.4 million under the junior subordinated note. We also increased the maximum amount of our senior revolving loan from $8 million to $12 million. On November 1, 1998, we also granted a warrant to Liberty Partners to purchase 592,012 shares of our Class A common stock at an exercise price of $0.73 per share. 56 The following table summarizes the ownership of our preferred and common stock following the transactions described above:
Percentage Number of of Shares of Preferred Series of Aggregate Preferred Stock Preferred Purchase Purchaser Stock Ownership Stock Price - --------- --------- ---------- --------- ---------- State Board 44,195 81.8% Series A $4,419,529 Richard F. Spanier 8,125 15.0 Series B 812,471 Paul F. McLaughlin 614 1.1 Series A 61,334 Robert M. Loiterman 213 0.4 Series A 21,333 Steven R. Roth 53 0.1 Series A 5,333 Others 800 1.6 Series A 80,000 --------- ----- ---------- Total 54,000 100.0% $5,400,000 ========= ===== ========== Number of Percentage Shares of of Common Class of Aggregate Common Stock Common Purchase Purchaser Stock Ownership Stock Price - --------- --------- ---------- --------- --------- Liberty Partners 4,802,270 67.6% Class A $3,256,006 Riverside Partners 1,089,964 15.3 Class B 739,011 Richard F. Spanier 616,160 8.7 Class B 353,118 Paul F. McLaughlin 394,336 5.6 Class B 264,404 Robert M. Loiterman 62,846 0.9 Class B 42,281 Steven R. Roth 30,027 0.4 Class B 20,137 Other 107,762 1.5 Class B 73,120 --------- ----- ---------- Total 7,103,365 100.0% $4,748,077 ========= ===== ==========
Management and Director Fee Arrangements In connection with the acquisition, Liberty Partners and Riverside Partners agreed to provide management services to us for an aggregate management fee of $200,000 per year. Our obligation to pay management fees to Liberty Partners and Riverside Partners will cease upon this offering. We have accrued for these fees since April 1998 and we will pay them in arrears from the proceeds of this offering. Liberty Partners and Riverside Partners advise us on the operations of our business and appoint designees to serve as members of our board of directors. After this offering, we will no longer be obligated to pay the management fees. However, we will pay a yearly director's fee of $20,000 to each director who is appointed by either Liberty Partners or Riverside Partners. Registration Rights Agreement Liberty Partners, Riverside Partners, Messrs. Spanier and McLaughlin and some of our other stockholders have the right to require us to register their shares under the Securities Act for public resale. We are also required to pay the expenses incurred in connection with such registration. Support Agreement Liberty Partners Holdings 11, L.L.C. has agreed to provide us with funding, if necessary, to enable us to continue to liquidate our liabilities in the ordinary course of business and to fulfill our obligations as they come due through the earlier of (1) this offering and the concurrent repayment of all outstanding debt or (2) December 31, 2000. 57 The Reorganization and the Offering Immediately prior to the offering, we will effect a 35.66-for-one split of our outstanding common stock and each share of Class A common stock and Class B common stock will be exchanged for one share of a new single class of common stock. Liberty Partners intends to exercise its warrants immediately prior to and contingent upon the offering by surrendering a portion of the warrants as payment of the exercise price, as permitted by the terms of the warrants, in which case it would receive 2,039,460 shares of common stock upon such exercise. We will use a substantial portion of the net proceeds of this offering to repay all of the indebtedness incurred in connection with the acquisition of our predecessor company and the financing we conducted in November 1998, including all of the senior term loan, the senior revolving loan, the senior subordinated loan and the junior subordinated loan from the State Board. We will also use a portion of the proceeds to redeem all of our outstanding Series A preferred stock and Series B preferred stock. 58 PRINCIPAL STOCKHOLDERS The following table sets forth information regarding beneficial ownership of common stock by: . each person or entity known to us to own beneficially more than 5% of our common stock; . each of our directors; . each of our executive officers; and . all of our executive officers and directors as a group. The numbers in the table below are based on the number of shares outstanding as of July 31, 1999. Except as otherwise noted, the address of each person on the table below is c/o Rudolph Technologies, Inc., One Rudolph Road, Flanders, NJ 07836.
Shares of Preferred Stock Shares of Common Stock Shares of Common Stock Beneficially Owned Beneficially Owned Beneficially Owned Prior to the Offering Prior to the Offering After the Offering ------------------------- ------------------------ ------------------------ Beneficial Owner Number (1) Percentage (2) Number (1)(3) Percentage Number (1)(3) Percentage - ---------------- ---------- -------------- ------------- ---------- ------------- ---------- Liberty Partners Holdings 11, L.L.C. (4)................... 44,195 81.8% 6,841,730 74.8% 6,841,730 49.1% c/o Liberty Capital Partners, Inc. 1177 Avenue of the Americas New York, NY 10036 Riverside Rudolph, L.L.C................. -- -- 1,089,964 15.3 1,089,964 9.2 One Exeter Plaza Boston, MA 02116 Paul F. McLaughlin...... 614 1.1 725,461 9.8 725,461 5.9 Robert M. Loiterman..... 213 * 111,155 1.6 111,155 * Steven R. Roth.......... 53 * 66,869 * 66,869 * David Belluck (5)....... -- -- 1,089,964 15.3 1,089,964 9.2 c/o Riverside Rudolph, L.L.C. One Exeter Plaza Boston, MA 02116 Daniel H. Berry......... -- -- 1,783 * 1,783 * Paul Craig (5).......... -- -- 1,089,964 15.3 1,089,964 9.2 c/o Riverside Rudolph, L.L.C. One Exeter Plaza Boston, MA 02116 Stephen J. Fisher (4)(6)................ 44,195 81.8 6,841,730 74.8 6,841,730 49.1 c/o Liberty Capital Partners, Inc. 1177 Avenue of the Americas New York, NY 10036 Carl E. Ring, Jr. (4)(6)................ 44,195 81.8 6,841,730 74.8 6,841,730 49.1 c/o Liberty Capital Partners, Inc. 1177 Avenue of the Americas New York, NY 10036 Richard F. Spanier...... 8,125 15.0 616,160 8.7 616,160 5.2 Aubrey C. Tobey......... -- -- 1,783 * 1,783 * All directors and executive officers as a group (ten persons) (7)................... 53,200 98.5 9,454,906 98.9 9,454,906 65.8
- -------- * Less than 1% of the outstanding shares of common stock. (Footnotes appear on the following page.) 59 (1) Beneficial ownership is determined in accordance with the rules of the SEC. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of common stock subject to options held by that person that are currently exercisable or exercisable within 60 days of July 31, 1999 are deemed outstanding. Such shares, however, are not deemed outstanding for the purpose of computing the percentage ownership of any other person. Except as indicated in the footnotes to this table and pursuant to applicable community property laws, each stockholder named in the table has sole voting and investment power with respect to the shares set forth opposite such stockholder's name. (2) Percentage calculations are based on 54,000 shares of preferred stock outstanding on July 31, 1999. We intend to use approximately $7.0 million of the net proceeds of this offering to redeem all of our outstanding preferred stock immediately following this offering. (3) Includes stock subject to stock options held by directors and executive officers that will become exercisable upon completion of this offering, as follows: Mr. McLaughlin, 331,125 shares; Mr. Loiterman, 48,309 shares; Mr. Roth, 36,842 shares; Mr. Berry, 1,783 shares; Mr. Tobey, 1,783 shares; and all directors and officers as a group, 419,842 shares. Percentage calculations are based on 7,103,365 shares of common stock outstanding on July 31, 1999. (4) The number of shares of preferred stock beneficially owned by Liberty Partners 11, L.L.C. and Messrs. Fisher and Ring consists of 44,195 shares held by the State Board of Administration of Florida, over which Liberty Partners 11, L.L.C. has voting and dispositive power. Liberty Partners 11, L.L.C. and Messrs. Fisher and Ring disclaim beneficial ownership of such shares except to the extent of their pecuniary interests in such shares. The number of shares of common stock beneficially owned by Liberty Partners Holdings 11, L.L.C. and Messrs. Fisher and Ring includes 2,039,460 shares of our common stock to be issued on exercise of warrants immediately prior to the offering. (5) The number of shares of common stock beneficially owned by Messrs. Belluck and Craig consists of 1,089,964 shares of our common stock held by Riverside Rudolph, L.L.C. Mr. Belluck and Mr. Craig disclaim beneficial ownership of all shares except to the extent of their pecuniary interest in Riverside Rudolph, L.L.C. (6) The number of shares of common stock beneficially owned by Messrs. Fisher and Ring consists of 6,841,730 shares of our common stock held by Liberty Partners Holdings 11, L.L.C. Mr. Fisher and Mr. Ring disclaim beneficial ownership of all shares except to the extent of their pecuniary interest in Liberty Partners Holdings 11, L.L.C. (7) The number of shares of preferred stock beneficially owned by our directors and executive officers as a group includes 44,195 shares of preferred stock held by the State Board of Administration of Florida, over which Liberty Partners Holdings 11, L.L.C. has voting and dispositive power. The number of shares of common stock beneficially owned by our directors and executive officers as a group includes 6,841,730 and 1,089,964 shares of our common stock held by Liberty Partners Holdings 11, L.L.C. and Riverside Rudolph, L.L.C. 60 DESCRIPTION OF CAPITAL STOCK Upon the completion of this offering, our authorized capital stock will consist of 50,000,000 shares of a single class of common stock, par value $0.001 per share, and 5,000,000 shares of undesignated preferred stock, par value $0.001 per share. Set forth below is a description of the common stock and the preferred stock that may be issued under our new certificate of incorporation to become effective upon the consummation of the offering. Common Stock Voting Rights. Each outstanding share of common stock is entitled to one vote on all matters submitted to a vote of our stockholders, including the election of directors. There is no cumulative voting in the election of directors. Dividends, Distributions and Stock Splits. Holders of common stock are entitled to receive dividends if, as and when such dividends are declared by our board of directors out of assets legally available therefor after payment of dividends required to be paid on shares of preferred stock, if any. Liquidation. In the event of any dissolution, liquidation, or winding up of our affairs, whether voluntary or involuntary, after payment of our debts and other liabilities and making provision for the holders of preferred stock, if any, our remaining assets will be distributed ratably among the holders of the common stock. All shares of common stock outstanding are fully paid and nonassessable, and all the shares of common stock to be outstanding upon completion of this offering will be fully paid and nonassessable. Preferred Stock Upon consummation of the offering, 5,000,000 shares of undesignated preferred stock will be authorized, and no shares will be outstanding. Our board of directors has the authority to issue preferred stock in one or more series and to establish the rights and restrictions granted to or imposed on any unissued shares of preferred stock and to fix the number of shares constituting any series without any further vote or action by the stockholders. Our board of directors has the authority, without approval of the stockholders, to issue preferred stock that has voting and conversion rights superior to the common stock, which could have the effect of delaying or preventing a change in control. We currently have no plans to issue any shares of preferred stock. Delaware Anti-Takeover Law and Charter and Bylaw Provisions We are subject to the provisions of Section 203 of the Delaware General Corporation Law, an anti-takeover law. In general, the statute prohibits a publicly-held Delaware corporation from engaging in a business combination with an "interested stockholder" for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. A "business combination" includes a merger, asset sale or other transaction resulting in a financial benefit to the stockholder. For purposes of Section 203, an "interested stockholder" is defined to include any person that is: . the owner of 15% or more of the outstanding voting stock of a corporation; . an affiliate or associate of a corporation and was the owner of 15% or more of the voting stock outstanding of the corporation at any time within three years immediately prior to the relevant date; and . an affiliate or associate of the persons described above. Stockholders may, by adopting an amendment to the corporation's certificate of incorporation or bylaws, elect for the corporation not to be governed by Section 203, effective 12 months after adoption. Neither our certificate of incorporation nor our bylaws exempt us from the restrictions imposed under Section 203 of the Delaware General Corporation Law. We anticipate that the provisions of Section 203 of the Delaware General 61 Corporation Law may encourage companies interested in acquiring us to negotiate in advance with our board of directors because the stockholder approval requirement would be avoided if a majority of the directors then in office approve either the business combination or the transaction that results in the stockholder becoming an interested stockholder. Annual meetings of stockholders shall be held to elect our board of directors and transact such other business as may be properly brought before the meeting. Special meetings of stockholders may be called by our chairman or the chief executive officer or by a majority of the board. Our certificate of incorporation and bylaws provide that any action required or permitted to be taken by our stockholders may be effected at a duly called annual or special meeting of the stockholders or may be taken by a consent in writing by stockholders. Our certificate of incorporation may be amended with the approval of a majority of the board and the holders of a majority of our outstanding voting securities. The number of directors shall be fixed by resolution of the board. The size of the board is currently fixed at eight members. The directors shall be elected at the annual meeting of the stockholders, except for filling vacancies. Directors may be removed with the approval of the holders of a majority of our voting power present and entitled to vote at a meeting of stockholders. Vacancies and newly-created directorships resulting from any increase in the number of directors may be filled by a majority of the directors then in office, a sole remaining director, or the holders of a majority of the voting power present and entitled to vote at a meeting of stockholders. The presence, in person or by proxy, of the holders of a majority of the votes entitled to be cast by the stockholders entitled to vote generally shall constitute a quorum for stockholder action at any meeting. Limitation of Liability; Indemnification Our certificate of incorporation contains certain provisions permitted under the Delaware General Corporation Law relating to the liability of directors. These provisions eliminate a director's personal liability for monetary damages resulting from a breach of fiduciary duty, except in certain circumstances involving certain wrongful acts, including: . for any breach of the director's duty of loyalty to us or our stockholders; . for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; . under Section 174 of the Delaware General Corporation Law; or . for any transaction from which the director derives an improper personal benefit. These provisions do not limit or eliminate our rights or those of any stockholder to seek non-monetary relief, such as an injunction or rescission, in the event of a breach of a director's fiduciary duty. These provisions will not alter a director's liability under federal securities laws. Our bylaws also contain provisions indemnifying our directors and officers to the fullest extent permitted by the Delaware General Corporation Law. We believe that these provisions are necessary to attract and retain qualified individuals to serve as directors and officers. Transfer Agent and Registrar The transfer agent and registrar for the common stock is American Securities Transfer and Trust, Inc. 62 SHARES ELIGIBLE FOR FUTURE SALE Upon completion of the offering, we will have 13,942,825 shares of common stock outstanding, assuming no exercise of the underwriters' option to purchase additional shares. Of this amount, the 4,800,000 shares of common stock offered by this prospectus will be available for immediate sale in the public market as of the date of this prospectus. Approximately 9,142,825 shares of common stock will be available for sale in the public market following the expiration of 180-day lock-up agreements with the representatives of our underwriters, subject in some cases to compliance with the volume and other limitations of Rule 144.
Days after the Date of Approximate Shares this Prospectus Eligible for Future Sale Comment ---------------------- ------------------------ ------- Upon effectiveness 4,800,000 Freely tradable shares sold in offering 180 days after this 9,142,825 Lock-up released; shares salable under offering Rule 144
In general, under Rule 144 as currently in effect, a person who has beneficially owned shares for at least one year is entitled to sell within any three-month period commencing 90 days after the date of this prospectus a number of shares that does not exceed the greater of (a) 1% of the then outstanding shares of common stock (approximately 139,428 shares immediately after the offering) or (b) the average weekly trading volume during the four calendar weeks preceding the sale, subject to the filing of a Form 144 with respect to the sale. A person who is not deemed to have been an affiliate of ours at any time during the 90 days immediately preceding the sale and who has beneficially owned his or her shares for at least two years is entitled to sell these shares under Rule 144(k) without regard to the limitations described above. Persons deemed to be affiliates must always sell under Rule 144, even after the applicable holding periods have been satisfied. We are unable to estimate the number of shares that will be sold under Rule 144, since this will depend on the market price for our common stock, the personal circumstances of the sellers and other factors. Prior to the offering, there has been no public market for the common stock, and there can be no assurance that a significant public market for the common stock will develop or be sustained after the offering. Any future sale of substantial amounts of common stock in the open market may adversely affect the market price of the common stock offered by this prospectus. Our directors, executive officers, stockholders and optionholders have agreed that they will not sell any common stock without the prior written consent of BancBoston Robertson Stephens Inc. for a period of 180 days from the date of this prospectus. We have also agreed not to issue any shares during the lock-up period without the consent of BancBoston Robertson Stephens Inc., except that we may, without this consent, grant options and sell shares under our stock incentive and purchase plans. These shares may not be resold into the public market during the lock-up period. Any of our employees or consultants who purchased his or her shares under a written compensatory plan or contract is entitled to rely on the resale provisions of Rule 701, which permits nonaffiliates to resell their Rule 701 shares without having to comply with the public information, holding period, volume limitation or notice provisions of Rule 144 and permits affiliates to resell their Rule 701 shares without having to comply with the Rule 144 holding period restrictions, in each case commencing 90 days after the date of this prospectus. As of July 31, 1999, we had outstanding options to purchase 693,951 shares of common stock under our stock plan. All of these options will become fully exercisable upon consummation of this offering. We intend to file a registration statement on Form S-8 under the Securities Act shortly after the completion of the offering to register the shares of common stock subject to outstanding stock options that may be issued under these plans, which will permit the resale of these shares in the public market without restriction after the lock-up period expires. 63 UNDERWRITING The underwriters named below, acting through their representatives, BancBoston Robertson Stephens Inc., Bear, Stearns & Co. Inc. and CIBC World Markets Corp., have severally agreed with us, subject to the terms and conditions set forth in the underwriting agreement, to purchase from us the number of shares of common stock set forth opposite their names below. The underwriters are committed to purchase and pay for all such shares if they are purchased.
Number of Underwriter Shares ----------- --------- BancBoston Robertson Stephens Inc. ............................... Bear, Stearns & Co. Inc. ......................................... CIBC World Markets Corp. ......................................... --------- Total........................................................... 4,800,000 =========
We have been advised by the representatives that the underwriters propose to offer the shares of common stock to the public at the initial public offering price set forth on the cover page of this prospectus and to make certain dealers at such price less a concession of not in excess of $ per share, of which $ may be reallowed to their dealers. After the initial public offering, the public offering price, concession and reallowance to dealers may be reduced by the representatives. No such reduction shall change the amount of proceeds to be received by us as set forth on the cover page of this prospectus. The common stock is offered by the underwriters as stated in this prospectus, subject to receipt and acceptance by them and subject to their right to reject any order in whole or in part. The underwriters do not intend to confirm sales to any accounts over which they exercise discretionary authority. Over-allotment Option. We have granted to the underwriters an option, exercisable during the 30-day period after the date of this prospectus, to purchase up to 720,000 additional shares of common stock at the same price per share as we will receive for the 4,800,000 shares that the underwriters have agreed to purchase. To the extent that the underwriters exercise this option, each of the underwriters will have a firm commitment to purchase approximately the same percentage of these additional shares that the number of shares of common stock to be purchased by it shown in the above table represents as a percentage of the 4,800,000 shares offered in this offering. If purchased, such additional shares will be sold by the underwriters on the same terms as those on which the 4,800,000 shares are being sold. We will be obligated, according to the option, to sell shares to the extent the option is exercised. The underwriters may exercise this option only to cover over-allotments made in connection with the sale of the shares of common stock offered in this offering. If this option is exercised in full, the total public offering price of the 5,520,000 shares we sell to the underwriters, underwriting discounts and commissions on such shares and total proceeds to us from the sale of these shares will be $ , $ and $ , respectively. The following table summarizes the compensation to be paid to the underwriters by us:
Total ------------------- Without With Per Over- Over- Share allotment allotment ----- --------- --------- Underwriting discounts and commissions payable by us................................................ $ $ $
We estimate that expenses payable by us in connection with this offering, other than the underwriting discounts and commissions referred to above, will be approximately $800,000. Indemnity. The underwriting agreement contains covenants of indemnity among the underwriters and us against certain civil liabilities, including liabilities under the Securities Act and liabilities arising from breaches of representations and warranties contained in the underwriting agreement. 64 Lock-up Agreements. Each of our directors, executive officers, stockholders and optionholders has agreed with the representatives, for a period of 180 days after the date of this prospectus, subject to certain exceptions, not to offer to sell, contract to sell, or otherwise sell, dispose of, loan, pledge or grant any rights with respect to any shares of common stock, any options or warrants to purchase any shares of common stock, or any securities convertible into or exchangeable for shares of common stock owned as of the date of this prospectus or, with certain exceptions, thereafter acquired directly by such holders or with respect to which they have or hereafter acquire the power or disposition, without the prior written consent of BancBoston Robertson Stephens Inc. However, BancBoston Robertson Stephens Inc. may, in its sole discretion and at any time without notice, release all or any portion of the securities subject to the lock-up agreements. There are no agreements between the representatives and any of our stockholders providing consent by the representatives to the sale of shares prior to the expiration of the period of 180 days after this prospectus. Future Sales. In addition, we have agreed that during the period of 180 days after this prospectus, we will not, subject to certain exceptions, without the prior written consent of BancBoston Robertson Stephens Inc.: . consent to the disposition of any shares held by stockholders prior to the expiration of the period of 180 days after this prospectus; or . issue, sell, contract to sell or otherwise dispose of any shares of common stock, any options or warrants to purchase any shares of common stock or any securities convertible into, exercisable for or exchangeable for shares of common stock, other than (1) the sale of shares in this offering, (2) the issuance of common stock upon the exercise or conversion of outstanding options, warrants or convertible securities, (3) our issuance of stock options under existing stock option plans and (4) our issuance of common stock under our stock purchase plan. See "Shares Eligible for Future Sale." Listing. We have applied to have our common stock quoted on The Nasdaq National Market under the symbol RTEC. No Prior Public Market. Prior to this offering, there has been no public market for our common stock. Consequently, the initial public offering price for the common stock offered hereby was determined through negotiations between us and the representatives. Among the factors considered in such negotiations were prevailing market conditions, certain of our financial information, market valuations of other companies that we and the representatives believed to be comparable to us, estimates of our business potential, the present state of our development and other factors deemed relevant. Stabilization. The representatives have advised us that, pursuant to Regulation M under the Securities Act, certain persons participating in this offering may engage in transactions, include stabilizing bids, syndicate covering transactions or the imposition of penalty bids, that may have the effect of stabilizing or maintaining the market price of the common stock at a level above that which might otherwise prevail in the open market. . A stabilizing bid is a bid for or the purchase of the common stock on behalf of the underwriters for the purpose of fixing or maintaining the price of the common stock. . A syndicate covering transaction is the bid for or the purchase of the common stock on behalf of the underwriters to reduce a short position incurred by the underwriters in connection with this offering. . A penalty bid is an arrangement permitting the representatives to reclaim the selling concession otherwise accruing to an underwriter or syndicate member in connection with this offering if the common stock originally sold by such underwriter or syndicate member is purchased by the representatives in a syndicate covering transaction and has therefore not been effectively placed by such underwriter or syndicate member. The representatives have advised us that such transactions may be effected on the Nasdaq National Market or otherwise and, if commenced, may be discontinued at any time. 65 Directed Share Program. At our request, the underwriters have reserved less than 5% of the shares of common stock offered hereby for sale, at the initial public offering price, to our directors, officers, employees, business associates and related persons. The number of shares of common stock available for sale to the general public will be reduced to the extent such individuals purchase such reserved shares. Any reserved shares which are not so purchased will be offered by the underwriters to the general public on the same basis as the other shares offered hereby. LEGAL MATTERS Certain legal matters with respect to the validity of the common stock offered hereby are being passed upon for us by Wilson Sonsini Goodrich & Rosati, Palo Alto, California. Certain legal matters in connection with this offering will be passed upon for the underwriters by Hale and Dorr LLP, Boston, Massachusetts. EXPERTS The statements in this prospectus set forth under the captions "Risk Factors--Protection of our intellectual property rights, or the efforts of third parties to enforce their own intellectual property rights against us, has in the past resulted and may in the future result in costly and time-consuming litigation, " "Business--Intellectual Property," the second and third paragraphs of "Business--Research and Development," and "Business--Legal Proceedings," except for statements pertaining to our relationship with Brown University Research Foundation, have been reviewed and approved by Antonelli, Terry, Stout & Kraus, LLP, our patent counsel, as experts on such matters, and we have included these statements in this prospectus in reliance upon such review and approval. The financial statements of the Company and its predecessor as of December 31, 1997 and 1998, June 30, 1999, and for the periods January 1, 1996 through June 13, 1996, June 14, 1996 through December 31, 1996, the years ended December 31, 1997 and 1998 and the six months ended June 30, 1999 included in this prospectus have been so included in reliance on the reports of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in accounting and auditing. WHERE YOU CAN FIND MORE INFORMATION We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the shares to be sold in the offering. This prospectus does not contain all the information contained in the registration statement. For further information about us and the shares to be sold in the offering, reference is made to the registration statement and the exhibits and schedules filed with the registration statement. We have described all material information for each contract, agreement or other document filed with the registration statement in the prospectus. However, statements contained in this prospectus as to the contents of any contract, agreement or other document referred to are not necessarily complete. As a result, you should refer to the copy of the contract, agreement or other document filed as an exhibit to the registration statement for a complete description of the matter involved. You may read and copy all or any portion of the registration statement or any reports, statements or other information that we file at the SEC's public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. You can request copies of these documents, upon payment of a duplicating fee, by writing to the SEC. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference rooms. Our SEC filings, including the registration statement, are also available to you without charge from the SEC Web site, which is located at http://www.sec.gov. 66 INDEX TO FINANCIAL STATEMENTS
Page ---- Rudolph Technologies, Inc. Consolidated Financial Statements Report of PricewaterhouseCoopers LLP, Independent Accountants............. F-2 Consolidated Balance Sheets as of December 31, 1997 and 1998 and as of June 30, 1999 .......................................................... F-3 Consolidated Statements of Operations for the period June 14, 1996 to December 31, 1996, the years ended December 31, 1997, and 1998 and the six months ended June 30, 1998 (unaudited) and 1999................................................................ F-4 Consolidated Stockholders' Equity (Deficit) for the period June 14, 1996 to December 31, 1996, the years ended December 31, 1997, and 1998 and the six months ended June 30, 1999........................................................... F-5 Consolidated Statements of Cash Flows for the period June 14, 1996 to December 31, 1996, the years ended December 31, 1997, and 1998 and the six months ended June 30, 1998 (unaudited) and 1999................................................................ F-6 Notes to Consolidated Financial Statements................................ F-7 Rudolph Research Corporation Financial Statements Report of PricewaterhouseCoopers LLP, Independent Accountants............. F-22 Statement of Operations for the period January 1, 1996 to June 13, 1996... F-23 Statement of Stockholders' Equity for the period January 1, 1996 to June 13, 1996................................................................ F-24 Statement of Cash Flows for the period January 1, 1996 to June 13, 1996... F-25 Notes to the Financial Statements......................................... F-26
F-1 The stock split described in Note 17 to the financial statements has not been consummated at October 1, 1999. When it has been consummated, we expect to be in a position to render the following report: PricewaterhouseCoopers LLP Florham Park, New Jersey October 1, 1999 Report of Independent Accountants To the Stockholders and Board of Directors of Rudolph Technologies, Inc. In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, stockholders' equity (deficit) and cash flows present fairly, in all material respects, the financial position of Rudolph Technologies, Inc. and subsidiaries at June 30, 1999 and December 31, 1998 and 1997, and the results of their operations and their cash flows for the six months ending June 30, 1999 and for each of the two years in the period ended December 31, 1998 and the period from June 14, 1996 to December 31, 1996, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. Florham Park, New Jersey F-2 RUDOLPH TECHNOLOGIES, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share data)
December 31, June 30, ---------------- -------- 1997 1998 1999 ------- ------- -------- Assets Current assets Cash and cash equivalents......................... $ 189 $ 431 $ 412 Accounts receivable, less allowance of $500 in 1997 and $294 in 1998 and 1999.................. 5,593 4,412 5,527 Inventories....................................... 10,302 9,418 10,006 Income tax receivables............................ 558 270 270 Prepaid expenses and other assets................. 114 210 232 ------- ------- ------- Total current assets............................ 16,756 14,741 16,447 Property, plant and equipment, net................. 2,411 2,631 2,891 Intangibles........................................ 7,503 3,295 3,164 Deferred income taxes.............................. 1,263 -- -- Other assets....................................... 580 454 422 ------- ------- ------- Total assets.................................... $28,513 $21,121 $22,924 ======= ======= ======= Liabilities and stockholders' equity Current liabilities Short-term borrowings............................. $ 6,600 $ 9,600 $ 9,300 Current portion of long-term debt................. 2,000 2,500 2,750 Accounts payable.................................. 1,153 1,113 1,380 Accrued liabilities: Commissions...................................... 1,435 564 358 Payroll and related expenses..................... 1,072 463 927 Warranty......................................... 303 342 513 Other liabilities................................. 1,059 1,211 1,498 ------- ------- ------- Total current liabilities....................... 13,622 15,793 16,726 Long-term liabilities Deferred compensation............................. 111 103 78 Long-term debt.................................... 24,000 25,370 26,290 ------- ------- ------- Total long-term liabilities..................... 24,111 25,473 26,368 ------- ------- ------- Commitments and contingencies (Note 6) Redeemable preferred stock, $0.01 par value, 56,001 shares authorized: Class A, 45,876 shares designated, 45,875.29 shares issued and outstanding (at liquidation value)........................... 5,188 5,619 5,848 Class B, 10,125 shares designated, 8,124.71 shares issued and outstanding (at liquidation value)... 919 995 1,035 Stockholders' deficit Common stock, $0.01 par value, 9,910,681 shares authorized: Class A, 6,874,976 shares designated, 1,571,294 shares issued and outstanding at December 31, 1997, and 4,802,291 shares issued and outstanding at December 31, 1998 and June 30, 1999................................... 1 2 2 Class B, 3,035,705 shares designated, 1,046,079 shares issued and outstanding at December 31, 1997, 1,930,103 shares issued and outstanding at December 31, 1998 and 2,301,074 issued and outstanding at June 30, 1999......... -- -- -- Additional paid-in-capital........................ 1,499 4,638 4,886 Accumulated other comprehensive loss.............. (166) (153) (246) Accumulated deficit............................... (16,661) (31,246) (31,695) ------- ------- ------- Total stockholders' deficit...................... (15,327) (26,759) (27,053) ------- ------- ------- Total liabilities and stockholders' deficit...... $28,513 $21,121 $22,924 ======= ======= =======
The accompanying notes are an integral part of the consolidated financial statements. F-3 RUDOLPH TECHNOLOGIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share and per share data)
June 14 to For the Years Ended For the Six Months December 31, December 31, Ended June 30, ------------ ---------------------- ----------------------- 1996 1997 1998 1998 1999 ------------ ---------- ---------- ----------- ---------- (unaudited) Revenues................ $ 14,373 $ 35,339 $ 20,106 $ 11,872 $ 15,170 Cost of revenues........ 6,579 13,903 13,179 6,455 7,373 ---------- ---------- ---------- ---------- ---------- Gross profit........... 7,794 21,436 6,927 5,417 7,797 ---------- ---------- ---------- ---------- ---------- Operating expenses: Research & development.......... 2,345 5,750 5,096 2,688 2,097 In-process research & development.......... 3,821 -- -- -- -- Selling, general & administrative....... 4,340 9,475 7,077 3,306 3,537 Write-down of intangibles.......... 6,734 -- -- -- -- Amortization........... 3,650 4,201 4,208 2,103 131 ---------- ---------- ---------- ---------- ---------- Total operating expenses............ 20,890 19,426 16,381 8,097 5,765 ---------- ---------- ---------- ---------- ---------- Operating income (loss)................ (13,096) 2,010 (9,454) (2,680) 2,032 Interest expense........ 2,013 3,717 4,210 2,135 2,148 Other income............ (156) (92) (199) (15) (29) ---------- ---------- ---------- ---------- ---------- Loss before income taxes................ (14,953) (1,615) (13,465) (4,800) (87) Provision (benefit) for income taxes.......... -- (614) 613 (699) 93 ---------- ---------- ---------- ---------- ---------- Net loss............... (14,953) (1,001) (14,078) (4,101) (180) Preferred stock dividends............. 239 468 507 247 269 ---------- ---------- ---------- ---------- ---------- Loss available to common stockholders.......... $ (15,192) $ (1,469) $ (14,585) $ (4,348) $ (449) ========== ========== ========== ========== ========== Net loss per share available to common stockholders: Basic.................. $ (5.80) $ (.56) $ (3.24) $ (1.66) $ (.07) Diluted................ $ (5.80) $ (.56) $ (3.24) $ (1.66) $ (.07) Weighted average number of shares outstanding: Basic.................. 2,617,373 2,617,373 4,503,396 2,617,373 6,767,415 Diluted................ 2,617,373 2,617,373 4,503,396 2,617,373 6,767,415
The accompanying notes are an integral part of the consolidated financial statements. F-4 RUDOLPH TECHNOLOGIES, INC. CONSOLIDATED STOCKHOLDERS' EQUITY (DEFICIT) For the period from June 14, 1996 to December 31, 1996, the years ended December 31, 1997 and 1998 and for the six months ended June 30, 1999 (in thousands, except share and per share data)
Accumulated Common Stock Additional Other ---------------- Paid-In Comprehensive Accumulated Comprehensive Shares Amount Capital Loss Deficit Total Loss --------- ------ ---------- ------------- ----------- -------- ------------- Issuance of common stock: Class A............... 1,571,294 $ 1 $ 899 $ 900 Class B............... 1,046,079 -- 600 600 Net loss............... -- -- -- $(14,953) (14,953) (14,953) Accretion of preferred stock dividend....... -- -- -- -- (239) (239) -- Currency translation... -- -- -- $ (15) -- (15) (15) --------- --- ------ ----- -------- -------- -------- Balance at December 31, 1996.................. 2,617,373 1 1,499 (15) (15,192) (13,707) $(14,968) ======== Net loss............... -- -- -- -- (1,001) (1,001) (1,001) Accretion of preferred stock dividend....... -- -- -- -- (468) (468) -- Currency translation... -- -- -- (151) -- (151) (151) --------- --- ------ ----- -------- -------- -------- Balance at December 31, 1997.................. 2,617,373 1 1,499 (166) (16,661) (15,327) $(16,120) ======== Issuance of common stock: Class A............... 3,230,997 1 2,999 -- -- 3,000 Class B............... 884,024 -- -- -- -- -- Issuance of warrants in connection with debt financing............ -- -- 140 -- -- 140 Net loss............... -- -- -- -- (14,078) (14,078) $(14,078) Accretion of preferred stock dividend....... -- -- -- -- (507) (507) -- Currency translation... -- -- -- 13 -- 13 13 --------- --- ------ ----- -------- -------- -------- Balance at December 31, 1998.................. 6,732,394 2 4,638 (153) (31,246) (26,759) $(30,185) ======== Exercise of employee stock options........ 370,971 -- 248 -- -- 248 Net loss............... -- -- -- -- (180) (180) $ (180) Accretion of preferred stock dividend....... -- -- -- -- (269) (269) -- Currency translation... -- -- -- (93) -- (93) (93) --------- --- ------ ----- -------- -------- -------- Balance at June 30, 1999.................. 7,103,365 $ 2 $4,886 $(246) $(31,695) $(27,053) $(30,458) ========= === ====== ===== ======== ======== ========
The accompanying notes are an integral part of the consolidated financial statements. F-5 RUDOLPH TECHNOLOGIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands, except share and per share data)
June 14 to For the Years Ended For the Six Months December 31, December 31, Ended June 30, ------------ --------------------- ------------------- 1996 1997 1998 1998 1999 ------------ --------- ---------- ----------- ------- (unaudited) Cash flow from operating activities Net loss................ $ (14,953) $ (1,001) $ (14,078) $ (4,101) $ (180) Adjustment to reconcile net loss to net cash provided by (used in) operating activities Amortization and other adjustments to intangibles........... 14,205 4,201 4,208 2,103 131 Depreciation............ 205 448 778 263 274 Provision for doubtful accounts.............. -- 353 71 (26) -- Gain on sale of property.............. -- -- (147) -- -- Decrease (increase) in assets: Accounts receivable.... 1,999 (1,131) 1,199 (432) (1,187) Income tax receivable.. -- (558) 288 511 -- Inventories............ (147) (4,559) 889 (402) (587) Prepaid expenses and other................ 13 394 (14) (128) (82) Deferred income taxes.. -- (1,263) 1,263 (699) -- Increase (decrease) in liabilities: Accounts payable....... (294) 122 (36) (365) 318 Accrued liabilities.... (410) 1,065 (1,447) (1,134) 427 Other liabilities...... 542 (30) 154 1,476 336 --------- --------- ---------- -------- ------- Net cash provided by (used in) operating activities............ 1,160 (1,959) (6,872) (2,934) (550) Cash flows from investing activities Purchase of property, plant and equipment... (107) (586) (986) (508) (538) Proceeds from disposal of property, plant and equipment............. -- -- 82 -- 27 --------- --------- ---------- -------- ------- Net cash used in investing activities.. (107) (586) (904) (508) (511) Cash flows from financing activities Principal borrowings on long-term debt........ 27,600 -- 4,000 -- 2,345 Principal payments on long-term debt........ -- (1,600) (2,000) -- (1,250) Net borrowing under lines of credit....... 3,800 2,800 3,000 3,400 (300) Capital Contribution.... 6,900 -- 3,000 -- 248 Distribution to stockholders.......... (37,075) -- -- -- -- Payment of financing cost.................. (700) -- -- -- -- --------- --------- ---------- -------- ------- Net cash provided by financing activities.. 525 1,200 8,000 3,400 1,043 Effect of exchange rate changes on cash....... -- (44) 18 (20) (1) --------- --------- ---------- -------- ------- Net (decrease) increase in cash and cash equivalents........... 1,578 (1,389) 242 (62) (19) Cash and cash equivalents at beginning of period... -- 1,578 189 189 431 --------- --------- ---------- -------- ------- Cash and cash equivalents at end of period................ $ 1,578 $ 189 $ 431 $ 127 $ 412 ========= ========= ========== ======== ======= Supplemental disclosures of cash flow information Cash paid during the period for: Interest................ $ 1,572 $ 3,939 $ 4,031 $ 654 $ 1,723 Income taxes............ -- $ 1,257 -- -- $ 93 ========= ========= ========== ======== =======
The accompanying notes are an integral part of the consolidated financial statements. F-6 RUDOLPH TECHNOLOGIES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited with respect to the six months ended June 30, 1998) (In thousands, except share and per share amounts) 1. Organization and Nature of Operations: Rudolph Technologies, Inc. (the "Company") designs, develops, manufactures and supports high-performance process control metrology systems used in semiconductor device manufacturing. The Company operates in a single segment and supports a wide variety of applications in the areas of diffusion, etch, lithography, CVD, PVD, and CMP. The Company is the successor to Rudolph Research Corporation ("predecessor company") which was aquired on June 14, 1996 (the "Acquisition"). The Acquistion was accounted for as a purchase and accordingly, the purchase price was allocated to the fair value of the net assets acquired. The results of operations for the six months ended June 30, 1999 are not necessarily indicative of the operating results to be expected for the year ending December 31, 1999. 2. Summary Significant Accounting Policies: A. Revenue Recognition: Revenues from product and parts sales are recognized at the time of shipment. Revenue from service contracts is recognized ratably over the period of the contract. A provision for the estimated cost of fulfilling warranty and installation obligations is recorded at the time the related revenue is recognized. B. Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates made by management include allowance for doubtful accounts, inventory obsolescence, depreciation, amortization, taxes, contingencies, and product warranty. Actual results could differ from those estimates. C. 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. D. Property, Plant and Equipment: Property, plant and equipment are stated at cost. Depreciation of property and equipment is computed using the straight-line method over the estimated useful lives of the assets which are thirty years for buildings, seven years for machinery and equipment and furnitures and fixtures, and three years for computer equipment. 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. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carry amount may not be recoverable. If the fair value is less than the carrying amount of the asset, a loss is recognized for the difference. Asset impairment is determined based upon undiscounted cash flows. The fair value of an asset is computed based upon discounted cash flows. E. Intangibles: Intangibles, which resulted from the Acquisition, consist of Goodwill and Purchased Technology which are amortized on a straight-line basis over useful lives of 12 years and 2.5 to 12 years, respectively. Goodwill represents the excess of the purchase price over the fair value of the net assets acquired. Intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carry amount may not be recoverable. If the fair value is less than the carrying amount of the asset, a loss is recognized for the difference. F-7 RUDOLPH TECHNOLOGIES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Unaudited with respect to the six months ended June 30, 1998) (In thousands, except share and per share amounts) F. Deferred Financing Costs: Included in other assets are deferred financing costs of $538, $431 and $377 at December 31, 1997 and 1998 and at June 30, 1999, respectively, consisting of costs to obtain the working capital line of credit and long-term debt, which are being amortized on a basis which approximates the interest method, over the life of the respective debt. Amortization expense amounted to $53 for the period June 14, 1996 to December 31,1996, $107 for each of the years ended December 31, 1997 and 1998 and $54 for each of the six month periods ended June 30, 1998 (unaudited) and 1999. G. Concentration of Credit Risk: Financial instruments, which potentially subject the Company to concentrations of credit risk, consist primarily of accounts receivable and cash. The Company performs ongoing credit evaluations of its customers and generally does not require collateral for sales on credit. The Company maintains reserves for potential credit losses. Substantially all of its cash is held with one major financial institution. H. Warranties: The Company generally provides a warranty on its products for a period of twelve to fifteen months against defects in material and workmanship. The Company has established reserves of $303, $342, and $513 at December 31, 1997 and 1998, and June 30, 1999, respectively, for these anticipated future warranty costs. I. Inventories: Inventories are stated at the lower of cost (first-in, first-out) or market. Demonstration units, which are available for sale, are stated at their manufacturing costs and reserves are recorded to state the demonstration units at their net realizable value. J. 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 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. K. Translation of Foreign Currencies: The Company has foreign operations in Korea and Taiwan, which use their local currency as their functional currency. Assets and liabilities are translated at exchange rates in effect at the balance sheet date, and income, expense accounts and cash flow items at average exchange rates during the period. Resulting translation adjustments are recorded directly as a separate component of stockholder's deficit. Foreign exchange rate gains and losses included in operating results are not material for all periods presented. L. Stock Based Compensation: The Company accounts for its employee stock option plan in accordance with provisions of the Accounting Principles Board's Opinion' (APB) No. 25, "Accounting for Stock Issued to Employees." The Company provides additional disclosure required by Financial Accounting Standard (SFAS) No. 123, "Accounting for Stock-Based Compensation" (see Note 8). F-8 RUDOLPH TECHNOLOGIES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Unaudited with respect to the six months ended June 30, 1998) (In thousands, except share and per share amounts) M. Software Development Costs: The Company accounts for software development costs in accordance with Statement of Financial Accounting Standards No. 86. "Accounting for Costs of Computer Software to Be Sold, Leased or Marketed" ("SFAS No. 86"). SFAS No. 86 requires that certain software product development costs ("Capitalized Costs"), incurred after technological feasibility has been established, be capitalized and amortized, commencing upon the general release of the software product to the Company's customers, over the economic life of the software product. Annual amortization of Capitalized Costs is computed using the greater of: (i) the ratio of current gross revenues for the software product over the total of current and anticipated future gross revenues for the software product or (ii) the straight-line basis. Software product development costs incurred prior to the product reaching technological feasibility are expensed as incurred and included in research and development costs. Capitalized Costs incurred to date have been immaterial and, accordingly, SFAS No. 86 had no significant impact on the financial position or results of operations of the Company. N. 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 expenses approximates fair value due to their short maturities. The fair values of the Company's debt, including current maturities, are estimated using discounted cash flow analyses, based on the estimated current incremental borrowing rates for similar types of securities. The carrying amount of the Company's debt at December 31, 1997 and 1998 and June 30, 1999 approximates fair value. O. Risks Inherent in the Business: The Company sells its products to the semiconductor device industry and believes that changes in any of the following areas could have a material adverse effect on the Company's 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 and services offered by the Company; changes in customer relationships; litigation or claims against the Company based on intellectual property, patent, product, regulatory or other factors; risks associated with changes in domestic and international economic and/or political conditions or regulations; dependency on suppliers and availability of necessary product components; risks associated with year 2000 compliance; and the Company's ability to attract and retain employees necessary to support its growth. P. Consolidation: The consolidated financial statements reflect the consolidated balance sheet, results of operations and cash flows of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated. Q. Recent Accounting Pronouncements: During June 1998, as amended in July 1999 for Statement No. 137, the Financial Accounting Standards Board issued Statement No. 133 "Accounting for Derivative Investments and Hedging Activities" ("SFAS 133"). Based on the Company's current operations, management has concluded that the future adoption of SFAS 133 will have no impact on the Company's operations or financial position. F-9 RUDOLPH TECHNOLOGIES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Unaudited with respect to the six months ended June 30, 1998) (In thousands, except share and per share amounts) R. Interim Financial Data (unaudited): The unaudited financial data for the six months ended June 30, 1998 has been prepared by management and includes all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation of the financial position, results of operations and cash flows of the Company. 3. Property, Plant And Equipment: Property, plant and equipment is comprised of the following:
December 31, June 30, -------------- -------- 1997 1998 1999 ------ ------ -------- Land and building..................................... $1,707 $1,609 $ 1,609 Machinery and equipment............................... 298 754 784 Furniture and fixtures................................ 237 250 266 Computer equipment.................................... 609 592 627 Leasehold improvements................................ 194 312 767 ------ ------ ------- 3,045 3,517 4,053 Accumulated Depreciation.............................. (634) (886) (1,162) ------ ------ ------- Net Property, Plant and Equipment..................... $2,411 $2,631 $ 2,891 ====== ====== =======
Depreciation expense amounted to $205, $448, $778, $263 and $274 for the period June 14, 1996 to December 31, 1996, the years ended December 31, 1997 and 1998, and the six months ended June 30, 1998 (unaudited) and 1999, respectively. 4. Inventories: Inventories are comprised of the following:
December 31, June 30, -------------- ------- 1997 1998 1999 ------- ------ ------- Materials............................................... $ 5,139 $3,664 $ 4,177 Work-in-process......................................... 3,729 3,722 4,431 Finished goods.......................................... 1,434 2,032 1,398 ------- ------ ------- Total Inventories..................................... $10,302 $9,418 $10,006 ======= ====== =======
The Company has established reserves of $540, $413 and $413 at December 31, 1997 and 1998, and June 30, 1999, respectively, for slow moving and obsolete inventory. In the fourth quarter of 1998, the Company recorded a charge of $1,407 for the writedown of inventory for excess parts, for older product lines and for parts which design and engineering advancements rendered obsolete. F-10 RUDOLPH TECHNOLOGIES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Unaudited with respect to the six months ended June 30, 1998) (In thousands, except share and per share amounts) 5. Intangibles: Intangibles are comprised of the following:
December 31, June 30, ----------------- -------- 1997 1998 1999 ------- -------- -------- Purchased Technology.............................. $22,731 $ 22,731 $ 22,731 Goodwill.......................................... 3,178 3,178 3,178 ------- -------- -------- 25,909 25,909 25,909 Accumulated Amortization.......................... (18,406) (22,614) (22,745) ------- -------- -------- Total Intangibles............................... $ 7,503 $ 3,295 $ 3,164 ======= ======== ========
In June 1996, as part of the Acquisition, $3,821 of the purchase price was assigned to acquired in-process research and development which was expensed at the date of acquisition. As of the acquisition date, it was determined that the acquired in-process research and development had not reached technological feasibility and did not have an alternative future use. The acquired in-process research and development related to a new laser-based acoustic technology that the predecessor company had licensed exclusively from a third party. After licensing the technology, the predecessor company established that by pulsing ultra-fast lasers under laboratory conditions, sound waves could be generated to measure materials; however, as of the acquisition date, approximately 25% of the research and development effort remained as the Company needed to meet substantial design and engineering requirements before a commercial product could be developed. The major research and development efforts undertaken by the Company included designing advanced cooling systems to eliminate laser overheating, developing laser beam compression systems to reduce the size of the equipment and designing robotics for material handling. The technology licensed ultimately led to the introduction of the Company's MetaPULSE product in 1997. The Company began testing the MetaPULSE prototype in November 1996 and the first product was sold commercially in May 1997. In valuing the acquired in-process research and development, the Company used discounted cash flows over approximately a four-year period. Four years was used based on historic trends of new product introductions. Expected annual revenues ranged from approximately $14 million to $23 million and the risk rated discount rate used was 30%. During 1996, the semiconductor industry experienced an unforeseen period of reduced capital spending. This industry-wide downturn in the semiconductor equipment business led to decreased sales of the Company's products with many customers delaying shipments and canceling orders. In the fourth quarter of 1996, the Company also initiated the development of the next generation of its products. As a result, the Company assessed the recoverability of its intangible assets and a pro rata share of the goodwill using expected undiscounted future cash flows from operations. Based on this analysis, an impairment was determined. The Company then used discounted expected future cash flows to determine the net realizable value of these assets and recorded a $6,734 charge during the fourth quarter of 1996. In June 1997, goodwill was increased by $323 to reflect the impact of additional tax liabilities not recorded at the acquisition date. Amortization of Intangibles expense amounted to $3,650, $4,201, $4,208, $2,103 and $131 for the period June 14, 1996 to December 31, 1996, the years ended December 31, 1997 and 1998, and the six months ended June 30, 1998 (unaudited) and 1999, respectively. F-11 RUDOLPH TECHNOLOGIES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Unaudited with respect to the six months ended June 30, 1998) (In thousands, except share and per share amounts) 6. Commitments and Contingencies: The Company rents space for its manufacturing and service operations and sales offices. Total rent expense for these facilities amounted to $110, $242, $302, $150 and $204 for the period June 14, 1996 to December 31, 1996, the years ended December 31, 1997 and 1998, and the six months ended June 30, 1998 (unaudited) and 1999, respectively. The Company also leases certain equipment pursuant to operating leases, which expire through 2001. Rent expense related to these leases amounted to $7, $40, $76, $27 and $26 for the period June 14, 1996 to December 31, 1996, the years ended December 31, 1997 and 1998, and the six months ended June 30, 1998 (unaudited) and 1999, respectively. Total future minimum lease payments under noncancelable operating leases as of June 30, 1999 amounted to $483, $474, $417, $355 and $345 for the years 1999 to 2003, respectively. Under various licensing agreements, the Company is obligated to pay royalties based on net sales of products sold that use certain licensed technologies. There are no minimum annual royalty payments. Royalty expense, which is included in selling, general and administrative expense, amounted to $0, $30, $398, $219 and $351 for the period June 14, 1996 to December 31, 1996, the years ended December 31, 1997 and 1998, and the six months ended June 30, 1998 (unaudited) and 1999, respectively. The Company is presently involved in a patent interference proceeding with Therma-Wave, Inc. in the United States Patent Office. In this proceeding, the Company is defending its patent rights with respect to some of the multiple angle, multiple wavelength ellipsometry technology it uses in its transparent thin film measurement systems. Therma-Wave requested that the proceeding be initiated in 1993 by filing a reissue application for one of its own patents, in which it sought to broaden the original issued claims. The proceeding was initiated by the Patent Office in June 1998. Preliminary motions and statements have been filed, and the Company is presently awaiting a decision by the Patent Office on those motions. If the Company loses the interference, a reissue patent will be granted to Therma-Wave permitting Therma-Wave to assert patent rights against the ellipsometers the Company uses in its transparent thin film measurement systems. In that event, the Company could assert a defense of intervening rights against Therma-Wave's reissued patent since the Company relied on the restricted claims of Therma- Wave's original patent. If the intervening rights defense and other defenses fail, the Company would either have to pay royalties to Therma-Wave or redesign its SpectraLASER and other transparent thin film measurement systems. Mangement is unable to estimate the ultimate resolution of this matter. However, should the Company be required to pay royalties or redesign its products, it could have a material adverse effect on the Company's business, financial condition and results of operations. In addition, from time to time the Company is subject to legal proceedings and claims in the ordinary course of business. Other than the Therma-Wave, Inc. patent interference proceeding discussed above, we are not involved in any material legal proceedings. F-12 RUDOLPH TECHNOLOGIES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Unaudited with respect to the six months ended June 30, 1998) (In thousands, except share and per share amounts) 7. Long-Term Debt: The Company has long-term debt agreements with a related party. Long-Term Debt is comprised of the following:
December 31, June 30, ----------------- -------- 1997 1998 1999 ------- -------- -------- Senior term loan, due 1997 to 2002, interest rate of prime plus 1.75%............................. $15,000 $ 13,000 $ 11,750 Subordinated term loan, due in 2003, interest rate of prime plus 4%................................ 11,000 11,000 11,000 Junior Subordinated Note, due in 2001, with interest at 14% and an effective interest rate of 16.57%, net of unamortized discount of $110.. -- 3,870 6,290 Senior revolving term loan, balance due 2002, interest rate of prime plus 1.5%................ 6,600 9,600 9,300 ------- -------- -------- 32,600 37,470 38,340 Less current maturities........................... (8,600) (12,100) (12,050) ------- -------- -------- Total Long-Term Debt............................ $24,000 $ 25,370 $ 26,290 ------- -------- --------
As of December 31, 1998 and June 30, 1999, the Company had additional aggregate borrowings available under the junior subordinated note and senior revolving loan of $5,400 and $3,300, respectively. The senior term loan, senior revolving term loan and the subordinated term loan agreements contain covenants which were modified in 1997, and among other matters (i) limit the Company's ability to pay dividends on the Company's capital stock, incur indebtedness, merge, consolidate and acquire or sell assets, and (ii) require the Company to satisfy certain financial ratios related to earnings, fixed charges and interest coverage. Because of the operating losses reported by the Company, the Company would not have been in compliance with the financial ratios above had the lender not granted waivers of such technical defaults extending through June 30, 1999. It is anticipated that the Company will not be in compliance with these financial ratios over the next twelve months (See Note 13). In October 1996, the Company requested a deferral of the subordinated term loan interest payments through March 31, 1997. In March 1997, all deferred interest on the loan was paid. In February 1998, the Company requested a deferral of interest payments on the senior and subordinated term loans and to reschedule the principal payments of the Senior term loan to later dates in 1998. In July 1998, the deferred interest payments on the loans were paid. The principal payments were paid through December 1998. In consideration for accepting the Company's requests, the lender increased the interest rate an additional 2.0% on the loans and all deferred interest during the deferral periods. The junior subordinated notes issued to finance working capital needs of the Company are subordinate in priority to the senior term loans and will mature on July 31, 2001. The holder of the junior subordinated notes was also issued warrants to purchase 592,012 shares of Class A common stock at a purchase price of $(0.73) per share. These warrants expire on November 1, 2008. The fair value of the warrants are being amortized over the life of the debt. The long-term debt is collateralized by essentially all the assets of the Company. The revolving term loan is classified as current. In addition, the provisions of the long-term debt contain certain clauses that allow for the prepayment of principal without penalty. F-13 RUDOLPH TECHNOLOGIES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Unaudited with respect to the six months ended June 30, 1998) (In thousands, except share and per share amounts) The scheduled repayment of the Senior term loan is as follows:
Senior Term Loan --------- 1999............................................................... $ 2,500 2000............................................................... 3,000 2001............................................................... 3,500 2002............................................................... 4,000 ------- $13,000 =======
8. Stock Options: In 1996, the Company adopted the 1996 Stock Option Plan ("the Option Plan"). Under the Option Plan, the Company was authorized to grant options to purchase up to 1,069,902 shares of Class B common stock to employees at prices not less than the fair value of the Class B common stock on the date of grant. These options generally expire ten years from the date of grant and become exercisable after nine years or sooner upon the achievement of certain financial targets over a period of six years. In the event of an initial public offering, the options will become fully vested. Options granted to date have exercise prices equal to the fair value of the common stock on the date of grant. As of December 31, 1998 and June 30, 1999, there were 109,380 shares of common stock reserved for future grants under the Option Plan. In July 1999, the Company granted options under the Option Plan to purchase 104,401 shares, net of options to purchase 3,481 shares that were cancelled and reissued, of Class B common stock at an exercise price of $0.73 per share. The exercise price was equal to the fair value based on an independent appraisal of the Company's stock in June 1999. Statement of Financial Accounting Standards No. 123, "Accounting for Stock- Based Compensation," (SFAS 123) requires the disclosure of pro forma net loss had the Company adopted the fair value method. Under SFAS 123, the fair value of stock-based awards to employees is calculated through the use of option pricing models. For the period ended June 14, 1996 to December 31, 1996, the years ended December 31, 1997 and 1998, and for the six months ended June 30, 1999, the fair value of each option grant was estimated on the date of the grant using the Black-Scholes option-pricing model using a dividend yield of 0%, volatility of 66%, expected life of an option of 9 years and a risk-free interest rate of 4.85% for all periods. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the option's vesting period. Had compensation costs been determined based upon the fair value at the grant date for awards under the Option Plan, consistent with the methodology prescribed under SFAS No. 123, the Company's pro forma net loss attributable to common stockholders under SFAS No. 123 would have been $15,207, $1,510, $14,786 and $465 for the period June 14, 1996 to December 31, 1996, the years ended December 31, 1997 and 1998, and the six months ended June 30, 1999, respectively. The pro forma basic and diluted net loss per share would have been $5.81, $0.58, $3.28, $0.07 for the period June 14, 1996 to December 31, 1996, the years ended December 31, 1997 and 1998, and the six months ended June 30, 1999, respectively. F-14 RUDOLPH TECHNOLOGIES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Unaudited with respect to the six months ended June 30, 1998) (In thousands, except share and per share amounts) The following tables summarize the stock option activity for the period June 14, 1996 to December 31, 1996 and the years ended December 31, 1997 and 1998, the six months ended June 30, 1999 and the stock option information as of December 31, 1998 and June 30, 1999:
Options Outstanding --------------------------------------- Weighted Average Number of Exercise Price Number Shares per Share Exercisable --------- ---------------- ----------- Balance at June 14, 1996................ 328,638 $0.57 -- Granted................................. 17,832 0.57 -- Canceled................................ -- -- -- -------- ----- -------- Balance at December 31, 1996............ 346,470 $0.57 36,448 Granted................................. 35,663 0.73 -- Canceled................................ -- -- -- -------- ----- -------- Balance at December 31, 1997............ 382,133 0.59 283,524 Granted................................. 617,726 0.73 -- Canceled................................ (39,338) 0.73 -- -------- ----- -------- Balance at December 31, 1998............ 960,521 $0.67 475,607 Granted................................. -- -- -- Exercised............................... (370,971) 0.67 (370,971) Canceled................................ -- -- -- -------- ----- -------- Balance at June 30, 1999................ 589,550 $0.68 104,636 ======== ===== ========
Stock option information as of December 31, 1998:
Options Vested and Options Outstanding Exercisable --------------------------------------------- ------------------------------- Weighted Avg. Weighted Avg. Exercise Exercise Options Remaining Price per Number Price Outstanding Contract Life Share Exercisable -------- ----------- ------------- ------------- ----------- $0.57 346,470 7.5 $0.57 173,253 0.73 614,051 9.5 0.73 302,354 ----------- ------- --- ----- ------- $0.57-$0.73 960,521 8.8 $0.67 475,607 =========== ======= === ===== =======
Stock option information as of June 30, 1999:
Options Vested and Options Outstanding Exercisable --------------------------------------------- ------------------------------- Weighted Avg. Weighted Avg. Exercise Exercise Options Remaining Price per Number Price Outstanding Contract Life Share Exercisable ----------- ----------- ------------- ------------- ----------- $0.57 202,675 6.9 $0.57 29,422 0.73 386,875 9.0 0.73 75,214 ----------- ------- --- ----- ------- $0.57-$0.73 589,550 8.2 $0.68 104,636 =========== ======= === ===== =======
F-15 RUDOLPH TECHNOLOGIES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Unaudited with respect to the six months ended June 30, 1998) (In thousands, except share and per share amounts) 9. Redeemable Preferred Stock: On June 14, 1996, the Company issued and sold 45,875.29 shares of Series A voting preferred stock (referred to as Series A preferred stock), $0.01 par value at $100 per share and 8,124.71 shares of Series B non-voting preferred stock, (referred to as Series B preferred stock), $0.01 par value at $100 per share. Series A preferred stockholders vote on a share-for-share basis with Series A voting common shareholders. Holders of preferred stock are entitled to receive cumulative dividends at an annual rate of 8% on the liquidation value of each such share. The preferred stock contains a redemption feature which allows the holders of the preferred stock to require redemption of all of the preferred stock if certain ownership percentages are not met. The preferred stock can be redeemed at the Company's option at any time at a price per share of $100 plus accrued and unpaid dividends. 10. Equity Securities: On June 14, 1996, the Company issued and sold 1,571,294 shares of Class A voting common stock, $0.01 par value at $0.57 per share and 1,046,079 shares of Class B non-voting common stock, $0.01 par value at $0.57 per share. The Company also issued to the holder of the Class A voting common stock a warrant to purchase 534,951 shares of Class A common stock of the Company at a purchase price of $0.0003 per share. The warrants expire on June 14, 2006. During 1998 the Company issued additional Class A voting common stock and Class B non-voting common stock in connection with certain capital contributions. The Company also issued to the holder of the Class A voting common stock warrants to purchase 945,740 shares of Class A common stock of the Company at a purchase price of $0.0003 per share based upon the holder's antidilution rights. The warrants expire on June 14, 2006. 11. Employee Benefit Plans: The Company has a 401(k) savings plan to provide retirement and incidental benefits for its employees. As allowed under Section 401(k) of the Internal Revenue Code, the Plan provides tax-deferred salary deductions for eligible employees. Employees may contribute from 1% to 15% of their annual compensation to the Plan, 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. Company matching contributions to the Plan totaled $71, $133, $158 and $82 for the period June 14, 1996 to December 31, 1996, the years ended December 31, 1997 and 1998, and the six months ended June 30, 1999, respectively. In addition, the Company has a profit sharing program, wherein a percentage of pre-tax profits, at the discretion of the Board of Directors, is provided to all employees who have completed a stipulated employment period. The Company did not make contributions to this program for the period June 14, 1996 to December 31, 1996, the years ended December 31, 1997 and 1998, and the six months ended June 30, 1999. F-16 RUDOLPH TECHNOLOGIES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Unaudited with respect to the six months ended June 30, 1998) (In thousands, except share and per share amounts) 12. Income Taxes: The components of income tax expense (benefit) are as follows:
Six months June 14 to Year ended ended December 31, December 31, June 30, ------------ ---------------- ---------- 1996 1997 1998 1999 ------------ ------- ------- ---------- Current: Federal............................ $ 352 $ 557 $ (842) $ -- State.............................. -- 141 (161) 93 ----- ------- ------- -------- 352 698 (1,003) 93 Deferred: Federal ........................... (352) (1,245) 1,549 -- State ............................. -- (67) 67 -- ----- ------- ------- -------- (352) (1,312) 1,616 -- ----- ------- ------- -------- Total Income Tax Expense (Benefit)..................... $ -- $ (614) $ 613 $ 93 ===== ======= ======= ========
Deferred tax assets are comprised of the following:
December 31, June 30, ---------------- -------- 1997 1998 1999 ------ -------- -------- Amortization of intangibles......................... $5,755 $ 7,185 $ 6,106 Deferred Interest................................... 695 2,042 2,833 Inventory obsolescence reserve...................... 122 199 153 Fixed assets........................................ 70 25 51 Warranty............................................ 103 126 191 Accounts receivable................................. 120 109 109 Other............................................... 262 138 144 Net operating loss carryforwards.................... -- 1,426 753 Less valuation allowance............................ (5,864) (11,250) (10,340) ------ -------- -------- Net deferred tax asset.............................. $1,263 $ -- $ -- ====== ======== ========
At June 30, 1999, the net deferred tax asset has been reduced to zero with a valuation allowance as a result of recurring losses and with the uncertainty regarding the Company's ability to generate sufficient taxable income. Management believes that it is more likely than not that the deferred tax asset will not be realized. The Company has available at June 30, 1999 approximately $2,026 of unused net operating loss carryforwards and carrybacks that may be applied against future taxable income and that expire in the year 2018. In the event of certain ownership changes, the Company's ability to utilize the tax benefit from net operating loss carryforwards may be limited. F-17 RUDOLPH TECHNOLOGIES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Unaudited with respect to the six months ended June 30, 1998) (In thousands, except share and per share amounts) The provision (benefit) for income taxes differs from the amount of income tax determined by applying the applicable U.S. income tax rate to income taxes as follows:
Six months June 14 to Year ended ended December 31, December 31, June 30, ------------ ---------------- ---------- 1996 1997 1998 1999 ------------ ------- ------- ---------- Federal income tax provision (benefit) at statutory rate $(5,084) $ (549) $(4,578) $(30) State taxes......................... -- 141 (161) 93 Change in valuation allowance....... 6,359 (1,295) 5,386 18 Other............................... (1,275) 1,089 (34) 12 ------- ------- ------- ---- Provision (benefit) for income taxes............................. $ -- $ (614) $ 613 $ 93 ======= ======= ======= ==== Effective tax rate.................. 0% 38% 5% 107% ======= ======= ======= ====
Earnings subject to foreign taxation and foreign taxes paid were not material. 13. Related Party Transactions: The Company has received a written commitment from a significant stockholder who has agreed, if necessary, to provide the Company with the funding to enable it to liquidate liabilities in the ordinary course of business and to fulfill obligations as they come due through December 31, 2000. Management believes that the stockholder has the ability to fulfill this commitment. The Company receives management, consulting and financial services from related parties for an annual fee. Such services include, but are not limited to, advice and assistance concerning any and all aspects of the operation, planning and financing of the Company. Management fee expense amounted to $120, $200, $200 and $100 for the period June 14, 1996 to December 31,1996, the years ended December 31, 1997 and 1998 and the six months ended June 30, 1999, respectively. In addition, the Company has long-term loan agreements with a related party that is a major stockholder of Rudolph Technologies, Inc. (see Note 7). 14. Comprehensive Income: In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income" (SFAS 130). The statement established standards for the reporting and display of comprehensive income and its components. The disclosures required by SFAS 130 have been included with the statements of stockholders equity (deficit) or below. The difference between net loss and comprehensive loss for the Company is due to currency translation adjustments. The effects of income taxes on comprehensive income was not material. For the (unaudited) six months ended June 30, 1998 comprehensive loss amounted to approximately $4,172. F-18 RUDOLPH TECHNOLOGIES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Unaudited with respect to the six months ended June 30, 1998) (In thousands, except share and per share amounts) 15. Geographic Reporting and Customer Concentration:
Six months June 14 to Year ended ended December 31, December 31, June 30, ------------ ---------------- ------- 1996 1997 1998 1999 ------------ ------- ------- ------- Revenues from third parties: United States........................ $ 3,538 $12,031 $ 8,388 $ 6,389 Asia................................. 8,596 20,468 8,380 3,725 Europe............................... 2,180 2,833 3,289 3,269 Other................................ 59 7 49 1,787 ------- ------- ------- ------- Total................................ $14,373 $35,339 $20,106 $15,170 ======= ======= ======= ======= Customers comprising 10% or more of the Company's total revenue for the period indicated: Intel................................ 0.8% 3.4% 19.8% 37.3% Tokyo Electron Limited............... 23.9% 29.9% 17.6% 7.0% Metron Technology.................... 13.5% 5.3% 15.3% 14.0% AMD.................................. 0.0% 0.0% 11.1% 7.6%
16. Earnings Per Share: The Company has adopted Statement of Financial Accounting Standards No. 128, Earnings per Share ("FAS 128"), which requires the presentation of basic earnings per share ("Basic EPS") and diluted earnings per share ("Diluted EPS"). Basic EPS is computed by dividing income available to common stockholders by the weighted average number of Class A and Class B common shares outstanding during the period. Diluted EPS gives effect to all potential dilutive common shares outstanding during the period. The computation of Diluted EPS does not assume conversion, exercise or contingent exercise of securities that would have an anti-dilutive effect on earnings. F-19 RUDOLPH TECHNOLOGIES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Unaudited with respect to the six months ended June 30, 1998) (In thousands, except share and per share amounts) The computations of Basic EPS and Diluted EPS for the period June 14, 1996 to December 31,1996, the years ended December 31, 1997 and 1998, and the six months ended June 30, 1998 (unaudited) and 1999 are as follows:
Per- Income Shares Share (Numerator) (Denominator) Amount ----------- ------------ ------ For the period June 14, 1996 to December 31, 1996 Net loss.................................... $(14,953) Preferred Stock Dividends................... (239) Basic EPS: Income available to common stockholders... (15,192) 2,617,373 $(5.80) Effect of dilutive stock options.......... -- -- -- -------- --------- ------ Diluted EPS: Income available to common stockholders plus assumed conversions................ $(15,192) 2,617,373 $(5.80) ======== ========= ====== For the year ended December 31, 1997 Net loss.................................... $ (1,001) Preferred Stock Dividends................... (468) Basic EPS: Income available to common stockholders... (1,469) 2,617,373 $(0.56) Effect of dilutive stock options.......... -- -- -- -------- --------- ------ Diluted EPS: Income available to common stockholders plus assumed conversions................ $ (1,469) 2,617,373 $(0.56) ======== ========= ====== For the year ended December 31, 1998 Net loss.................................... $(14,078) Preferred Stock Dividends................... (507) Basic EPS: Income available to common stockholders... (14,585) 4,503,396 $(3.24) Effect of dilutive stock options.......... -- -- -- -------- --------- ------ Diluted EPS: Income available to common stockholders plus assumed conversions................ $(14,585) 4,503,396 $(3.24) ======== ========= ====== For the six months ended June 30, 1998 (unaudited) Net loss.................................... $ (4,101) Preferred Stock Dividends................... (247) Basic EPS: Income available to common stockholders... (4,348) 2,617,373 $(1.66) Effect of dilutive stock options.......... -- -- -- -------- --------- ------ Diluted EPS: Income available to common stockholders plus assumed conversions................ $ (4,348) 2,617,373 $(1.66) ======== ========= ====== For the six months ended June 30, 1999 Net loss.................................... $ (180) Preferred Stock Dividends................... (269) Basic EPS: Income available to common stockholders... (449) 6,767,415 $(0.07) Effect of dilutive stock options.......... -- -- -- -------- --------- ------ Diluted EPS: Income available to common stockholders plus assumed conversions................ $ (449) 6,767,415 $(0.07) ======== ========= ======
For the period ending June 14, 1996 to December 31, 1996, the years ended December 31, 1997 and 1998 and the six months ended June 30, 1998 (unaudited) and 1999, the Company had outstanding options and warrants to purchase an aggregate 881,421, 917,084, 3,033,208, 917,084 and 2,998,186 shares of Class A and Class B common stock, respectively, which are not included in the calculation of earnings per share for such periods, due to the anti-dilutive nature of these instruments. F-20 RUDOLPH TECHNOLOGIES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Unaudited with respect to the six months ended June 30, 1998) (In thousands, except share and per share amounts) 17. Subsequent Events: On August 30, 1999, the Company's board of directors approved the amendments of the certificate of incorporation to increase the authorized shares of common stock and preferred stock to 50 million shares and 5 million shares, respectively, and to effect a 35.66-for-1 stock split applicable to all issued and outstanding shares of its common stock. The effectiveness of the amendments is contingent upon the closing of the Company's proposed initial public offering of its common stock. The Company may issue preferred stock with rights and provisions determined by the board. All share, stock option and stock warrant information included in these financial statements and related footnotes have been restated for all periods to reflect this stock split for all periods presented. The Company established an Employee Stock Purchase Plan (the "ESPP") effective August 31, 1999. Under the terms of the ESPP, eligible employees may have up to 15% of eligible compensation deducted from their pay and applied to the purchase of shares of Common Stock. The price the employee must pay for each share of stock will be 85% of the lower of the fair market value of the Common Stock at the beginning or at the end of the purchase term of six months. The number of shares available for issuance under the ESPP totals 300,000. The Company established the 1999 Stock Plan ("the 99 Plan") effective August 31, 1999. The 99 Plan provides for the grant of 2,000,000 stock options and stock purchase rights 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. The options will expire ten years from the date of grant. F-21 Report of Independent Accountants To the Stockholder and Board of Directors of Rudolph Technologies, Inc. In our opinion, the accompanying statement of operations, stockholders' equity and cash flows present fairly, in all material respects, the results of operations and cash flows of Rudolph Research Corporation, the predecessor entity of Rudolph Technologies, Inc., ("Rudolph") for the period January 1, 1996 to June 13, 1996, in conformity with generally accepted accounting principles. These financial statements are the responsibility of management of Rudolph; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with generally accepted auditing standards, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP Florham Park, New Jersey September 7, 1999 F-22 RUDOLPH RESEARCH CORPORATION STATEMENT OF OPERATIONS (in thousands)
January 1, 1996 to June 13, 1996 ---------- Revenues............................................................. $17,501 Cost of revenues..................................................... 7,497 ------- Gross profit........................................................ 10,004 ------- Operating expenses: Research and development........................................... 1,817 Selling, general & administrative.................................. 4,144 Amortization of intangibles........................................ 19 ------- Total operating expenses............................................. 5,980 ------- Operating income..................................................... 4,024 Interest expense on long term debt................................... 55 Other income......................................................... (26) ------- Income before income taxes.......................................... 3,995 Provision for income taxes........................................... 143 ------- Net income.......................................................... $ 3,852 =======
The accompanying notes are an integral part of the financial statements. F-23 RUDOLPH RESEARCH CORPORATION STATEMENT OF STOCKHOLDERS' EQUITY For the period from January 1, 1996 to June 13, 1996 (in thousands, except share amounts)
Treasury Common Stock Stock ------------- ------------- Retained Shares Amount Shares Amount Earnings Total ------ ------ ------ ------ -------- ------- Balance at January 1, 1996...... 2,205 $20 78 $(83) $10,409 $10,346 Net income...................... 3,852 3,852 Stockholder distributions....... (4,263) (4,263) ----- --- --- ---- ------- ------- Balance at June 13, 1996........ 2,205 $20 78 $(83) $ 9,998 $ 9,935 ===== === === ==== ======= =======
The accompanying notes are an integral part of the financial statements F-24 RUDOLPH RESEARCH CORPORATION STATEMENT OF CASH FLOWS (in thousands)
January 1 to June 13, 1996 --------- Cash Flow from Operating Activities Net Income............................................................ $3,852 Adjustment to Reconcile Net Income to Net Cash Provided by (Used in) Operating Activities: Amortization........................................................ 19 Depreciation........................................................ 187 Accounts Receivable................................................. (2,250) Inventories......................................................... (672) Prepaid Expenses and Other.......................................... (16) Accounts Payable.................................................... (198) Accrued Liabilities................................................. 677 Other Changes in Operating Assets and Liabilities................... (7) ------ Net Cash Provided by Operating Activities............................. 1,592 ------ Cash Flows from Investing Activities: Purchase of Property, Plant and Equipment........................... (171) ------ Net Cash Used in Investing Activities................................. (171) ------ Cash Flows from Financing Activities: Principal Payments on Long-Term Debt................................ (23) Net Borrowing Under Lines of Credit................................. 1,000 Stockholder Distributions........................................... (4,263) ------ Net Cash Provided by Financing Activities............................. (3,286) ------ Net Decrease in Cash and Cash Equivalents............................. (1,865) Cash and Cash Equivalents at Beginning of Period...................... 1,865 ------ Cash and Cash Equivalents at End of Period............................ -- ------ Supplemental Disclosures of Cash Flow Information Interest Paid....................................................... $ 55 ------
The accompanying notes are an integral part of the financial statements. F-25 RUDOLPH RESEARCH CORPORATION NOTES TO THE FINANCIAL STATEMENTS (in thousands, except share amounts) 1. Nature of Operations: Rudolph Research Corporation (the "Predecessor Company"), manufactured, sold, and serviced optical research and control instruments both domestically and overseas. In June of 1996, the predecessor company was sold to a group of investors led by Liberty Partners and Riverside Partners. The Rudolph Research name was changed to Rudolph Technologies, Inc. 2. Summary Significant Accounting Policies: A. Revenue Recognition: Revenues from product and parts sales are recognized at the time of shipment. Revenue from service contracts is recognized ratably over the period of the contract. A provision for the estimated cost of fulfilling warranty and installation obligations is recorded at the time the related revenue is recognized. B. Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates made by management include allowance for doubtful accounts, inventory obsolescence, depreciation, amortization, taxes, contingencies, and product warranty. Actual results could differ from those estimates. C. Concentration of Credit Risk: Financial instruments, which potentially subject the Predecessor Company to concentrations of credit risk, consist primarily of accounts receivable and cash. The Predecessor Company performs ongoing credit evaluations of its customers and generally does not require collateral for sales on credit. The Predecessor Company maintains reserves for potential credit losses. Substantially all of its cash is held with one major financial institution. D. Income Taxes: The Predecessor Company is an S Corporation under the Internal Revenue Code. In lieu of corporate income taxes, the shareholders of an S Corporation are taxed on their proportionate share of the Predecessor Company's taxable income. Therefore, no provision or liability for federal income taxes has been included in the financial results. State taxes are provided for in the financial statements. The tax affects of temporary differences are immaterial. If the Predecessor Company had been a C Corporation the provision for income tax would have been $1,678 (unaudited). E. Risks Inherent in the Business: The Company sells its products to the semiconductor device industry and believes that changes in any of the following areas could have a material adverse effect on the Company's 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 and services offered by the Company; changes in customer relationships; litigation or claims against the Company based on intellectual property, patent, product, regulatory or other factors; risks associated with changes in domestic and international economic and/or political conditions or regulations; dependancy on supplier availability of necessary product components; risks associated with year 2000 compliance; and the Company's ability to attract and retain employees necessary to support its growth. F-26 RUDOLPH RESEARCH CORPORATION NOTES TO THE FINANCIAL STATEMENTS (in thousands, except share amounts) 3. Commitments and Contingencies The Predecessor Company rents space for its manufacturing and service operations and sales offices. Total rent expense for these facilities amounted to $118 for the period January 1, 1996 to June 13, 1996. The Predecessor Company also leases certain equipment pursuant to operating leases. Rent expense related to these leases amounted to $24 for the period January 1, 1996 to June 13, 1996. The Predecessor Company's obligations under its leases and licensing agreement were acquired by Rudolph Technologies, Inc. upon its acquisition of Rudolph Research, Inc. in June 1996. 4. Employee Benefit Plans: Rudolph Research Corporation has a 401(k) savings plan to provide retirement and incidental benefits for its employees. As allowed under Section 401(k) of the Internal Revenue Code, the Plan provides tax-deferred salary deductions for eligible employees. Employees may contribute from 1% to 15% of their annual compensation to the Plan, limited to a maximum annual amount as set periodically by the Internal Revenue Service. The Plan provides a 50 percent match of all employee contributions up to 6 percent of the employee's salary. The Predecessor Company's matching contributions to the Plan totaled $72, for the period January 1, 1996 to June 13, 1996. In addition, the Predecessor Company has a profit sharing program, wherein a percentage of pretax profits, at the discretion of the Board of Directors, is provided to all employees who have completed a stipulated employment period. The Predecessor Company did not make contributions to this program for the period January 1, 1996 to June 13, 1996. F-27 [THIS PAGE INTENTIONALLY LEFT BLANK] PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 13. Other Expenses of Issuance and Distribution The following table sets forth the costs and expenses, other than underwriting discounts and commissions, payable by the registrant in connection with the sale of common stock being registered. All amounts are estimates except the SEC registration fee, the NASD filing fee and the Nasdaq National Market listing fee.
Amount to be Paid --------- SEC registration fee.................................................. $ 21,484 NASD filing fee ...................................................... 8,228 Nasdaq National Market listing fee.................................... 87,000 Printing and engraving expenses....................................... * Legal fees and expenses............................................... * Accounting fees and expenses.......................................... * Blue Sky qualification fees and expenses.............................. 11,800 Transfer agent and registrar fees..................................... * Miscellaneous fees.................................................... * -------- Total................................................................. $800,000 ========
*To be supplied by amendment. Item 14. Indemnification of Directors and Officers Article Nine of the registrant's Certificate of Incorporation (Exhibit 3.1 hereto) and Article V of the registrant's Bylaws (Exhibit 3.3 hereto) provide for mandatory indemnification of its directors and officers, and permissible indemnification of employees and other agents, to the maximum extent permitted by the Delaware General Corporation Law. In addition, the registrant has entered into Indemnification Agreements (Exhibit 10.4 hereto) with its officers and directors. Reference is also made to Section of the Underwriting Agreement contained in Exhibit 1.1 hereto, which provides for the indemnification of officers and directors of the registrant against certain liabilities. Item 15. Recent Sales of Unregistered Securities During the three year period ended June 30, 1999, the registrant issued and sold the following securities:
Date of Number of Purchase Purchaser Purchase Shares Class of Shares Price - --------- -------- --------- ------------------------ ---------- Liberty Partners Holdings 11, L.L.C. 7/20/98 3,230,961 Class A Common Stock $2,355,508 Riverside Rudolph, L.L.C. 7/20/98 733,346 Class B Common Stock $ 534,626 Dale Moorman 7/20/98 71,790 Class B Common Stock $ 52,340 Paul McLaughlin 7/20/98 50,357 Class B Common Stock $ 37,169 1/17/97 53 Series A Preferred Stock $ 5,333 1/17/97 2,318 Class B Common Stock $ 1,333 Robert Loiterman 7/20/98 16,833 Class B Common Stock $ 12,621 1/17/97 53 Series A Preferred Stock $ 5,333 1/17/97 2,318 Class B Common Stock $ 1,333 Steven Roth 7/20/98 2,461 Class B Common Stock $ 2,142 1/17/97 53 Series A Preferred Stock $ 5,333 1/17/97 2,318 Class B Common Stock $ 1,333
On November 1, 1998, we granted a warrant to Liberty Partners Holdings 11, L.L.C. to purchase 592,012 shares of our common stock at an exercise price of $0.73 per share. In a series of transactions occurring or around November 1, 1998, we issued to the State Board of Administration of Florida a $7 million junior subordinated note which bears interest at a rate of 14% and matures on July 31, 2001. As of June 30, 1999 we had been advanced a total of $6.4 million under the junior subordinated note. II-1 Since our incorporation, we have issued, and there remain outstanding, options to purchase an aggregate of 693,951 shares of Class B common stock with exercise prices ranging from $0.56 to $0.73 per share. Since our incorporation, options to purchase 10,404.36 shares of Class B common stock have been exercised. The issuances of the securities described above were deemed to be exempt from registration under the Securities Act in reliance on Section 4(2) of such Act as transactions by an issuer not involving any public offering and, in the case of the issuance of shares pursuant to options, in reliance on Section 4(2) of the Act or Rule 701 promulgated thereunder as transactions pursuant to contemporary benefit plans and contracts relating to compensation. All of the securities were acquired by the recipient for investment and not with a view toward the resale or distribution thereof. The recipient was a director and officer of ours and/or a sophisticated investor, the offer and sales were made without any public solicitation and the stock certificates bear restrictive legends. No underwriter was involved in the transactions and no commissions were paid. The recipient had adequate access, through his relationships with the registrant, to information about the registrant. Item 16 . Exhibits and Financial Statement Schedules (a) Exhibits
Exhibit No. Description ------- ----------- 1* Form of Underwriting Agreement. 3.1(a) Certificate of Incorporation of Registrant. 3.1(b) Form of Restated Certificate of Incorporation of Registrant to be effective prior to this offering 3.1(c) Form of Restated Certificate of Incorporation of Registrant to be effective following this offering 3.2(a) Bylaws of Registrant 3.2(b) Form of Restated Bylaws of Registrant to be effective following this Offering 4.1* Form of Registrant's Common Stock certificate 5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation 10.1+ License Agreement, dated June 28, 1995, between the Registrant and Brown University Research Foundation 10.2 Distributor Agreement, dated May 15, 1987, between the Registrant and Tokyo Electron Limited 10.3* Form of Indemnification Agreement 10.4** Form of 1999 Stock Plan 10.5** Form of 1999 Employee Stock Purchase Plan 10.6 Management Agreement, dated June 14, 1996, between the Registrant and Paul F. McLaughlin 10.7 Management Agreement, dated June 14, 1996, between the Registrant and Robert Loiterman 10.8 Management Agreement, dated May 5, 1997 between the Registrant and Steven R. Roth 10.9 Registration Agreement, dated June 14, 1996 by and among the Registrant, Liberty Partners Holdings II, L.L.C., Riverside Rudolph, L.L.C., Dri Richard F. Spanier, Paul F. McLaughlin, and Dale Moeman 21.1** List of subsidiaries 23.1* Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation (included in Exhibit 5.1) 23.2 Consent of PricewaterhouseCoopers LLP, Independent Accountants 23.3** Consent of Antonelli, Terry, Stout & Kraus, LLP 24.1** Power of Attorney 27.1** Financial Data Schedule 27.2** Financial Data Schedule 27.3** Financial Data Schedule 27.4** Financial Data Schedule
- -------- * To be filed by amendment. **Previously filed. + Confidential Treatment Requested. (b) Financial Statement Schedule S-1 Report of Independent Accountants....................................... S-1 S-2 Schedule II. Valuation and qualifying accounts.......................... S-2
II-2 Item 17. Undertakings The undersigned Registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered hereunder, the Registrant will, unless in the opinion of its counsel the matter has had been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned Registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-3 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has had duly caused this Pre-Effective Amendment No. 1 to Registration Statement on Form S-1 to be signed on its behalf by the undersigned, thereunto duly authorized, in Flanders, New Jersey on this 4th day of October, 1999. Rudolph Technologies, Inc. Paul F. McLaughlin* By: ______________________________________ Paul F. McLaughlin Chief Executive Officer and President Pursuant to the requirements of the Securities Act of 1933, this Pre- Effective Amendment No. 1 to Registration Statement has had been signed by the following persons in the capacities and on the dates indicated: Signature Title Date Paul F. McLaughlin* Chief Executive Officer, October 4, 1999 __________________________ President and Director Paul F. McLaughlin (Principal Executive Officer) /s/ Steven R. Roth Vice President & Chief October 4, 1999 __________________________ Financial Officer Steven R. Roth (Principal Financial and Accounting Officer) David Belluck* Director October 4, 1999 ____________________________ David Belluck Daniel H. Berry* Director October 4, 1999 ____________________________ Daniel H. Berry Paul Craig* Director October 4, 1999 ____________________________ Paul Craig Stephen J. Fisher* Director October 4, 1999 ____________________________ Stephen J. Fisher Carl E. Ring, Jr.* Director October 4, 1999 ____________________________ Carl E. Ring, Jr. Richard F. Spanier* Director October 4, 1999 ____________________________ Richard F. Spanier Aubrey C. Tobey* Director October 4, 1999 ____________________________ Aubrey C. Tobey *By: /s/ Steven R. Roth _________________________ Steven R. Roth Attorney-in-fact
II-4 The stock split discussed in Note 17 to the financial statements has not been consummated at October 1, 1999. When it has been consummated, we expect to be in a position to render the following report: PricewaterhouseCoopers LLP Florham Park, New Jersey October 1, 1999 Report of Independent Accountants In connection with our audits of the consolidated financial statements of Rudolph Technologies, Inc. at December 31, 1998 and 1997 and for each of the two years in the period ended December 31, 1998 and the period from June 14, 1996 to December 31, 1996, which financial statements are included in the Prospectus, we have also audited the financial statement schedule listed in Item 16 herein. In our opinion, this financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. Florham Park, New Jersey RUDOLPH TECHNOLOGIES, INC. Schedule II--Valuation and Qualifying Accounts Dollars in Thousands
Column A Column B Column C Column D Column E -------- ------------ ------------------------- ---------- ---------- Balance at Charged to Charged to Balance at Beginning of Costs & Other Accounts End of Description Period Expenses (net) Deductions Period - ----------- ------------ ---------- -------------- ---------- ---------- Year 1998 Allowance for doubtful accounts.............. $ 500 $ 71 -- $ 277(a) $ 294 Deferred tax asset valuation allowance... 5,864 5,386 -- -- 11,250 Inventory valuation..... 540 1,407 -- 1,534 413 Year 1997 Allowance for doubtful accounts.............. $ 147 $ 353 -- -- $ 500 Deferred tax asset valuation allowance... 7,159 -- -- $1,295 5,864 Inventory valuation..... 540 -- -- -- 540 Period from June 14, 1996 through December 31, 1996 Allowance for doubtful accounts.............. $ 147 -- -- -- $ 147 Deferred tax asset valuation allowance... -- $7,159 -- -- 7,159 Inventory valuation..... 253 287 -- -- 540
- -------- (a)Amounts written off as uncollectible S-2 EXHIBIT INDEX
Exhibit No. Description ------- ----------- 1.1* Form of Underwriting Agreement. 3.1(a) Certificate of Incorporation of Registrant. 3.1(b) Form of Restated Certificate of Incorporation of Registrant to be effective prior to this offering 3.1(c) Form of Restated Certificate of Incorporation of Registrant to be effective following this offering. 3.2(a) Bylaws of Registrant 3.2(b) Form of Restated Bylaws of Registrant to be effective following this Offering 4.1* Form of Registrant's Common Stock certificate 5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation 10.1+ License Agreement, dated June 28, 1995, between the Registrant and Brown University Research Foundation 10.2 Distributor Agreement, dated May 15, 1987, between the Registrant and Tokyo Electron Limited 10.3* Form of Indemnification Agreement 10.4** Form of 1999 Stock Plan 10.5** Form of 1999 Employee Stock Purchase Plan 10.6 Management Agreement, dated June 14, 1996, between the Registrant and Paul F. McLaughlin 10.7 Management Agreement, dated June 14, 1996, between the Registrant and Robert Loiterman 10.8 Management Agreement, dated May 5, 1997, between the Registrant and Steven R. Roth 10.9 Registration Agreement, dated June 14, 1996 by and among the Registrant, Liberty Partners Holdings 11, L.L.C., Riverside Rudolph, L.L.C., Dr. Richard F. Spaniek, Paul F. McLaughlin and Dale Moorman. 21.1** List of subsidiaries 23.1* Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation (included in Exhibit 5.1) 23.2 Consent of PricewaterhouseCoopers LLP, Independent Accountants 23.3** Consent of Antonelli, Terry, Stout & Kraus, LLP 24.1** Power of Attorney 27.1** Financial Data Schedule 27.2** Financial Data Schedule 27.3** Financial Data Schedule 27.4** Financial Data Schedule
- -------- * To be filed by amendment. ** Previously filed. + Confidential Treatment Requested. (b) Financial Statement Schedule S-1 Report of Independent Accountants....................................... S-1 S-2 Schedule II. Valuation and qualifying accounts.......................... S-2
EX-3.1(A) 2 CERTIFICATE OF INCORPORATION OF REGISTRANT EXHIBIT 3.1(a) CERTIFICATE OF INCORPORATION ---------------------------- OF -- RUDOLPH HOLDINGS CORPORATION ---------------------------- ARTICLE ONE ----------- The name of the corporation is Rudolph Holdings Corporation. ARTICLE TWO ----------- The address of the corporation's registered office in the State of Delaware is 1013 Centre Road, County of New Castle, Wilmington, Delaware 19805. The name of its registered agent at such address is The Prentice-Hall Corporation System, Inc. ARTICLE THREE ------------- The nature of the business or purposes to be conducted or promoted is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. ARTICLE FOUR ------------ A. AUTHORIZED SHARES ----------------- The total number of shares of capital stock which the Corporation has authority to issue is 156,000 shares, consisting of: 45,875 shares of Series A Preferred Stock, par value $.01 per share ("Series A -------- Preferred"); - --------- 10,125 shares of Series B Preferred Stock, par value $.01 per share ("Series B -------- Preferred" and together with Series A Preferred, "Preferred Stock"); - --------- --------------- 59,059.25 shares of Class A Common Stock, par value $.01 per share ("Class A ------- Common"); and - ------ 40,940.75 shares of Class B Common Stock, par value $.01 per share ("Class B ------- Common" and together with Class A Common, "Common Stock"). - ------ ------------ COMMON STOCK ------------ Section 1. Voting Rights. In elections of directors of the ---------- ------------- Corporation, holders of Class A Common, voting separately as a single class to the exclusion of all other classes of the Corporation's capital stock, shall be entitled to elect two directors to serve on the Corporation's Board of Directors (the "Board of Directors") until his or her successor is duly elected by the holders of Class A Common (such directors, the "Class A Directors"). Each Class A Director shall be -1- entitled to four votes on all matters voted on by the Board of Directors, and each other director shall be entitled to one vote on all matters voted on by the Board of Directors. A quorum of the Board of Directors shall be determined based upon the number of votes of all directors. Except as otherwise required by applicable law and except as provided in the foregoing sentence with respect to elections of the Class A Directors, the holders of Common Stock, voting together as a single class, shall be entitled to one vote per share on all matters to be voted on by the stockholders of the Corporation (including election of directors other than Class A Directors). Section 2. Dividends. Subject to the preferential rights of the ---------- --------- holders of Preferred Stock set forth in Part C of this Article IV and to the extent permitted under the General Corporation Law of Delaware, dividends may be paid on Common Stock as and when declared by the Board of Directors, and the holders of Class A Common and the holders of Class B Common shall be entitled to receive such dividends pro rata at the same rate per share of each class of Common Stock; provided that (i) if dividends are declared or paid in shares of Common Stock, the dividends payable to holders of Class A Common shall be payable in shares of Class A Common and the dividends payable to the holders of Class B Common shall be payable in shares of Class B Common and (ii) if the dividends consist of other voting securities of the Corporation, the Corporation shall make available to each holder of Class A Common, at such holder's request, dividends consisting of securities (except as otherwise provided by law) of the Corporation having the same voting rights as Class A Common and to each holder of Class B Common, at such holder's request, dividends consisting of securities (except as otherwise required by law) of the Corporation which have the same voting rights as Class B Common. Section 3. Liquidation. Subject to the preferential rights of the ---------- ----------- holders of Preferred Stock set forth in Part C of this Article IV, the holders of Common Stock shall be entitled to participate ratably on a per share basis in all distributions to the holders of Common Stock in any liquidation, dissolution or winding up of the Corporation. PREFERRED STOCK --------------- Section 1. Dividends. ---------- --------- (1A) General Obligation. When and as declared by the Board of ------------------ Directors and to the extent permitted under the General Corporation Law of Delaware, the Corporation shall pay dividends as provided in this Section 1. Dividends on each share of Preferred Stock (each, a "Preferred Share") shall accrue on a daily basis at the rate of 8% per annum of the sum of the Liquidation Value thereof plus all accumulated and unpaid dividends thereon, from and including the date of issuance of such Preferred Share to but not including the date on which the Liquidation Value of such Preferred Share is paid under Section 2 of this Part C, the date such Preferred Share is redeemed pursuant to Section 4 of this Part C, or the date such Preferred Share is otherwise acquired by the Corporation. Such dividends shall accrue whether or not they have been declared and whether or not there are profits, surplus or other funds of the Corporation legally available for the payment of dividends. Such dividends shall be cumulative such that all accrued and unpaid dividends shall be fully paid or declared with funds irrevocably set apart for payment before any dividend, distribution or payment may be made with respect to any Junior Securities, subject to the provisions of Section 3 of this Part C. The date on which the Corporation initially issues any -2- Preferred Share shall be deemed to be its "date of issuance" regardless of the number of times transfer of such Preferred Share is made on the stock records maintained by or for the Corporation and regardless of the number of certificates which may be issued to evidence such Preferred Share. (1B) Dividend Reference Dates. Each March 31, June 30, ------------------------ September 30 and December 31 of each year, beginning September 30, 1996, shall be a "Dividend Reference Date." To the extent not paid on a Dividend Reference ----------------------- Date, all dividends which have accrued on each Preferred Share outstanding during the three-month period (or other period in the case of the initial Dividend Reference Date) ending upon each such Dividend Reference Date shall be accumulated and shall remain accumulated dividends with respect to such Preferred Share until paid. (1C) Distribution of Partial Dividend Payments. Except as ----------------------------------------- otherwise provided herein, if at any time the Corporation pays less than the total amount of dividends then accrued with respect to Preferred Stock, such payment shall be distributed ratably among the holders of Preferred Shares based upon the aggregate accrued but unpaid dividends on Preferred Shares held by each such holder. Section 2. Liquidation. Upon any liquidation, dissolution or winding ---------- ----------- up of the Corporation, each holder of Preferred Stock shall be entitled to be paid, before any distribution or payment is made upon any Junior Securities, an amount in cash equal to the aggregate Liquidation Value (plus all accrued and unpaid dividends) of all Preferred Shares held by such holder, and the holders of Preferred Stock shall not be entitled to any further payment or claim or right to any assets of the Corporation. If upon any such liquidation, dissolution or winding up of the Corporation, the Corporation's assets to be distributed among the holders of Preferred Stock are insufficient to permit payment to such holders of the aggregate amount which they are entitled to be paid, then the entire assets to be distributed shall be distributed ratably among such holders based upon the aggregate Liquidation Value (plus all accrued and unpaid dividends) of Preferred Stock held by each such holder. The Corporation shall mail written notice of such liquidation, dissolution or winding up, not less than 60 days prior to the payment date stated therein, to each record holder of Preferred Stock. Neither the consolidation nor merger of the Corporation into or with any other entity or entities (whether or not the Corporation is the surviving entity after the consolidation or merger), nor the sale or transfer by the Corporation of all or any part of its assets, nor the reduction of the capital stock of the Corporation, nor any other form of recapitalization shall be deemed to be a liquidation, dissolution or winding up of the Corporation within the meaning of this Section 2. Section 3. Priority of Preferred Stock. So long as any Preferred ---------- --------------------------- Stock remains outstanding, neither the Corporation nor any Subsidiary shall redeem, purchase or otherwise acquire directly or indirectly any Junior Securities, nor shall the Corporation directly or indirectly pay or declare any dividend or make any distribution upon any Junior Securities, except for dividends payable in shares of Common Stock issued upon the outstanding shares of Common Stock. Section 4. Redemptions. ---------- ----------- (4A) Optional Redemptions. The Corporation may at any time -------------------- redeem all or any portion of Preferred Stock then outstanding. Upon any such redemption, the Corporation -3- shall pay a price per Preferred Share equal to the Liquidation Value thereof plus all accrued and unpaid dividends thereon. (4B) Redemption Payment. For each Preferred Share which is to be ------------------ redeemed, the Corporation shall be obligated on the Redemption Date to pay to the holder thereof (upon surrender by such holder at the Corporation's principal office of the certificate representing such Preferred Share) an amount in immediately available funds equal to the Liquidation Value of such Preferred Share (plus all accrued and unpaid dividends hereon). If the funds of the Corporation legally available for redemption of such Preferred Shares on any Redemption Date are insufficient to redeem the total number of Preferred Shares to be redeemed on such date, those funds which are legally available shall be used to redeem the maximum possible number of such Preferred Shares based upon the aggregate Liquidation Value of such Preferred Shares (plus all accrued and unpaid dividends thereon) held by each such holder. At any time thereafter when additional funds of the corporation are legally available for the redemption of such Preferred Shares, such funds shall immediately be used to redeem the balance of such Preferred Shares which the Corporation has become obligated to redeem on any Redemption Date but which it has not redeemed. (4C) Notice of Redemption. Unless otherwise provided herein, the -------------------- Corporation shall mail written notice of each redemption of Preferred Stock to each record holder of Preferred Shares not more than 60 nor less than ten days prior to the date on which such redemption is to be made. Upon mailing any notice of redemption which relates to a redemption at the Corporation's option, the Corporation shall become obligated to redeem the total number of Preferred Shares specified in such notice at the time of redemption specified therein. In case fewer than the total number of the Preferred Shares represented by any certificate are redeemed, a new certificate representing the number of unredeemed Preferred Shares shall be issued to the holder thereof without cost to such holder within three business days after surrender of the certificate representing the redeemed Preferred Shares. (4D) Determination of the Number of Each Holder's Shares to be --------------------------------------------------------- Redeemed. Except as otherwise provided herein, the number of Preferred Shares to - -------- be redeemed from each holder thereof in redemptions hereunder shall be the number of Preferred Shares determined by multiplying the total number of Preferred Shares to be redeemed times a fraction, the numerator of which shall be the total number of Preferred Shares then held by such holder and the denominator of which shall be the total number of Preferred Shares then outstanding. (4E) Dividends After Redemption. No Preferred Share is entitled -------------------------- to any dividends accruing after the date on which the Liquidation Value of such Preferred Share (plus all accrued and unpaid dividends thereon) is paid to the holder thereof. On such date all rights of the holder of such Preferred Share shall cease, and such Preferred Share shall be deemed to be not outstanding. (4F) Redeemed or Otherwise Acquired Shares. Any Preferred ------------------------------------- Shares which are redeemed or otherwise acquired by the Corporation shall be canceled and shall not thereafter be reissued, sold or transferred. -4- (4G) Other Redemptions or Acquisitions. Neither the Corporation --------------------------------- nor any Subsidiary shall redeem or otherwise acquire any Preferred Stock, except as expressly authorized herein or pursuant to a purchase offer made pro rata to all holders of Preferred Stock on the basis of the number of Preferred Shares owned by each such holder. (4H) Special Redemptions. ------------------- (i) The term "Change in Ownership" shall mean any sale or ------------------- issuance or series of sales or issuances of the Corporation's capital stock by the Corporation or any holders thereof, immediately after which the State Board of Administration of Florida ("SBA") and Liberty Partners Holdings II, L.L.C. --- ("LPH") and its Affiliates in the aggregate no longer hold record ownership of --- (a) at least 40% of the Corporation's then outstanding Common Stock or (b) shares of the Corporation's outstanding capital stock entitled to elect directors to the Board of Directors possessing a majority of the votes of all directors. (ii) If a Change in Ownership has occurred or the Corporation obtains knowledge that a Change in Ownership is to occur, the Corporation shall give prompt written notice of such Change in Ownership describing in reasonable detail the definitive terms and date of consummation thereof to each holder of Preferred Stock, but in any event such notice shall not be given later than five days after the occurrence of such Change in Ownership. The holders of a majority of the Preferred Stock then outstanding may require the Corporation to redeem all of the Preferred Stock owned by holders thereof at a price per Preferred Share equal to the Liquidation Value thereof (plus all accrued and unpaid dividends thereon) by giving written notice to the Corporation of such election prior to the later of (a) 20 days after receipt of the Corporation's notice and (b) 20 days prior to the consummation of the Change in Ownership (the "Expiration Date"). The Corporation shall give prompt written --------------- notice of any such election to all other holders of Preferred Stock within five days after the receipt thereof. Upon receipt of such election, the Corporation shall be obligated to redeem all of the outstanding Preferred Shares on the later of (a) the occurrence of the Change in Ownership or (b) five days after the Corporation's receipt of such election. If, in any case, a proposed Change in Ownership does not occur, all requests for redemption in connection therewith shall be automatically rescinded. (iii) The term "Fundamental Change" shall mean (a) a sale ------------------ or transfer of all or substantially all of the assets of the Corporation and its Subsidiaries on a consolidated basis (measured by either book value in accordance with generally accepted accounting principles consistently applied or fair market value determined in the reasonable good faith judgment of the Corporation's board of directors) in any transaction or series of transactions (other than sales in the ordinary course of business) and (b) any merger or consolidation to which the Corporation is a party. (iv) If a Fundamental Change is proposed to occur, the Corporation shall give written notice of such Fundamental Change describing in reasonable detail the definitive terms and date of consummation thereof to each holder of Preferred Stock not more than 60 days nor less than 20 days prior to the consummation thereof. The holders of a majority of the Preferred Stock then outstanding may require the Corporation to redeem all of the Preferred Stock owned by holders thereof at a price per Preferred Share equal to the Liquidation Value thereof (plus all accrued -5- and unpaid dividends thereon) by giving written notice to the Corporation of such election prior to the later of (a) 20 days prior to the consummation of the Fundamental Change or (b) 20 days after receipt of a notice from the Corporation. The Corporation shall give prompt written notice of such election to all other holders of Preferred Stock (but in any event within five days prior to the consummation of the Fundamental Change). Upon receipt of such election(s), the Corporation shall be obligated to redeem all of the outstanding Preferred Shares upon the consummation of such Fundamental Change. If any proposed Fundamental Change does not occur, all requests for redemption in connection therewith shall be automatically rescinded. Section 5. Voting Rights. ---------- ------------- (a) The holders of Series A Preferred shall be entitled to notice of all meetings of the Corporation's stockholders in accordance with the Corporation's bylaws, and except in the case of election of Class A Directors and except as otherwise provided by law, the holders of Series A Preferred shall be entitled to vote on all matters submitted to the stockholders for a vote together with the holders of Common Stock voting as a single class with each share of Common Stock entitled to one vote per share and each share of Series A Preferred entitled to one vote per such share. (b) Except as otherwise required by law, the Series B Preferred shall have no voting rights; provided that each holder of Series B Preferred shall be entitled to notice of all meetings of the Corporation's stockholders at the same time and in the same manner as notice is given to the stockholders entitled to vote at such meeting. Section 6. Registration of Transfer. The Corporation shall keep ---------- ------------------------ at its principal office a register for the registration of Preferred Stock. Upon the surrender of any certificate representing Preferred Stock at such place, the Corporation shall, at the request of the record holder of such certificate, execute and deliver (at the Corporation's expense) a new certificate or certificates in exchange therefor representing in the aggregate the number of Preferred Shares represented by the surrendered certificate. Each such new certificate shall be registered in such name and shall represent such number of Preferred Shares as is requested by the holder of the surrendered certificate and shall be substantially identical in form to the surrendered certificate, and dividends shall accrue on Preferred Stock represented by such new certificate from the date on which dividends have been fully paid on such Preferred Stock represented by the surrendered certificate. Section 7. Replacement. Upon receipt of evidence reasonably ---------- ----------- satisfactory to the Corporation (an affidavit of the registered holder shall be satisfactory) of the ownership and the loss, theft, destruction or mutilation of any certificate evidencing Preferred Shares, and in the case of any such loss, theft or destruction, upon receipt of indemnity reasonably satisfactory to the Corporation (provided that if the holder is a financial institution or other institutional investor its own agreement shall be satisfactory), or, in the case of any such mutilation upon surrender of such certificate, the Corporation shall (at the Corporation's expense) execute and deliver in lieu of such certificate a new certificate of like kind representing the number of Preferred Shares of such class represented by such lost, stolen, destroyed or mutilated certificate and dated the original date of such lost, stolen, destroyed or mutilated certificate and dated the original date of such lost, stolen, destroyed or mutilated certificate, and dividends shall accrue on Preferred Stock represented by such new -6- certificate from the date on which dividends have been fully paid on such lost, stolen, destroyed or mutilated certificate. Section 8. Definitions. ---------- ----------- "Affiliate" of any Person means any other Person which controls, is --------- controlled by or is under common control with another Person. "Junior Securities" means any of the Corporation's capital stock or ----------------- equity securities other than Preferred Stock. "Liquidation Value" of any Preferred Share as of any particular date ----------------- shall be equal to $100. "Person" means an individual, a partnership, a corporation, an ------ association, a joint stock company, a limited liability company, a trust, a joint venture, an unincorporated organization and a governmental entity or any department, agency or political subdivision thereof. "Redemption Date" as to any Preferred Share means the date specified --------------- in the notice of any redemption at the Corporation's option or the applicable date specified herein in the case of any other redemption; provided that no such date shall be a Redemption Date unless the Liquidation Value of such Preferred Share (plus all accrued an unpaid dividends thereon) is actually paid in full on such date, and if not so paid in full, the Redemption Date shall be the date on which such amount is fully paid. "Subsidiary" means, with respect to any Person, any partnership, ---------- corporation, association, joint stock company, limited liability company, trust, joint venture, unincorporated organization or other business entity of which (i) if a corporation, a majority of the total voting power of Shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof, or (ii) if a partnership, limited liability company, joint stock company, association or other business entity, a majority of the partnership or other similar ownership interest thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more Subsidiaries of that Person or a combination thereof. For purposes hereof, a Person or Persons shall be deemed to have a majority ownership interest in a partnership, limited liability company, joint stock company, association or other business entity if such Person or Persons shall be allocated a majority of partnership, limited liability company, joint stock company, association or other business entity gains or losses or shall be or control the managing director or a general partner of such partnership, limited liability company, joint stock company, association or other business entity. Section 9. Amendment and Waiver. No amendment, modification or ---------- -------------------- waiver (including one in effect accomplished by merger or consolidation of the Corporation with another Corporation or entity) shall be binding or effective with respect to any provision of this Part C of Article IV without the prior written consent of the holders of a majority of the Preferred Stock outstanding at the time such action is taken. -7- Section 10. Notices. Except as otherwise expressly provided ----------- ------- hereunder, all notices referred to herein shall be in writing and shall be personally delivered or delivered by registered or certified mail, return receipt requested and postage prepaid, or by reputable overnight courier service, charges prepaid, and shall be deemed to have been given five business days after being so mailed or sent (i) to the Corporation, at its principal executive offices and (ii) to any stockholder, at such holder's address as it appears in the stock records of the Corporation (unless otherwise indicated by any such holder). ARTICLE FIVE ------------ The name and mailing address of the sole incorporator are as follows: NAME MAILING ADDRESS ---- --------------- Adam Pick 200 East Randolph Drive Suite 5600 Chicago, Illinois 60601 ARTICLE SIX ----------- The corporation is to have perpetual existence. ARTICLE SEVEN ------------- In furtherance and not in limitation of the powers conferred by statute, the board of directors of the corporation is expressly authorized to make, alter or repeal the by-laws of the corporation. ARTICLE EIGHT ------------- Meetings of stockholders may be held within or without the State of Delaware, as the by-laws of the corporation may provide. The books of the corporation may be kept outside the State of Delaware at such place or places as may be designated from time to time by the board of directors or in the by-laws of the corporation. Election of directors need not be by written ballot unless the by-laws of the corporation so provide. ARTICLE NINE ------------ To the fullest extent permitted by the General Corporation Law of the State of Delaware as the same exists or may hereafter be amended, a director of this corporation shall not be liable to the corporation or its stockholders for monetary damages for a breach of fiduciary duty as a director. Any repeal or modifications of this ARTICLE NINE, shall not adversely affect any right or ------------ protection of a director of the corporation existing at the time of such repeal or modification. ARTICLE TEN ----------- The corporation expressly elects not to be governed by Section 203 of the General Corporation Law of the State of Delaware. -8- ARTICLE ELEVEN -------------- The corporation reserves the right to amend, alter, change or repeal any provision contained in this certificate of incorporation in the manner now or hereafter prescribed herein and by the laws of the State of Delaware, and all rights conferred upon stockholders herein are granted subject to this reservation. * * * * * -9- I, THE UNDERSIGNED, being the sole incorporator hereinbefore named, for the purpose of forming a corporation pursuant to the General Corporation Law of the State of Delaware, do make this certificate, hereby declaring and certifying that this is my act and deed and the facts stated herein are true, and accordingly have hereunto set my hand on the 13/th/ day of June, 1996. ------ /s/ Adam Pick ----------------------------------- Adam Pick, Sole Incorporator -10- CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION BEFORE PAYMENT OF CAPITAL OF RUDOLPH HOLDINGS CORPORATION * * * * * Adopted in accordance with the provisions of Section 241 of the General Corporation Law of the State of Delaware * * * * * I, Adam R. Pick, being the duly acting and qualified Sole Incorporator of Rudolph Holdings Corporation, a corporation organized and existing under any by virtue of the Green Corporation Law of the state of Delaware (the "Corporation"), DO HEREBY CERTIFY as follows: FIRST: That the Corporation's original Certificate of Incorporation (the "Certificate of Incorporation") was filed with the Secretary of State of Delaware on June 13, 1996. SECOND: That the Certificate of Incorporation is hereby amended by deleting ARTICLE NINE in its entirety and substituting in lieu thereof a new ------------ ARTICLE NINE as follows: - ------------ ARTICLE NINE ------------ Section 1. To the fullest extent permitted by the General --------- Corporation Law of the State of Delaware as the same exists or may hereafter be amended, a director of this corporation shall not be liable to the corporation or its stockholder for monetary damages for a bread of fiduciary duty as a director. Any repeal or modification of the ARTICLE NINE shall not adversely ------------ affect any right of protection of a director of the corporation existing at the time of such repeal or modification. Section 2. The corporation shall, to the fullest extent permitted by --------- the General Corporation Law of the State of Delaware (including, without limitation, Section 145 thereof), as amended from time to time, indemnify any promoter of director whom it shall have power to indemnify form and against any and all of the expenses, liabilities or other losses of any nature. The indemnification provided in this ARTICLE NINE shall not be deemed exclusive of ------------ any other rights to which those indemnified may be entitled under any bylaw, agreement, vote of stockholders or -11- disinterested directors or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be promoter or director and shall inure to the benefit of the heirs, executors and administrators of such a person. THIRD: That the foregoing amendment has been duly adopted, pursuant to the provisions of Sections 241 and 107 of the General Corporation Law of the State of Delaware, by the Sole Incorporator of the Corporation. FOURTH: That the Corporation has not received any payment for any of its stock. * * * * * -12- IN WITNESS WHEREOF, the undersigned, being the Sole Incorporator hereinabove named, for the purpose of amending the Certificate of Incorporation pursuant to the General Corporation Law of the State of Delaware, under penalties of perjury does hereby declare and certify that this is the act and deed of the Corporation and the facts stated herein are true, and accordingly have hereunto singed this Certificate of Amendment of Certificate of Incorporation Before Payment of Capital as of this 14/th/ day of June, 1996. RUDOLPH HOLDINGS CORPORATION, a Delaware corporation /s/ Adam Pick ---------------------------------- By: Adam R. Pick Its: Sole Incorporator -13- CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF RUDOLPH HOLDINGS CORPORATION * * * * * Pursuant to Section 242 of the General Corporation Law of the State of Delaware * * * * * RUDOLPH HOLDINGS CORPORATION, a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (hereinafter, the "Corporation"), DOES HEREBY CERTIFY: FIRST: That by the Unanimous Written Consent of the Board of Directors of the Corporation resolutions were duly adopted setting forth a proposed amendment to Section A of Article IV of the Certificate of Incorporation, declaring said amendment to be advisable and directing that said amendment be considered by the holders of the Common and Preferred Stock of the Corporation, as the only stockholders entitled to vote thereon. The resolution setting forth the proposed amendment is as follows: NOW THEREFORE BE IT RESOLVED, that Section A of Article IV of the Articles of Incorporation shall be deleted in it entirety and replaced with the following: A. AUTHORIZED SHARES ----------------- The total number of shares of capital stock which the Corporation has authority to issue is 333,896.00 shares, consisting of: (1) 45,876 shares of Series A Preferred Stock, par value $.01 per shares ("Series A Preferred"), (2) 10,125 shares of Series B Preferred Stock, par value $.01 per share ("Series B Preferred" and together with Series A Preferred, "Preferred Stock"), (3) 192,774 shares of Class A Common Stock, par value $.01 per share ("Class A Common") and (4) 85,121 shares of Class B Common Stock, par value $.01 per share ("Class B Common" and together with Class A Common, "Common Stock"). -14- SECOND: That by the Written Consent of the holders of at least a majority of the Common and Preferred Stock of the Corporation, in lieu of a meeting and vote pursuant to Section 228 of Delaware Corporation Law, the proposed and recommended amendment to Section A of Article IV of the Certificate of Incorporation was in all respects approved. THIRD: That said amendment to the Certificate of Incorporation was duly adopted in accordance with the provisions of Section 228 and 242 of the General Corporation Law of the State of Delaware. -15- IN WITNESS WHEREOF, said RUDOLPH HOLDINGS CORPORATION has caused this Certificate of Amendment to be duly signed by its President and attested to by its Secretary this 15/th/ day of September, 1998. ------ --------- RUDOLPH HOLDINGS CORPORATION /s/ Paul McLaughlin ---------------------------------- Paul McLaughlin President ATTEST: /s/ Steven Roth ----------------------- Steven Roth Secretary -16- EX-3.1(B) 3 RESTATED CERTIFICATE OF INCORP. PRE-EFFECTIVE EXHIBIT 3.1(B) RESTATED CERTIFICATE OF INCORPORATION OF RUDOLPH TECHNOLOGIES, INC. Rudolph Technologies, Inc., a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows: A. The name of the corporation is Rudolph Technologies, Inc. The corporation was originally incorporated under the name of Rudolph Holdings Corporation, and the original Certificate of Incorporation was filed with the Secretary of the State of Delaware on June 13, 1996. B. Pursuant to Sections 242 and 245 of the General Corporation Law of the State of Delaware, this Restated Certificate of Incorporation restates and amends the provisions of the Certificate of Incorporation of the corporation. C. The text of the Certificate of Incorporation is hereby amended and restated in its entirety to read as follows: ARTICLE I The name of this corporation is Rudolph Technologies, Inc. ARTICLE II The address of the corporation's registered office in the State of Delaware is 1013 Centre Road, in the City of Wilmington, County of New Castle, Delaware 19805. The name of its registered agent at such address is The Prentice-Hall Corporation System, Inc. ARTICLE III The purpose of the corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of Delaware. ARTICLE IV The corporation is authorized to issue two classes of shares of stock to be designated, respectively, Common Stock, $0.001 par value, and Preferred Stock, $0.001 par value. The total number of shares that the corporation is authorized to issue is 55,054,000 shares. The number of shares of Common Stock authorized is 50,000,000. The number of shares of Preferred Stock authorized is 5,054,000, 45,875.29 of which are designated "Series A Preferred Stock" and 8,124.71 of which are designated "Series B Preferred Stock." Upon the filing of this Restated Certificate of Incorporation each outstanding share of Class A common stock shall be split up and converted into 35.66 shares of Common Stock and each outstanding share of Class B common stock shall be split-up and converted into 35.66 shares of Common Stock (the "Stock Split"). The number of authorized shares of the corporation's capital stock set forth in the preceding paragraph have already been adjusted in connection with the Stock-Split and shall not be increased further for such Stock Split. Five million (5,000,000) shares of Preferred Stock (the "Preferred Stock") may be issued from time to time in one or more series pursuant to a resolution or resolutions providing for such issue duly adopted by the board of directors (authority to do so being hereby expressly vested in the board). The board of directors is further authorized to determine or alter the rights, preferences, privileges and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock and to fix the number of shares of any series of Preferred Stock and the designation of any such series of Preferred Stock. The board of directors, within the limits and restrictions stated in any resolution or resolutions of the board of directors originally fixing the number of shares constituting any series, may increase or decrease (but not below the number of shares in any such series then outstanding) the number of shares of any series subsequent to the issue of shares of that series. The authority of the board of directors with respect to each such class or series shall include, without limitation of the foregoing, the right to determine and fix: (a) the distinctive designation of such class or series and the number of shares to constitute such class or series; (b) the rate at which dividends on the shares of such class or series shall be declared and paid, or set aside for payment, whether dividends at the rate so determined shall be cumulative or accruing, and whether the shares of such class or series shall be entitled to any participating or other dividends in addition to dividends at the rate so determined, and if so, on what terms; (c) the right or obligation, if any, of the corporation to redeem shares of the particular class or series of Preferred Stock and, if redeemable, the price, terms and manner of such redemption; (d) the special and relative rights and preferences, if any, and the amount or amounts per share, which the shares of such class or series of Preferred Stock shall be entitled to receive upon any voluntary or involuntary liquidation, dissolution or winding up of the corporation; (e) the terms and conditions, if any, upon which shares of such class or series shall be convertible into, or exchangeable for, shares of capital stock of any other class or series, -2- including the price or prices or the rate or rates of conversion or exchange and the terms of adjustment, if any; (f) the obligation, if any, of the corporation to retire, redeem or purchase shares of such class or series pursuant to a sinking fund or fund of a similar nature or otherwise, and the terms and conditions of such obligation; (g) voting rights, if any, on the issuance of additional shares of such class or series or any shares of any other class or series of Preferred Stock; (h) limitations, if any, on the issuance of additional shares of such class or series or any shares of any other class or series of Preferred Stock; and (i) such other preferences, powers, qualifications, special or relative rights and privileges thereof as the board of directors of the corporation, acting in accordance with this Restated Certificate of Incorporation, may deem advisable and are not inconsistent with law and the provisions of this Restated Certificate of Incorporation. ARTICLE V The relative rights, preferences, privileges and restrictions granted to or imposed upon the Series A Preferred Stock and the Series B Preferred Stock (together, the "Outstanding Preferred Stock") and the Common Stock are set forth below: 1. Dividends. --------- (a) General Obligation. When and as declared by the Board of ------------------ Directors and to the extent permitted under the General Corporation Law of Delaware, the Corporation shall pay dividends as provided in this Article V, Section 1. Dividends on each share of Series A Preferred Stock and Series B Preferred Stock (each, a "Preferred Share") shall accrue on a daily basis at the --------------- rate of 8% per annum of the sum of the Liquidation Value thereof plus all accumulated and unpaid dividends thereon, from and including the date of issuance of such Preferred Share to but not including the date on which the Liquidation Value of such Preferred Share is paid under Section 2 of this Article V, the date such Preferred Share is redeemed pursuant to Section 4 of this Article V, or the date such Preferred Share is otherwise acquired by the corporation. Such dividends shall accrue whether or not they have been declared and whether or not there are profits, surplus or other funds of the corporation legally available for the payment of dividends. Such dividends shall be cumulative such that all accrued and unpaid dividends shall be fully paid or declared with funds irrevocably set apart for payment before any dividend, distribution or payment may be made with respect to any Junior Securities, subject to the provisions of Section 3 of this Article V. The date on which the Corporation initially issues any Preferred Share shall be deemed to be its "date ---- of issuance" regardless of the number of times transfer of such Preferred Share - ----------- is made on the stock records maintained by or for the Corporation and regardless of the number of certificates which may be issued to evidence such Preferred Share. -3- Subject to the preferential rights of the holders of Outstanding Preferred Stock set forth in this Article V and to the extent permitted under the General Corporation Law of Delaware, dividends may be paid on the Common Stock when as and when declared by the Board of Directors. (b) Dividend Reference Dates. Each March 31, June 30, September 30 and ------------------------ December 31 of each year, beginning September 30, 1996, shall be a "Dividend -------- Reference Date." To the extent not paid on a Dividend Reference Date, all - -------------- dividends which have accrued on each Preferred Share outstanding during the three-month period (or other period in the case of the initial Dividend Reference Date) ending upon each such Dividend Reference Date shall be accumulated and shall remain accumulated dividends with respect to such Preferred Share until paid. (c) Distribution of Partial Dividend Payments. Except as otherwise ----------------------------------------- provided herein, if at any time the Corporation pays less than the total amount of dividends then accrued with respect to Outstanding Preferred Stock, such payment shall be distributed ratably among the holders of Preferred Shares based upon the aggregate accrued but unpaid dividends on Preferred Shares held by each such holder. 2. Liquidation. Upon any liquidation, dissolution or winding up of the ----------- corporation, each holder of Outstanding Preferred Stock shall be entitled to be paid, before any distribution or payment is made upon any Junior Securities, an amount in cash equal to the aggregate Liquidation Value (plus all accrued and unpaid dividends) of all Preferred Shares held by such holder, and the holders of Preferred Stock shall not be entitled to any further payment or claim or right to any assets of the corporation. If upon any such liquidation, dissolution or winding up of the corporation, the corporation's assets to be distributed among the holders of Outstanding Preferred Stock are insufficient to permit payment to such holders of the aggregate amount which they are entitled to be paid, then the entire assets to be distributed shall be distributed ratably among such holders based upon the aggregate Liquidation Value (plus all accrued and unpaid dividends) of Outstanding Preferred Stock held by each such holder. The corporation shall mail written notice of such liquidation, dissolution or winding up, not less than 60 days prior to the payment date stated therein, to each record holder of Outstanding Preferred Stock. Neither the consolidation nor merger of the corporation into or with any other entity or entities (whether or not the corporation is the surviving entity after the consolidation or merger), nor the sale or transfer by the corporation of all or any part of its assets, nor the reduction of the capital stock of the corporation, nor any other form of recapitalization shall be deemed to be a liquidation, dissolution or winding up of the corporation within the meaning of this Section 2. Subject to the preferential rights of the holders of Outstanding Preferred Stock set forth in this Articles V, the holders of Common Stock shall be entitled to participate ratably on a per share basis in all distributions to the holders of Common Stock in any liquidation, dissolution or winding up of the corporation. 3. Priority of Preferred Stock. So long as any Outstanding Preferred --------------------------- Stock remains outstanding, neither the corporation nor any Subsidiary shall redeem, purchase or otherwise acquire directly or indirectly any Junior Securities, nor shall the corporation directly or indirectly pay or -4- declare any dividend or make any distribution upon any Junior Securities, except for dividends payable in shares of Common Stock issued upon the outstanding shares of Common Stock. 4. Redemptions. ----------- (a) Optional Redemptions. The corporation may at any time redeem -------------------- all or any portion of Outstanding Preferred Stock then outstanding. Upon any such redemption, the corporation shall pay a price per Preferred Share equal to the Liquidation Value thereof plus all accrued and unpaid dividends thereon. (b) Redemption Payment. For each Preferred Share which is to be ------------------ redeemed, the corporation shall be obligated on the Redemption Date to pay to the holder thereof (upon surrender by such holder at the corporation's principal office of the certificate representing such Preferred Share) an amount in immediately available funds equal to the Liquidation Value of such Preferred Share (plus all accrued and unpaid dividends hereon). If the funds of the corporation legally available for redemption of such Preferred Shares on any Redemption Date are insufficient to redeem the total number of Preferred Shares to be redeemed on such date, those funds which are legally available shall be used to redeem the maximum possible number of such Preferred Shares based upon the aggregate Liquidation Value of such Preferred Shares (plus all accrued and unpaid dividends thereon) held by each such holder. At any time thereafter when additional funds of the corporation are legally available for the redemption of such Preferred Shares, such funds shall immediately be used to redeem the balance of such Preferred Shares which the corporation has become obligated to redeem on any Redemption Date but which it has not redeemed. (c) Notice of Redemption. Unless otherwise provided herein, the -------------------- corporation shall mail written notice of each redemption of Outstanding Preferred Stock to each record holder of Preferred Shares not more than 60 nor less than ten days prior to the date on which such redemption is to be made. Upon mailing any notice of redemption which relates to a redemption at the corporation's option, the corporation shall become obligated to redeem the total number of Preferred Shares specified in such notice at the time of redemption specified therein. In case fewer than the total number of the Preferred Shares represented by any certificate are redeemed, a new certificate representing the number of unredeemed Preferred Shares shall be issued to the holder thereof without cost to such holder within three business days after surrender of the certificate representing the redeemed Preferred Shares. (d) Determination of the Number of Each Holder's Shares to be --------------------------------------------------------- Redeemed. Except as otherwise provided herein, the number of Preferred Shares to - -------- be redeemed from each holder thereof in redemptions hereunder shall be the number of Preferred Shares determined by multiplying the total number of Preferred Shares to be redeemed times a fraction, the numerator of which shall be the total number of Preferred Shares then held by such holder and the denominator of which shall be the total number of Preferred Shares then outstanding. (e) Dividends After Redemption. No Preferred Share is entitled -------------------------- to any dividends accruing after the date on which the Liquidation Value of such Preferred Share (plus all accrued and -5- unpaid dividends thereon) is paid to the holder thereof. On such date all rights of the holder of such Preferred Share shall cease, and such Preferred Share shall be deemed to be not outstanding. (f) Redeemed or Otherwise Acquired Shares. Any Preferred Shares which ------------------------------------- are redeemed or otherwise acquired by the Corporation shall be canceled and shall not thereafter be reissued, sold or transferred. (g) Other Redemptions or Acquisitions. Neither the Corporation nor --------------------------------- any Subsidiary shall redeem or otherwise acquire any Outstanding Preferred Stock, except as expressly authorized herein or pursuant to a purchase offer made pro rata to all holders of Outstanding Preferred Stock on the basis of the number of Preferred Shares owned by each such holder. (h) Special Redemptions. ------------------- (i) The term "Change in Ownership" shall mean any sale or ------------------- issuance or series of sales or issuances of the corporation's capital stock by the corporation or any holders thereof, immediately after which the State Board of Administration of Florida ("SBA") and Liberty Partners Holdings II, L.L.C. --- ("LPH") and its Affiliates in the aggregate no longer hold record ownership of --- (a) at least 40% of the corporation's then outstanding Common Stock or (b) shares of the corporation's outstanding capital stock entitled to elect directors to the Board of Directors possessing a majority of the votes of all directors. (ii) If a Change in Ownership has occurred or the corporation obtains knowledge that a Change in Ownership is to occur, the corporation shall give prompt written notice of such Change in Ownership describing in reasonable detail the definitive terms and date of consummation thereof to each holder of Outstanding Preferred Stock, but in any event such notice shall not be given later than five days after the occurrence of such Change in Ownership. The holders of a majority of the Outstanding Preferred Stock then outstanding may require the corporation to redeem all of the Outstanding Preferred Stock owned by holders thereof at a price per Preferred Share equal to the Liquidation Value thereof (plus all accrued and unpaid dividends thereon) by giving written notice to the corporation of such election prior to the later of (a) 20 days after receipt of the corporation's notice and (b) 20 days prior to the consummation of the Change in Ownership (the "Expiration Date"). The corporation shall give --------------- prompt written notice of any such election to all other holders of Preferred Stock within five days after the receipt thereof. Upon receipt of such election, the corporation shall be obligated to redeem all of the outstanding Preferred Shares on the later of (a) the occurrence of the Change in Ownership or (b) five days after the corporation's receipt of such election. If, in any case, a proposed Change in Ownership does not occur, all requests for redemption in connection therewith shall be automatically rescinded. (iii) The term "Fundamental Change" shall mean (a) a sale or ------------------ transfer of all or substantially all of the assets of the corporation and its Subsidiaries on a consolidated basis (measured by either book value in accordance with generally accepted accounting principles consistently applied or fair market value determined in the reasonable good faith judgment of the Corporation's board of directors) in any transaction or series of transactions (other than sales in the ordinary course of business) and (b) any merger or consolidation to which the corporation is a party. -6- (iv) If a Fundamental Change is proposed to occur, the corporation shall give written notice of such Fundamental Change describing in reasonable detail the definitive terms and date of consummation thereof to each holder of Outstanding Preferred Stock not more than 60 days nor less than 20 days prior to the consummation thereof. The holders of a majority of the Outstanding Preferred Stock then outstanding may require the Corporation to redeem all of the Outstanding Preferred Stock owned by holders thereof at a price per Preferred Share equal to the Liquidation Value thereof (plus all accrued and unpaid dividends thereon) by giving written notice to the corporation of such election prior to the later of (a) 20 days prior to the consummation of the Fundamental Change or (b) 20 days after receipt of a notice from the corporation. The corporation shall give prompt written notice of such election to all other holders of Outstanding Preferred Stock (but in any event within five days prior to the consummation of the Fundamental Change). Upon receipt of such election(s), the corporation shall be obligated to redeem all of the outstanding Preferred Shares upon the consummation of such Fundamental Change. If any proposed Fundamental Change does not occur, all requests for redemption in connection therewith shall be automatically rescinded. 5. Voting Rights. ------------- (a) The holders of Series A Preferred shall be entitled to notice of all meetings of the corporation's stockholders in accordance with the corporation's bylaws and except as provided by law, the holders of Series A Preferred shall be entitled to vote on all matters submitted to the stockholders for a vote together with the holders of Common Stock voting as a single class with each share of Common Stock entitled to one vote per share and each share of Series A Preferred entitled to one vote per such share. (b) Except as otherwise required by law, the Series B Preferred shall have no voting rights; provided that each holder of Series B Preferred shall be entitled to notice of all meetings of the corporation's stockholders at the same time and in the same manner as notice is given to the stockholders entitled to vote at such meeting. 6. Registration of Transfer. The corporation shall keep at its principal ------------------------ office a register for the registration of Preferred Stock. Upon the surrender of any certificate representing Preferred Stock at such place, the corporation shall, at the request of the record holder of such certificate, execute and deliver (at the corporation's expense) a new certificate or certificates in exchange therefor representing in the aggregate the number of Preferred Shares represented by the surrendered certificate. Each such new certificate shall be registered in such name and shall represent such number of Preferred Shares as is requested by the holder of the surrendered certificate and shall be substantially identical in form to the surrendered certificate, and dividends shall accrue on Outstanding Preferred Stock represented by such new certificate from the date on which dividends have been fully paid on such Outstanding Preferred Stock represented by the surrendered certificate. 7. Replacement. Upon receipt of evidence reasonably satisfactory to the ----------- corporation (an affidavit of the registered holder shall be satisfactory) of the ownership and the loss, theft, destruction or mutilation of any certificate evidencing Preferred Shares, and in the case of any such -7- loss, theft or destruction, upon receipt of indemnity reasonably satisfactory to the corporation (provided that if the holder is a financial institution or other institutional investor its own agreement shall be satisfactory), or, in the case of any such mutilation upon surrender of such certificate, the corporation shall (at the corporation's expense) execute and deliver in lieu of such certificate a new certificate of like kind representing the number of Outstanding Preferred Shares of such class represented by such lost, stolen, destroyed or mutilated certificate and dated the original date of such lost, stolen, destroyed or mutilated certificate and dated the original date of such lost, stolen, destroyed or mutilated certificate, and dividends shall accrue on Outstanding Preferred Stock represented by such new certificate from the date on which dividends have been fully paid on such lost, stolen, destroyed or mutilated certificate. 8. Definitions. ----------- "Affiliate" of any Person means any other Person which controls, is --------- controlled by or is under common control with another Person. "Junior Securities" means any of the corporation's capital stock or equity ----------------- securities other than Preferred Stock. "Liquidation Value" of any Preferred Share as of any particular date shall ----------------- be equal to $100. "Person" means an individual, a partnership, a corporation, an association, ------ a joint stock company, a limited liability company, a trust, a joint venture, an unincorporated organization and a governmental entity or any department, agency or political subdivision thereof. "Redemption Date" as to any Preferred Share means the date specified in the --------------- notice of any redemption at the corporation's option or the applicable date specified herein in the case of any other redemption; provided that no such date shall be a Redemption Date unless the Liquidation Value of such Preferred Share (plus all accrued an unpaid dividends thereon) is actually paid in full on such date, and if not so paid in full, the Redemption Date shall be the date on which such amount is fully paid. "Subsidiary" means, with respect to any Person, any partnership, ---------- corporation, association, joint stock company, limited liability company, trust, joint venture, unincorporated organization or other business entity of which (i) if a corporation, a majority of the total voting power of Shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof, or (ii) if a partnership, limited liability company, joint stock company, association or other business entity, a majority of the partnership or other similar ownership interest thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more Subsidiaries of that Person or a combination thereof. For purposes hereof, a Person or Persons shall be deemed to have a majority ownership interest in a partnership, limited liability company, joint stock company, association or other business entity if such Person or Persons shall be allocated a majority of partnership, limited liability company, joint stock company, association or other business entity gains or losses or shall -8- be or control the managing director or a general partner of such partnership, limited liability company, joint stock company, association or other business entity. 9. Amendment and Waiver. No amendment, modification or waiver (including -------------------- one in effect accomplished by merger or consolidation of the corporation with another corporation or entity) shall be binding or effective with respect to any provision of this Article V without the prior written consent of the holders of a majority of the Outstanding Preferred Stock outstanding at the time such action is taken. 10. Notices. Except as otherwise expressly provided hereunder, all notices ------- referred to herein shall be in writing and shall be personally delivered or delivered by registered or certified mail, return receipt requested and postage prepaid, or by reputable overnight courier service, charges prepaid, and shall be deemed to have been given five business days after being so mailed or sent (i) to the corporation, at its principal executive offices and (ii) to any stockholder, at such holder's address as it appears in the stock records of the corporation (unless otherwise indicated by any such holder). ARTICLE VI The corporation reserves the right to amend, alter, change, or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon the stockholders herein are granted subject to this right. ARTICLE VII The corporation is to have perpetual existence. ARTICLE VIII 1. Limitation of Liability. To the fullest extent permitted by the ----------------------- General Corporation Law of the State of Delaware as the same exists or as may hereafter be amended, a director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. 2. Indemnification. The corporation may indemnify to the fullest extent --------------- permitted by law any person made or threatened to be made a party to an action or proceeding, whether criminal, civil, administrative or investigative, by reason of the fact that such person or his or her testator or intestate is or was a director, officer or employee of the corporation, or any predecessor of the corporation, or serves or served at any other enterprise as a director, officer or employee at the request of the corporation or any predecessor to the corporation. 3. Amendments. Neither any amendment nor repeal of this Article VIII, ---------- nor the adoption of any provision of the corporation's Certificate of Incorporation inconsistent with this -9- Article VIII, shall eliminate or reduce the effect of this Article VIII, in respect of any matter occurring, or any action or proceeding accruing or arising or that, but for this Article VIII, would accrue or arise, prior to such amendment, repeal, or adoption of an inconsistent provision. ARTICLE IX In the event any shares of Preferred Stock shall be redeemed or converted pursuant to the terms hereof, the shares so converted or redeemed shall not revert to the status of authorized but unissued shares, but instead shall be canceled and shall not be re-issuable by the corporation. ARTICLE X 1. Number of Directors. The number of directors which constitutes the ------------------- whole Board of Directors of the corporation shall be designated in the Amended and Restated Bylaws of the corporation. The directors shall be divided into three classes with the term of office of the first class (Class I) to expire at the annual meeting of stockholders held in 2000; the term of office of the second class (Class II) to expire at the annual meeting of stockholders held in 2001; the term of office of the third class (Class III) to expire at the annual meeting of stockholders held in 2002; and thereafter for each such term to expire at each third succeeding annual meeting of stockholders after such election. 2. Election of Directors. Elections of directors need not be by written --------------------- ballot unless the Amended and Restated Bylaws of the corporation shall so provide. 3. Removal of Directors. Any director or directors may be removed from -------------------- office at any time, but only for cause and only by the affirmative vote, at any regular meeting or special meeting of the stockholders, of not less than 66 2/3% of the total number of votes of the then outstanding shares of stock of this corporation entitled to vote generally in the election of directors, voting together as a single class, but only if notice was properly given prior to the meeting. ARTICLE XI In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, alter, amend or repeal the Amended and Restated Bylaws of the corporation. -10- ARTICLE XII No action shall be taken by the stockholders of the corporation except at an annual or special meeting of the stockholders called in accordance with the Amended and Restated Bylaws. The stockholders may not take action by written consent. The affirmative vote of sixty-six and two-thirds percent (66 2/3%) of the then outstanding voting securities of the corporation, voting together as a single class, shall be required for the amendment, repeal or modification of the provisions of Article X, Article XI or Article XII of this Restated Certificate of Incorporation or Sections 2.3 (Special Meeting), 2.4 (Notice of Stockholders' Meeting), 2.5 (Advanced Notice of Stockholder Nominees and Stockholder Business), 2.10 (Voting), or 2.12 (Stockholder Action by Written Consent Without a Meeting), or 3.2 (Number of Directors) of the corporation's Amended and Restated Bylaws. ARTICLE XIII Meetings of stockholders may be held within or without the State of Delaware, as the Amended and Restated Bylaws may provide. The books of the corporation may be kept (subject to any provision contained in the statutes) outside of the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Amended and Restated Bylaws of the corporation. ARTICLE XIV This Restated Certificate of Incorporation shall become effective at ______ on __________, 1999. -11- IN WITNESS WHEREOF, Rudolph Technologies, Inc. has caused this certificate to be signed by ____________, its _____________________, this ___th day of __________, 1999. ____________________________________ Attest By:___________________________ -12- EX-3.1(C) 4 RESTATED CERTIFICATE OF INCORP. POST-EFFECTIVE EXHIBIT 3.1(C) RESTATED CERTIFICATE OF INCORPORATION OF RUDOLPH TECHNOLOGIES, INC. Rudolph Technologies, Inc., a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows: A. The name of the corporation is Rudolph Technologies, Inc. The corporation was originally incorporated under the name of Rudolph Holdings Corporation, and the original Certificate of Incorporation was filed with the Secretary of the State of Delaware on June 13, 1996. B. Pursuant to Sections 242 and 245 of the General Corporation Law of the State of Delaware, this Restated Certificate of Incorporation restates and amends the provisions of the Certificate of Incorporation of the corporation. C. The text of the Certificate of Incorporation is hereby amended and restated in its entirety to read as follows: ARTICLE I The name of this corporation is Rudolph Technologies, Inc. ARTICLE II The address of the corporation's registered office in the State of Delaware is 1013 Centre Road, in the City of Wilmington, County of New Castle, Delaware 19805. The name of its registered agent at such address is The Prentice-Hall Corporation System, Inc. ARTICLE III The purpose of the corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of Delaware. ARTICLE IV The corporation is authorized to issue two classes of shares of stock to be designated, respectively, Common Stock, $0.001 par value, and Preferred Stock, $0.001 par value. The total number of shares that the corporation is authorized to issue is 55,000,000 shares. The number of shares of Common Stock authorized is 50,000,000. The number of shares of Preferred Stock authorized is 5,000,000. The Preferred Stock may be issued from time to time in one or more series pursuant to a resolution or resolutions providing for such issue duly adopted by the board of directors (authority to do so being hereby expressly vested in the board). The board of directors is further authorized to determine or alter the rights, preferences, privileges and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock and to fix the number of shares of any series of Preferred Stock and the designation of any such series of Preferred Stock. The board of directors, within the limits and restrictions stated in any resolution or resolutions of the board of directors originally fixing the number of shares constituting any series, may increase or decrease (but not below the number of shares in any such series then outstanding) the number of shares of any series subsequent to the issue of shares of that series. The authority of the board of directors with respect to each such class or series shall include, without limitation of the foregoing, the right to determine and fix: (a) the distinctive designation of such class or series and the number of shares to constitute such class or series; (b) the rate at which dividends on the shares of such class or series shall be declared and paid, or set aside for payment, whether dividends at the rate so determined shall be cumulative or accruing, and whether the shares of such class or series shall be entitled to any participating or other dividends in addition to dividends at the rate so determined, and if so, on what terms; (c) the right or obligation, if any, of the corporation to redeem shares of the particular class or series of Preferred Stock and, if redeemable, the price, terms and manner of such redemption; (d) the special and relative rights and preferences, if any, and the amount or amounts per share, which the shares of such class or series of Preferred Stock shall be entitled to receive upon any voluntary or involuntary liquidation, dissolution or winding up of the corporation; (e) the terms and conditions, if any, upon which shares of such class or series shall be convertible into, or exchangeable for, shares of capital stock of any other class or series, including the price or prices or the rate or rates of conversion or exchange and the terms of adjustment, if any; (f) the obligation, if any, of the corporation to retire, redeem or purchase shares of such class or series pursuant to a sinking fund or fund of a similar nature or otherwise, and the terms and conditions of such obligation; (g) voting rights, if any, on the issuance of additional shares of such class or series or any shares of any other class or series of Preferred Stock; -2- (h) limitations, if any, on the issuance of additional shares of such class or series or any shares of any other class or series of Preferred Stock; and such other preferences, powers, qualifications, special or relative rights and privileges thereof as the board of directors of the corporation, acting in accordance with this Restated Certificate of Incorporation, may deem advisable and are not inconsistent with law and the provisions of this Restated Certificate of Incorporation. ARTICLE V The corporation reserves the right to amend, alter, change, or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon the stockholders herein are granted subject to this right. ARTICLE VI The corporation is to have perpetual existence. ARTICLE VII 1. Limitation of Liability. To the fullest extent permitted by the ----------------------- General Corporation Law of the State of Delaware as the same exists or as may hereafter be amended, a director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. 2. Indemnification. The corporation may indemnify to the fullest extent --------------- permitted by law any person made or threatened to be made a party to an action or proceeding, whether criminal, civil, administrative or investigative, by reason of the fact that such person or his or her testator or intestate is or was a director, officer or employee of the corporation, or any predecessor of the corporation, or serves or served at any other enterprise as a director, officer or employee at the request of the corporation or any predecessor to the corporation. 3. Amendments. Neither any amendment nor repeal of this Article VII, nor ---------- the adoption of any provision of the corporation's Certificate of Incorporation inconsistent with this Article VII, shall eliminate or reduce the effect of this Article VII, in respect of any matter occurring, or any action or proceeding accruing or arising or that, but for this Article VII, would accrue or arise, prior to such amendment, repeal, or adoption of an inconsistent provision. ARTICLE VIII -3- In the event any shares of Preferred Stock shall be redeemed or converted pursuant to the terms hereof, the shares so converted or redeemed shall not revert to the status of authorized but unissued shares, but instead shall be canceled and shall not be re-issuable by the corporation. ARTICLE IX 1. Number of Directors. The number of directors which constitutes the ------------------- whole Board of Directors of the corporation shall be designated in the Amended and Restated Bylaws of the corporation. The directors shall be divided into three classes with the term of office of the first class (Class I) to expire at the annual meeting of stockholders held in 2000; the term of office of the second class (Class II) to expire at the annual meeting of stockholders held in 2001; the term of office of the third class (Class III) to expire at the annual meeting of stockholders held in 2002; and thereafter for each such term to expire at each third succeeding annual meeting of stockholders after such election. 2. Election of Directors. Elections of directors need not be by written --------------------- ballot unless the Amended and Restated Bylaws of the corporation shall so provide. 3. Removal of Directors. Any director or directors may be removed from -------------------- office at any time, but only for cause and only by the affirmative vote, at any regular meeting or special meeting of the stockholders, of not less than 66 2/3% of the total number of votes of the then outstanding shares of stock of this corporation entitled to vote generally in the election of directors, voting together as a single class, but only if notice was properly given prior to the meeting. ARTICLE X In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, alter, amend or repeal the Amended and Restated Bylaws of the corporation. ARTICLE XI No action shall be taken by the stockholders of the corporation except at an annual or special meeting of the stockholders called in accordance with the Amended and Restated Bylaws. The stockholders may not take any action by written consent. The affirmative vote of sixty-six and two-thirds percent (66 2/3%) of the then outstanding voting securities of the corporation, voting together as a single class, shall be required for the amendment, repeal or modification of the provisions of Article IX, Article X or Article XI of this Restated Certificate of Incorporation or Sections 2.3 (Special Meeting), 2.4 (Notice of Stockholders' Meeting), 2.5 (Advanced Notice of Stockholder Nominees and Stockholder Business), 2.10 (Voting), or 2.12 (Stockholder Action by Written Consent Without a Meeting), or 3.2 (Number of Directors) of the corporation's Amended and Restated Bylaws. -4- ARTICLE XII Meetings of stockholders may be held within or without the State of Delaware, as the Amended and Restated Bylaws may provide. The books of the corporation may be kept (subject to any provision contained in the statutes) outside of the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Amended and Restated Bylaws of the corporation. ARTICLE XIII This Restated Certificate of Incorporation shall become effective at _______ on __________, 1999. -5- IN WITNESS WHEREOF, Rudolph Technologies, Inc. has caused this certificate to be signed by ____________, its _____________________, this ___th day of __________, 1999. Attest By: -6- EX-3.2(A) 5 BYLAWS OF REGISTRANT EXHIBIT 3.2(a) BY-LAWS ------- OF -- RUDOLPH HOLDINGS CORPORATION ---------------------------- A Delaware Corporation ARTICLE I OFFICES ------- Section 1. Registered Office. The registered office of the corporation ----------------- in the State of Delaware shall be located at 1013 Centre Road, County of New Castle, Wilmington, Delaware 19805. The name of the corporation's registered agent at such address shall be The Prentice-Hall Corporation System, Inc. The registered office and/or registered agent of the corporation may be changed from time to time by action of the board of directors. Section 2. Other Offices. The corporation may also have offices at such ------------- other places, both within and without the State of Delaware, as the board of directors may from time to time determine or the business of the corporation may require. ARTICLE II MEETINGS OF STOCKHOLDERS ------------------------ Section 1. Place and Time of Meetings. An annual meeting of the -------------------------- stockholders shall be held each year within one hundred twenty (120) days after the close of the immediately preceding fiscal year of the corporation for the purpose of electing directors and conducting such other proper business as may come before the meeting. The date, time and place of the annual meeting shall be determined by the president of the corporation; provided, that if the president does not act, the board of directors shall determine the date, time and place of such meeting. Section 2. Special Meetings. Special meetings of stockholders may be ---------------- called for any purpose and may be held at such time and place, within or without the State of Delaware, as shall be stated in a notice of meeting or in a duly executed waiver of notice thereof. Section 3. Place of Meeting. The board of directors may designate any ---------------- place, either within or without the State of Delaware, as the place of meeting for any annual meeting or for any special meeting called by the board of directors. If no designation is made, or if a special meeting be otherwise called, the place of meeting shall be the principal executive office of the corporation. Section 4. Notice. Whenever stockholders are required or permitted to ------ take action at a meeting, written or printed notice stating the place, date, time, and, in the case of special meetings, the purpose or purposes, of such meeting, shall be given to each stockholder entitled to vote at such meeting. Section 5. Stockholders List. The officer having charge of the stock ----------------- ledger of the corporation shall make, at least 10 days before every meeting of the stockholders, a complete list of the stockholders entitled to vote at such meeting arranged in alphabetical order, showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least 10 days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. Section 6. Quorum. The holders of a majority of the outstanding shares of ------ capital stock, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders, except as otherwise provided by statute or by the certificate of incorporation. If a quorum is not present, the holders of a majority of the shares present in person or represented by proxy at the meeting, and entitled to vote at the meeting, may adjourn the meeting to another time and/or place. Section 7. Adiourned Meeting. When a meeting is adjourned to another ----------------- time and place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 8. Vote Required. When a quorum is present, the affirmative vote ------------- of the majority of shares present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless the question is one upon which by express provisions of an applicable law or of the certificate of incorporation a different vote is required, in which case such express provision shall govern and control the decision of such question. Section 9. Voting Rights. Except as otherwise provided by the General ------------- Corporation Law of the State of Delaware, by written agreement of the stockholders, or by the certificate of incorporation of the corporation or any amendments thereto and subject to Section 3 of Article VI hereof, every stockholder shall at every meeting of the stockholders be entitled to one vote in person or by proxy for each share of common stock held by such stockholder. Section 10. Proxies. Each stockholder entitled to vote at a meeting of ------- stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another -2- person or persons to act for him or her by proxy, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. Section 11. Action by Written Consent. Unless otherwise provided in the ------------------------- certificate of incorporation any action required to be taken at any annual or special meeting of stockholders of the corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken and bearing the dates of signature of the stockholders who signed the consent or consents, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the corporation by delivery to its registered office in the state of Delaware, or the corporation's principal place of business, or an officer or agent of the corporation having custody of the book or books in which proceedings of meetings of the stockholders are recorded. Delivery made to the corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. All consents properly delivered in accordance with this section shall be deemed to be recorded when so delivered. No written consent shall be effective to take the corporate action referred to therein unless, within sixty days of the earliest dated consent delivered to the corporation as required by this section, written consents signed by the holders of a sufficient number of shares to take such corporate action are so recorded. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. Any action taken pursuant to such written consent or consents of the stockholders shall have the same force and effect as if taken by the stockholders at a meeting thereof. ARTICLE III DIRECTORS --------- Section 1. General Powers. The business and affairs of the corporation -------------- shall be managed by or under the direction of the board of directors. Section 2. Number, Election and Term of Office. The number of directors ----------------------------------- which shall constitute the first board shall be six (6). Thereafter, the number of directors shall be established from time to time by resolution of the board. The directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote in the election of directors. The directors shall be elected in this manner at the annual meeting of the stockholders, except as provided in Section 4 of this Article III. Each director elected shall hold office until a successor is duly elected and qualified or until his or her earlier death, resignation or removal as hereinafter provided. The provisions contained in this Section 2 shall also be subject to the terms and conditions of that certain Stockholders Agreement, dated as of June 14, 1996, by and among the corporation and its stockholders (the "Stockholders Agreement") for so long as the Stockholders Agreement remains in effect. -3- Section 3. Removal and Resignation. Subject to the provisions of the ----------------------- Stockholders Agreement, any director or the entire board of directors may be removed at any time, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors. Whenever the holders of any class or series are entitled to elect one or more directors by the provisions of the corporation's certificate of incorporation, the provisions of this section shall apply, in respect to the removal without cause of a director or directors so elected, to the vote of the holders of the outstanding shares of that class or series and not to the vote of the outstanding shares as a whole. Any director may resign at any time upon written notice to the corporation. Section 4. Vacancies. Subject to the provisions of the Stockholders --------- Agreement, vacancies and newly created directorships resulting from any increase in the authorized number of directors shall be filled by a majority of the votes of shares entitled to vote in the election of directors and in accordance with the Stockholders Agreement. Each director so chosen shall hold office until a successor is duly elected and qualified or until his or her earlier death, resignation or removal as herein provided. Section 5. Annual Meetings. The annual meeting of each newly elected --------------- board of directors shall be held without other notice than this by-law immediately after, and at the same place as, the annual meeting of stockholders. Section 6. Other Meetings and Notice. Regular meetings, other than the ------------------------- annual meeting, of the board of directors may be held without notice at such time and at such place as shall from time to time be determined by resolution of the board. Special meetings of the board of directors may be called by or at the request of the president on at least 24 hours notice to each director, either personally, by telephone, by mail, or by telegraph. Section 7. Quorum, Required Vote and Adjournment. A majority of the total ------------------------------------- number of directors shall constitute a quorum for the transaction of business. The vote of a majority of directors present at a meeting at which a quorum is present shall be the act of the board of directors. If a quorum shall not be present at any meeting of the board of directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 8. Committees. Subject to the provisions of the Stockholders ---------- Agreement, the board of directors may, by resolution passed by a majority of the whole board, designate one or more committees, each committee to consist of one or more of the directors of the corporation, which to the extent provided in such resolution or these by-laws shall have and may exercise the powers of the board of directors in the management and affairs of the corporation except as otherwise limited by law. The board of directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the board of directors. Each committee shall keep regular minutes of its meetings and report the same to the board of directors when required. -4- Section 9. Committee Rules. Each committee of the board of directors may --------------- fix its own rules of procedure and shall hold its meetings as provided by such rules, except as may otherwise be provided by a resolution of the board of directors designating such committee. In the event that a member and that member's alternate, if alternates are designated by the board of directors as provided in Section 8 of this Article III, of such committee is or are absent or disqualified, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the board of directors to act at the meeting in place of any such absent or disqualified member. Section 10. Communications Equipment. Members of the board of directors or ------------------------ any committee thereof may participate in and act at any meeting of such board or committee through the use of a conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and participation in the meeting pursuant to this section shall constitute presence in person at the meeting. Section 11. Waiver of Notice and Presumption of Assent. Any member of the ------------------------------------------ board of directors or any committee thereof who is present at a meeting shall be conclusively presumed to have waived notice of such meeting except when such member attends for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. Such member shall be conclusively presumed to have assented to any action taken unless his or her dissent shall be entered in the minutes of the meeting or unless his or her written dissent to such action shall be filed with the person acting as the secretary of the meeting before the adjournment thereof or shall be forwarded by registered mail to the secretary of the corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to any member who voted in favor of such action. Section 12. Action by Written Consent. Unless otherwise restricted by the ------------------------- certificate of incorporation, any action required or permitted to be taken at any meeting of the board of directors, or of any committee thereof, may be taken without a meeting if all members of the board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the board or committee. ARTICLE IV OFFICERS -------- Section 1. Number. The officers of the corporation shall be elected by ------ the board of directors and may consist of a president, any number of vice presidents, a secretary, a chief financial officer, any number of assistant secretaries and such other officers and assistant officers as may be deemed necessary or desirable by the board of directors. Any number of offices may be held by the same person. In its discretion, the board of directors may choose not to fill any office for any period as it may deem advisable, except that the offices of president and secretary shall be filled as expeditiously as possible. -5- Section 2. Election and Term of Office. The officers of the corporation --------------------------- shall be elected annually by the board of directors at its first meeting held after each annual meeting of stockholders or as soon thereafter as conveniently may be. Vacancies may be filled or new offices created and filled at any meeting of the board of directors. Each officer shall hold office until a successor is duly elected and qualified or until his or her earlier death, resignation or removal as hereinafter provided. Section 3. Removal. Any officer or agent elected by the board of ------- directors may be removed by the board of directors whenever in its judgment the best interests of the corporation would be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Section 4. Vacancies. Any vacancy occurring in any office because of --------- death, resignation, removal, disqualification or otherwise, may be filled by the board of directors for the unexpired portion of the term by the board of directors then in office. Section 5. Compensation. Compensation of all officers shall be fixed by ------------ the board of directors, and no officer shall be prevented from receiving such compensation by virtue of his or her also being a director of the corporation. Section 6. Chairman of the Board. The chairman of the board, if such an --------------------- officer be elected, shall, if present, preside at meetings of the board of directors and exercise such other powers and perform such other duties as may from time to time be assigned to him by the board of directors or as may be prescribed by these bylaws. If there is no president, then the chairman of the board shall also be the chief executive officer of the corporation and shall have the powers and duties prescribed in Section 7 of this Article IV. Section 7. President. The president, subject to the powers of the board --------- of directors, shall have general charge of the business, affairs and property of the corporation, and control over its officers, agents and employees; and shall see that all orders and resolutions of the board of directors are carried into effect. The president shall execute bonds, mortgages and other contracts requiring a seal, under the seal of the corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the board of directors to some other officer or agent of the corporation. The president shall have such other powers and perform such other duties as may be prescribed by the board of directors or as may be provided in these by-laws. Section 8. Vice-presidents. The vice-president, or if there shall be more --------------- than one, the vice-presidents in the order determined by the board of directors shall, in the absence or disability of the president, act with all of the powers and be subject to all the restrictions of the president. The vice-presidents shall also perform such other duties and have such other powers as the board of directors, the president or these by-laws may, from time to time, prescribe. Section 9. The Secretary and Assistant Secretaries. The secretary shall --------------------------------------- attend all meetings of the board of directors, all meetings of the committees thereof and all meetings of the stockholders and record all the proceedings of the meetings in a book or books to be kept for that purpose. Under -6- the president's supervision, the secretary shall give, or cause to be given, all notices required to be given by these by-laws or by law; shall have such powers and perform such duties as the board of directors, the president or these by- laws may, from time to time, prescribe; and shall have custody of the corporate seal of the corporation. The secretary, or an assistant secretary, shall have authority to affix the corporate seal to any instrument requiring it and when so affixed, it may be attested by his or her signature or by the signature of such assistant secretary. The board of directors may give general authority to any other officer to affix the seal of the corporation and to attest the affixing by his or her signature. The assistant secretary, or if there be more than one, the assistant secretaries in the order determined by the board of directors, shall, in the absence or disability of the secretary, perform the duties and exercise the powers of the secretary and shall perform such other duties and have such other powers as the board of directors or president may, from time to time, prescribe. Section 10. The Chief Financial Officer and Assistant Treasurer. The chief --------------------------------------------------- financial officer shall have the custody of the corporate funds and securities; shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation; shall deposit all monies and other valuable effects in the name and to the credit of the corporation as may be ordered by the board of directors; shall cause the funds of the corporation to be disbursed when such disbursements have been duly authorized, taking proper vouchers for such disbursements; and shall render to the president and the board of directors, at its regular meeting or when the board of directors so requires, an account of the corporation; shall have such powers and perform such duties as the board of directors, the president or these by-laws may, from time to time, prescribe. If required by the board of directors, the chief financial officer shall give the corporation a bond (which shall be rendered every six years) in such sums and with such surety or sureties as shall be satisfactory to the board of directors for the faithful performance of the duties of the office of chief financial officer and for the restoration to the corporation, in case of death, resignation, retirement, or removal from office, of all books, papers, vouchers, money, and other property of whatever kind in the possession or under the control of the chief financial officer belonging to the corporation. The assistant treasurer, or if there shall be more than one, the assistant treasurers in the order determined by the board of directors, shall in the absence or disability of the chief financial officer, perform the duties and exercise the powers of the chief financial officer. The assistant treasurers shall perform such other duties and have such other powers as the board of directors or the president may, from time to time, prescribe. Section 11. Other Officers, Assistant Officers and Agents. Officers, --------------------------------------------- assistant officers and agents, if any, other than those whose duties are provided for in these by-laws, shall have such authority and perform such duties as may from time to time be prescribed by resolution of the board of directors. Section 12. Absence or Disability of Officers. In the case of the --------------------------------- absence or disability of any officer of the corporation and of any person hereby authorized to act in such officer's place during such officer's absence or disability, the board of directors may by resolution delegate the powers and duties of such officer to any other officer or to any director, or to any other person whom it may select. -7- ARTICLE V INDEMNIFICATION OF OFFICERS, DIRECTORS AND OTHERS ------------------------------------------------- Section 1. Nature of Indemnity. Each person who was or is made a party or ------------------- is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that he or she, is or was a director or officer, of the corporation or is or was serving at the request of the corporation as a director, officer, employee, fiduciary, or agent of another corporation or of a partnership, joint venture, trust or other enterprise including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee, fiduciary or agent or in any other capacity while serving as a director, officer, employee, fiduciary or agent, shall be indemnified and held harmless by the corporation to the fullest extent which it is empowered to do so by the General Corporation Law of the State of Delaware, as the same exists or may hereafter be amended against all expense, liability and loss (including attorneys' fees actually and reasonably incurred by such person in connection with such proceeding) and such indemnification shall inure to the benefit of his or her heirs, executors and administrators; provided, however, that, except as provided in Section 2 hereof, the corporation shall indemnify any such person seeking indemnification in connection with a proceeding initiated by such person only if such proceeding was authorized by the board of directors of the corporation. The right to indemnification conferred in this Article V shall be a contract right and, subject to Sections 2 and 5 hereof, shall include the right to be paid by the corporation the expenses incurred in defending any such proceeding in advance of its final disposition. The corporation may, by action of its board of directors, provide indemnification to employees and agents of the corporation with the same scope and effect as the foregoing indemnification of directors and officers. Section 2. Procedure for Indemnification of Directors and Officers. Any ------------------------------------------------------- indemnification of a director, officer, employee, fiduciary or agent of the corporation under Section 1 of this Article V or advance of expenses under Section 5 of this Article V shall be made promptly, and in any event within 30 days, upon the written request of the director, officer, employee, fiduciary or agent. If a determination (as defined in the General Corporation Law of the State of Delaware) by the corporation that the director, officer, employee, fiduciary or agent is entitled to indemnification pursuant to this Article V is required, and the corporation fails to respond within sixty days to a written request for indemnity, the corporation shall be deemed to have approved the request. If the corporation denies a written request for indemnification or advancing of expenses, in whole or in part, or if payment in full pursuant to such request is not made within 30 days, the right to indemnification or advances as granted by this Article V shall be enforceable by the director, officer, employee, fiduciary or agent in any court of competent jurisdiction. Such person's costs and expenses incurred in connection with successfully establishing his or her right to indemnification, in whole or in part, in any such action shall also be indemnified by the corporation. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any, has been tendered to the corporation) that the claimant has not met the standards of conduct which make it permissible under the General Corporation Law of the State of Delaware for the corporation -8- to indemnify the claimant for the amount claimed, but the burden of such defense shall be on the corporation. Neither the failure of the corporation (including its board of directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the General Corporation Law of the State of Delaware, nor an actual determination by the corporation (including its board of directors, independent legal counsel, or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct. Section 3. Article Not Exclusive. The rights to indemnification and the --------------------- payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Article V shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the certificate of incorporation, by-law, agreement, vote of stockholders or disinterested directors or otherwise. Section 4. Insurance. The corporation may purchase and maintain insurance --------- on its own behalf and on behalf of any person who is or was a director, officer, employee, fiduciary, or agent of the corporation or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity, whether or not the corporation would have the power to indemnify such person against such liability under this Article V. Section 5. Expenses. Expenses incurred by any person described in Section -------- 1 of this Article V in defending a proceeding shall be paid by the corporation in advance of such proceeding's final disposition upon receipt of an undertaking by or on behalf of the director or officer to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the corporation. Such expenses incurred by other employees and agents may be so paid upon such terms and conditions, if any, as the board of directors deems appropriate. Section 6. Employees and Agent. Persons who are not covered by the ------------------- foregoing provisions of this Article V and who are or were employees or agents of the corporation, or who are or were serving at the request of the corporation as employees or agents of another corporation, partnership, joint venture, trust or other enterprise, may be indemnified to the extent authorized at any time or from time to time by the board of directors. Section 7. Contract Rights. The provisions of this Article V shall be --------------- deemed to be a contract right between the corporation and each director or officer who serves in any such capacity at any time while this Article V and the relevant provisions of the General Corporation Law of the State of Delaware or other applicable law are in effect, and any repeal or modification of this Article V or any such law shall not affect any rights or obligations then existing with respect to any state of facts or proceeding then existing. -9- Section 8. Merger or Consolidation. For purposes of this Article V, ----------------------- references to "the corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee, fiduciary or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under this Article V with respect to the resulting or surviving corporation as he or she would have with respect to such constituent corporation if its separate existence had continued. ARTICLE VI CERTIFICATES OF STOCK --------------------- Section 1. Form. Every holder of stock in the corporation shall be ---- entitled to have a certificate, signed by, or in the name of the corporation by the president, or a vice-president and the secretary or any assistant secretary of the corporation, certifying the number of shares owned by such holder in the corporation. If such a certificate is countersigned (1) by a transfer agent or an assistant transfer agent other than the corporation or its employee or (2) by a registrar, other than the corporation or its employee, the signature of the president, any vice-president, secretary, or any assistant secretary may be facsimiles. In case any officer or officers who have signed, or whose facsimile signature or signatures have been used on, any such certificate or certificates shall cease to be such officer or officers of the corporation whether because of death, resignation or otherwise before such certificate or certificates have been delivered by the corporation, such certificate or certificates may nevertheless be issued and delivered as though the person or persons who signed such certificate or certificates or whose facsimile signature or signatures have been used thereon had not ceased to be such officer or officers of the corporation. All certificates for shares shall be consecutively numbered or otherwise identified. The name of the person to whom the shares represented thereby are issued, with the number of shares and date of issue, shall be entered on the books of the corporation. Shares of stock of the corporation shall only be transferred on the books of the corporation by the holder of record thereof or by such holder's attorney duly authorized in writing, upon surrender to the corporation of the certificate or certificates for such shares endorsed by the appropriate person or persons, with such evidence of the authenticity of such endorsement, transfer, authorization, and other matters as the corporation may reasonably require, and accompanied by all necessary stock transfer stamps. In that event, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate or certificates, and record the transaction on its books. The board of directors may appoint a bank or trust company organized under the laws of the United States or any state thereof to act as its transfer agent or registrar, or both in connection with the transfer of any class or series of securities of the corporation. Section 2. Lost Certificates. The board of directors may direct a new ----------------- certificate or certificates to be issued in place of any certificate or certificates previously issued by the corporation -10- alleged to have been lost, stolen, or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen, or destroyed. When authorizing such issue of a new certificate or certificates, the board of directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen, or destroyed certificate or certificates, or his or her legal representative, to give the corporation a bond sufficient to indemnify the corporation against any claim that may be made against the corporation on account of the loss, theft or destruction of any such certificate or the issuance of such new certificate. Section 3. Fixing a Record Date for Stockholder Meetings. In order that --------------------------------------------- the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the board of directors, and which record date shall not be more than sixty nor less than ten days before the date of such meeting. If no record date is fixed by the board of directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be the close of business on the next day preceding the day on which notice is given, or if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meeting. Section 4. Fixing a Record Date for Action by Written Consent. In order -------------------------------------------------- that the corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the board of directors, and which date shall not be more than ten days after the date upon which the resolution fixing the record date is adopted by the board of directors. If no record date has been fixed by the board of directors, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the board of directors is required by statute, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the corporation by delivery to its registered office in the State of Delaware, its principal place of business, or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the board of directors and prior action by the board of directors is required by statute, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the board of directors adopts the resolution taking such prior action. Section 5. Fixing a Record Date for Other Purposes. In order that the --------------------------------------- corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment or any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purposes of any other lawful action, the board of directors may fix a record date, which record date shall not precede the date upon which the -11- resolution fixing the record date is adopted, and which record date shall be not more than sixty days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the board of directors adopts the resolution relating thereto. Section 6. Registered Stockholders. Prior to the surrender to the ----------------------- corporation of the certificate or certificates for a share or shares of stock with a request to record the transfer of such share or shares, the corporation may treat the registered owner as the person entitled to receive dividends, to vote, to receive notifications, and otherwise to exercise all the rights and powers of an owner. Section 7. Subscriptions for Stock. Unless otherwise provided for in the ----------------------- subscription agreement, subscriptions for shares shall be paid in full at such time, or in such installments and at such times, as shall be determined by the board of directors. Any call made by the board of directors for payment on subscriptions shall be uniform as to all shares of the same class or as to all shares of the same series. In case of default in the payment of any installment or call when such payment is due, the corporation may proceed to collect the amount due in the same manner as any debt due the corporation. ARTICLE VII GENERAL PROVISIONS ------------------ Section 1. Dividends. Dividends upon the capital stock of the corporation, --------- subject to the provisions of the certificate of incorporation, if any, may be declared by the board of directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the certificate of incorporation. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or any other purpose and the directors may modify or abolish any such reserve in the manner in which it was created. Section 2. Checks, Drafts or Orders. All checks, drafts, or other orders ------------------------ for the payment of money by or to the corporation and all notes and other evidences of indebtedness issued in the name of the corporation shall be signed by such officer or officers, agent or agents of the corporation, and in such manner, as shall be determined by resolution of the board of directors or a duly authorized committee thereof. Section 3. Contracts. The board of directors may authorize any officer or --------- officers, or any agent or agents; of the corporation to enter into any contract or to execute and deliver any instrument in the name of and on behalf of the corporation, and such authority may be general or confined to specific instances. -12- Section 4. Loans. The corporation may lend money to, or guarantee any ----- obligation of, or otherwise assist any officer or other employee of the corporation or of its subsidiary, including any officer or employee who is a director of the corporation or its subsidiary, whenever, in the judgment of the directors, such loan, guaranty or assistance may reasonably be expected to benefit the corporation. The loan, guaranty or other assistance may be with or without interest, and may be unsecured, or secured in such manner as the board of directors shall approve, including, without limitation, a pledge of shares of stock of the corporation. Nothing in this section contained shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the corporation at common law or under any statute. Section 5. Fiscal Year. The fiscal year of the corporation shall be fixed ----------- by resolution of the board of directors. Section 6. Corporate Seal. The board of directors may provide a corporate -------------- seal which shall be in the form of a circle and shall have inscribed thereon the name of the corporation and the words "Corporate Seal, Delaware." The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. Section 7. Voting Securities Owned By Corporation. Voting securities in -------------------------------------- any other corporation held by the corporation shall be voted by the president, unless the board of directors specifically confers authority to vote with respect thereto, which authority may be general or confined to specific instances, upon some other person or officer. Any person authorized to vote securities shall have the power to appoint proxies, with general power of substitution. Section 8. Inspection of Books and Records. Any stockholder of record, in ------------------------------- person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders, and its other books and records, and to make copies or extracts therefrom. A proper purpose shall mean any purpose reasonably related to such person's interest as a stockholder. In every instance where an attorney or other agent shall be the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing which authorizes the attorney or other agent to so act on behalf of the stockholder. The demand under oath shall be directed to the corporation at its registered office in the State of Delaware or at its principal place of business. Section 9. Section Headings. Section headings in these by-laws are for ---------------- convenience of reference only and shall not be given any substantive effect in limiting or otherwise construing any provision herein. Section 10. Inconsistent Provisions. In the event that any provision of ----------------------- these by-laws is or becomes inconsistent with any provision of the certificate of incorporation, the General Corporation Law of the State of Delaware or any other applicable law, the provision of these by-laws shall not be given any effect to the extent of such inconsistency but shall otherwise be given full force and effect. -13- ARTICLE VIII AMENDMENTS ---------- These by-laws may be amended, altered, or repealed and new by-laws adopted at any meeting of the board of directors by a majority vote. The fact that the power to adopt, amend, alter, or repeal the by-laws has been conferred upon the board of directors shall not divest the stockholders of the same powers. -14- EX-3.2(B) 6 RESTATED BYLAWS OF REGISTRANT POST-EFFECTIVE EXHIBIT 3.2(B) RESTATED BYLAWS OF RUDOLPH TECHNOLOGIES, INC. TABLE OF CONTENTS
Page ---- ARTICLE I CORPORATE OFFICES................................................................................ 1 1.1 REGISTERED OFFICE........................................................................ 1 1.2 OTHER OFFICES............................................................................ 1 ARTICLE II MEETINGS OF STOCKHOLDERS........................................................................ 1 2.1 PLACE OF MEETINGS........................................................................ 1 2.2 ANNUAL MEETING........................................................................... 1 2.3 SPECIAL MEETING.......................................................................... 2 2.4 NOTICE OF STOCKHOLDERS' MEETINGS......................................................... 2 2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS.......................... 2 2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE............................................. 4 2.7 QUORUM................................................................................... 4 2.8 ADJOURNED MEETING; NOTICE................................................................ 4 2.9 CONDUCT OF BUSINESS...................................................................... 4 2.10 VOTING................................................................................... 5 2.11 WAIVER OF NOTICE......................................................................... 5 2.12 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING.................................. 5 2.13 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS.............................. 5 2.14 PROXIES.................................................................................. 6 2.15 LIST OF STOCKHOLDERS ENTITLED TO VOTE.................................................... 6 ARTICLE III DIRECTORS...................................................................................... 6 3.1 POWERS................................................................................... 6 3.2 NUMBER OF DIRECTORS...................................................................... 7 3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS.................................. 7 3.4 RESIGNATION AND VACANCIES................................................................ 7 3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE................................................. 8 3.6 REGULAR MEETINGS......................................................................... 8 3.7 SPECIAL MEETINGS; NOTICE................................................................. 9 3.8 QUORUM................................................................................... 9 3.9 WAIVER OF NOTICE......................................................................... 9 3.10 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING........................................ 10 3.11 FEES AND COMPENSATION OF DIRECTORS....................................................... 10 3.12 APPROVAL OF LOANS TO OFFICERS............................................................ 10 3.13 REMOVAL OF DIRECTORS..................................................................... 10
-i- ARTICLE IV COMMITTEES...................................................................................... 11 4.1 COMMITTEES OF DIRECTORS.................................................................. 11 4.2 COMMITTEE MINUTES........................................................................ 11 4.3 MEETINGS AND ACTION OF COMMITTEES........................................................ 11 ARTICLE V OFFICERS......................................................................................... 12 5.1 OFFICERS................................................................................. 12 5.2 APPOINTMENT OF OFFICERS.................................................................. 12 5.3 SUBORDINATE OFFICERS..................................................................... 12 5.4 REMOVAL AND RESIGNATION OF OFFICERS; FILLING VACANCIES................................... 12 5.5 CHAIRMAN OF THE BOARD.................................................................... 13 5.6 CHIEF EXECUTIVE OFFICER.................................................................. 13 5.7 PRESIDENT................................................................................ 13 5.8 VICE PRESIDENTS.......................................................................... 13 5.9 SECRETARY................................................................................ 13 5.10 CHIEF FINANCIAL OFFICER.................................................................. 14 5.11 ASSISTANT SECRETARY...................................................................... 14 5.12 ASSISTANT TREASURER...................................................................... 15 5.13 REPRESENTATION OF SHARES OF OTHER CORPORATIONS........................................... 15 5.14 AUTHORITY AND DUTIES OF OFFICERS......................................................... 15 ARTICLE VI INDEMNITY....................................................................................... 15 6.1 THIRD PARTY ACTIONS...................................................................... 15 6.2 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION............................................ 16 6.3 SUCCESSFUL DEFENSE....................................................................... 16 6.4 DETERMINATION OF CONDUCT................................................................. 16 6.5 PAYMENT OF EXPENSES IN ADVANCE........................................................... 17 6.6 INDEMNITY NOT EXCLUSIVE.................................................................. 17 6.7 INSURANCE INDEMNIFICATION................................................................ 17 6.8 THE CORPORATION.......................................................................... 17 6.9 EMPLOYEE BENEFIT PLANS................................................................... 18 6.10 CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES.............................. 18 ARTICLE VII RECORDS AND REPORTS............................................................................ 18 7.1 MAINTENANCE AND INSPECTION OF RECORDS.................................................... 18 7.2 INSPECTION BY DIRECTORS.................................................................. 19 7.3 ANNUAL STATEMENT TO STOCKHOLDERS......................................................... 19 ARTICLE VIII GENERAL MATTERS............................................................................... 19 8.1 CHECKS................................................................................... 19 8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS......................................... 20 8.3 STOCK CERTIFICATES; PARTLY PAID SHARES................................................... 20 8.4 SPECIAL DESIGNATION ON CERTIFICATES...................................................... 20
-ii- 8.5 LOST CERTIFICATES........................................................................ 21 8.6 CONSTRUCTION; DEFINITIONS................................................................ 21 8.7 DIVIDENDS................................................................................ 21 8.8 FISCAL YEAR.............................................................................. 21 8.9 SEAL..................................................................................... 21 8.10 TRANSFER OF STOCK........................................................................ 22 8.11 STOCK TRANSFER AGREEMENTS................................................................ 22 8.12 REGISTERED STOCKHOLDERS.................................................................. 22 ARTICLE IX AMENDMENTS...................................................................................... 22
-iii- RESTATED BYLAWS OF RUDOLPH TECHNOLOGIES, INC. ARTICLE I CORPORATE OFFICES ----------------- 1.1 REGISTERED OFFICE ----------------- The registered office of the corporation shall be in the City of Wilmington, County of New Castle, State of Delaware. The name of the registered agent of the corporation at such location is Prentice-Hall Corporation System, Inc. 1.2 OTHER OFFICES ------------- The board of directors may at any time establish other offices at any place or places where the corporation is qualified to do business. ARTICLE II MEETINGS OF STOCKHOLDERS ------------------------ 2.1 PLACE OF MEETINGS ----------------- Meetings of stockholders shall be held at any place, either within or without the State of Delaware, as may be designated by the board of directors or in the manner provided in these bylaws. In the absence of any such designation, stockholders' meetings shall be held at the registered office of the corporation in the State of Delaware. 2.2 ANNUAL MEETING -------------- An annual meeting of the stockholders shall be held each year within one hundred fifty (150) days after the close of the immediately preceding fiscal year of the corporation for the purpose of electing directors and conducting such other proper business as may properly come before the meeting. The date and time of the annual meeting shall be determined by the president of the corporation; provided, that if the president does not act, the board of directors shall determine the date and time of such meeting. 2.3 SPECIAL MEETING --------------- A special meeting of the stockholders may be called at any time by the board of directors, or by the chairman of the board, or by the chief executive officer, or by the president. If a special meeting is called by any person or persons other than the board of directors, the request shall be in writing, specifying the time of such meeting and the general nature of the business proposed to be transacted, and shall be delivered personally or sent by registered mail or by telegraphic or other facsimile transmission to the chairman of the board, the president or the secretary of the corporation. No business may be transacted at such special meeting otherwise than specified in such notice. The officer receiving the request shall cause notice to be promptly given to the stockholders entitled to vote, in accordance with the provisions of Sections 2.4 and 2.5 of this Article II, that a meeting will be held at the time requested by the person or persons calling the meeting, not less than ten (10) nor more than sixty (60) days after the receipt of the request. Nothing contained in this paragraph of this Section 2.3 shall be construed as limiting, fixing, or affecting the time when a meeting of stockholders called by action of the board of directors may be held. 2.4 NOTICE OF STOCKHOLDERS' MEETINGS -------------------------------- All notices of meetings with stockholders shall be in writing and shall be sent or otherwise given in accordance with Section 2.6 of these bylaws not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting. The notice shall specify the place, date, and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. 2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS --------------------------------------------------------------- (i) Advance Notice of Stockholder Nominations ----------------------------------------- Nominations of persons for election to the board of directors of the corporation may be made at a meeting of stockholders by or at the direction of the board of directors or by any stockholder of the corporation entitled to vote in the election of directors at the meeting who complies with the notice procedures set forth in this Section. Such nominations, other than those made by or at the direction of the board of directors, shall be made pursuant to timely notice in writing to the Secretary of the corporation. To be timely, a stockholder's notice shall be delivered to or mailed and received at the principal executive offices of the corporation not less than twenty (20) days prior to the meeting; provided, however, that in the event less than thirty (30) -------- ------- days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the tenth day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. -2- Such stockholder's notice shall set forth (a) as to each person, if any, whom the stockholder proposes to nominate for election or re-election as a director: (i) the name, age, business address and residence address of such person, (ii) the principal occupation or employment of such person, (iii) the class and number of shares of the corporation which are beneficially owned by such person, (iv) any other information relating to such person that is required by law to be disclosed in solicitations of proxies for election of directors, and (v) such person's written consent to being named as a nominee and to serving as a director if elected; and (b) as to the stockholder giving the notice: (i) the name and address, as they appear on the corporation's books, of such stockholder, (ii) the class and number of shares of the corporation which are beneficially owned by such stockholder, and (iii) 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. At the request of the board of directors any person nominated by the board of directors for election as a director shall furnish to the Secretary of the corporation that information required to be set forth in the stockholder's notice of nomination which pertains to the nominee. No person shall be eligible for election as a director of the corporation unless nominated in accordance with the procedures set forth in this Section. The chairman of the meeting shall, if the facts warrant, determine and declare at the meeting that a nomination was not made in accordance with the procedures prescribed by these bylaws, and if he should so determine, he shall so declare at the meeting and the defective nomination shall be disregarded. (ii) Advance Notice of Stockholders Business --------------------------------------- At the annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be: (a) as specified in the notice of meeting (or any supplement thereto) given by or at the direction of the board of directors, (b) otherwise properly brought before the meeting by or at the direction of the board of directors, or (c) otherwise properly brought before the meeting by a stockholder. Business to be brought before the meeting by a stockholder shall not be considered properly brought if the stockholder has not given timely notice thereof in writing to the Secretary of the corporation. To be timely, a stockholder's notice must be delivered to the principal executive offices of the corporation not less than forty five (45) days prior to the date on which the corporation first mailed proxy materials for the prior year's annua annual meeting; provided, however, that if the corporation's annual -------- ------- meeting of stockholders occurs on a date more than thirty (30) days earlier or later than the corporation's prior year's annual meeting, then the corporation's board of directors shall determine a date a reasonable period prior to the corporation's annual meeting of stockholders by which date the stockholders notice must be delivered and publicize such date in a filing pursuant to the Securities Exchange Act of 1934, as amended, or via press release. Such publication shall occur at least ten (10) days prior to the date set by the Board of Directors. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting: (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and address of the stockholder proposing such business, (iii) the class and number of shares of the corporation, which are beneficially owned by the stockholder, (iv) any material interest of the stockholder in such business, and (v) any other information that is required by law to be provided by the stockholder in -3- his capacity as proponent of a stockholder proposal. Notwithstanding anything in these bylaws to the contrary, no business shall be conducted at any annual meeting except in accordance with the procedures set forth in this Section. The chairman of the annual meeting shall, if the facts warrant, determine and declare at the meeting that business was not properly brought before the meeting and in accordance with the provisions of this Section, and, if he should so determine, he shall so declare at the meeting that any such business not properly brought before the meeting shall not be transacted. 2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE -------------------------------------------- Written notice of any meeting of stockholders, if mailed, is given when deposited in the United States mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the corporation. An affidavit of the secretary or an assistant secretary or of the transfer agent of the corporation that the notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein. 2.7 QUORUM ------ The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the certificate of incorporation. If, however, such quorum is not present or represented at any meeting of the stockholders, then either (i) the Chairman of the meeting or (ii) the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present or represented. At such adjourned meeting at which a quorum is present or represented, any business may be transacted that might have been transacted at the meeting as originally noticed. 2.8 ADJOURNED MEETING; NOTICE ------------------------- When a meeting is adjourned to another time or place, unless these bylaws otherwise require, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the corporation may transact any business that might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. 2.9 CONDUCT OF BUSINESS ------------------- The chairman of any meeting of stockholders shall determine the order of business and the procedure at the meeting, including such regulation of the manner of voting and the conduct of business. -4- 2.10 VOTING ------ The stockholders entitled to vote at any meeting of stockholders shall be determined in accordance with the provisions of Section 2.13 of these bylaws, subject to the provisions of Sections 217 and 218 of the Delaware General Corporation Law (relating to voting rights of fiduciaries, pledgors and joint owners of stock and to voting trusts and other voting agreements). Except as may be otherwise provided in the certificate of incorporation, each stockholder shall be entitled to one vote for each share of capital stock held by such stockholder. 2.11 WAIVER OF NOTICE ---------------- Whenever notice is required to be given under any provision of the Delaware General Corporation Law or of the certificate of incorporation or these bylaws, a written waiver, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors, or members of a committee of directors need be specified in any written waiver of notice unless so required by the certificate of incorporation or these bylaws. 2.12 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING ------------------------------------------------------- The stockholders of the corporation may not take action by written consent without a meeting but must take any such actions at a duly called annual or special meeting. 2.13 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS ----------------------------------------------------------- In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the board of directors may fix, in advance, a record date, which shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other action. If the board of directors does not so fix a record date: (i) The record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. -5- (ii) The record date for determining stockholders entitled to express consent to corporate action in writing without a meeting, when no prior action by the board of directors is necessary, shall be the first date on which a signed written consent is delivered to the corporation. (iii) The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the board of directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meeting. 2.14 PROXIES ------- Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for such stockholder by a written proxy, signed by such stockholder and filed with the secretary of the corporation, but no such proxy shall be voted or acted upon after three (3) years from its date, unless the proxy provides for a longer period. A proxy shall be deemed signed if such stockholder's name is placed on the proxy by any reasonable means including, but not limited to, by facsimile signature, manual signature, typewriting, telegraphic transmission or otherwise, by such stockholder or such stockholder's attorney-in-fact. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Section 212(e) of the Delaware General Corporation Law. 2.15 LIST OF STOCKHOLDERS ENTITLED TO VOTE ------------------------------------- The officer who has charge of the stock ledger of a corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. Such list shall presumptively determine the identity of the stockholders entitled to vote at the meeting and the number of shares held by each of them. ARTICLE III DIRECTORS --------- 3.1 POWERS ------ -6- Subject to the provisions of the Delaware General Corporation Law and any limitations in the certificate of incorporation or these bylaws relating to action required to be approved by the stockholders or by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the board of directors. 3.2 NUMBER OF DIRECTORS ------------------- The board of directors shall consist of eight (8) members. The number of directors may be changed by an amendment to this bylaw, duly adopted by the board of directors or by the stockholders, or by a duly adopted amendment to the certificate of incorporation. Upon the closing of the first sale of the corporation's common stock pursuant to a firmly underwritten registered public offering (the "IPO"), the directors shall be divided into three classes, with the term of office of the first class, which class shall initially consist of three directors, to expire at the first annual meeting of stockholders held after the IPO; the term of office of the second class, which shall initially consist of three directors, to expire at the second annual meeting of stockholders held after the IPO; the term of office of the third class, which class shall initially consist of two directors, to expire at the third annual meeting of stockholders held after the IPO; and thereafter for each such term to expire at each third succeeding annual meeting of stockholders held after such election. No reduction of the authorized number of directors shall have the effect of removing any director before that director's term of office expires. 3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS ------------------------------------------------------- Except as provided in Section 3.4 of these bylaws, directors shall be elected at each annual meeting of stockholders to hold office until the next annual meeting. Directors need not be stockholders unless so required by the certificate of incorporation or these bylaws, wherein other qualifications for directors may be prescribed. Each director, including a director elected to fill a vacancy, shall hold office until his successor is elected and qualified or until his earlier resignation or removal. Elections of directors need not be by written ballot. 3.4 RESIGNATION AND VACANCIES ------------------------- Any director may resign at any time upon written notice to the attention of the Secretary of the corporation. When one or more directors shall resign from the board of directors, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office as provided in this section in the filling of other vacancies. Unless otherwise provided in the certificate of incorporation or these bylaws: -7- (i) Vacancies and newly created directorships resulting from any increase in the authorized number of directors elected by all of the stockholders having the right to vote as a single class may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. (ii) Whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more directors by the certificate of incorporation, vacancies and newly created directorships of such class or classes or series may be filled by a majority of the directors elected by such class or classes or series thereof then in office, or by a sole remaining director so elected. If at any time, by reason of death or resignation or other cause, the corporation should have no directors in office, then any officer or any stockholder or an executor, administrator, trustee or guardian of a stockholder, or other fiduciary entrusted with like responsibility for the person or estate of a stockholder, may call a special meeting of stockholders in accordance with the provisions of the certificate of incorporation or these bylaws, or may apply to the Court of Chancery for a decree summarily ordering an election as provided in Section 211 of the Delaware General Corporation Law. If, at the time of filling any vacancy or any newly created directorship, the directors then in office constitute less than a majority of the whole board (as constituted immediately prior to any such increase), then the Court of Chancery may, upon application of any stockholder or stockholders holding at least ten (10) percent of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office as aforesaid, which election shall be governed by the provisions of Section 211 of the Delaware General Corporation Law as far as applicable. 3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE ---------------------------------------- The board of directors of the corporation may hold meetings, both regular and special, either within or outside the State of Delaware. Unless otherwise restricted by the certificate of incorporation or these bylaws, members of the board of directors, or any committee designated by the board of directors, may participate in a meeting of such board of directors, or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting pursuant to this section shall constitute presence in person at the meeting. 3.6 REGULAR MEETINGS ---------------- Regular meetings of the board of directors may be held without notice at such time and at such place as shall from time to time be determined by the board. -8- 3.7 SPECIAL MEETINGS; NOTICE ------------------------ Special meetings of the board of directors for any purpose or purposes may be called at any time by the chairman of the board, the president, any vice president, the secretary or any two (2) directors. Notice of the time and place of special meetings shall be delivered personally or by telephone to each director or sent by email or by first-class mail or telegram, charges prepaid, addressed to each director at that director's address as it is shown on the records of the corporation. If the notice is mailed, it shall be deposited in the United States mail at least four (4) days before the time of the holding of the meeting. If the notice is delivered personally or by telephone or by telegram or by email, it shall be delivered personally or by telephone or to the telegraph company at least forty-eight (48) hours before the time of the holding of the meeting. Any oral notice given personally or by telephone may be communicated either to the director or to a person at the office of the director who the person giving the notice has reason to believe will promptly communicate it to the director. The notice need not specify the purpose or the place of the meeting, if the meeting is to be held at the principal executive office of the corporation. 3.8 QUORUM ------ At all meetings of the board of directors, a majority of the authorized number of directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the board of directors, except as may be otherwise specifically provided by statute, the certificate of incorporation, or these bylaws. If a quorum is not present at any meeting of the board of directors, then the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for that meeting. 3.9 WAIVER OF NOTICE ---------------- Whenever notice is required to be given under any provision of the Delaware General Corporation Law, the certificate of incorporation, or these bylaws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when such person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the directors, or members of a committee of directors, need be specified in any written waiver of notice unless so required by the certificate of incorporation or these bylaws. -9- 3.10 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING ------------------------------------------------- Unless otherwise restricted by the certificate of incorporation or these bylaws, any action required or permitted to be taken at any meeting of the board of directors, or of any committee thereof may be taken without a meeting if all members of the board or committee, as the case may be, consent thereto in writing and the writing or writings are filed with the minutes of proceedings of the board or committee. 3.11 FEES AND COMPENSATION OF DIRECTORS ---------------------------------- Unless otherwise restricted by the certificate of incorporation or these bylaws, the board of directors shall have the authority to fix the compensation of directors. 3.12 APPROVAL OF LOANS TO OFFICERS ----------------------------- The corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the corporation or any of its subsidiaries, including any officer or employee who is a director of the corporation or its subsidiaries, whenever, in the judgment of the directors, such loan, guaranty or assistance may reasonably be expected to benefit the corporation. The loan, guaranty or other assistance may be with or without interest and may be unsecured, or secured in such manner as the board of directors shall approve, including, without limitation, a pledge of shares of stock of the corporation. Nothing contained in this section shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the corporation at common law or under any statute. 3.13 REMOVAL OF DIRECTORS -------------------- Unless otherwise restricted by statute, by the certificate of incorporation or by these bylaws, any director or the entire board of directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors; provided, however, that, so long as stockholders of the corporation are entitled to cumulative voting, if less than the entire board is to be removed, no director may be removed without cause if the votes cast against his removal would be sufficient to elect such director if then cumulatively voted at an election of the entire board of directors or, if there be classes of directors, at an election of the class of directors of which such director is a part. No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of such director's term of office. -10- ARTICLE IV COMMITTEES ---------- 4.1 COMMITTEES OF DIRECTORS ----------------------- The board of directors may, by resolution passed by a majority of the whole board, designate one or more committees, with each committee to consist of one or more of the directors of the corporation. The board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the board of directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the board of directors, or in the bylaws of the corporation, shall have and may exercise all the powers and authority of the board of directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers that may require it; but no such committee shall have the power or authority (i) approving or adopting or recommending to the stockholders, any action or matter expressly required by the Delaware General Corporation Law to be submitted to stockholders for approval or (ii) adopting, amending, or repealing any bylaws of the corporation; and, unless the board resolution establishing the committee, the bylaws or the certificate of incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend, to authorize the issuance of stock, or to adopt a certificate of ownership and merger pursuant to Section 253 of the Delaware General Corporation Law. 4.2 COMMITTEE MINUTES ----------------- Each committee shall keep regular minutes of its meetings and report the same to the board of directors when required. 4.3 MEETINGS AND ACTION OF COMMITTEES --------------------------------- Meetings and actions of committees shall be governed by, and held and taken in accordance with, the provisions of Article III of these bylaws, Section 3.5 (place of meetings and meetings by telephone), Section 3.6 (regular meetings), Section 3.7 (special meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice), and Section 3.10 (action without a meeting), with such changes in the context of those bylaws as are necessary to substitute the committee and its members for the board of directors and its members; provided, however, that the time of regular meetings of committees may be determined either by resolution of the board of directors or by resolution of the committee, that special meetings of committees may also be called by resolution of the board of directors and that notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The board of directors -11- may adopt rules for the government of any committee not inconsistent with the provisions of these bylaws. ARTICLE V OFFICERS -------- 5.1 OFFICERS -------- The officers of the corporation shall be a president, a secretary, and a chief financial officer. The corporation may also have, at the discretion of the board of directors, a chairman of the board, a treasurer, one or more vice presidents, one or more assistant vice presidents, one or more assistant secretaries, one or more assistant treasurers, and any such other officers as may be appointed in accordance with the provisions of Section 5.3 of these bylaws. Any number of offices may be held by the same person. 5.2 APPOINTMENT OF OFFICERS ----------------------- The officers of the corporation, except such officers as may be appointed in accordance with the provisions of Sections 5.3 or 5.5 of these bylaws, shall be appointed by the board of directors, subject to the rights, if any, of an officer under any contract of employment. 5.3 SUBORDINATE OFFICERS -------------------- The board of directors may appoint, or empower the president to appoint, such other officers and agents as the business of the corporation may require, each of whom shall hold office for such period, have such authority, and perform such duties as are provided in these bylaws or as the board of directors may from time to time determine. 5.4 REMOVAL AND RESIGNATION OF OFFICERS; FILLING VACANCIES ------------------------------------------------------ Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by an affirmative vote of the majority of the board of directors at any regular or special meeting of the board or, except in the case of an officer chosen by the board of directors, by any officer upon whom such power of removal may be conferred by the board of directors. Any officer may resign at any time by giving written notice to the corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party. -12- Any vacancy occurring in any office of the corporation shall be filled by the board of directors. 5.5 CHAIRMAN OF THE BOARD --------------------- The chairman of the board, if such an officer be elected, shall, if present, preside at meetings of the board of directors and exercise and perform such other powers and duties as may from time to time be assigned to the chairman of the board by the board of directors or as may be prescribed by these bylaws. If there is no president and no one has been appointed chief executive officer, then the chairman of the board shall also be the chief executive officer of the corporation and shall have the powers and duties prescribed in Section 5.6 of these bylaws. 5.6 CHIEF EXECUTIVE OFFICER ----------------------- The board of directors shall select a chief executive officer of the corporation who shall be subject to the control of the board of directors and have general supervision, direction and control of the business and the officers of the corporation. The chief executive officer shall preside at all meetings of the stockholders and, in the absence or nonexistence of a chairman of the board, at all meetings of the board of directors. 5.7 PRESIDENT --------- The president shall have the general powers and duties of management usually vested in the office of president of a corporation and shall have such other powers and duties as may be prescribed by the board of directors or these bylaws. In addition and subject to such supervisory powers, if any, as may be given by the board of directors to the chairman of the board, if no one has been appointed chief executive officer, the president shall be the chief executive officer of the corporation and shall, subject to the control of the board of directors, have the powers and duties described in Section 5.6. 5.8 VICE PRESIDENTS --------------- In the absence or disability of the president, the vice presidents, if any, in order of their rank as fixed by the board of directors or, if not ranked, a vice president designated by the board of directors, shall perform all the duties of the president and when so acting shall have all the powers of, and be subject to all the restrictions upon, the president. The vice presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the board of directors, these bylaws, the president or the chairman of the board. 5.9 SECRETARY --------- The secretary shall keep or cause to be kept, at the principal executive office of the corporation or such other place as the board of directors may direct, a book of minutes of all meetings and actions of directors, committees of directors, and stockholders. The minutes shall show the time and place of each meeting, whether regular or special (and, if special, how authorized -13- and the notice given), the names of those present at directors' meetings or committee meetings, the number of shares present or represented at stockholders' meetings, and the proceedings thereof. The secretary shall keep, or cause to be kept, at the principal executive office of the corporation or at the office of the corporation's transfer agent or registrar, as determined by resolution of the board of directors, a share register, or a duplicate share register, showing the names of all stockholders and their addresses, the number and classes of shares held by each, the number and date of certificates evidencing such shares, and the number and date of cancellation of every certificate surrendered for cancellation. The secretary shall give, or cause to be given, notice of all meetings of the stockholders and of the board of directors required to be given by law or by these bylaws. The secretary shall keep the seal of the corporation, if one be adopted, in safe custody and shall have such other powers and perform such other duties as may be prescribed by the board of directors or by these bylaws. 5.10 CHIEF FINANCIAL OFFICER ----------------------- The chief financial officer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital retained earnings, and shares. The books of account shall at all reasonable times be open to inspection by any director. The chief financial officer shall deposit all moneys and other valuables in the name and to the credit of the corporation with such depositories as may be designated by the board of directors. The chief financial officer shall disburse the funds of the corporation as may be ordered by the board of directors, shall render to the president and directors, whenever they request it, an account of all his transactions as chief financial officer and of the financial condition of the corporation, and shall have other powers and perform such other duties as may be prescribed by the board of directors or these bylaws. The chief financial officer shall be the treasurer of the corporation unless the board of directors appoints some one other than the chief financial officer to be the treasurer of the corporation. 5.11 ASSISTANT SECRETARY ------------------- The assistant secretary, or, if there is more than one, the assistant secretaries in the order determined by the stockholders or board of directors (or if there be no such determination, then in the order of their election) shall, in the absence of the secretary or in the event of his or her inability or refusal to act, perform the duties and exercise the powers of the secretary and shall perform such other duties and have such other powers as may be prescribed by the board of directors or these bylaws. -14- 5.12 ASSISTANT TREASURER ------------------- The assistant treasurer, or, if there is more than one, the assistant treasurers, in the order determined by the stockholders or board of directors (or if there be no such determination, then in the order of their election), shall, in the absence of the chief financial officer or in the event of his or her inability or refusal to act, perform the duties and exercise the powers of the chief financial officer and shall perform such other duties and have such other powers as may be prescribed by the board of directors or these bylaws. 5.13 REPRESENTATION OF SHARES OF OTHER CORPORATIONS ---------------------------------------------- The chairman of the board, the president, any vice president, the chief financial officer, the secretary or assistant secretary of this corporation, or any other person authorized by the board of directors or the president or a vice president, is authorized to vote, represent, and exercise on behalf of this corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of this corporation. The authority granted herein may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by such person having the authority. 5.14 AUTHORITY AND DUTIES OF OFFICERS -------------------------------- In addition to the foregoing authority and duties, all officers of the corporation shall respectively have such authority and perform such duties in the management of the business of the corporation as may be designated from time to time by the board of directors or the stockholders. ARTICLE VI INDEMNITY --------- 6.1 THIRD PARTY ACTIONS ------------------- The corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that such person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement (if such settlement is approved in advance by the corporation, which approval shall not be unreasonably withheld) actually and reasonably incurred by such person in connection with such action, suit or proceeding if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to -15- believe such person's conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo ---- contendere or its equivalent, shall not, of itself, create a presumption that - ---------- the person did not act in good faith and in a manner which the person reasonably believed to be in or not opposed to the best interest of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that the person's conduct was unlawful. 6.2 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION --------------------------------------------- The corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that such person is or was a director, officer, employee or agent of corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) and amounts paid in settlement (if such settlement is approved in advance by the corporation, which approval shall not be unreasonably withheld) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in manner such person reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Delaware Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Delaware Court of Chancery or such other court shall deem proper. Notwithstanding any other provision of this Article VI, no person shall be indemnified hereunder for any expenses or amounts paid in settlement with respect to any action to recover short-swing profits under Section 16(b) of the Securities Exchange Act of 1934, as amended. 6.3 SUCCESSFUL DEFENSE ------------------ To the extent that a director, officer, employee or agent of the corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Sections 6.1 and 6.2, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection therewith. 6.4 DETERMINATION OF CONDUCT ------------------------ Any indemnification under Sections 6.1 and 6.2 (unless ordered by a court) shall be made by the corporation only as authorized in the specific case upon a determination that the indemnification of the director, officer, employee or agent is proper in the circumstances because such person has met the applicable standard of conduct set forth in Sections 6.1 and 6.2. Such determination shall be made (1) by the Board of Directors or the Executive Committee by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding or (2) or if such quorum is not obtainable or, even if obtainable, a quorum of disinterested directors so directs, by -16- independent legal counsel in a written opinion, or (3) by the stockholders. Notwithstanding the foregoing, a director, officer, employee or agent of the Corporation shall be entitled to contest any determination that the director, officer, employee or agent has not met the applicable standard of conduct set forth in Sections 6.1 and 6.2 by petitioning a court of competent jurisdiction. 6.5 PAYMENT OF EXPENSES IN ADVANCE ------------------------------ Expenses incurred in defending a civil or criminal action, suit or proceeding, by an individual who may be entitled to indemnification pursuant to Section 6.1 or 6.2, shall be paid by the corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount if it shall ultimately be determined that such person is not entitled to be indemnified by the corporation as authorized in this Article VI. 6.6 INDEMNITY NOT EXCLUSIVE ----------------------- The indemnification and advancement of expenses provided by or granted pursuant to the other sections of this Article VI shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any by-law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such person's official capacity and as to action in another capacity while holding such office. 6.7 INSURANCE INDEMNIFICATION ------------------------- The corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against such person and incurred by such person in any such capacity or arising out of such person's status as such, whether or not the corporation would have the power to indemnify such person against such liability under the provisions of this Article VI. 6.8 THE CORPORATION --------------- For purposes of this Article VI, references to "the corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under and subject to the provisions of this Article VI (including, without limitation the provisions of Section 6.4) with respect to the resulting or surviving corporation as such person would have with respect to such constituent corporation if its separate existence had continued. -17- 6.9 EMPLOYEE BENEFIT PLANS ---------------------- For purposes of this Article VI, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the corporation" shall include any service as a director, officer, employee or agent of the corporation which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner such person reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the corporation" as referred to in this Article VI. 6.10 CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES ----------------------------------------------------------- The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VI shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. ARTICLE VII RECORDS AND REPORTS ------------------- 7.1 MAINTENANCE AND INSPECTION OF RECORDS ------------------------------------- The corporation shall, either at its principal executive officer or at such place or places as designated by the board of directors, keep a record of its stockholders listing their names and addresses and the number and class of shares held by each stockholder, a copy of these bylaws as amended to date, accounting books, and other records. Any stockholder of record, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders, and its other books and records and to make copies or extracts therefrom. A proper purpose shall mean a purpose reasonably related to such person's interest as a stockholder. In every instance where an attorney or other agent is the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing that authorizes the attorney or other agent so to act on behalf of the stockholder. The demand under oath shall be directed to the corporation at its registered office in Delaware or at its principal place of business. -18- The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. 7.2 INSPECTION BY DIRECTORS ----------------------- Any director shall have the right to examine the corporation's stock ledger, a list of its stockholders, and its other books and records for a purpose reasonably related to his position as a director. The Court of Chancery is hereby vested with the exclusive jurisdiction to determine whether a director is entitled to the inspection sought. The Court may summarily order the corporation to permit the director to inspect any and all books and records, the stock ledger, and the stock list and to make copies or extracts therefrom. The Court may, in its discretion, prescribe any limitations or conditions with reference to the inspection, or award such other and further relief as the Court may deem just and proper. 7.3 ANNUAL STATEMENT TO STOCKHOLDERS -------------------------------- The board of directors shall present at each annual meeting, and at any special meeting of the stockholders when called for by vote of the stockholders, a full and clear statement of the business and condition of the corporation. ARTICLE VIII GENERAL MATTERS --------------- 8.1 CHECKS ------ From time to time, the board of directors shall determine by resolution which person or persons may sign or endorse all checks, drafts, other orders for payment of money, notes or other evidences of indebtedness that are issued in the name of or payable to the corporation, and only the persons so authorized shall sign or endorse those instruments. -19- 8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS ------------------------------------------------ The board of directors, except as otherwise provided in these bylaws, may authorize any officer or officers, or agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation; such authority may be general or confined to specific instances. Unless so authorized or ratified by the board of directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount. 8.3 STOCK CERTIFICATES; PARTLY PAID SHARES -------------------------------------- The shares of the corporation shall be represented by certificates, provided that the board of directors of the corporation may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the corporation. Notwithstanding the adoption of such a resolution by the board of directors, every holder of stock represented by certificates and upon request every holder of uncertificated shares shall be entitled to have a certificate signed by, or in the name of the corporation by the chairman or vice-chairman of the board of directors, or the president or vice-president, and by the chief financial officer or an assistant treasurer, or the secretary or an assistant secretary of such corporation representing the number of shares registered in certificate form. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of issue. The corporation may issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor. Upon the face or back of each stock certificate issued to represent any such partly paid shares, upon the books and records of the corporation in the case of uncertificated partly paid shares, the total amount of the consideration to be paid therefor and the amount paid thereon shall be stated. Upon the declaration of any dividend on fully paid shares, the corporation shall declare a dividend upon partly paid shares of the same class, but only upon the basis of the percentage of the consideration actually paid thereon. 8.4 SPECIAL DESIGNATION ON CERTIFICATES ----------------------------------- If the corporation is authorized to issue more than one class of stock or more than one series of any class, then the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate that the corporation shall issue to represent such class or series of stock; provided, however, that, except as otherwise provided in Section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements there may be set forth on the face or back of the certificate that the corporation shall issue to represent such class or series of stock -20- a statement that the corporation will furnish without charge to each stockholder who so requests the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. 8.5 LOST CERTIFICATES ----------------- Except as provided in this Section 8.5, no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the corporation and canceled at the same time. The corporation may issue a new certificate of stock or uncertificated shares in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the corporation may require the owner of the lost, stolen or destroyed certificate, or his legal representative, to give the corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares. 8.6 CONSTRUCTION; DEFINITIONS ------------------------- Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the Delaware General Corporation Law shall govern the construction of these bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term "person" includes both a corporation and a natural person. 8.7 DIVIDENDS --------- The directors of the corporation, subject to any restrictions contained in (i) the Delaware General Corporation Law or (ii) the certificate of incorporation, may declare and pay dividends upon the shares of its capital stock. Dividends may be paid in cash, in property, or in shares of the corporation's capital stock. The directors of the corporation may set apart out of any of the funds of the corporation available for dividends a reserve or reserves for any proper purpose and may abolish any such reserve. Such purposes shall include but not be limited to equalizing dividends, repairing or maintaining any property of the corporation, and meeting contingencies. 8.8 FISCAL YEAR ----------- The fiscal year of the corporation shall be fixed by resolution of the board of directors and may be changed by the board of directors. 8.9 SEAL ---- The corporation may adopt a corporate seal, which shall be adopted and which may be altered by the board of directors, and may use the same by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced. -21- 8.10 TRANSFER OF STOCK ----------------- Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate, and record the transaction in its books. 8.11 STOCK TRANSFER AGREEMENTS ------------------------- The corporation shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of the corporation to restrict the transfer of shares of stock of the corporation of any one or more classes owned by such stockholders in any manner not prohibited by the Delaware General Corporation Law. 8.12 REGISTERED STOCKHOLDERS ----------------------- The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner, shall be entitled to hold liable for calls and assessments the person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of another person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. ARTICLE IX AMENDMENTS ---------- Subject to the provisions of the corporation's certificate of incorporation, the bylaws of the corporation may be adopted, amended or repealed by the stockholders entitled to vote; provided, however, that the corporation may, in its certificate of incorporation, confer the power to adopt, amend or repeal bylaws upon the directors. The fact that such power has been so conferred upon the directors shall not divest the stockholders of the power, nor limit their power to adopt, amend or repeal bylaws. -22- CERTIFICATE OF ADOPTION OF RESTATED BYLAWS OF RUDOLPH TECHNOLOGIES, INC. Certificate by Secretary ------------------------ The undersigned hereby certifies that he is the duly elected, qualified, and acting Secretary of Rudolph Technologies, Inc. and that the foregoing Restated Bylaws, comprising twenty-two (22) pages, were adopted as the Restated Bylaws of the corporation on October ___, 1999 by the board of directors of the corporation. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and affixed the corporate seal this ___th day of October, 1999. ______________________________ -23- EX-10.1 7 LICENSE AGREEMENT EXHIBIT 10.1 LICENSE AGREEMENT ----------------- This Agreement, effective this 28th day of June, 1995, ("Effective Date"), by and between BROWN UNIVERSITY RESEARCH FOUNDATION ("BURF" or "LICENSOR"), a corporation duly organized and existing under the laws of the State of Rhode Island and having a principal office at 42 Charlesfield Street, Providence, Rhode Island 02912 and RUDOLPH RESEARCH CORPORATION ("Rudolph Research" or "LICENSEE"), a New Jersey corporation having its principal office at One Rudolph Road, Flanders, New Jersey. WHEREAS, BURF is the owner of U.S. Patent Number 4,710,030 and certain other inventions and proprietary information related to the measurement of the properties of thin films and surface characteristics; and WHEREAS, Rudolph Research is the owner of, inter alia, automated ----- ---- semiconductor metrology automation platforms (FE-III, FE-IV) including, an automatic microscope, auto height, tilt optics platform, automated wafer handling robotics and control system with proprietary software, operation interface, pattern recognition system SECS-II/GEM system, data mapping system, data review system and recipe system, with attendant know-how, process technology and related software; and WHEREAS, Rudolph Research has expertise in the production, sales, marketing, manufacture and support of technology to industry of instruments for the measurement of surface characteristics; and WHEREAS, BURF desires to have its patents, inventions and proprietary information used in the public interest and desires to grant a license thereto on the terms set forth below; and WHEREAS, LICENSEE desires to obtain a license for such patents, inventions and proprietary information rights upon the terms and conditions set forth below; NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, the parties agree as follows: ARTICLE 1 - DEFINITIONS ----------------------- For the purpose of this Agreement, the following words and phrases shall have the following meanings: 1.1 "AFFILIATE" shall mean a corporation or other business entity controlled by, controlling or under common control with, a party hereto. For this purpose, control of a corporation or other business entity shall mean direct or indirect beneficial ownership of thirty (30%) percent or more of the voting interest in, or a thirty (30%) percent or greater interest in the equity of, such corporation or other business entity. 1.2 "CONFIDENTIAL INFORMATION" shall mean all information related to the subject of this License Agreement or to the Intellectual Property which is disclosed by one party to the other, to the extent that such information, as of the date of disclosure, is not: (a) known to the receiving party; (b) disclosed in published literature; (c) generally available to industry; (d) obtained by the receiving party from a third party without binder or secrecy, provided, however, that such third party has no confidentiality obligations to the disclosing party or to any of its AFFILIATES relating to the disclosed information; or (e) the information is later made public through sources not related to BURF or Rudolph Research. CONFIDENTIAL INFORMATION shall also include Rudolph Research's technology, know-how, proprietary information, including lists of customers, trade information, sales and service information. 1.3 "FIRST COMMERCIAL SALE" shall mean the initial transfer by Licensee, its AFFILIATE or sublicensee, to an unrelated third party of LICENSED PRODUCT subject to royalties hereunder for commercial use and not for research, development or testing purposes. 1.4 "LICENSED PRODUCT" shall mean any instrument system, device, software, protocol, or service which is based on or incorporates any claim of the PATENT RIGHTS or the claims of inventions listed on Exhibit A or Exhibit B and is part of the initial instrument system sold to end-users, or provides upgraded capabilities with respect to the PATENT RIGHTS. "LICENSED PRODUCT" shall not, however, include: (i) replacement parts provided or sold to end-users after the initial system is delivered; (ii) all software provided after delivery which does not provide additional functional capabilities which incorporates the claims of the PATENT RIGHTS; (iii) software upgrades or revisions which do not provide additional functional capabilities which incorporates the claims of the PATENT RIGHTS; (iv) service and maintenance of hardware and/or software and peripherals to the system. For purposes of this Agreement, a product shall be deemed a LICENSED PRODUCT if such product is covered, in whole or in part, by at least one PATENT RIGHT in one country, whether or not that product is made, used or sold within that country. For example, an instrument system that incorporates one of the claims of U.S. Patent 4,710,030 would be a LICENSED PRODUCT and would be subject to a royalty payment if sold in Japan, even though there is no issued patent in Japan. 1.5 "NET SALES" shall mean the gross sales collected from unrelated third party customers, anywhere in the world, by LICENSEE, and its AFFILIATES, and sublicensees for LICENSED PRODUCTS, less the sum of (a) transportation, insurance, and handling charges; (b) sales, excise turnover and similar taxes and any duties and other governmental charges imposed upon the production, importation, use or sale of such LICENSED PRODUCTS and (c) any returns. For purposes of this definition, LICENSED PRODUCTS shall be considered sold when paid in full by customer other than LICENSEE'S AFFILIATE. Rudolph Research will, however, pay to LICENSOR a portion of royalties after Rudolph Research receives at least seventy (70%) percent of the total purchase price from its customer for LICENSED PRODUCT. The portion paid to BURF shall be the same percentage as the percentage of the purchase price paid to Rudolph Research. 1.6 "PATENT RIGHTS" shall mean (a) United States patent number 4,710,030; (b) all United States and foreign patents based upon United States Patent Number 4,710,030 and inventions which are patented and listed in Exhibit A or Exhibit B hereto; (c) any additions, continuations, continuations-in-part, divisions, reissues or renewals and extensions based thereon; and (d) all United States and foreign patent and other industrial property rights obtained from any of said United States or foreign patents applications, and reissues and extensions thereof. -2- 1.7 "OTHER INTELLECTUAL PROPERTY RIGHTS" shall mean the technology, know- how, processes or intellectual property not listed on Exhibit A and/or Exhibit B which results from: (i) work undertaken only by Rudolph Research during the commercialization of the PATENT RIGHTS; (ii) work by BURF/BROWN personnel during consulting for Rudolph Research; and (iii) work by Rudolph Research consultants or personnel. OTHER INTELLECTUAL PROPERTY RIGHTS shall be the property of Rudolph Research. Exhibit B shall contain a list of any "jointly owned inventions" by BURF and Rudolph Research. A "jointly owned invention" shall be patented technology which has been invented by the joint efforts of BURF and Rudolph Research where each party has been materially responsible for an integral portion of the resulting invention. BURF shall, at its option, bring inventions to Rudolph Research which relate or have reference to the PATENT RIGHTS. The parties shall then mutually determine whether the invention, when patented, should be part of Exhibit A or Exhibit B. 1.8 "RESEARCH AGREEMENT" shall mean the Agreement entered into _________, 1995 by and between Rudolph Research and Brown University for the support of research in Professor Maris' laboratory. ARTICLE 2 - GRANT ----------------- 2.1 Grant. BURF hereby grants to LICENSEE, subject to the terms herein ----- recited, the exclusive, nontransferable (except as provided in Article 9 herein) perpetual, royalty bearing, worldwide right and license under the PATENT RIGHTS with the right to grant sublicenses, to make, have made, use, sell and distribute (directly or indirectly through third parties) LICENSED PRODUCTS. 2.2 License to U.S. Government. This Agreement is expressly subject to and -------------------------- conditional upon the license(s) granted by BURF to the United States Government, which licenses are nonexclusive, nontransferable, irrevocable and paid-up license(s) to practice, on behalf of the United States Government, specific subject inventions. True copies of the license(s) referred to by this paragraph are annexed as Exhibit C. These licenses shall not diminish the specific commercial opportunities Rudolph Research has advised BURF are critical to Rudolph Research's investment in the commercialization of the technology that is the subject matter of this License Agreement. 2.3 Reservation of Research Rights. Anything to the contrary ------------------------------ notwithstanding, BURF reserves the right to use the PATENT RIGHTS and CONFIDENTIAL INFORMATION for its own research and educational purposes. The "educational purposes" herein referred to shall include BURF working with commercial entities to analyze samples. BURF shall not, however, make use of any of the PATENT RIGHTS, in whole or in part, for any commercial purpose, without the prior written approval of Rudolph Research. LICENSEE may refuse to grant such rights and/or require BURF to pay LICENSEE royalties to obtain such rights. -3- ARTICLE 3 - ROYALTIES --------------------- 3.1 License Fee. LICENSEE shall pay BURF a license issue fee of *** ----------- upon signing this Agreement. 3.2 Royalties. Beginning with the First Commercial Sale and subject to --------- the terms hereof, LICENSEE agrees to pay to BURF, as partial consideration for the rights granted under this Agreement, a royalty of *** . Royalties shall only be paid on inventions which are then subject to a valid and existing U.S. patent and which are listed on Exhibits A or B. *** . 3.3 Royalty Period and Territory. The obligation to pay royalties under ---------------------------- Section 3.2 shall continue, as to each U.S. patent, throughout the world, until the date of expiration of that U.S. patent as incorporated in the PATENT RIGHTS or on Exhibit A or Exhibit B. 3.4 Payment. Royalties will be due and payable within forty-five (45) ------- days of the end of each calendar quarter. Royalty and fee payments shall be made in United States dollars in Providence, Rhode Island. Exchange rates applied will be the closing buying rates quoted by the Wall Street Journal on the last business day of the applicable calendar quarter. In the event any royalty payment due is not made when due, and is still not paid after written notice by BURF to Rudolph Research that the payment is due, then the amount due shall accrue interest from the due date at an annual rate equal to the prime rate charged by Chase Bank compounded annually. 3.5 Maintenance Fee. *** . --------------- ARTICLE 4 - REPORTS AND RECORDS ------------------------------- 4.1 Reports. LICENSEE shall, upon the written request of BURF, report to ------- BURF on its efforts to bring the PATENT RIGHTS into broad commercial use and shall provide copies of all sublicenses granted. These reports shall not be required more often than quarterly and shall be in summary form. At the time of each royalty payment, LICENSEE shall provide a report of the activities subject to royalty payments hereunder in the form attached hereto and made part hereof as Exhibit D. Rudolph Research shall, however, on each anniversary of the execution of this License Agreement, file a written report with BURF on the status of its efforts to commercialize the PATENT RIGHTS. ________________________________________________________________________________ *** Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. ________________________________________________________________________________ -4- 4.2 Records. LICENSEE and its sublicensees shall keep complete and ------- accurate books of account containing all particulars which may be reasonably necessary for the purpose of showing the royalties payable to BURF. Books of account shall be kept at LICENSEE'S principal place of business or the principal place of business of a division of LICENSEE which is marketing LICENSED PRODUCTS. Books and particulars shall be available during normal business hours, upon reasonable notice, for two (2) years following the end of the calendar year to which they pertain, for inspection by an independent certified public accountant retained by BURF and reasonably acceptable to LICENSEE for the purpose of verifying LICENSEE royalty statements. Inspection shall be limited solely to those records directly related to LICENSEE royalty obligations under this Agreement. 4.3 Audit Costs. If an audit conducted on behalf of BURF pursuant to ----------- Section 4.2 reveals that LICENSEE has made an error of ten (10%) percent or more in its favor in any payment due BURF, LICENSEE shall be obligated to pay the audit fee in connection with the audit, but LICENSEE shall not pay an audit fee that exceeds eight hours of audit time by an account manager level auditor. 4.4 Marking. LICENSEE and its sublicensees agree to mark all LICENSED ------- PRODUCTS sold in the United States with all applicable U.S. patent numbers. All LICENSED PRODUCTS shipped to or sold in other countries shall be marked in such a manner as to conform with the patent laws and practice of the country to which such products are shipped or in which such products are sold. ARTICLE 5 - PATENT PROSECUTION AND ENFORCEMENT ---------------------------------------------- 5.1 Applications. For so long as this Agreement shall be in effect, BURF ------------ hereby authorizes LICENSEE, and LICENSEE shall, in the name of BURF, at LICENSEE'S expense, apply for and seek prompt issuance of, and upon issuance, shall maintain during the Term of this Agreement, patents worldwide as described in the PATENT RIGHTS, on Exhibit A and on Exhibit B. LICENSEE shall apply all reasonable efforts to obtain broad patent claims. BURF hereby agrees to take all actions necessary to cooperate with and assist LICENSEE in the filing and prosecution of such patent applications. LICENSEE shall keep BURF informed as to the status of such patent applications including providing BURF with copies of all written communications with the patent offices and consulting with BURF on responses to the patent offices in advance of submission. The filing, continued prosecution and maintenance of patent applications, patents, and PATENT RIGHTS shall, after consultation with BURF, be within the discretion of LICENSEE provided, however, if LICENSEE in its discretion elects not to file, or decides to discontinue prosecution of such patent applications or to discontinue to maintain a patent which is owned or controlled by BURF, BURF may do so at its own expense. If LICENSEE decides not to maintain patent applications, patents, or PATENT RIGHTS already in existence, LICENSEE will give BURF at least ninety (90) days prior written notice before any expiration date for response or action required by the U.S. Patent Office or any foreign patent office. LICENSEE will provide BURF with reasonable cooperation in the maintenance of such patent applications, patents, or PATENT RIGHTS. BURF shall, however, at its sole expense, prior to the execution of this Agreement, or as soon thereafter as possible, file for a United States patent for the Ion Implant measurement by -5- picosecond pulse technology. Subsequent prosecution of the patent for Ion Implant shall be subject to the provisions of this Paragraph 5.1. 5.2 Inventions Funded By Licensee. All inventions, know-how, process ----------------------------- technology which is currently the property of Rudolph Research, or in the future becomes the property of Rudolph Research, shall remain the sole property of Rudolph Research. Rudolph Research hereby grants to BURF a nontransferable, royalty-free license to use technology resulting from the License Agreement for research and academic purposes, but not for any commercial use. 5.3 Enforcement. BURF and LICENSEE shall each give immediate notice to ----------- the other of any infringement of PATENT RIGHTS by third parties which may come to their attention. BURF hereby grants LICENSEE, at LICENSEE'S expense, the right to institute and conduct such legal action against third party infringers of the PATENT RIGHTS, or enter into such settlement agreements, as are deemed appropriate by LICENSEE. The benefits of any action taken by LICENSEE shall first be applied to reimbursing LICENSEE'S reasonable expenses for such action and then shall be divided equally between BURF and LICENSEE. In any such action, LICENSEE shall be entitled to join BURF as a party plaintiff and BURF will be obligated to reasonably assist LICENSEE. Should LICENSEE fail to commence actions or proceedings against infringers of the PATENT RIGHTS within sixty (60) days of receiving written notice thereof from BURF, then BURF shall initiate and pursue such action. If BURF fails to take such action within sixty (60) days of receiving written notice from LICENSEE, LICENSEE shall again have such right and authority to take such actions as set forth in this Section 5. 5.4 Additional Intellectual Property. Intellectual Property developed -------------------------------- subsequent to the effective date of this Agreement shall be the property of the developing party. Intellectual Property developed solely by Rudolph Research personnel, agents, or consultants, including Professor Maris when he is acting as a consultant, shall be outside the scope of this Agreement and may be exploited without accounting to BURF. Intellectual Property developed under the RESEARCH AGREEMENT between Rudolph Research and Brown University shall be treated as set forth in the RESEARCH AGREEMENT and shall be added from time to time to Exhibit A or B hereto as appropriate. Intellectual Property developed jointly by Brown and Rudolph Research personnel but not under the RESEARCH AGREEMENT as, for example, during the course of technology transfer shall be jointly owned and shall be added to Exhibit B as appropriate. Intellectual Property developed by Brown independent of the RESEARCH AGREEMENT may, at the discretion of Brown, be offered to Rudolph Research for inclusion in Exhibit A. Anything to the contrary notwithstanding, if during the course of prosecution of patent applications on inventions listed in Exhibit A, any additions, continuations, continuations-in-part or other modifications of the original application are made which involve Rudolph Research personnel, agents or consultants, the inclusion of such personnel, agents or consultants as inventors will not serve to change the ownership of such patent application from solely BURF to jointly owned and will not result in any transfer of such Intellectual Property from Exhibit A to Exhibit B. -6- ARTICLE 6 - REPRESENTATIONS AND WARRANTIES ------------------------------------------ 6.1 Utilization. LICENSEE will use its best efforts to exploit the PATENT ----------- RIGHTS so that utilization will result therefrom. 6.2 Authority. Each party represents and warrants that it has the right --------- and authority to enter this Agreement. 6.3 Exceptions. Nothing in this Agreement shall be construed as: ---------- (A) conferring rights on BURF to use in advertising, publicity or otherwise the name of LICENSEE or of its employees, AFFILIATES or sublicensees without the prior written approval of LICENSEE; and (B) conferring rights on LICENSEE to use in advertising or publicity the name of "Brown University", "Brown University Research Foundation" or their employees without the prior written approval of BURF. 6.4 Representations and Warranties of BURF. BURF represents and warrants -------------------------------------- to LICENSEE that: (i) Patent number 4,710,030 is a valid current patent in good standing; (ii) BURF is the sole owner of Patent number 4,710,030 and has not assigned or diminished its rights in the patent by any agreements or undertakings not set forth herein; (iii) BURF is, at the date of execution of this Agreement, not aware of any infringements, claims of infringements, threatened claims of infringements and/or challenges to all or any claims made under the patent; (iv) BURF is not aware of any prior claims made by anyone under the patent; (v) BURF has full right, title, power and authority to enter into this Agreement and to comply with the commitments made in this agreement both now and in the future; (vi) BURF has no knowledge of any impediments, legal or otherwise, that would impede, diminish or defeat the full enjoyment of rights sought by Rudolph Research pursuant to this Agreement; and (vii) these warranties by BURF shall be continuing and shall survive termination of this Agreement. 6.5 Disclaimer. EXCEPT AS EXPRESSLY PROVIDED HEREIN, BURF MAKES NO ---------- REPRESENTATIONS AND EXTENDS NO WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED. THERE ARE NO EXPRESS OR IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. THE PARTIES ACKNOWLEDGE THAT THIS AGREEMENT IS NOT A CONSUMER TRANSACTION. ARTICLE 7 - TERM AND TERMINATION -------------------------------- -7- 7.1 Term. The Term of this Agreement shall run from the date of execution ---- of this License Agreement until the date of expiration of the last patent listed on Exhibits A, B or the PATENT RIGHTS, or unless sooner terminated by virtue of Article 7. 7.2 Bankruptcy. If LICENSEE undergoes a liquidation in bankruptcy, or ---------- files a petition for liquidation in bankruptcy, or a receiver, trustee or assignee for the benefit of creditors, is appointed, whether by the voluntary act of LICENSEE or otherwise, and if LICENSEE fails to terminate any such proceeding within one hundred twenty (120) days after its commencement, BURF may at its election terminate this Agreement upon thirty (30) days written notice to LICENSEE. LICENSEE agrees to provide written notice to BURF of LICENSEE'S or third party's intention to file a petition for liquidation of LICENSEE in bankruptcy prior to such filing, if known. 7.3 Failure to Pay Royalties. Should LICENSEE fail in its payment to BURF ------------------------ of royalties which are due in accordance with the terms of this Agreement, BURF shall serve notice upon LICENSEE by certified mail at an address designated in Article 11 hereof, of its intention to terminate this Agreement within ninety (90) days after receipt of said notice of termination unless LICENSEE shall pay BURF within this ninety (90) day period. If LICENSEE has not paid all royalties which are due and payable within such ninety (90) day period, the rights, privileges and license granted hereunder shall terminate at the end of the ninety (90) day period. If the amount of royalties due is contested by LICENSEE, the rights, privileges and license granted hereunder shall terminate ninety (90) days after the resolution of such dispute, but only if the amount due still remains unpaid at the end of such ninety (90) day period. In the event that royalties are due after the resolution of such dispute the amount due shall accrue interest at the average prime rate per annum compounded annually from the date such amount was due until the amount is paid in full. 7.4 Material Breach. Upon any material breach by LICENSEE, BURF shall have --------------- the right to terminate this Agreement and the rights and license granted hereunder by ninety (90) days notice by certified mail to LICENSEE. Such termination shall become effective at the end of such ninety (90) day period unless LICENSEE has cured any such material breach prior to the expiration of the ninety (90) day period. 7.5 Termination by Licensee. LICENSEE may terminate this Agreement upon ----------------------- ninety (90) days' notice by certified mail to BURF. 7.6 Obligations on Termination. Upon termination of this Agreement for any -------------------------- reason, nothing herein shall be construed to release either party of any obligation which matured prior to the effective date of such termination, and LICENSEE may, after the effective date of such termination, complete LICENSED PRODUCTS in the process of manufacture at the time of such termination and sell the same together with LICENSED PRODUCTS in inventory for a period of six months, provided that LICENSEE pays to BURF royalties as required by Article 3 of this Agreement and submits the reports required by Article 4. Nothing contained herein shall prevent or impede Rudolph Research from satisfying existing contractual commitments at the effective date of termination, or to prevent Rudolph Research from servicing, maintaining and upgrading software, specifically related to the LICENSED PRODUCT, of existing customers for a period of not more than one (1) year from the effective date of termination. 7.7 Survival. Articles 5; 6; 8 and 13.2 shall survive termination of this -------- Agreement as well as the right of BURF to collect any accrued royalties as recited in Article 3. -8- ARTICLE 8 - INDEMNIFICATION AND INSURANCE ----------------------------------------- 8.1 Indemnification. --------------- (a) LICENSEE shall indemnify, defend and hold harmless BURF and BROWN and their current or former directors, trustees, officers, faculty, professional staff, employees, students, and agents and their respective successors, heirs and assigns (the "Indemnitees"), against any liability, damage, loss or expenses (including reasonable attorneys' fees and expenses of litigation) incurred by or imposed upon the Indemnitees or any one of them in connection with any claims, suits, actions, demands or judgments arising out of any commercial usage of the PATENT RIGHTS by Rudolph Research under any theory of product liability (including, but not limited to, actions in the form of tort, warranty, or strict liability) concerning any product, process or service made, used or sold pursuant to any right or license granted under this Agreement. (b) LICENSEE agrees, at its own expense, to provide attorneys to defend against any actions brought or filed against any party indemnified hereunder with respect to the subject of indemnity contained herein, whether or not such actions are rightfully brought. LICENSEE shall choose the attorneys and shall have full control of the prosecution or defense of the litigation, settlement, appeals or the like. The indemnitees shall render any reasonable assistance and provide any information requested by LICENSOR, or shall forfeit their right to be indemnified by Rudolph Research. 8.2 Insurance. LICENSEE shall maintain appropriate insurance coverage in --------- order to carry out the terms of this License Agreement; including product liability insurance, workers' compensation insurance and appropriate insurance for negligent injury to persons or property. 8.3 Sublicense. LICENSEE shall require all of its sublicenses hereunder to ---------- carry insurance under the same terms as Section 8.2 and to be bound by the same form of indemnification set forth in Section 8.1. ARTICLE 9 - ASSIGNMENT ---------------------- 9.1 BURF agrees that its rights and obligations under this Agreement may not be transferred or assigned without the prior written consent of LICENSEE. LICENSEE may assign or otherwise transfer this Agreement and the license granted hereby and the rights acquired by it hereunder only if such assignment or transfer is accompanied by a sale or other transfer of LICENSEE'S entire business to which the license granted hereby relates; provided that any such assignee or transferee has agreed in writing to be bound by the terms and provisions of this Agreement. Upon such assignment or transfer and agreement by such assignee or transferee, the term LICENSEE as used herein shall include such assignee or transferee. ARTICLE 10 - EXPORT REQUIREMENTS -------------------------------- 10.1 License to Export. Any and all licenses, permits or other governmental ----------------- approvals for the export of materials, data, know-how, and the like carried out under this Agreement by LICENSEE shall be the responsibility of LICENSEE. ARTICLE 11 - PAYMENTS, NOTICES AND COMMUNICATIONS ------------------------------------------------- -9- 11.1 Any payment, notice or other communication pursuant to this Agreement shall be sufficiently made or given on the date of mailing if sent to such party by certified, first class mail, postage prepaid, addressed to it at its address below or as it shall designate by written notice given to the other party: In the case of BURF: William M. Jackson, Ph.D., President Brown University Research Foundation 42 Charlesfield Street Box 1949 Providence, Rhode Island 02912 In the case of Licensee: Richard Spanier, Ph.D. President Rudolph Research Corporation One Rudolph Road P.O. Box 1000 Flanders, New Jersey 07836 Copy to: Theodore Margolis, Esq. c/o Hannoch Weisman 4 Becker Farm Road Roseland, New Jersey 07068 ARTICLE 12 - BURF SUPPORT ------------------------ 12.1 Support By BURF. BURF shall render to Rudolph Research all reasonable --------------- support and assistance to facilitate the purposes of this Agreement. BURF shall list, on Exhibit E, all documentation, drawings or other materials to be provided by BURF to Rudolph Research to efficiently effectuate the purposes of this License Agreement. 12.2 Secrecy By BURF. BURF shall consider the work undertaken by this --------------- Agreement as a Rudolph Research trade secret. BURF shall not divulge, without the prior written permission of Rudolph Research, any information on the Project. BURF shall require its employees, contractors and consultants to maintain and respect Rudolph Research's trade secrets and to execute writings satisfactory by Rudolph Research to memorialize such undertakings. The fact of the existence of the License Agreement is not a trade secret. 12.3 Notice of Indemnification. In the event either party is seeking ------------------------- indemnification under this Agreement, such party agrees to: (i) promptly inform the indemnifying party of any claim, suit or demand threatened or filed; (ii) permit the indemnifying party to assume direction and control of the defense of any litigation or claims resulting therefrom (including the right to settle with the third party); and (iii) cooperate, as requested, in the defense of the claim, at the expense of the indemnifying party. ARTICLE 13 - MISCELLANEOUS PROVISIONS ------------------------------------- -10- 13.1 Limitation of Liability. Neither party shall be liable to the other ----------------------- for any special, consequential, incidental or indirect damages arising out of this Agreement, however caused, under any theory of liability, except for tortious injuries to persons. 13.2 Governing Law. This Agreement shall be construed, governed, ------------- interpreted and applied in accordance with the laws of the State of New Jersey, except that questions affecting construction and effect of any patent shall be determined by the law of the country in which the patent was granted. 13.3 Entire Agreement. The parties hereto acknowledge that this instrument ---------------- sets forth the entire agreement and understanding of the parties hereto as to the subject matter hereof, and shall not be subject to any change or modification except by the execution of a written instrument subscribed to by the parties hereto. The Exhibits are incorporated and made part of this Agreement. 13.4 Severability. The provisions of this Agreement are severable, and in ------------ the event that any provisions of this Agreement are determined to be invalid or unenforceable under any controlling body of law, such invalidity or enforceability shall not in any way affect the validity or enforceability of the remaining provisions hereof. 13.5 Counterparts. This Agreement may be executed in counterparts. Such ------------ counterparts taken together shall constitute a fully-executed agreement. 13.6 Descriptive Headings. The descriptive headings of this Agreement are -------------------- for convenience only and shall be of no force or effect in construing or interpreting any of the provisions of this Agreement. 13.7 Force Majeure. Neither party shall be liable to the other for loss or ------------- damage or for any default or delay attributable to any act of God, flood, fire, explosion, shortage of raw materials, casualty or accident, war, civil unrest, acts of public enemies, blockades or embargo, acts of government, labor unrest, or any other cause beyond the reasonable control of such party, if the party affected shall give prompt notice of any such cause to the other party. The party giving such notice shall thereupon be excused from such of its obligations hereunder for so long as it is so disabled and for thirty (30) days thereafter. BROWN UNIVERSITY RESEARCH RUDOLPH RESEARCH CORPORATION FOUNDATION By /s/ William M. Jackson By /s/ Richard Spanier ---------------------- -------------------------------- Title: President Title: President ------------------ ---------------------------- Date: June 28, 1995 Date: August 15, 1995 ------------------- ----------------------------- -11- EXHIBIT A --------- This Exhibit is incorporated in and made part of a License Agreement between BURF and Rudolph Research, dated June 28, 1995. 1. Pursuant to Paragraph 1.6 of the Agreement, the following is a list of all U.S. and foreign applications based upon the following inventions (a) U.S. Patent 4,710,030, Optical generator and detector of stress pulses. (b) U.S. Patent 5,706,094, Ultrafast optical technique for the characterization of altered materials (c) U.S. Patent 5,864,393, Optical method for the determination of stress in thin films. (d) U.S. Patent 5,748,317, Apparatus and method for characterizing thin film and interfaces using an optical heat generator and detector. (e) U.S. Patent 5,748,318, Optical stress generator and detector. (f) U. S. Patent 5,844,684, Optical method for determining the mechanical properties of a material. EXHIBIT B --------- This Exhibit is incorporated in and made part of a License Agreement between BURF and Rudolph Research, dated June 28, 1995. 1. The jointly-owned inventions by BURF and Rudolph Research are as follows: (a) (b) (c) EXHIBIT C --------- This Exhibit is incorporated in and made part of a License Agreement between BURF and Rudolph Research, dated June 28, 1995. 1. The License(s) referred to in Paragraph 2.2 are annexed hereto. LICENSE TO THE UNITED STATES GOVERNMENT This instrument confers to the United States Government, as represented by the National Science Foundation, a non-exclusive, nontransferable, irrevocable, paid-up license to practice or have practiced on its behalf throughout the world the following subject invention: Invention Title: Laser System to Measure Acoustical Mechanical Properties of Thin Films Inventor(s): H. Maris, J. Tauc, C. Thompson Patent No.: 4,710,030 Title: Optical Generator and Detector of Stress Filing Date: May 17, 1985 Country, if other than the U.S.: This license will extend to all divisions or continuations of the patent application and all patents or re-issues which may be granted thereon. This subject invention was made with government support from Grant/Contract No. DMR-8216726 awarded by the National Science Foundation. Principal rights to this subject invention have been left with the LICENSOR: Brown University subject to the provisions of Title 35 USC 200-212, 37 CFR 401, and 45 CFR 8. Signed: /s/ William M. Jackson Date: June 20, 1995 ---------------------- ------------------------ Typed Name: William M. Jackson Title: President, Brown University Research Foundation Seal: EX-10.2 8 DISTRIBUTOR AGREEMENT EXHIBIT 10.2 DISTRIBUTOR AGREEMENT --------------------- This Agreement made and entered into this 15th day of May, 1987, by and between Tokyo Electron Limited, a Japanese corporation organized and existing under the laws of Japan with its principal place of business located at Shinjuku-Nomura Bldg., 1-26-2 Nishi-Shinjuku, Shinjuku-ku, Tokyo 163, Japan (hereinafter referred to as TEL) and Rudolph Research International, a corporation organized and existing under the laws of the United States of America, with its principal place of business located at One Rudolph Road, P.O. Box 1000, Flanders, New Jersey 07836, U.S.A.(hereinafter referred to as Manufacturer). In consideration of the mutual covenants contained herein, the parties agree as follows: 1. Appointment. Manufacturer hereby appoints TEL its distributor, and TEL ----------- hereby accepts such appointment, for the sale of the Products (defined in Appendix A) in the Territory (defined in Appendix B). The list of Products as set forth in Appendix A may be changed, abandoned or added in writing by mutual agreement by the parties. 2. Term Of Agreement. This Agreement shall take effect from the date of ----------------- execution hereof and shall remain in force unless and until terminated pursuant to Article 10 hereof. 3. Responsibilities. ---------------- (a) Manufacturer agrees: ------------------- To make every reasonable effort to manufacture quantities of the Products sufficient to meet the resale requirements of TEL. (b) TEL agrees: ---------- (i) To use its best efforts to promote the sale of the Products. (ii) To maintain an inventory of the spare parts in a quantity sufficient to meet the needs of its customers in accordance with reasonable recommendations which may be made by Manufacturer as to specific items and quantities, provided that TEL shall have the option to sell to Manufacturer, and then Manufacturer shall purchase from TEL, the spare parts of the Products remained unused in TEL's inventory, at a reasonable intervals during the term of this Agreement, which purchases shall be at the price equal to the net price originally paid therefor by TEL. (iii) To maintain records of inventory of the spare parts on hand and provide the same to Manufacturer, on request, at reasonable intervals. (iv) To hold in confidence during the term of this Agreement, and thereafter for one (1) year, any and all information of a confidential nature regarding Manufacturer's business or affairs, including without limitation, data provided by Manufacturer regarding the design and/or methods of manufacture of the Products, and not to disclose the same to any person, firm or corporation. On all such confidential information of tangible nature, Manufacturer shall stamp "CONFIDENTIAL" thereon. As for confidential information of intangible nature, Manufacturer shall indicate the nature of confidentiality thereof in certain other appropriate manner. The following information shall not be considered confidential: (1) Information which is already generally available to the public. (2) Information which hereafter becomes generally available to the public, through no fault of TEL. (3) Information which was already known to TEL prior to the disclosure thereof by Manufacturer. (4) Information which is developed by TEL independently of and without aid of the information disclosed by Manufacturer. (5) Information which lawfully becomes known to TEL through a third party. 4. Price. ----- (a) Price. TEL agrees to pay Manufacturer for the Products purchased ----- hereunder in accordance with price schedules or bulletins supplied by Manufacturer from time to time. The presently applicable schedule is attached hereto as Appendix A. (b) Price Change. Manufacturer shall give TEL at least ninety (90) ------------ days written notice prior to the price change which may be made by Manufacturer. 5. Terms Of Payment. The payment shall be made net thirty (30) days after ---------------- the invoice date by cash remittance in U.S. dollars by cable. 6. Delivery. Manufacturer shall use its best efforts to fill all orders -------- promptly upon acceptance thereof. Deliveries shall be made F.O.B. Manufacturer's factory in _______________. Manufacturer shall retain title and bear the risk of loss until such time as a shipment has been placed on board the carrier, at which time title shall pass and the risk of loss shall be borne by TEL. TEL shall have the right to select the carrier of its choice. 7. Advertising. TEL shall conduct advertising activity which is deemed ----------- appropriate to promote the sale of the Products in the Territory. Manufacturer shall supply, free of charge, advertising materials for marketing of the Products such as catalogs, brochures, pamphlets, and the -2- like. TEL agrees to refrain from making any claim or representation concerning the Products in excess of those made by Manufacturer. 8. Trademarks. In connection with sales or advertising of the Products, ---------- TEL may use such trade name or trademarks owned by Manufacturer as are more specifically listed in Appendix C. Upon termination of this Agreement, TEL will take all reasonable and necessary steps to discontinue any use of such trade name and trademarks. 9. Warranties. ---------- (a) Materials and Workmanship. Manufacturer shall warrant its ------------------------- Products to be free from defects caused by faulty materials or poor workmanship and to conform to specifications furnished or approved by Manufacturer for a period of one (1) year from the date of shipment to TEL. The liability of Manufacturer under this warranty is limited to replacing, repairing or making refund payment at its option and expense for any Product which is returned by TEL. (b) Third Party Infringement. Manufacturer agrees to indemnify and ------------------------ hold harmless TEL and its customers from and against all damages and costs, including legal fees, which may be assessed against TEL or its customers in any claim or action by third parties alleging unlawful acts or omissions to act, such as trademark, copyright, mask works right or patent infringement, where alleged liability of TEL or its customers arises by reason of the use or sale of any item delivered by Manufacturer to TEL or its customers, provided that TEL or its customers shall give Manufacturer prompt notice, in writing, of all such claims or actions instituted against it, and an opportunity to elect to take over, settle or defend the same through counsel of its own choice and under its sole discretion and at its own expense, and will make available to Manufacturer in the event of such election, all defenses against such claims or actions, known or available to TEL or its customers. 10. Termination. ----------- (a) General. This Agreement may be terminated: ------- (i) By an agreement in writing duly signed by the parties hereto, or (ii) By either party at will, with or without cause, upon not less than sixty (60) days notice in writing, given by registered or certified mail to the other party. (b) Sales after Termination. The acceptance of any order from or the ----------------------- sale of any Product to TEL after the termination of this Agreement shall not be construed as a renewal or extension hereof nor as a waiver of termination. (c) No Liability for Termination. Neither Manufacturer nor TEL shall, ---------------------------- by reason of the termination, be liable to the other for compensation, reimbursement or damages on account of the loss of prospective profits on anticipated sales, or on account of expenditures, investments, leases or commitments made in connection with this Agreement. -3- (d) Inventory Buy-back. Upon termination of this Agreement, ------------------ Manufacturer shall purchase from TEL and TEL shall sell to Manufacturer all Products of Manufacturer, including all accessories, parts, options and etc., purchased by TEL for resale and then in TEL's inventory, such purchases to be at a price equal to TEL's book value. (e) Spare Parts. Despite the termination of this Agreement, ----------- Manufacturer shall, upon request by TEL, continue to provide TEL the spare parts for each model of the Products for a period of five (5) years from the shipment of the last unit of such model at the Manufacturer's then current prices. 11. Arbitration. Disputes hereunder which cannot be satisfactorily ----------- resolved by the parties themselves shall be finally settled by arbitration pursuant to the Japan-American Trade Arbitration Agreement of September 16, 1952, by which each party hereto is bound. If Manufacturer is the initiating party, the arbitration shall be held in Tokyo, and if TEL is the initiating party, the arbitration shall be held in Flanders, New Jersey. 12. Force Majeure. Neither party hereto shall be liable for default of any ------------- obligation hereunder if such default results from the force majeure which includes, without limitation, governmental acts or directives; strikes; acts of God; war; insurrection, riot or civil commotion; fires, flooding or water damage; explosions, embargoes, or delays in delivery, whether of the kind herein enumerated or otherwise, which are not within the reasonable control of the party affected. 13. Miscellaneous. ------------- (a) Assignment. This Agreement is not assignable or transferable by ---------- either party in whole or in part, except with the written consent of the other party. (b) Notices. Any notices provided for under this Agreement shall be ------- deemed effective when delivered in person or seven (7) days after deposit in the mails by registered or certified mail postage prepaid and addressed to the respective address listed in the introduction of this Agreement, or to such different address as either party may designate in writing to the other pursuant to this paragraph. (c) Relationship of Parties. The parties hereto agree that TEL shall ----------------------- operate as an independent contractor and not as an agent or employee of Manufacturer. TEL has no express or implied authorization to incur any obligation or in any manner otherwise make any commitments on behalf of Manufacturer. TEL shall employ its own personnel and shall be responsible for them and their acts and in no way shall Manufacturer be liable to TEL, its employees or third parties for any losses, injuries, damages or the like occasioned by TEL's activities in connection with this Agreement, except as expressly provided herein. -4- IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day and year first above set forth. TOKYO ELECTRON LIMITED RUDOLPH RESEARCH INTERNATIONAL By: /s/ H. Ishibashi By: /s/ Richard Spanier -------------------------- ---------------------------- Title: Director, SP-1 Div Title: President -------------------------- ---------------------------- Date: May 15, 1987 Date May 21, 1987 -------------------------- ---------------------------- -5- APPENDIX A ---------- PRODUCTS AND PRICE LIST ----------------------- AUTOEL IN SITU RESEARCH & SPECTROSCOPIC ELLIPSOMETERS, including EXTERNAL SOFTWARE AND SPARE PARTS and ACCESSORIES. (Price Lists as presently in TEL's possession.) APPENDIX B ---------- TERRITORY --------- Territory: JAPAN - --------- APPENDIX C ---------- TRADEMARKS ---------- AUTOEL EX-10.6 9 RUDOLPH HOLDINGS CORP. MGMT AGMT/P. MCLAUGHLIN EXHIBIT 10.6 RUDOLPH HOLDINGS CORPORATION MANAGEMENT AGREEMENT -------------------- THIS MANAGEMENT AGREEMENT (the "Agreement") is made as of June 14, 1996 --------- (the "Effective Date"), by and among Rudolph Holdings Corporation, a -------------- Delaware corporation (the "Company"), Rudolph Technologies, Inc., a New Jersey ------- corporation ("Technologies"), and Paul F. McLaughlin ("Executive"). ------------ --------- WHEREAS, Executive desires to be employed as the President and Chief Executive Officer of Technologies, and Technologies desires to employ Executive as its President and Chief Executive Officer and to be assured of its right to his services on the terms and conditions hereinafter set forth, and Executive is willing to agree to such employment on such terms and conditions; WHEREAS, Executive desires purchase from the Company and the Company desires to sell to Executive, 684.98 shares of the Company's Class B Common Stock, par value $.01 per share (the "Class B Common") and 560 shares of the -------------- Company's Series A Preferred Stock, par value $.01 per share (the "Series A -------- Preferred"). All of the shares of Class B Common and Series A Preferred - --------- purchased by Executive hereunder are referred to herein as "Executive Stock," --------------- and Executive Stock shall not include any other shares of capital stock of the Company, Technologies or any affiliate thereof including, without limitation, stock issued upon the exercise of options granted to Executive; and WHEREAS, the execution and delivery of this Agreement by the Company and Executive is a condition to the consummation of transactions contemplated by the Stock Purchase Agreement dated as of the date hereof (the "Stock Purchase -------------- Agreement") by and among Rudolph Acquisition Corporation, a Delaware corporation - --------- ("Acquisition"), and the other persons named therein. Liberty Partners Holdings ----------- 11, L.L.C. ("LPH"), Riverside Rudolph, L.L.C., ("Riverside"), are collectively --- --------- referred to herein as the "Investors." Certain provisions of this Agreement are --------- intended for the benefit of, and shall be enforceable by, the Investors. Certain definitions are set forth in Section 1 of this Agreement. NOW, THEREFORE, the Company and Executive agree as follows: 1. Definitions. As used herein, the following terms shall have the ----------- following meanings. "Board" means the Company's board of directors. ----- "Cause" means the determination by the Board, in the exercise of its ----- good faith judgment, that: (a) Executive has committed a fraud, felony or other serious act of moral turpitude; or (b) Executive has breached his duty of loyalty to the Company or its Subsidiaries; or (c) Executive has committed a material breach of this Agreement, and if such breach is capable of cure, such breach is not cured or remedied and continues after fifteen (15) business days from the date on which written notice of the breach was first provided to Executive; in each case after (i) written notice to Executive and (ii) there has been a reasonable procedure for Executive to state his case to the Board. "Executive Stock" Executive Stock shall continue to be Executive Stock --------------- in the hands of any holder other than Executive (except for the Company and the Investors and except for transferees in a Public Sale or Sale of the Company), and except as otherwise provided herein, each such other holder of Executive Stock shall succeed to all rights and obligations attributable to Executive as a holder of Executive Stock hereunder. Executive Stock shall also include shares of the Company's capital stock issued with respect to Executive Stock by way of a stock split, stock dividend or other recapitalization. "Fair Market Value" of each share of Executive Stock, means with ----------------- respect to Class B Common or Series A Preferred, respectively, the average of the closing prices of the sales of such shares on all securities exchanges on which such shares may at the time be listed, or, if there have been no sales on any such exchange on any day, the average of the highest bid and lowest asked prices on all such exchanges at the end of such day, or, if on any day such shares are not so listed, the average of the representative bid and asked prices quoted in the NASDAQ System as of 4:00 P.M., New York time, or, if on any day such shares are not quoted in the NASDAQ System, the average of the highest bid and lowest asked prices on such day in the domestic over-the-counter market as reported by the National Quotation Bureau Incorporated, or any similar successor organization, in each such case averaged over a period of 21 days consisting of the day as of which the Fair Market Value is being determined and the 20 consecutive business days prior to such day. If at any time the Class B Common or the Series A Preferred is not listed on any securities exchange or quoted in the NASDAQ System or the over-the-counter market, the Fair Market Value of such shares shall be the fair value as determined in good faith by the Board. "Good Reason" means the resignation by Executive of employment with ----------- Technologies as a direct result of either (i) a substantial diminution of duties and responsibilities of Executive as an employee of Technologies, (ii) the relocation of Executive outside of the Flanders, New Jersey area, (iii) any requirement by the Company that Executive make a material misstatement or omission in any financial report or governmental filing, or (iv) a material breach of this Agreement by the Company or its Subsidiaries in the absence of a material breach of this Agreement by Executive, which diminution or breach, as the case may be, has continued 15 days after delivery of written notice by Executive to the Board stating Executive's intent to resign as a consequence of such diminution or breach; provided that Executive's resignation actually occurs -------- ---- within 30 days following the occurrence of the diminution or breach. "Independent Third Party" means any Person or group of Persons who, ------------------------ immediately prior to the contemplated transaction, does not own in excess of 5% of the common equity of the Company or its Subsidiaries on a fully-diluted basis, who is not controlling, controlled by or under common control with any such 5% owner of capital stock and who is not the spouse or descendent (by birth or adoption) of any such 5% owner of capital stock. "Permanent Disability" means that Executive, as determined by the -------------------- Board in its good faith judgement, is unable to perform, by reason of physical or mental incapacity, his duties or -2- obligation under this Agreement, for a period of ninety (90) consecutive days or a total period of one hundred twenty (120) days in any three hundred sixty-five (365) day period. "Person" means an individual, a partnership, a corporation, an ------ association, a joint stock company, a trust, a joint venture, an unincorporated organization or a governmental entity or any department, agency or political subdivision thereof. "Public Sale" means any sale pursuant to a registered public offering ----------- under the 1933 Act or any sale to the public pursuant to Rule 144 promulgated under the 1933 Act effected through a broker, dealer or market maker. "Qualified Public Offering" means the sale, in an underwritten public ------------------------- offering registered under the 1933 Act, of shares of common equity of the Company or its Subsidiaries having an aggregate offering value of at least $30 million. "Sale of the Company" means the sale of Technologies to an Independent ------------------- Third Party or affiliated group of Independent Third Parties pursuant to which such party or parties acquire (i) capital stock of Technologies possessing the voting power to elect a majority of Technologies board of directors (whether by merger, consolidation or sale or transfer of the Company's capital stock) or (ii) all or substantially all of the Company's assets determined on a consolidated basis. "1933 Act" means the Securities Act of 1933, as amended from time to -------- time. 2. Employment. Technologies agrees to employ Executive, and ---------- Executive hereby accepts employment with Technologies, upon the terms and conditions set forth in this Agreement. (a) Position and Duties. ------------------- (i) Executive shall serve as President and Chief Executive Officer of Technologies and shall have such duties as may be consistent with such position and as are determined by the Board from time to time. (ii) Executive shall serve as a director on the Board, subject to the provisions of the Stockholders Agreement dated as of the date hereof (the "Stockholders Agreement") by and among the Company, ---------------------- Executive and the other Persons named therein. (iii) Executive shall devote his best efforts and his full business time and attention (except for permitted vacation periods and reasonable periods of illness or other incapacity which does not constitute Permanent Disability) to the business and affairs of Technologies; provided, that subject to the prior approval by the -------- Board, Executive may serve as a director of other companies that are not competitive with the business of Technologies. Executive shall perform his duties and responsibilities to the best of his abilities in a diligent, trustworthy, businesslike and efficient manner. (b) Term. Subject to the provisions of Section 3(a), the "Term" of ---- ---- this Agreement shall be for two (2) years from the date hereof, unless earlier terminated by either party -3- as provided in Section 3(a) below, subject to automatic renewals for successive two year Terms unless either party has delivered written notice not less than ninety (90) days prior to the expiration of the initial Term or any renewal thereof. (c) Compensation. Commencing from the Effective Date, Technologies ------------ shall pay to Executive, during Executive's employment by Technologies, an annual base salary ("Base Salary") of $200.000, subject to increase as provided below ----------- in this Section 2(c). Such Base Salary shall be paid in accordance with the Technologies' normal payroll procedures and cycles and shall be subject to withholding of applicable taxes and governmental charges in accordance with federal and state law. Executives' Base Salary shall be subject to annual review by the Board, and at a minimum shall be increased annually as of the anniversary of the date hereof by an amount equal to the product of the Base Salary theretofore in effect multiplied by a fraction of which (i) the numerator is the Consumer Price Index for All Urban Consumers - New Jersey (1982/84 = 100) (the "Index"), prepared by the Bureau of Labor Statistics of the United States ----- Department of Labor (or if the Index is not then published, the most nearly comparable index) of the month immediately preceding such date and (ii) the denominator is the Index for the month immediately preceding the last date on which the Base Salary has been adjusted pursuant to this sentence or, if not previously adjusted, the month preceding the date of this Agreement. Executive will also be eligible to receive an annual bonus in an amount equal to up to 30% of Executive's then current Base Salary upon the achievement by Technologies of certain annual operating targets as determined by the Board. (d) Benefits. In addition to the Base Salary paid to Executive by -------- Technologies, Executive shall be eligible to participate, during Executive's employment by Technologies, in such benefits programs (including paid vacation of four weeks per year) as may be appropriate for Executive's position with Technologies and as approved by the Board. Technologies will reimburse Executive for reasonable out-of-pocket expenses incurred by Executive in relocating to the Flanders, New Jersey area, including arms-length real estate broker's fees payable to an unrelated third party, incurred in connection with the sale of Executive's home in Moorestown. (e) Expenses. Technologies shall reimburse Executive for all -------- reasonable expenses incurred by him in the course of performing his duties and responsibilities under this Agreement which are consistent with Technologies' policies in effect from time to time with respect to travel, entertainment and other business expenses, subject to Technologies' requirements with respect to reporting and documentation of such expenses. (f) Key Man Life Insurance. Technologies, in its sole discretion and ---------------------- at its sole expense, may obtain a key man life insurance policy on Executive for the benefit of Technologies, and Executive shall cooperate with Technologies in obtaining such insurance and shall submit to medical examinations as required. 3. Termination and Severance. ------------------------- (a) Termination. Executive and Technologies shall each have the right ----------- to terminate the Term and Executive's employment with Technologies (a "Termination," and the date of such termination the "Termination Date") at any ----------- ---------------- time and for any reason or for no reason at all, by -4- delivering written notice to the other party, and upon any such Termination, Technologies shall have no further obligations to Executive hereunder, except as set forth in Sections 3(b) and (c) below. (b) Base Salary through Termination; COBRA. Executive shall be -------------------------------------- entitled to receive his Base Salary earned through his Termination Date, prorated on a daily basis together with all accrued but unpaid vacation time earned through his Termination Date. In addition, Executive shall be entitled to COBRA benefits after the Termination Date. Except as set forth in Section 3(c), Executive shall not be entitled to receive his Base Salary or any bonuses or other benefits from Technologies for any period after the Termination Date. (c) Severance Obligations. In the event Executive's employment is --------------------- terminated by Technologies without Cause or Executive resigns from employment with Technologies with Good Reason, following such Termination and upon execution by Executive of a general release in favor of the Company and its Subsidiaries (i) satisfying all applicable requirements of the Older Workers Benefit Protection Act, including expiration of the applicable revocation period, and (ii) releasing any and all claims against the Company and its Subsidiaries, Technologies shall continue to pay Executive (or his estate) his Base Salary (as in effect on the Termination Date) for a period of one year following the Termination Date, payable in accordance with Technologies' normal payroll procedures and cycles and shall be subject to withholding of applicable taxes and governmental charges in accordance with federal and state law. In the event that Executive's employment with Technologies is terminated for any other reason, Technologies shall have no obligation to make any severance or other payment to or on behalf of Executive. Notwithstanding the foregoing, in the event that Executive shall breach any of his obligations under Sections 5, 6 or 7 of this Agreement, Technologies shall be relieved from and shall have no further obligation to pay Executive any amounts to which Executive would otherwise be entitled pursuant to this Section 3. (d) Sale of the Company. In the event of a Termination of Executive's ------------------- employment with Technologies for any reason within three months from the date of a Sale of the Company, Technologies shall pay to Executive his Base Salary as in effect on the Termination Date, over a period of one year, in accordance with Technologies' normal payroll procedures and cycles, and subject to withholding of applicable taxes and governmental charges in accordance with federal and state law. 4. Executive Stock Options. The Company shall grant to Executive an ----------------------- option to purchase shares of its Class B Common pursuant to the terms of the Company's 1996 Stock Option Plan and a definitive option agreement between the Company and Executive. 5. Confidential Information. Executive acknowledges that the ------------------------ information, observations and data concerning the business or affairs of the Company and its Subsidiaries ("Confidential Information") obtained by him as a ------------------------ result of his employment with Technologies, as a result of his serving as a director on the Board or as a result of his ownership of capital stock of the Company are the property of the Company. Therefore, Executive agrees that he shall not disclose to any person or use for any other purpose, any Confidential Information without the prior written consent of the Board, unless and to the extent such Confidential Information becomes generally known to and available for use by the public other than as a result of Executive's acts or omissions to act. Executive shall deliver to the Board on Executive's Termination Date, or at any other time the Board -5- may request, all memoranda, notes, plans, records, reports, computer tapes and software, and all other material, documents and data (and all copies thereof) relating to the Confidential Information, Work Product (as defined below) and the business of the Company and its Subsidiaries which Executive may then possess or have under his control. 6. Inventions and Patents. Executive agrees that all inventions, ---------------------- innovations, improvements, developments, methods, designs, analyses, drawings, reports and all similar or related information which relates to the Company's or its Subsidiaries' actual or anticipated business, research and development or existing or future products or services and which are conceived, developed or made by Executive while employed by Technologies or while serving as a director on the Board ("Work Product") are the property of and belong to the Company and ------------ its Subsidiaries. Executive understands and acknowledges that, at the request of the Board, he must assign to the Company or its Subsidiaries any development, invention or information that (i) relates to the actual or anticipated business research or development of the Company and its Subsidiaries, or (ii) results from any work performed by Executive for the Company and its Subsidiaries. Executive will promptly disclose such Work Product to the Board and perform all actions requested by the Board (whether during or after Executive's employment) to establish and confirm the Company's or its Subsidiaries ownership of any Work Product (including, without limitation, the execution and delivery of assignments, consents, powers of attorney and other instruments). 7. Non-Compete, Non-Solicitation. ----------------------------- (a) Executive acknowledges that during the course of his employment with Technologies and directorship on the Board he will become familiar with the trade secrets and with other Confidential Information of the Company and its Subsidiaries and that his services will be of a special, unique and extraordinary value to the Company and its Subsidiaries. Therefore, Executive agrees that, during the time he is employed by Technologies and for two years thereafter (the "Non-Compete Period"), Executive shall not directly or ------------------ indirectly own, operate, manage, control, participate in, consult with, advise, provide services for, or in any manner engage in (including by himself or in association with any person, firm, corporate or other business organization or through any entity), any business engaged in the businesses in which the Company and its Subsidiaries is engaged or then proposes to engage within any geographical area in which the Company or its Subsidiaries engages in business. Nothing herein shall prohibit Executive from being a passive owner of not more than 5% of the outstanding stock of any class of a corporation which is publicly traded, or any other passive minority investment in any investment fund, limited partnership or similar entity, whether or not publicly traded, and so long as Executive has no active participation in the business of such entity. (b) During the time Executive is employed Technologies and for two years thereafter (the "Non-Solicitation Period"), Executive shall not, directly ----------------------- or indirectly through another entity, (i) induce or attempt to induce any employee of Technologies to leave the employ of Technologies, or in anyway interfere with the relationship between Technologies and any employee thereof, including without limitation, inducing or attempting to induce any employee, group of employees or any other person or persons to interfere with the business or operations of Technologies, (ii) hire any person who was an employee of Technologies at any time during Executive's employment period, or (iii) induce or attempt to induce, whether directly or indirectly, -6- any customer, supplier, distributor, franchisee, licensee or other business relation of Technologies to cease doing business with Technologies, or in any way interfere with the relationship between any such customer, supplier, distributor, franchisee, licensee or business relation and Technologies. (c) Executive agrees that: (i) the covenants set forth in this Section 7 are reasonable in geographical and temporal scope and in all other respects, (ii) the Company would not have entered into this Agreement but for the covenants of Executive contained herein, and (iii) the covenants contained herein have been made in order to induce the Company to enter into this Agreement. (d) If, at the time of enforcement of this Section 7 a court shall hold that the duration, scope or area restrictions stated herein are unreasonable under the circumstances then existing, the parties agree that the maximum duration, scope or area reasonable under such circumstance shall be substituted for the stated duration, scope or area and that the courts shall be allowed to revise the restrictions contained herein to cover the maximum period, scope and area permitted by law. (e) Executive recognizes and affirms that in the event of his breach of any provision of this Section 7 or Sections 5 or 6, money damages would be inadequate and the Company and its Subsidiaries would have no adequate remedy at law. Accordingly, Executive agrees that in the event of a breach or threatened breach by Executive of any of the provisions of this Section 7 or Sections 5 or 6, the Company and its Subsidiaries, in addition and supplementary to other rights and remedies existing in its favor, may apply to any court of law or equity of competent jurisdiction for specific performance and/or injunctive or other relief in order to enforce or prevent any violations of the provisions hereof (without posting a bond or other security). 8. Purchase and Sale of Executive Stock. ------------------------------------ (a) Upon execution of this Agreement, Executive shall purchase, and the Company shall sell: (i) 684.98 shares of Class B Common at a price of $20.44 per share, and (ii) 560 shares of Series A Preferred at a price of $100.00 per share, for an aggregate purchase price of $70,000. The Company shall deliver to Executive the certificates representing such shares of Class B Common and Series A Preferred, and Executive shall deliver to the Company a cashier's or certified check or wire transfer of funds in the aggregate amount of $70,000. The closing of the purchase and sale of the Executive Stock shall take place simultaneously with the closing of the transactions contemplated by the Stock Purchase Agreement. (b) In connection with the purchase and sale of the Executive Stock hereunder, Executive represents and warrants to the Company that: (i) The Executive Stock to be acquired by Executive pursuant to this Agreement shall be acquired for Executive's own account and not with a view to, or intention of, distribution thereof in violation of the 1933 Act, or any applicable state securities laws, and the Executive Stock shall not be disposed of in contravention of the 1933 Act or any applicable state securities laws. -7- (ii) Executive is an executive officer of Technologies and a director on the Board, is sophisticated in financial matters and is able to evaluate the risks and benefits of the investment in the Executive Stock. (iii) Executive is able to bear the economic risk of his investment in the Executive Stock for an indefinite period of time because the Executive Stock has not been registered under the 1933 Act and, therefore, cannot be sold unless subsequently registered under the 1933 Act or an exemption from such registration is available. (iv) Executive has had an opportunity to ask questions and receive answers concerning the terms and conditions of the offering of the Executive Stock and has had full access to such other information concerning the Company and its Subsidiaries as he has requested. Executive has reviewed, or has had an opportunity to review, a copy of the Stock Purchase Agreement, and Executive is familiar with the transactions contemplated thereby. Executive has also reviewed, or has had an opportunity to review, the following documents: (A) the Company's Certificate of Incorporation and Bylaws; (B) the loan agreements, notes and related documents with Technologies senior and subordinated lenders; (C) Technologies audited financial statements dated as of December 31, 1995; (v) This Agreement constitutes the legal, valid and binding obligation of Executive, enforceable in accordance with its terms, and the execution, delivery and performance of this Agreement by Executive do not and shall not conflict with, violate or cause a breach of any agreement, contract or instrument to which Executive is a party or any judgment, order or decree to which Executive is subject. (c) As an inducement to the Company to issue the Executive Stock to Executive, and as a condition thereto, Executive acknowledges and agrees that: (i) neither the issuance of the Executive Stock to Executive nor any provision contained herein shall entitle Executive to remain in the employment of Technologies or any affiliate or subsidiary thereof or affect the right of Technologies to terminate Executive's employment at any time; and (ii) the Company and its Subsidiaries shall have no duty or obligation to disclose to Executive, and Executive shall have no right to be advised of, any material information regarding the Company and its Subsidiaries at any time prior to, upon or in connection with the repurchase of Executive Stock upon Executive's Termination or as otherwise provided hereunder, except for reports or information used by the Board to determine the Fair Market Value of the Executive Stock purchased from Executive. (d) The Company and Executive acknowledge and agree that this Agreement has been executed and delivered, and the Executive Stock has been issued hereunder, in connection with and as part of the compensation and incentive arrangements between the Company and Executive. -8- 9. Vesting of Executive Stock. The Executive Stock shall be fully -------------------------- vested immediately as of the consummation of the purchase and sale of the Executive Stock. 10. Call and Put Options. -------------------- (a) In the event of Executive's Termination, the Executive Stock (whether held by Executive or one or more of Executive's transferees) shall be subject to repurchase by the Company and/or the Investors at their option pursuant to the terms and conditions set forth in this Section 10 (the "Call ---- Option"). - ------ (b) In the event of a Termination either without Cause or with Good Reason or as a result of the death or Permanent Disability of Executive, Executive (or Executive's Estate) shall have the option to cause the Company to repurchase all of the Executive Stock held by Executive as of the date of the Termination pursuant to the terms and conditions set forth in this Section 10 (the "Put Option") by delivering a written election notice (the "Put Notice") to ---------- ---------- the Board within 60 days of Executive's Termination Date. (c) The purchase price for each share of Executive Stock purchased from the Executive pursuant to the Call Option or the Put Option shall be the Fair Market Value for such share. (d) The Board may elect to cause the Company to purchase all of the Executive Stock by delivering written notice (the "Call Notice") to the holder ----------- or holders of the Executive Stock within 90 days after the Termination Date. The Call Notice shall set forth the number of shares of Executive Stock to be acquired from each holder of Executive Stock, the aggregate consideration to be paid for such shares and the time and place for the closing of the transaction. (e) If for any reason the Board does not elect to cause the Company to purchase all of the Executive Stock pursuant to the Call Option, the Investors shall be entitled to exercise the Call Option for the shares of Executive Stock the Company has not elected to purchase (the "Available Shares"). As soon as ---------------- practicable after the Board has determined that there will be Available Shares, but in any event within thirty (30) days after the Termination Date, the Board shall give written notice (the "Option Notice") to the Investors setting forth ------------- the number of Available Shares and the purchase price for the Available Shares. The Investors may elect to purchase any or all of the Available Shares by giving written notice to the Board within fifteen (15) days after the Option Notice has been given by the Board. If the Investors elect to purchase an aggregate number of shares greater than the number of Available Shares, the Available Shares shall be allocated among the Investors based upon the aggregate number of shares of Class B Common and Class A Common Stock of the Company, par value $.01 per share (the "Class A Common," and together with the Class B Common, the "Common -------------- ------ Stock") owned by each Investor on a fully-diluted basis. If the Investors have - ----- in the aggregate elected to purchase less than all of the Available Shares, the Available Shares which the Investors have not elect to purchase (the "Remaining --------- Available Shares") shall be reoffered to the Investors who have elected to - ---------------- purchase Available Shares for an additional five (5) day period, and each Investor may elect to purchase all (but not less than all) of such Investor's pro rata share of all Remaining Available Shares (based on such holder's proportionate ownership of all shares of Common Stock on a fully-diluted basis owned by the Investors who have -9- elected to purchase Remaining Available Shares). As soon as practicable, and in any event within ten (10) days after the expiration of the fifteen (15) day period set forth above, the Board shall notify each holder of Executive Stock as to the number of shares being purchased from such holder by the Investors (the "Supplemental Call Notice"). At the time the Board delivers the Supplemental ------------------------ Call Notice to the holder(s) of Executive Stock, the Board shall also deliver written notice to each Investor setting forth the number of shares such Investor is entitled to purchase, the aggregate purchase price and the time and place of the closing of the transaction. (f) The closing of the purchase of the Executive Stock pursuant to the Call Option shall take place on the date designated by the Board in the Call Notice or Supplemental Call Notice, which date shall not be more than 60 days nor less than five days after the delivery of the later of either such notice to be delivered. The closing of the purchase of the Executive Stock pursuant to the Put Option shall take place on any date designated by the Board in a written notice delivered to Executive, which date shall not be more than 60 days nor less than 5 days after the delivery by Executive of the Put Notice. The Company and/or the Investors shall pay for the Executive Stock to be purchased pursuant to the Call Option or Put Option, as applicable, by delivery of, in the case of each Investor, a check or wire transfer of funds and, in the case of the Company at its option (i) a check or wire transfer of funds, or (ii) a subordinated note or notes payable as soon as reasonably practicable and bearing interest (payable quarterly) at a rate per annum equal to the prime rate announced from time to time by State Street Bank & Trust Co. (or any successor entity thereto) plus 2%, or (iii) both (i) and (ii), in the aggregate amount of the purchase price for such shares; provided that the Company shall use reasonable efforts to make all such repurchases with a check or wire transfer of funds; and provided further, in the event Executive exercises the Put Option and the Company pays for such repurchase by delivery of a subordinated note, the Company shall repay such indebtedness as soon as it is permitted under the Company's or its Subsidiaries' loan agreements and by applicable law. Notwithstanding anything contained in this Agreement to the contrary, any notes issued by the Company or its Subsidiaries pursuant to this Section 10(f) shall be subject to any restrictive covenants to which the Company or its Subsidiaries is subject at the time of such purchase. The purchasers of Executive Stock hereunder shall be entitled to receive customary representations and warranties from the sellers regarding such sale of shares (including representations and warranties regarding good title to such shares, free and clear of any liens or encumbrances) and to require all sellers' signatures be guaranteed by a national bank or reputable securities broker. (g) The right and obligation of the Company and the right of the Investors to repurchase the Executive Stock pursuant to this Section 10 shall terminate upon the first to occur of the Sale of the Company or a Qualified Public Offering. (h) Notwithstanding anything to the contrary contained in this Agreement, all repurchases of Executive Stock by the Company or its Subsidiaries shall be subject to applicable restrictions contained in the New Jersey and Delaware Corporation Law and in the Company's and its Subsidiaries debt and equity financing agreements. If any such restrictions prohibit the repurchase of Executive Stock hereunder which the Company is otherwise entitled or required to make or the payment of dividends or loans to the Company to make such repurchases, the time periods provided in this Section 10 shall be suspended, and the Company may, or shall (as applicable), make such repurchases as soon as it is permitted to do so under such restrictions. -10- 11. Restrictions on Transfer. ------------------------ (a) Stockholders Agreement. Shares of Executive Stock are subject to ---------------------- the restrictions on transfer set forth in the Stockholders Agreement, dated as of the date hereof, by and among Executive and each of the other persons named therein. (b) The certificates representing Executive Stock shall bear the following legend: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED ON JUNE 14, 1996, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION THEREUNDER. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER, CERTAIN REPURCHASE OPTIONS AND CERTAIN OTHER AGREEMENTS SET FORTH IN A MANAGEMENT AGREEMENT BETWEEN THE ISSUER AND _______________ DATED AS OF JUNE 14, 1996, AS AMENDED AND MODIFIED FROM TIME TO TIME. A COPY OF SUCH AGREEMENT MAY BE OBTAINED BY THE HOLDER HEREOF AT THE ISSUERS' PRINCIPAL PLACE OF BUSINESS WITHOUT CHARGE." (c) Except in connection with a Sale of the Company, no holder of Executive Stock may sell, transfer or dispose of any Executive Stock (except pursuant to an effective registration statement under the 1933 Act) without first delivering to the Company an opinion of counsel (reasonably acceptable in form and substance to the Board) that neither registration nor qualification under the 1933 Act and applicable state securities laws is required in connection with such transfer. 12. Notices. All notices or communications provided for herein shall be ------- deemed to be validly given as of the date of delivery, if delivered personally, and three days after mailing, if sent by registered or certified mail, return receipt requested, addressed to the Company or Technologies at its respective headquarters or executive offices or to Executive at his address as set forth from time to time in the records of the Company. 13. Miscellaneous. ------------- (a) Severability. Whenever possible, each provision of this Agreement ------------ will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or any other jurisdiction, but this Agreement will be reformed, construed and enforced in -11- such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein. (b) Complete Agreement. This Agreement embodies the complete ------------------ agreement and understanding among the parties and supersedes and preempts any prior understandings, agreements or representations by or among the parties, written or oral, which may have related to the subject matter hereof in any way. (c) Counterparts. This Agreement may be executed in separate ------------ counterparts, each of which is deemed to be an original and all of which taken together constitute one and the same agreement. (d) Governing Law. The corporate law of the State of Delaware shall ------------- govern all issues and questions concerning the relative rights of the Company and its stockholders. All other issues and questions concerning the construction, validity, interpretation and enforceability of this Agreement and the exhibits and schedules hereto shall be governed by, and construed in accordance with, the laws of the State of New York, without giving effect to any choice of law or conflicts of law rules or provisions (whether of the State of New York or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of New York. (e) Successors and Assigns. Except as otherwise provided herein, this ---------------------- Agreement shall bind and inure to the benefit of and be enforceable by the Company and its Subsidiaries and Executive and their respective successors and assigns; provided that the rights and obligations of Executive under this Agreement shall not be assignable without the prior written approval of the Board. (f) Remedies. Each of the parties to this Agreement will be entitled -------- to enforce its rights under this Agreement specifically, to recover damages and costs (including reasonable attorneys' fees) caused by any breach of any provision of this Agreement and to exercise all other rights existing in its favor. The parties hereto agree and acknowledge that money damages may not be an adequate remedy for any breach of the provisions of this Agreement and that any party may in its sole discretion apply to any court of law or equity of competent jurisdiction (without posting any bond or deposit) for specific performance and/or other injunctive relief in order to enforce or prevent any violations of the provisions of this Agreement. (g) Amendment and Waiver. The provisions of this Agreement may be -------------------- amended and waived only with the prior written consent of the Company and Executive. * * * * * -12- IN WITNESS WHEREOF, the parties hereto have executed this MANAGEMENT AGREEMENT as of the date first written above. RUDOLPH TECHNOLOGIES, INC. By: /s/ Stephen J. Fisher ----------------------------------- Title: Vice President -------------------------------- RUDOLPH HOLDINGS CORPORATION By: /s/ Stephen J. Fisher ----------------------------------- Title: Vice President -------------------------------- /s/ Paul F. McLaughlin --------------------------------------- Paul F. McLaughlin EX-10.7 10 RUDOLPH HOLDINGS CORP MGMT AGMT/R. LOITERMAN EXHIBIT 10.7 RUDOLPH HOLDINGS CORPORATION MANAGEMENT AGREEMENT -------------------- THIS MANAGEMENT AGREEMENT (the "Agreement") is made as of June 14, --------- 1996 (the "Effective Date"), by and between Rudolph Holdings Corporation, a -------------- Delaware corporation (the "Company"), Rudolph Technologies, Inc., a New Jersey ------- corporation ("Technologies"), and Robert Loiterman ("Executive"). ------------ --------- WHEREAS, Executive desires to be employed as a Vice President of Engineering of Technologies, and Technologies desires to employ Executive as a Vice President of Engineering and to be assured of its right to his services on the terms and conditions hereinafter set forth, and Executive is willing to agree to such employment on such terms and conditions; WHEREAS, the Company and Executive desire to enter into an agreement pursuant to which Executive shall purchase, and the Company shall sell, 195.71 shares of the Company's Class B Common Stock, par value $.01 per share (the "Common Stock"), and 160 shares of the Company's Series A Preferred Stock, par ------------ value $.01 per share (the "Preferred Stock") for an aggregate purchase price of --------------- $20,000. All shares of Common Stock and Preferred Stock purchased by Executive hereunder are referred to herein as "Executive Stock," and except as set forth --------------- in Section 1 hereof, Executive Stock shall not include any other shares of capital stock of the Company (including, without limitation, shares of Common Stock issued to Executive upon the exercise of certain stock options granted to Executive); and WHEREAS, the execution and delivery of this Agreement by the Company, Technologies and Executive is a condition to the consummation of transactions contemplated by the Stock and Warrant Purchase Agreement dated as of the date hereof by and among the Company and those Persons named therein (the "Purchase -------- Agreement"). Certain provisions of this Agreement are intended for the benefit - --------- of, and shall be enforceable by, Liberty Partners Holdings 11, L.L.C. ("LPH") --- and Riverside Rudolph, L.L.C. ("RRL" and together with LPH, the "Investors"). --- --------- Certain definitions are set forth in Section 1 of this Agreement. NOW, THEREFORE, the Company, Technologies and Executive agree as follows: 1. Definitions. As used herein, the following terms shall have the ----------- following meanings. "Board" means the Company's board of directors. ----- "Cause" means the determination by the Board, in the exercise of its ----- good faith judgment, that: (a) Executive has committed a fraud, felony or other serious act of moral turpitude; or (b) Executive has breached his duty of loyalty to the Company and its Subsidiaries, or (c) Executive has committed a material breach of this Agreement, and if such breach is capable of cure, such breach is not cured or remedied and continues; after fifteen (15) business days from the date on which written notice of the breach was first provided to Executive by the Company or its Subsidiaries. "Executive Stock" shall continue to be Executive Stock in the hands of --------------- any holder other than Executive (except for the Company and the Investors and except for transferees in a Public Sale or Sale of the Company), and except as otherwise provided herein, each such other holder of Executive Stock shall succeed to all rights and obligations attributable to Executive as a holder of Executive Stock hereunder. Executive Stock shall also include shares of the Company's capital stock issued with respect to Executive Stock by way of a stock split, stock dividend or other recapitalization. "Fair Market Value" of each share of Executive Stock, means with ----------------- respect to Common Stock or Preferred Stock, respectively, the average of the closing prices of the sales of such shares on all securities exchanges on which such shares may at the time be listed, or, if there have been no sales on any such exchange on any day, the average of the highest bid and lowest asked prices on all such exchanges at the end of such day, or, if on any day such shares are not so listed, the average of the representative bid and asked prices quoted in the NASDAQ System as of 4:00 P.M., New York time, or, if on any day such shares are not quoted in the NASDAQ System, the average of the highest bid and lowest asked prices on such day in the domestic over-the-counter market as reported by the National Quotation Bureau Incorporated, or any similar successor organization, in each such case averaged over a period of 21 days consisting of the day as of which the Fair Market Value is being determined and the 20 consecutive business days prior to such day. If at any time the Common Stock or the Preferred Stock is not listed on any securities exchange or quoted in the NASDAQ System or the over-the-counter market, the Fair Market Value of the Common Stock shall be the fair value as determined in good faith by the Board, and the Fair Market Value of the Preferred Stock shall be the aggregate liquidation value of such shares plus all accrued but unpaid dividends thereon. "Good Reason" means the resignation by Executive of employment with ----------- Technologies as a direct result of either (i) a substantial diminution of duties and responsibilities of Executive as an employee of Technologies, (ii) the relocation of Executive outside of the Flanders, New Jersey area, (iii) any requirement by the Company that Executive make a material misstatement or omission in any financial report or governmental filing, or (iv) a material breach of this Agreement by the Company or Technologies in the absence of a material breach of this Agreement by Executive, which diminution or breach, as the case may be, has continued 15 days after delivery of written notice by Executive to Technologies stating Executive's intent to resign as a consequence of such diminution or breach; provided that Executive's resignation actually -------- ---- occurs within 30 days following the occurrence of the diminution or breach. "Independent Third Party" means any Person or group of Persons who, ----------------------- immediately prior to the contemplated transaction, does not own in excess of 5% of the common equity of the Company's Common Stock on a fully-diluted basis, who is not controlling, controlled by or under common control with any such 5% owner of the Company's Common Stock and who is not the spouse or descendent (by birth or adoption) of any such 5% owner of the Company's Common Stock. "Permanent Disability" means that Executive, as determined by the -------------------- Board in its good faith judgement, is unable to perform, by reason of physical or mental incapacity, his duties or obligation -2- under this Agreement, for a period of 90 consecutive days or a total period of 120 days in any 365 day period. "Person" means an individual, a partnership, a corporation, a limited ------ liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization or a governmental entity or any department, agency or political subdivision thereof. "Public Sale" means any sale pursuant to a registered public offering ----------- under the 1933 Act or any sale to the public pursuant to Rule 144 promulgated under the 1933 Act effected through a broker, dealer or market maker. "Qualified Public Offering" means the sale, in an underwritten public ------------------------- offering registered under the 1933 Act, of shares of the Company's Common Stock having an aggregate offering value of at least $30 million. "Sale of the Company" means the sale of the Company to an Independent ------------------- Third Party or affiliated group of Independent Third Parties pursuant to which such party or parties acquire (i) capital stock of the Company possessing the voting power to elect a majority of the Company's board of directors (whether by merger, consolidation or sale or transfer of the Company's capital stock) or (ii) all or substantially all of the Company's assets determined on a consolidated basis. "1933 Act" means the Securities Act of 1933, as amended from time to -------- time. "Subsidiary" means with respect to any Person, any corporation, ---------- limited liability company, partnership, association or other business entity of which (i) if a corporation, a majority of the total voting power of the shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof, or (ii) if a limited liability company, partnership, association or other business entity, a majority of the partnership or other similar ownership interests thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof. For purposes hereof, a Person or Persons shall be deemed to have a majority ownership interest in a limited liability company, partnership, association or other business entity if such Person or Persons shall be allocated a majority of limited liability company, partnership, association or other business entity gains or losses or shall be or control any managing director or general partner of such limited liability company, partnership, association or other business entity. 2. Employment. Technologies agrees to employ Executive, and ---------- Executive hereby accepts employment with Technologies, upon the terms and conditions set forth in this Agreement. (a) Position and Duties. Executive shall serve as a Vice President of ------------------- Engineering of Technologies and shall have such duties which are consistent with such position as may be assigned by the President, the Chief Executive Officer of Technologies and the board of directors of Technologies from time to time. Executive shall devote his best efforts and his full business time -3- and attention (except for permitted vacation periods and reasonable periods of illness or other incapacity which does not constitute Permanent Disability) to the business and affairs of Technologies. (b) Term. Subject to the provisions of Section 3(a), the "Term" of ---- ---- this Agreement shall be for one (1) year from the date hereof, unless earlier terminated by either party as provided in Section 3(a) below, subject to automatic renewals for successive one (1) year Terms unless either party has delivered written notice not less than 90 days prior to the expiration of the initial Term or any renewal thereof. (c) Compensation. Commencing from the Effective Date, Technologies ------------ shall pay to Executive, during Executive's employment by Technologies, an annual base salary ("Base Salary") of $135,000. Such Base Salary shall be paid in ----------- accordance with Technologies' normal payroll procedures and cycles and shall be subject to withholding of applicable taxes and governmental charges in accordance with federal and state law. Executive's Base Salary shall be reviewed by the Board annually, and at a minimum, shall be increased annually as of the anniversary of the date hereof by an amount equal to the product of the Base Salary theretofore in effect multiplied by a fraction of which (i) the numerator is the Consumer Price Index for All Urban Consumers - New Jersey (1982/84 = 100) (the "Index"), prepared by the Bureau of Labor Statistics of the ----- United States Department of Labor (or if the Index is not then published, the most nearly comparable index) of the month immediately preceding such date and (ii) the denominator is the Index for the month immediately preceding the last date on which the Base Salary has been adjusted pursuant to this sentence, or, if not previously adjusted, the month preceding the date of this Agreement; provided, however that the Board shall not reduce the Base Salary. Executive - -------- ------- will also be eligible to receive an annual bonus in an amount as determined by the Board equal to up to twenty-five percent (25%) of Executive's then current Base Salary. The determination of the amount of such bonus by the Board shall be based (i) seventy-five percent (75%) upon the Company's achievement of Company performance goals established by the Company's Chief Executive Officer and the Board, and (ii) twenty-five percent (25%) upon Executive's achievement of personal performance goals established by the Company's Chief Executive Officer and the Board. (d) Benefits. In addition to the Base Salary paid to Executive by -------- Technologies, Executive shall be eligible to participate, during Executive's employment by Technologies, in such benefits programs as may be appropriate for Executive's position with Technologies and as approved by the Board. (e) Expenses. Technologies shall reimburse Executive for all -------- reasonable expenses incurred by him in the course of performing his duties and responsibilities under this Agreement which are consistent with Technologies policies in effect from time to time with respect to travel, entertainment and other business expenses, subject to Technologies' requirements with respect to reporting and documentation of such expenses. (f) Key Man Life Insurance. Technologies, in its sole discretion and ---------------------- at its sole expense, may obtain a key man life insurance policy on Executive for the benefit of Technologies, -4- and Executive shall cooperate with Technologies in obtaining such insurance and shall submit to medical examinations as required. (g) Closing Bonus. Upon consummation of the transactions completed by ------------- the Purchase Agreement, the Company shall pay to Executive a one-time bonus of $125,000 (the "Closing Bonus") within five (5) business days following the date ------------- hereof. The Closing Bonus shall be paid in accordance with the Company's normal payroll procedures and shall be subject to withholding of applicable taxes and governmental changes in accordance with federal and state law. 3. Termination and Severance. ------------------------- (a) Termination. Executive and Technologies shall each have the right ----------- to terminate the Term and Executive's employment with Technologies (a "Termination," and the date of such termination, the "Termination Date") at any ----------- ---------------- time and for any reason or for no reason at all, by delivering written notice to the other party, and upon any such Termination, Technologies shall have no further obligations to Executive hereunder, except as set forth in Sections 3(b) and (c) below. (b) Base Salary through Termination; COBRA. Executive shall be -------------------------------------- entitled to receive his Base Salary earned through his Termination Date, prorated on a daily basis together with all accrued but unpaid vacation time earned through his Termination Date. In addition, Executive shall be entitled to COBRA benefits after the Termination Date. Except as set forth in Section 3(c), Executive shall not be entitled to receive his Base Salary or any bonuses or other benefits from Technologies for any period after the Termination Date. (c) Severance Obligations. In the event Executive's employment is --------------------- terminated by Technologies without Cause or Executive resigns from employment with Technologies with Good Reason, following such Termination and upon execution by Executive of a general release in favor of the Company (i) satisfying all applicable requirements of the Older Workers Benefit-Protection Act, including expiration of the applicable revocation period, and (ii) releasing any and all claims against the Company and its Subsidiaries and affiliates, Technologies shall continue to pay Executive (or his estate) his annual Base Salary (as in effect on the Termination Date) over a period of one year following the Termination Date, payable in accordance with the Company's normal payroll procedures and cycles and shall be subject to withholding of applicable taxes and governmental charges in accordance with federal and state law. In the event that Executive's employment with the Company is terminated for any other reason, the Company shall have no obligation to make any severance or other payment to or on behalf of Executive. Notwithstanding the foregoing, in the event that Executive shall breach any of his obligations under Sections 5, 6 or 7 of this Agreement, the Company shall be relieved from and shall have no further obligation to pay Executive any amounts to which Executive would otherwise be entitled pursuant to this Section 3. 4. Executive Stock Options. The Company shall grant to Executive an ----------------------- option to purchase shares of the Company's Common Stock pursuant to the terms of the Company's 1996 Stock Option Plan and a definitive option agreement between the Company and Executive. -5- 5. Confidential Information. Executive acknowledges that the ------------------------ information, observations and data concerning the business or affairs of the Company and its Subsidiaries ("Confidential Information") obtained by him as a ------------------------ result of his employment with Technologies (including employment with Technologies prior to the date of this Agreement), and as a result of his ownership of capital stock of the Company are the property of the Company and its Subsidiaries. Therefore, Executive agrees that he shall not disclose to any person or use for any other purpose, any Confidential Information without the prior written consent of the Board, unless and to the extent such Confidential Information becomes generally known to and available for use by the public other than as a result of Executive's acts or omissions to act. Executive shall deliver to the Company and its Subsidiaries on Executive's Termination Date, or at any other time the Company or Technologies may request, all memoranda, notes, plans, records, reports, computer tapes and software, and all other material, documents and data (and all copies thereof) relating to the Confidential Information, Work Product (as defined below) and the business of the Company and its Subsidiaries which Executive may then possess or have under his control. 6. Inventions and Patents. Executive agrees that all inventions, ---------------------- innovations, improvements, developments, methods, designs, analyses, drawings, reports and all similar or related information which relates to the Company's or its Subsidiaries' actual or currently planned, research and development or existing or future products or services and which are conceived, developed or made by Executive while employed by the Company and its Subsidiaries (including employment with Technologies prior to the date of this Agreement) ("Work ---- Product") are the property of and belong to the Company and its Subsidiaries. Executive understands and acknowledges that, at the request of the Company or Technologies, he must assign to the Company and its Subsidiaries any development, invention or information that (i) relates to the actual or anticipated business research or development of the Company or its Subsidiaries, or (ii) results from any work performed by Executive for the Company and its Subsidiaries. Executive shall promptly disclose such Work Product to Technologies and the Company and perform all actions requested by the Board (whether during or after Executive's employment) to establish and confirm the Company's and its Subsidiaries' ownership of any Work Product (including, without limitation, the execution and delivery of assignments, consents, powers of attorney and other instruments). 7. Non-Competition, Non-Solicitation. --------------------------------- (a) Executive acknowledges that during the course of his employment with Technologies (including employment with Technologies prior to the date of this Agreement) he will become familiar with the Company's and its Subsidiaries' trade secrets and with other Confidential Information and that his services will be of a special, unique and extraordinary value to the Company and its Subsidiaries. Therefore, Executive agrees that, during the time he is employed by Technologies and for two years thereafter (the "Non-Competition Period"), ---------------------- Executive shall not directly or indirectly own, operate, manage, control, participate in, consult with, advise, provide services for, or in any manner engage in (including by himself or in association with any person, firm, corporate or other business organization or through any entity), any business engaged in the businesses in which the Company and its -6- Subsidiaries is engaged or then proposes to engage as of Executive's Termination Date within any geographical area in which the Company or its Subsidiaries engages in business. Nothing herein shall prohibit Executive from being a passive owner of not more than 5% of the outstanding stock of any class of a corporation which is publicly traded, or any other passive minority investment in any investment fund, limited partnership or similar entity, whether or not publicly traded, and so long as Executive has no active participation in the business of such entity. (b) During the time Executive is employed by Technologies and for two years thereafter (the "Non-Solicitation Period"), Executive shall not, directly ----------------------- or indirectly through another entity, (i) induce or attempt to induce any employee of the Company or its Subsidiaries to leave their employ, or in anyway interfere with the relationship between the Company or its Subsidiaries and any employee thereof, including without limitation, inducing or attempting to induce any employee, group of employees or any other person or persons to interfere with the business or operations of the Company and its Subsidiaries, (ii) hire any person who was an employee of the Company or its Subsidiaries at any time during Executive's employment period, or (iii) induce or attempt to induce, whether directly or indirectly, any customer, supplier, distributor, franchisee, licensee or other business relation of the Company and its Subsidiaries to cease doing business with the Company or its Subsidiaries, or in any way interfere with the relationship between any such customer, supplier, distributor, franchisee, licensee or business relation and the Company and its Subsidiaries. (c) Executive agrees that: (i) the covenants set forth in this Section 7 are reasonable in geographical and temporal scope and in all other respects, (ii) the Company and Technologies would not have entered into this Agreement but for the covenants of Executive contained herein, and (iii) the covenants contained herein have been made in order to induce the Company and Technologies to enter into this Agreement. (d) If, at the time of enforcement of this Section 7 a court shall hold that the duration, scope or area restrictions stated herein are unreasonable under the circumstances then existing, the parties agree that the maximum duration, scope or area reasonable under such circumstance shall be substituted for the stated duration, scope or area and that the courts shall be allowed to revise the restrictions contained herein to cover the maximum period, scope and area permitted by law. (e) Executive recognizes and affirms that in the event of his breach of any provision of this Section 7 or Sections 5 or 6, money damages would be inadequate and the Company and its Subsidiaries would have no adequate remedy at law. Accordingly, Executive agrees that in the event of a breach or threatened breach by Executive of any of the provisions of this Section 7 or Sections 5 or 6, the Company and its Subsidiaries, in addition and supplementary to other rights and remedies existing in its favor, may apply to any court of law or equity of competent jurisdiction for specific performance and/or injunctive or other relief in order to enforce or prevent any violations of the provisions hereof (without posting a bond or other security). 8. Purchase and Sale of Executive Stock. ------------------------------------ (a) Upon execution of this Agreement, Executive shall purchase, and the Company shall sell: (i) 195.71 shares of Common Stock at a price of $20.44 per share, and (ii) 160 -7- shares of Preferred Stock at a price of $100 per share for an aggregate purchase price of $20,000. The Company shall deliver to Executive the certificates representing such shares of Common Stock and Preferred Stock, and Executive shall deliver to the Company a cashier's or certified check or wire transfer of funds in the aggregate amount of $20,000. The closing of the purchase and sale of the Executive Stock shall take place simultaneously with the closing of the transactions contemplated by the Purchase Agreement. (b) In connection with the purchase and sale of the Executive Stock hereunder, Executive represents and warrants to the Company that: (i) The Executive Stock to be acquired by Executive pursuant to this Agreement shall be acquired for Executive's own account and not with a view to, or intention of, distribution thereof in violation of the 1933 Act, or any applicable state securities laws, and the Executive Stock shall not be disposed of in contravention of the 1933 Act or any applicable state securities laws. (ii) Executive is an executive officer of the Company's significant operating subsidiary, is sophisticated in financial matters and is able to evaluate the risks and benefits of the investment in the Executive Stock. (iii) Executive is able to bear the economic risk of his investment in the Executive Stock for an indefinite period of time because the Executive Stock has not been registered under the 1933 Act and, therefore, cannot be sold unless subsequently registered under the 1933 Act or an exemption from such registration is available. (iv) Executive has had an opportunity to ask questions and receive answers concerning the terms and conditions of the offering of the Executive Stock, and has had full access to such other information concerning the Company as he has requested. Executive has reviewed or has had an opportunity to review, a copy of the Purchase Agreement, dated as of the date hereof, between the Company and those other persons named therein, and Executive is familiar with the transactions contemplated thereby. Executive has also reviewed, or has had an opportunity to review, the following documents: (A) the Company's Certificate of Incorporation and Bylaws; (B) the loan agreements, notes and related documents with Technologies' senior and subordinated lenders; and (C) Technologies' audited financial statements dated as of December 31, 1995. (v) This Agreement constitutes the legal, valid and binding obligation of Executive, enforceable in accordance with its terms, and the execution, delivery and performance of this Agreement by Executive do not and shall not conflict with, violate or cause a breach of any agreement, contract or instrument to which Executive is a party or any judgment, order or decree to which Executive is subject. (c) As an inducement to the Company to issue the Executive Stock to Executive, and as a condition thereto, Executive acknowledges and agrees that: -8- (i) neither the issuance of the Executive Stock to Executive nor any provision contained herein shall entitle Executive to remain in the employment of Technologies or the Company or affect the right of Technologies to terminate Executive's employment at any time; and (ii) the Company shall have no duty or obligation to disclose to Executive, and Executive shall have no right to be advised of, any material information regarding the Company and its Subsidiaries at any time prior to, upon or in connection with the repurchase of Executive Stock upon Executive's Termination or as otherwise provided hereunder, except for reports or information used by the Board to determine the Fair Market Value of the Executive Stock purchased from Executive. (d) The Company and Executive acknowledge and agree that this Agreement has been executed and delivered, and the Executive Stock has been issued hereunder, in connection with and as part of the compensation and incentive arrangements between the Company and Executive. 9. Vesting of Executive Stock. The Executive Stock shall be fully vested -------------------------- immediately as of the consummation of the purchase and sale of the Executive Stock. 10. Call and Put Options. -------------------- (a) In the event of Executive's Termination, the Executive Stock (whether held by Executive or one or more of Executive's transferees) shall be subject to repurchase by the Company and/or the Investors at their option pursuant to the terms and conditions set forth in this Section 10 (the "Call ---- Option"). - ------ (b) In the event of a Termination either without Cause or with Good Reason or as a result of the death or Permanent Disability of Executive, Executive (or Executive's Estate) shall have the option to cause the Company to repurchase all of the Executive Stock held by Executive as of the date of the Termination pursuant to the terms and conditions set forth in this Section 10 (the "Put Option") by delivering a written election notice (the "Put Notice") to ---------- ---------- the Company within 60 days of Executive's Termination Date. (c) The purchase price for each share of Executive Stock purchased from the Executive pursuant to the Call Option or the Put Option shall be the Fair Market Value for such shares as determined by the Board. (d) The Board may elect to purchase all of the Executive Stock by delivering written notice (the "Call Notice") to the holder or holders of the ----------- Executive Stock within 90 days after the Termination Date. The Call Notice shall set forth the number of shares of Executive Stock to be acquired from each holder of Executive Stock, the aggregate consideration to be paid for such shares and the time and place for the closing of the transaction. (e) If for any reason the Company does not elect to purchase all of the Executive Stock pursuant to the Call Option, the Investors shall be entitled to exercise the Call Option for the -9- shares of Executive Stock the Company has not elected to purchase (the "Available Shares"). As soon as practicable after the Company has determined ---------------- that there will be Available Shares, but in any event within 30 days after the Termination Date, the Company shall give written notice (the "Option Notice") to ------------- the Investors setting forth the number of Available Shares and the purchase price for the Available Shares. The Investors may elect to purchase any or all of the Available Shares by giving written notice to the Company within 15 days after the Option Notice has been given by the Company. If the Investors elect to purchase an aggregate number of shares greater than the number of Available Shares, the Available Shares shall be allocated among the Investors based upon the number of shares of Common Stock (which for purposes of this Section 10 shall include shares of the Company's Class A Common Stock any other class or series of common equity which may hereafter be issued by the Company) then owned by each Investor on a fully-diluted basis. If the Investors have in the aggregate elected to purchase less than all of the Available Shares, the Available Shares which the Investors have not elect to purchase (the "Remaining --------- Available Shares") shall be reoffered to the Investors who have elected to - ---------------- purchase Available Shares for an additional five day period, and each Investor may elect to purchase all (but not less than all) of such Investor's pro rata share of all Remaining Available Shares (based on such holder's proportionate ownership of all shares of Common Stock on a fully-diluted basis owned by the Investors who have elected to purchase Remaining Available Shares). As soon as practicable, and in any event within ten days after the expiration of the 15 day period set forth above, the Company shall notify each holder of Executive Stock as to the number of shares being purchased from such holder by the Investors (the "Supplemental Call Notice"). At the time the Company delivers the ------------------------ Supplemental Call Notice to the holder(s) of Executive Stock, the Company shall also deliver written notice to each Investor setting forth the number of shares such Investor is entitled to purchase, the aggregate purchase price and the time and place of the closing of the transaction. (f) The closing of the purchase of the Executive Stock pursuant to the Call Option shall take place on the date designated by the Company in the Call Notice or Supplemental Call Notice, which date shall not be more than 60 days nor less than 15 days after the delivery of the later of either such notice to be delivered. The closing of the purchase of the Executive Stock pursuant to the Put Option shall take place on any date designated by the Company in a written notice delivered to Executive, which date shall not be more than 60 days nor less than five days after the delivery by Executive of the Put Notice. The Company and/or the Investors shall pay for the Executive Stock to be purchased pursuant to the Call Option or Put Option, as applicable, by delivery of, in the case of each Investor, a check or wire transfer of funds and, in the case of the Company at its option (i) a check or wire transfer of funds, or (ii) a subordinated note or notes bearing interest (payable quarterly) at a rate per annum equal to the prime rate announced from time to time by State Street Bank & Trust Co. (or any successor entity thereto) plus 2%, or (iii) a combination of both (i) and (ii), in the aggregate amount of the purchase price for such shares; provided that the Company shall use reasonable efforts to make all such repurchases with a check or wire transfer of funds; and provided further, in the event Executive exercises the Put Option and the Company pays for such repurchase by delivery of a subordinated note, the Company shall repay such indebtedness as soon as it is permitted under the Company's loan agreements and by applicable law. Notwithstanding anything to the contrary contained herein, any notes issued by the Company pursuant to this Section 10(f) shall be subject to any restrictive covenants to which the Company or -10- its Subsidiaries is subject at the time of such purchase. The purchasers of Executive Stock hereunder shall be entitled to receive customary representations and warranties from the sellers regarding such sale of shares (including representations and warranties regarding good title to such shares, free and clear of any liens or encumbrances) and to require all sellers' signatures be guaranteed by a national bank or reputable securities broker. (g) The right and obligation of the Company and the right of the Investors to repurchase the Executive Stock pursuant to this Section 10 shall terminate upon the first to occur of the Sale of the Company or a Qualified Public Offering. (h) Notwithstanding anything to the contrary contained in this Agreement, all repurchases of Executive Stock by the Company shall be subject to applicable restrictions contained in the Delaware General Corporation Law and in the Company's and its Subsidiaries' debt and equity financing agreements. If any such restrictions prohibit the repurchase of Executive Stock hereunder which the Company is otherwise entitled or required to make, or the payment of dividends or loans to the Company to make such repurchases, the time periods provided in this Section 10 shall be suspended, and the Company may, or shall (as applicable), make such repurchases as soon as it is permitted to do so under such restrictions. 11. Restrictions on Transfer. ------------------------ (a) Stockholders Agreement. Shares of Executive Stock are subject to ---------------------- the restrictions on transfer set forth in the Stockholders Agreement, dated as of the date hereof, by and among Executive and each of the other persons named therein. (b) The certificates representing Executive Stock shall bear the following legend: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED ON JUNE 14, 1996, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION THEREUNDER. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER, CERTAIN REPURCHASE OPTIONS AND CERTAIN OTHER AGREEMENTS SET FORTH IN A MANAGEMENT AGREEMENT BETWEEN THE COMPANY AND __________ DATED AS OF JUNE 14, 1996, AS AMENDED AND MODIFIED FROM TIME TO TIME. A COPY OF SUCH AGREEMENT MAY BE OBTAINED BY THE HOLDER HEREOF AT THE COMPANY'S PRINCIPAL PLACE OF BUSINESS WITHOUT CHARGE." -11- (c) Except in connection with a Sale of the Company, no holder of Executive Stock may sell, transfer or dispose of any Executive Stock (except pursuant to an effective registration statement under the 1933 Act) without first delivering to the Company an opinion of counsel (reasonably acceptable in form and substance to the Company) that neither registration nor qualification under the 1933 Act and applicable state securities laws is required in connection with such transfer. 12. Holdback Agreement. Executive agrees not to effect any public sale ------------------ or distribution of Common Stock during the seven days prior to, and the 180-day period beginning on, the effective date of any underwritten registration of equity securities of the Company or its Subsidiaries, unless otherwise agreed to by the Board and the underwriters managing such registration. The restrictions on transfer set forth in this Section 12 shall continue with respect to each share of Executive Stock until the date on which such share has been transferred in a Public Sale. 13. Notices. All notices or communications provided for herein shall be ------- deemed to be validly given as of the date of delivery, if delivered personally, and three days after mailing, if sent by registered or certified mail, return receipt requested, addressed to the Company at its headquarters or executive offices or to Executive at his address as set forth from time to time in the records of the Company. 14. Miscellaneous. ------------- (a) Severability. Whenever possible, each provision of this Agreement ------------ will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or any other jurisdiction, but this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein. (b) Complete Agreement. This Agreement embodies the complete ------------------ agreement and understanding among the parties and supersedes and preempts any prior understandings, agreements or representations by or among the parties, written or oral, which may have related to the subject matter hereof in any way, and Executive agrees to forever release and discharge any claims, damages, or other causes of action relating to Executive's employment with Technologies prior to the date hereof, including, without limitation, relating to payments (if any) owed to Executive pursuant to the terms of Technologies By-Laws (including the By-Laws of Rudolph Research Corporation as predecessor corporation to Technologies). (c) Counterparts. This Agreement may be executed in separate ------------ counterparts, each of which is deemed to be an original and all of which taken together constitute one and the same agreement. (d) Governing Law. The corporate law of the State of Delaware shall ------------- govern all issues and questions concerning the relative rights of the Company and its stockholders. All other -12- issues and questions concerning the construction, validity, interpretation and enforceability of this Agreement and the exhibits and schedules hereto shall be governed by, and construed in accordance with, the laws of the State of New York, without giving effect to any choice of law or conflicts of law rules or provisions (whether of the State of New York or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of New York. (e) Successors and Assigns. Except as otherwise provided herein, this ---------------------- Agreement shall bind and inure to the benefit of and be enforceable by the Company and Executive and their respective successors and assigns; provided that the rights and obligations of Executive under this Agreement shall not be assignable without the prior written approval of the Board. (f) Remedies. Each of the parties to this Agreement will be entitled -------- to enforce its rights under this Agreement specifically, to recover damages and costs (including reasonable attorneys' fees) caused by any breach of any provision of this Agreement and to exercise all other rights existing in its favor. The parties hereto agree and acknowledge that money damages may not be an adequate remedy for any breach of the provisions of this Agreement and that any party may in its sole discretion apply to any court of law or equity of competent jurisdiction (without posting any bond or deposit) for specific performance and/or other injunctive relief in order to enforce or prevent any violations of the provisions of this Agreement. (g) Amendment and Waiver. The provisions of this Agreement may be -------------------- amended and waived only with the prior written consent of the Company and Executive. * * * * -13- IN WITNESS WHEREOF, the parties hereto have executed this MANAGEMENT AGREEMENT as of the date first written above. RUDOLPH TECHNOLOGIES, INC. By: /s/ Paul F. McLaughlin ------------------------------- Name: Paul F. McLaughlin ----------------------------- Title: President ---------------------------- RUDOLPH HOLDINGS CORPORATION By: /s/ Paul F. McLaughlin ------------------------------- Name: Paul F. McLaughlin ----------------------------- Title: President ---------------------------- /s/ Robert Loiterman ----------------------------------- Robert Loiterman EX-10.8 11 RUDOLPH HOLDINGS CORP MGMT AGMT/S. ROTH EXHIBIT 10.8 RUDOLPH HOLDINGS CORPORATION MANAGEMENT AGREEMENT -------------------- THIS MANAGEMENT AGREEMENT ("Agreement") is made as of May 5, 1997 (the --------- "Effective Date"), by and between Rudolph Holdings Corporation, a Delaware corporation (the "Company"), Rudolph Technologies, Inc., a New Jersey corporation ("Technologies"), and Steven R. Roth ("Executive"). WHEREAS, Executive desires to be employed as a Vice President of Technologies, and Technologies desires to employ Executive as a Vice President and to be assured of its right to his services on the terms and conditions hereinafter set forth, and Executive is willing to agree to such employment on such terms and conditions; WHEREAS, the Company and Executive desire to enter into an agreement pursuant to which Executive shall purchase, and the Company shall sell, 65.24 shares of the Company's Class B Common Stock, par value $.01 per share (the "Common Stock"), and 53.33 shares of the Company's Series A Preferred Stock, par value $.01 per share (the "Preferred Stock") for an aggregate purchase price of --------------- $6,976.92. All shares of Common Stock and Preferred Stock purchased by Executive hereunder are referred to herein as "Executive Stock," and except as --------------- set forth in Section 1 hereof, Executive Stock shall not include any other shares of capital stock of the Company (including, without limitation, shares of Common Stock issued to Executive upon the exercise of certain stock options granted to Executive); and WHEREAS, the execution and delivery of this Agreement by the Company, Technologies and Executive is a condition to the consummation of the transactions contemplated by the Stock and Warrant Purchase Agreement dated as of the date hereof by and among the Company and those Persons named therein (the "Purchase Agreement"). Certain provisions of this Agreement are intended for ------------------ the benefit of, and shall be enforceable by, Liberty Partners Holdings 11, L.L.C. ("LPH") and Riverside Rudolph, L.L.C. ("RRL" and together with LPK the "Investors"). Certain definitions are set forth in Section 1 of this Agreement. NOW, THEREFORE, the Company, Technologies and Executive agree as follows: 1. Definitions. As used herein, the following terms shall have the ----------- following meanings. "Board" means the Company's Board of Directors. ----- "Cause" means the determination by the Board, in the exercise of ----- its good faith judgment, that: (a) Executive has committed a fraud, felony or other serious act of moral turpitude, or (b) Executive has breached his duty of loyalty to the Company and its Subsidiaries, or (c) Executive has committed a material breach of this Agreement, and if such breach is capable of cure, such breach is not cured or remedied and continues after fifteen (15) business days from the date on which written notice of the breach was first provided to Executive by the Company or its Subsidiaries. "Executive Stock" shall continue to be Executive Stock in the --------------- hands of any holder other than Executive (except for the Company and the Investors and except for transferees in a Public Sale or Sale of the Company), and except as otherwise provided herein, each such other holder of Executive Stock shall succeed to all rights and obligations attributable to Executive as a holder of Executive Stock hereunder. Executive Stock shall also include shares of the Company's capital stock issued with respect to Executive Stock by way of a stock split, stock dividend or other recapitalization. "Fair Market Value" of each share of Executive Stock, means with ----------------- respect to Common Stock or Preferred Stock, respectively, the average of the closing prices of the sales of such shares on all securities exchanges on which such shares may at the time be listed, or, if there have been no sales on any such exchange on any day, the average of the highest bid and lowest asked prices on all such exchanges at the end of such day, or, if on any day such shares are not so listed, the average of the representative bid and asked prices quoted in the NASDAQ System as of 4:00 P.M., New York time, or, if on any day such shares are not quoted in the NASDAQ System, the average of the highest bid and lowest asked prices on such day in the domestic over-the-counter market as reported by the National Quotation Bureau Incorporated, or any similar successor organization, in each such case averaged over a period of 21 days consisting of the day as of which the Fair Market Value is being determined and the 20 consecutive business days prior to such day. If at any time the Common Stock or the Preferred Stock is not listed on any securities exchange or quoted in the NASDAQ System or the over-the-counter market, the Fair Market Value of the Common Stock shall be the fair value as determined in good faith by the Board, and the Fair Market Value of the Preferred Stock shall be the aggregate liquidation value of such shares plus all accrued but unpaid dividends thereon. "Good Reason" means the resignation by Executive of employment ----------- with Technologies as a direct result of either (i) a substantial diminution of duties and responsibilities of Executive as an employee of Technologies, (ii) the relocation of Executive outside of the Flanders, New Jersey area, (iii) any requirement by the Company that Executive make a material misstatement or omission in any financial report or governmental filing, or (iv) a material breach of this Agreement by the Company or Technologies in the absence of a material breach of this Agreement by Executive, which diminution or breach, as the case may be, has continued 15 days after delivery of written notice by Executive to Technologies stating Executive's intent to resign as a consequence of such diminution or breach; provided that Executive's resignation actually -------- occurs within 30 days following the occurrence of the diminution or breach. "Independent Third Party" means any Person or group of Persons ----------------------- who, immediately prior to the contemplated transaction, does not own in excess of 5% of the Company's Common Stock on a fully-diluted basis, who is not controlling, controlled by or under common control with any such 5% owner of the Company's Common Stock and who is not the spouse or descendent (by birth or adoption) of any such 5% owner of the Company's Common Stock. "Permanent Disability" means that Executive, as determined by the -------------------- Board in its good faith judgment, is unable to perform, by reason of physical or mental incapacity, his duties or obligation under this Agreement, for a period of 90 consecutive days or a total period of 120 days in any 365 day period. -2- "Person" means an individual, a partnership, a corporation, a ------ limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization or a governmental entity or any department, agency or political subdivision thereof. "Public Sale" means any sale pursuant to a registered public ----------- offering under the 1933 Act or any sale to the public pursuant to Rule 144 promulgated under the 1933 Act effected through a broker, dealer or market maker. "Qualified Public Offering" means the sale, in an underwritten ------------------------- public offering registered under the 1933 Act, of shares of the Company's Common Stock having an aggregate offering value of at least $30 million. "Sale of the Company" means the sale of the Company to an ------------------- Independent Third Party or affiliated group of Independent Third Parties pursuant to which such party or parties acquire (i) capital stock of the Company possessing the voting power to elect a majority of the Company's board of directors (whether by merger, consolidation or sale or transfer of the Company's capital stock) or (ii) all or substantially all of the Company's assets determined on a consolidated basis. "1933 Act" means the Securities Act of 1933, as amended from -------- time to time. "Subsidiary" means with respect to any Person, any corporation, ---------- limited liability company, partnership, association or other business entity of which (i) if a corporation, a majority of the total voting power of the shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof, or (ii) if a limited liability company, partnership, association or other business entity, a majority of the partnership or other similar ownership interests thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof. For purposes hereof, a Person or Persons shall be deemed to have a majority ownership interest in a limited liability company, partnership, association or other business entity if such Person or Persons shall be allocated a majority of limited liability company, partnership, association or other business entity gains or losses or shall be or control any managing director or general partner of such limited liability company, partnership, association or other business entity. 2. Employment. Technologies agrees to employ Executive, and ---------- Executive hereby accepts employment with Technologies, upon the terms and conditions set forth in this Agreement. (a) Position and Duties. Executive shall serve as a Vice ------------------- President of Technologies and shall have such duties which are consistent with such position as may be assigned by the President, the Chief Executive Officer of Technologies and the board of directors of Technologies from time to time. Executive shall devote his best efforts and his full business time and attention (except for permitted vacation periods and reasonable periods of illness or other incapacity which does not constitute Permanent Disability) to the business and affairs of Technologies. -3- (b) Term. Subject to the provisions of Section 3(a), the ---- "Term" of this Agreement shall be for one (1) year from the date hereof, unless earlier terminated by either party as provided in Section 3(a) below, subject to automatic renewals for successive one (1) year Terms unless either party has delivered written notice not less than 90 days prior to the expiration of the initial Term or any renewal thereof. (c) Compensation. Commencing from the Effective Date, ------------ Technologies shall pay to Executive, during Executive's employment by Technologies, an annual base salary ("Base Salary") of $105,000. Such Base ----------- Salary shall be paid in accordance with Technologies' normal payroll procedures and cycles and shall be subject to withholding of applicable taxes and governmental charges in accordance with federal and state law. Executives' Base Salary shall be subject to annual review by the Board. Executive will also be eligible to receive an annual bonus in an amount as determined by the Board equal to up to twenty percent (20%) of Executive's then current Base Salary. The determination of the amount of such bonus by the Board shall be based (i) seventy-five percent (75%) upon the Company's achievement of Company performance goals established by the Company's Chief Executive Officer and the Board, and (ii) twenty-five percent (25%) upon Executive's achievement of personal performance goals established by the Company's Chief Executive Officer and the Board. (d) Benefits. In addition to the Base Salary paid to Executive -------- by Technologies, Executive shall be eligible to participate, during Executive's employment by Technologies, in such benefits programs as may be appropriate for Executive's position with Technologies and as approved by the Board. (e) Expenses. Technologies shall reimburse Executive for all -------- reasonable expenses incurred by him in the course of performing his duties and responsibilities under this Agreement which are consistent with Technologies's policies in effect from time to time with respect to travel, entertainment and other business expenses, subject to Technologies's requirements with respect to reporting and documentation of such expenses. (f) Key Man Life Insurance. Technologies, in its sole ---------------------- discretion and at its sole expense, may obtain a key man life insurance policy on Executive for the benefit of Technologies, and Executive shall cooperate with Technologies in obtaining such insurance and shall submit to medical examinations as required. 3. Termination and Severance. ------------------------- (a) Termination. Executive and Technologies shall each have ----------- the right to terminate the Term and Executive's employment with Technologies (a "Termination," and the date of such termination, the "Termination Date") at any ----------- time and for any reason or for no reason at all, by delivering written notice to the other party, and upon any such Termination, Technologies shall have no further obligations to Executive hereunder, except as set forth in Sections 3(b) and (c) below. (b) Base Salary through Termination: COBRA. Executive shall be -------------------------------------- entitled to receive his Base Salary earned through his Termination Date, prorated on a daily basis together with -4- all accrued but unpaid vacation time earned through his Termination Date. In addition, Executive shall be entitled to COBRA benefits after the Termination Date. Except as set forth in Section 3(c), Executive shall not be entitled to receive his Base Salary or any bonuses or other benefits from Technologies for any period after the Termination Date. (c) Severance Obligations. In the event Executive's employment --------------------- is terminated by Technologies without Cause or Executive resigns from employment with Technologies with Good Reason, following such Termination and upon execution by Executive of a general release in favor of the Company (i) satisfying all applicable requirements of the Older Workers Benefit Protection Act, including expiration of the applicable revocation period, and (ii) releasing any and all claims against the Company and its Subsidiaries and affiliates, Technologies shall pay Executive (or his estate) one half of his annual Base Salary plus an additional one month of Base Salary for each full year Executive is employed with Technologies (as of the Termination Date) not to exceed one year Base Salary. Payments are to be paid in accordance with the Company's normal payroll procedures and cycles and shall be subject to withholding of applicable taxes and governmental charges in accordance with federal and state law. In the event that Executive's employment with the Company is terminated for any other reason, the Company shall have no obligation to make any severance or other payment to or on behalf of Executive. Notwithstanding the foregoing, in the event that Executive shall breach any of his obligations under Sections 5, 6 or 7 of this Agreement, the Company shall be relieved from and shall have no further obligation to pay Executive any amounts to which Executive would otherwise be entitled pursuant to this Section 3. 4. Executive Stock Options. The Company shall grant to Executive an ----------------------- option to purchase shares of the Company's Common Stock pursuant to the terms of the Company's 1996 Stock Option Plan and a definitive option agreement between the Company and Executive. 5. Confidential Information. Executive acknowledges that the ------------------------ information, observations and data concerning the business or affairs of the Company and its Subsidiaries ("Confidential Information") obtained by him as a ------------------------ result of his employment with Technologies (including employment with Technologies prior to the date of this Agreement), and as a result of his ownership of capital stock of the Company are the property of the Company and its Subsidiaries. Therefore, Executive agrees that he shall not disclose to any person or use for any other purpose, any Confidential Information without the prior written consent of the Board, unless and to the extent such Confidential Information becomes generally known to and available for use by the public other than as a result of Executive's acts or omissions to act. Executive shall deliver to the Company and its Subsidiaries on Executive's Termination Date, or at any other time the Company or Technologies may request, all memoranda, notes, plans, records, reports, computer tapes and software, and all other material, documents and data (and all copies thereof) relating to the Confidential Information, Work Product (as defined below) and the business of the Company and its Subsidiaries which Executive may then possess or have under his control. 6. Inventions and Patents. Executive agrees that all inventions, ---------------------- innovations improvements, developments, methods, designs, analyses, drawings, reports and all similar or related information which relates to the Company's or its Subsidiaries' actual or currently planned, research and development or existing or future products or services and which are conceived, developed or made by Executive while employed by the Company and its Subsidiaries (including -5- employment with Technologies prior to the date of this Agreement) ("Work Product") are the property of and belong to the Company and its Subsidiaries. Executive understands and acknowledges that, at the request of the Company or Technologies, he must assign to the Company and its Subsidiaries any development, invention or information that (i) relates to the actual or anticipated business research or development of the Company or its Subsidiaries, or (ii) results from any work performed by Executive for the Company and its Subsidiaries. Executive shall promptly disclose such Work Product to Technologies and the Company and perform all actions requested by the Board (whether during or after Executive's employment) to establish and confirm the Company's and its Subsidiaries' ownership of any Work Product (including, without limitation, the execution and delivery of assignments, consents, powers of attorney and other instruments). 7. Non-Competition, Non-Solicitation. --------------------------------- (a) Executive acknowledges that during the course of his employment with Technologies (including employment with Technologies prior to the date of this Agreement) he will become familiar with the Company's and its Subsidiaries' trade secrets and with other Confidential Information and that his services will be of a special, unique and extraordinary value to the Company and its Subsidiaries. Therefore, Executive agrees that, during the time he is employed by Technologies and for two years thereafter (the "Non-Competition --------------- Period"), Executive shall not directly or indirectly own, operate, manage, - ------ control, participate in, consult with, advise, provide services for, or in any manner engage in (including by himself or in association with any person, firm, corporate or other business organization or through any entity), any business engaged in the businesses in which the Company and its Subsidiaries is engaged or then proposes to engage as of Executive's Termination Date within any geographical area in which the Company or its Subsidiaries engages in business. Nothing herein shall prohibit Executive from being a passive owner of not more than 5% of the outstanding stock of any class of a corporation which is publicly traded, or any other passive minority investment in any investment fund, limited partnership or similar entity, whether or not publicly traded, and so long as Executive has no active participation in the business of such entity. (b) During the time Executive is employed by Technologies and for two years thereafter (the "Non-Solicitation Period"), Executive shall not, ----------------------- directly or indirectly through another entity, (i) induce or attempt to induce any employee of the Company or its Subsidiaries to leave their employ, or in any way interfere with the relationship between the Company or its Subsidiaries and any employee thereof, including without limitation, inducing or attempting to induce any employee, group of employees or any other person or persons to interfere with the business or operations of the Company and its Subsidiaries, (ii) hire any person who was an employee of the Company or its Subsidiaries at any time during Executive's employment period, or (iii) induce or attempt to induce, whether directly or indirectly, any customer, supplier, distributor, franchisee, licensee or other business relation of the Company and its Subsidiaries to cease doing business with the Company or its Subsidiaries, or in any way interfere with the relationship between any such customer, supplier, distributor, franchisee, licensee or business relation and the Company and its Subsidiaries. (c) Executive agrees that: (i) the covenants set forth in this Section 7 are reasonable in geographical and temporal scope and in all other respects, (ii) the Company and Technologies would not have entered into this Agreement but for the covenants of Executive -6- contained herein, and (iii) the covenants contained herein have been made in order to induce the Company and Technologies to enter into this Agreement. (d) If, at the time of enforcement of this Section 7 a court shall hold that the duration, scope or area restrictions stated herein are unreasonable under the circumstances then existing, the parties agree that the maximum duration, scope or area reasonable under such circumstance shall be substituted for the stated duration, scope or area and that the courts shall be allowed to revise the restrictions contained herein to cover the maximum period, scope and area permitted by law. (e) Executive recognizes and affirms that in the event of his breach of any provision of this Section 7 or Sections 5 or 6, money damages would be inadequate and the Company and its Subsidiaries would have no adequate remedy at law. Accordingly, Executive agrees that in the event of a breach or threatened breach by Executive of any of the provisions of this Section 7 or Sections 5 or 6, the Company and its Subsidiaries, in addition and supplementary to other rights and remedies existing in its favor, may apply to any court of law or equity of competent jurisdiction for specific performance and/or injunctive or other relief in order to enforce or prevent any violations of the provisions hereof (without posting a bond or other security). 8. Purchase and Sale of Executive Stock. ------------------------------------ (a) Upon execution of this Agreement, Executive shall purchase, and the Company shall sell: (i) 65.24 shares of Common Stock at a price of $20.44 per share, and (ii) 53.33 shares of Preferred Stock at a price of $100 per share for an aggregate purchase price of $6,977. The Company shall deliver to Executive the certificates representing such shares of Common Stock and Preferred Stock, and Executive shall deliver to the Company a cashier's or certified check or wire transfer of funds in the aggregate amount of $6,976.92. The closing of the purchase and sale of the Executive Stock shall take place on May 5, 1997. (b) In connection with the purchase and sale of the Executive Stock hereunder, Executive represents and warrants to the Company that: (i) The Executive Stock to be acquired by Executive pursuant to this Agreement shall be acquired for Executive's own account and not with a view to, or intention of, distribution thereof in violation of the 1933 Act, or any applicable state securities laws, and the Executive Stock shall not be disposed of in contravention of the 1933 Act or any applicable state securities laws. (ii) Executive is an executive officer of the Company's significant operating subsidiary, is sophisticated in financial matters and is able to evaluate the risks and benefits of the investment in the Executive Stock. (iii) Executive is able to bear the economic risk of his investment in the Executive Stock for an indefinite period of time because the Executive Stock has not been registered under the 1933 Act and, therefore, cannot be sold unless subsequently registered under the 1933 Act or an exemption from such registration is available. -7- (iv) Executive has had an opportunity to ask questions and receive answers concerning the terms and conditions of the offering of the Executive Stock and has had full access to such other information concerning the Company as he has requested. Executive has reviewed or has had an opportunity to review, a copy of the Purchase Agreement, dated as of the date hereof, between the Company and those other persons named therein, and Executive is familiar with the transactions contemplated thereby. Executive has also reviewed, or has had an opportunity to review, the following documents: (A) the Company's Certificate of Incorporation and Bylaws; (B) the loan agreements, notes and related documents with Technologies's senior and subordinated lenders; and (C) Technologies' audited financial statements dated as of December 31, 1996. (v) This Agreement constitutes the legal, valid, and binding obligation of Executive, enforceable in accordance with its terms, and the execution, delivery and performance of this Agreement by Executive do not and shall not conflict with, violate or cause a breach of any agreement, contract or instrument to which Executive is a party or any judgment, order or decree to which Executive is subject. (c) As an inducement to the Company to issue the Executive Stock to Executive, and as a condition thereto, Executive acknowledges and agrees that: (i) neither the issuance of the Executive Stock to Executive nor any provision contained herein shall entitle Executive to remain in the employment of Technologies or the Company or affect the right of Technologies to terminate Executive's employment at any time; and (ii) the Company shall have no duty or obligation to disclose to Executive, and Executive shall have no right to be advised of, any material information regarding the Company and its Subsidiaries at any time prior to, upon or in connection with the repurchase of Executive Stock upon Executive's Termination or as otherwise provided hereunder, except for reports or information used by the Board to determine the Fair Market Value of the Executive Stock purchased from Executive. (d) The Company and Executive acknowledge and agree that this Agreement has been executed and delivered, and the Executive Stock has been issued hereunder, in connection with and as part of the compensation and incentive arrangements between the Company and Executive. 9. Vesting of Executive Stock. The Executive Stock shall be fully vested -------------------------- immediately as of the consummation of the purchase and sale of the Executive Stock. 10. Call and Put Options. --------------------- (a) In the event of Executive's Termination, the Executive Stock (whether held by Executive or one or more of Executive's transferees) shall be subject to repurchase by the Company and/or the Investors at their option pursuant to the terms and conditions set forth in this Section 10 (the "Call Option"). -8- (b) In the event of a Termination either without Cause or with Good Reason or as a result of the death or Permanent Disability of Executive, Executive (or Executive's Estate) shall have the option to cause the Company to repurchase all of the Executive Stock held by Executive as of the date of the Termination pursuant to the terms and conditions set forth in this Section 10 (the "Put Option") by delivering a written election notice (the "Put Notice") to ---------- ---------- the Company within 60 days of Executive's Termination Date. (c) The purchase price for each share of Executive Stock purchased from the Executive pursuant to the Call Option or the Put Option shall be the Fair Market Value for such shares as determined by the Board. (d) The Board may elect to purchase all of the Executive Stock by delivering written notice (the "Call Notice") to the holder or holders of the ----------- Executive Stock within 90 days after the Termination Date. The Call Notice shall set forth the number of shares of Executive Stock to be acquired from each holder of Executive Stock, the aggregate consideration to be paid for such shares and the time and place for the closing of the transaction. (e) If for any reason the Company does not elect to purchase all of the Executive Stock pursuant to the Call Option, the Investors shall be entitled to exercise the Call Option for the shares of Executive Stock the Company has not elected to purchase (the "Available Shares"). As soon as practicable after ---------------- the Company has determined that there will be Available Shares, but in any event within 30 days after the Termination Date, the Company shall give written notice (the "Option Notice") to the Investors setting forth the number of Available ------------- Shares and the purchase price for the Available Shares. The Investors may elect to purchase any or all of the Available Shares by giving written notice to the Company within 15 days after the Option Notice has been given by the Company. If the Investors elect to purchase an aggregate number of shares greater than the number of Available Shares, the Available Shares shall be allocated among the Investors based upon the number of shares of Common Stock (which for purposes of this Section 10 shall include shares of the Company's Class A Common Stock any other class or series of common equity which may hereafter be issued by the Company) then owned by each Investor on a fully-diluted basis. If the Investors have in the aggregate elected to purchase less than all of the Available Shares, the Available Shares which the Investors have not elect to purchase (the "Remaining Available Shares") shall be reoffered to the Investors -------------------------- who have elected to purchase Available Shares for an additional five-day period, and each Investor may elect to purchase all (but not less than all) of such Investor's pro rata share of all Remaining Available Shares (based on such holder's proportionate ownership of all shares of Common Stock on a fully- diluted basis owned by the Investors who have elected to purchase Remaining Available Shares). As soon as practicable, and in any event within ten days after the expiration of the 15-day period set forth above, the Company shall notify each holder of Executive Stock as to the number of shares being purchased from such holder by the Investors (the "Supplemental Call Notice"). At the time ------------------------ the Company delivers the Supplemental Call Notice to the holder(s) of Executive Stock, the Company shall also deliver written notice to each Investor setting forth the number of shares such Investor is entitled to purchase, the aggregate purchase price and the time and place of the closing of the transaction. (f) The closing of the purchase of the Executive Stock pursuant to the Call Option shall take place on the date designated by the Company in the Call Notice or Supplemental -9- Call Notice, which date shall not be more than 60 days nor less than 15 days after the delivery of the later of either such notice to be delivered. The closing of the purchase of the Executive Stock pursuant to the Put Option shall take place on any date designated by the Company in a written notice delivered to Executive, which date shall not be more than 60 days nor less than five days after the delivery by Executive of the Put Notice. The Company and/or the Investors shall pay for the Executive Stock to be purchased pursuant to the Call Option or Put Option, as applicable, by delivery of, in the case of each Investor, a check or wire transfer of funds and, in the case of the Company at its option (i) a check or wire transfer of funds, or (ii) a subordinated note or notes bearing interest (payable quarterly) at a rate per annum equal to the prime rate announced from time to time by State Street Bank & Trust Co. (or any successor entity thereto) plus 2%, or (iii) a combination of both (i) and (ii), in the aggregate amount of the purchase price for such shares; provided that the Company shall use reasonable efforts to make all such repurchases with a check or wire transfer of funds; and provided further, in the event Executive exercises the Put Option and the Company pays for such repurchase by delivery of a subordinated note, the Company shall repay such indebtedness as soon as it is permitted under the Company's loan agreements and by applicable law. Notwithstanding anything to the contrary contained herein, any notes issued by the Company pursuant to this Section 10(f) shall be subject to any restrictive covenants to which the Company or its Subsidiaries is subject at the time of such purchase. The purchasers of Executive Stock hereunder shall be entitled to receive customary representations and warranties from the sellers regarding such sale of shares (including representations and warranties regarding good title to such shares, free and clear of any liens or encumbrances) and to require all sellers' signatures be guaranteed by a national bank or reputable securities broker. (g) The rights and obligations of the Company and the rights of the Investors to repurchase the Executive Stock pursuant to this Section 10 shall terminate upon the first to occur of the Sale of the Company or a Qualified Public Offering. (h) Notwithstanding anything to the contrary contained in this Agreement, all repurchases of Executive Stock by the Company shall be subject to applicable restrictions contained in the Delaware General Corporation Law and in the Company's and its Subsidiaries' debt and equity financing agreements. If any such restrictions prohibit the repurchase of Executive Stock hereunder which the Company is otherwise entitled or required to make, or the payment of dividends or loans to the Company to make such repurchases, the time periods provided in this Section 10 shall be suspended, and the Company may, or shall (as applicable), make such repurchases as soon as it is permitted to do so under such restrictions. 11. Restrictions on Transfer. ------------------------ (a) Stockholders Agreement. Shares of Executive Stock are subject to the restrictions on transfer set forth in the Stockholders Agreement, dated as of the date hereof, by and among Executive and each of the other persons named therein. (b) The certificates representing Executive stock shall bear the following legend: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED ON JUNE 14, 1996, HAVE NOT BEEN -10- REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION THEREUNDER. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER, CERTAIN REPURCHASE OPTIONS AND CERTAIN OTHER AGREEMENTS SET FORTH IN A MANAGEMENT AGREEMENT BETWEEN THE COMPANY AND _____________ DATED AS OF JUNE 14, 1996, AS AMENDED AND MODIFIED FROM TIME TO TIME. A COPY OF SUCH AGREEMENT MAY BE OBTAINED BY THE HOLDER HEREOF AT THE COMPANY'S PRINCIPAL PLACE OF BUSINESS WITHOUT CHARGE." (c) Except in connection with a Sale of the Company, no holder of (executive Stock may sell, transfer or dispose of any Executive Stock (except pursuant to an effective registration statement under the 1933 Act) without first delivering to the Company an opinion of counsel (reasonably acceptable in form and substance to the Company) that neither registration nor qualification under the 1933 Act and applicable state securities laws is required in connection with such transfer. 12. Holdback Agreement. Executive agrees not to effect any public sale or ------------------ distribution of Common Stock during the seven days prior to, and the 180-day period beginning on, the effective date of any underwritten registration of equity securities of the Company or its Subsidiaries, unless otherwise agreed to by the Board and the underwriters registration. The restrictions on transfer set forth in this Section 12 shall continue with respect to each share of Executive Stock until the date on which such share has been transferred in a Public Sale. 13. Notices. All notices or communications provided for herein shall be ------- deemed to be validly given as of the date of delivery, if delivered personally, and three days after mailing, if sent by registered or certified mail, return receipt requested, addressed to the Company at its headquarters or executive offices or to Executive at his address as set forth from time to time in the records of the Company. 14. Miscellaneous. ------------- (a) Severability. Whenever possible, each provision of this ------------ Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or any other jurisdiction, but this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein. (b) Complete Agreement. This Agreement embodies the complete ------------------ agreement and understanding among the parties and supersedes and preempts any prior understandings, agreements -11- or representations by or among the parties, written or oral, which may have related to the subject matter hereof in any way. (c) Counterparts. This Agreement may be executed in separate ------------ counterparts, each of which is deemed to be an original and all of which taken together constitute one and the same agreement. (d) Governing Law. The corporate law of the State of Delaware shall ------------- govern all issues and questions concerning the relative rights of the Company and its stockholders. All other issues and questions concerning the construction, validity, interpretation and enforceability of this Agreement and the exhibits and schedules hereto shall be governed by, and construed in accordance with, the laws of the State of New York, without giving effect to any choice of law or conflicts of law rules or provisions (whether of the State of New York or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of New York. (e) Successors and Assigns. Except as otherwise provided herein, ---------------------- this Agreement shall bind and inure to the benefit of and be enforceable by the Company and Executive and their respective successors and assigns; provided that the rights and obligations of Executive under this Agreement shall not be assignable without the prior written approval of the Board. (f) Remedies. Each of the parties to this Agreement will be -------- entitled to enforce its rights under this Agreement specifically, to recover damages and costs (including reasonable attorneys' fees) caused by any breach of any provision of this Agreement and to exercise all other rights existing in its favor. The parties hereto agree and acknowledge that money damages may not be an adequate remedy for any breach of the provisions of this Agreement and that any party may in its sole discretion apply to any court of law or equity of competent jurisdiction (without posting any bond or deposit) for specific performance and/or other injunctive relief in order to enforce or prevent any violations of the provisions of this Agreement. (g) Amendment and Waiver. The provisions of this Agreement may be -------------------- amended and waived only with the prior written consent of the Company and Executive. (h) Stockholders Agreement. By signing this management agreement, ---------------------- the executive agrees to be bound to the rights and obligations of the Stockholders Agreement dated June 14, 1996. -12- IN WITNESS WHEREOF the parties hereto have executed this Executive Employment Agreement as of the date first written above. RUDOLPH TECHNOLOGIES' INC. By /s/ Paul F. McLaughlin ----------------------------- Title: President --------------------------- RUDOLPH HOLDINGS CORPORATION By /s/ Paul F. McLaughlin ----------------------------- Title: President --------------------------- /s/ Steven R. Roth --------------------------------- STEVEN R. ROTH -13- EX-10.9 12 RUDOLPH HOLDINGS CORP. REGISTRATION AGMT EXHIBIT 10.9 RUDOLPH HOLDINGS CORPORATION REGISTRATION AGREEMENT ---------------------- THIS REGISTRATION AGREEMENT is made as of June 14, 1996, by and among Rudolph Holdings Corporation, a Delaware corporation (the "Company"), Liberty ------- Partners Holdings 11, L.L.C. ("LPH"), Riverside Rudolph, L.L.C. ("Riverside"), --- --------- Dr. Richard F. Spanier ("Spanier"), Paul F. McLaughlin ("McLaughlin"), and Dale ------- ---------- Moorman ("Moorman"). LPH, Riverside, Spanier, McLaughlin and Moorman are ------- collectively referred to herein as the "Investors" and individually as an --------- "Investor." Unless otherwise provided in this Agreement, capitalized terms used - --------- herein are defined in Section 8. The Company and LPH and Riverside are parties to a Stock and Warrant Purchase Agreement of even date herewith (the "Purchase Agreement"), the Company ------------------ and McLaughlin are parties to a Management Agreement of even date herewith (the "Management Agreement"), and the Company and each of Moorman and Spanier are -------------------- parties to an Investor Purchase Agreement of even date herewith (an "Investor -------- Purchase Agreement"). In consideration of the purchase and sale of securities - ------------------ of the Company as provided in such agreements, the Company has agreed to provide the registration rights set forth in this Agreement. The execution and delivery of this Agreement is a condition to the Closing under the Purchase Agreement. NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties to this Agreement hereby agree as follows: 1. Demand Registrations. -------------------- (a) Requests for Registration. At any time after the date hereof and ------------------------- prior to June 15, 2006, the holders of a majority of the Liberty Registrable Securities may, request registration under the Securities Act of 1933, as amended (the "Securities Act") of all or any portion of their Registrable -------------- Securities on Form S-1, S-2 or any similar long-form registration ("Long-Form --------- Registrations"), and the holders of a majority of the Liberty Registrable - ------------- Securities or the holders of a majority of Riverside Registrable Securities may request registration under the Securities Act of all or any portion of their Registrable Securities on Form S-3 or any similar short-form registration ("Short-Form Registrations"), if available. All registrations requested - -------------------------- pursuant to this Section 1(a) are referred to herein as "Demand Registrations." -------------------- Each request for a Demand Registration shall specify the approximate number of Registrable Securities requested to be registered and the anticipated per share price range for such offering. Within ten days after receipt of any such request, the Company shall give written notice of such requested registration to all other holders of Registrable Securities and, subject to the provisions of this Section 1, shall include in such registration all Registrable Securities with respect to which the Company has received written requests for inclusion therein within 15 days after the receipt of the Company's notice. (b) Long-Form Registrations. The holders of Liberty Registrable ----------------------- Securities shall be entitled to request two Long-Form Registrations in which the Company shall pay all Registration Expenses. A registration shall not count as one of the permitted Long-Form Registrations until it has become effective. No Long-Form Registration shall count as one of the permitted Long-Form Registrations unless the holders of the Liberty Registrable Securities requesting such registration are able to register and sell at least 75% of the Registrable Securities they have requested to be included in such registration; provided that in any event the -------- ---- Company shall pay all Registration Expenses in connection with any registration initiated as a Long-Form Registration whether or not it has become effective and whether or not such Long-Form Registration is counted as one of the Long-Form Registrations to which the holders of Registrable Securities are entitled. (c) Short-Form Registrations. In addition to the Long-Form ------------------------ Registrations provided pursuant to Section 1(b), the holders of a majority of the Liberty Registrable Securities or the holders of a majority of the Riverside Registrable Securities shall be entitled to request two Short-Form Registrations in which the Company shall pay all Registration Expenses; provided that the -------- ---- aggregate offering value of the Registrable Securities requested to be registered in any Short-Form Registration must equal at least $3,000,000. Demand Registrations shall be Short-Form Registrations whenever the Company is permitted to use any applicable short form. After the Company has become subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, the Company shall use its reasonable best efforts to make Short-Form Registrations available for the sale of Registrable Securities; provided that in ------------- any event the Company shall pay all Registration Expenses in connection with any registration initiated as a Short-Form Registration whether or not it has become effective and whether or not such Short-Form Registration is counted as one of the Short-Form Registrations to which the holders of Registrable Securities are entitled. (d) Priority on Demand Registrations. The Company shall not include -------------------------------- in any Demand Registration any securities which are not Registrable Securities without the prior written consent of the holders of a majority of the Liberty Registrable Securities included in such registration. If a Demand Registration is an underwritten offering and the managing underwriters advise the Company in writing that in their opinion the number of Registrable Securities and, if permitted hereunder, other securities requested to be included in such offering exceeds the number of Registrable Securities and other securities, if any, which can be sold therein without adversely affecting the marketability of the offering, the Company shall include in such registration (i) first, the ----- Registrable Securities requested to be included pro rata among the respective holders thereof on the basis of the amount of Registrable Securities owned by each such holder and (ii) second, other securities requested to be included in ------ such registration to the extent permitted by the managing underwriters. (e) Restrictions on Demand Registrations. The Company shall not be ------------------------------------ obligated to effect any Demand Registration initiated by the holders of Investor Registrable Securities within 180 days after the effective date of a previous Demand Registration or a registration in which the holders of Investor Registrable Securities were given piggyback rights pursuant to Section 2. On no more than one occasion during any twelve-month period after the Company has consummated an initial public offering of its stock for its own account or for the account of any holders of the Common Stock under the Securities Act, the Company may postpone for up to 90 days the filing or the effectiveness of a registration statement for a Demand Registration if the Company's board of directors determines in good faith that such Demand Registration would reasonably be expected to have an adverse effect on any proposal or plan by the Company or any of its Subsidiaries to engage in any transaction; provided that -------- ---- in such event, the holders of Investor Registrable Securities initially requesting such Demand Registration shall be entitled to withdraw such request and, if such request is withdrawn, such Demand Registration shall not count as one of the permitted Demand Registrations hereunder and the Company shall pay all Registration Expenses in connection with such registration. (f) Selection of Underwriters. The Company's board of directors shall ------------------------- have the right to select the investment banker(s) and manager(s) to administer the offering, subject to the approval of -2- the holders of a majority of Liberty Registrable Securities included in any Demand Registration, which shall not be unreasonably withheld or delayed. (g) Other Registration Rights. Except as provided in this Agreement, ------------------------- the Company shall not grant to any Persons the right to request the Company to register any capital stock or other equity securities of the Company, or any securities convertible or exchangeable into or exercisable for such securities, without the prior written consent of the holders of a majority of the Liberty Registrable Securities; provided that the Company may grant rights to other -------- ---- Persons to participate in Piggyback Registrations so long as such rights are subordinate to the rights of the holders of Investor Registrable Securities with respect to such Piggyback Registrations, as provided in paragraphs 2(c) and 2(d) below. 2. Piggyback Registrations. ----------------------- (a) Right to Piggybacks. Whenever the Company proposes to register ------------------- any of its securities under the Securities Act (other than on Form S-4 or S-8) and the registration form to be used may be used for the registration of Registrable Securities (a "Piggyback Registration"), the Company shall give ---------------------- prompt written notice to all holders of Registrable Securities of its intention to effect such a registration and, subject to the provisions of this Section 2, shall include in such registration all Registrable Securities with respect to which the Company has received written requests for inclusion therein within 20 days after the receipt of the Company's notice. (b) Piggyback Expenses. The Registration Expenses of the holders of ------------------ Registrable Securities shall be paid by the Company in all Piggyback Registrations. (c) Priority on Primary Registrations. If a Piggyback Registration is --------------------------------- an underwritten primary registration on behalf of the Company, and the managing underwriters advise the Company in writing that in their opinion the number of securities requested to be included in such registration exceeds the number which can be sold in such offering without adversely affecting the marketability of the offering, the Company shall include in such registration (i) first, the ----- securities the Company proposes to sell, (ii) second, Registrable Securities ------ requested to be included, pro rata among the respective holders thereof on the basis of the total number of Registrable Securities requested to be included therein, and (iii) third, other securities requested to be included in such ----- registration. (d) Priority on Secondary Registrations. If a Piggyback Registration ----------------------------------- is an underwritten secondary registration on behalf of holders of the Company's securities, and the managing underwriters advise the Company in writing that in their opinion the number of securities requested to be included in such registration exceeds the number which can be sold in such offering without adversely affecting the marketability of the offering, the Company shall include in such registration (i) first, the securities requested to be included therein ----- by the holders requesting such registration and the Registrable Securities requested to be included in such registration, pro rata among the holders of such securities on the basis of the total number of securities so requested to be included therein, and (ii) second, other securities requested to be included ------ in such registration. (e) Selection of Underwriters. If any Piggyback Registration is an ------------------------- underwritten offering, the selection of investment banker(s) and manager(s) for the offering must be approved by the Company's board of directors, and the separate approval of the holders of Investor Registrable Securities of the investment banker(s) and manager(s) selected shall not be required. -3- (f) Other Registrations. If the Company has previously filed a ------------------- registration statement with respect to Registrable Securities pursuant to Section 1 or pursuant to this Section 2, and if such previous registration has not been withdrawn or abandoned, the Company shall not file or cause to be effected any other registration of any of its equity securities or securities convertible or exchangeable into or exercisable for its equity securities under the Securities Act (except on Form S-8 or any successor form), whether on its own behalf or at the request of any holder or holders of such securities, until a period of at least 180 days has elapsed from the effective date of such previous registration. 3. Holdback Agreements. ------------------- (a) Each holder of Registrable Securities shall not effect any public sale or distribution (including sales pursuant to Rule 144) of equity securities of the Company, or any securities convertible into or exchangeable or exercisable for such securities, during the seven days prior to and the 180-day period beginning on the effective date of any underwritten Demand Registration or any underwritten Piggyback Registration in which Registrable Securities are included (except as part of such underwritten registration), unless the underwriters managing the registered public offering otherwise agree. (b) The Company (c) shall not effect any public sale or distribution of its equity securities, or any securities convertible into or exchangeable or exercisable for such securities, during the seven days prior to and during the 180-day period beginning on the effective date of any underwritten Demand Registration or any underwritten Piggyback Registration (except as part of such underwritten registration or pursuant to registrations on Form S-8 or any successor form), unless the underwriters managing the registered public offering otherwise agree, and (d) shall cause each holder of at least 5% (on a fully- diluted basis) of its Common Stock, or any securities convertible into or exchangeable or exercisable for Common Stock, purchased from the Company at any time after the date of this Agreement (other than in a registered public offering) to agree not to effect any public sale or distribution (including sales pursuant to Rule 144) of any such securities during such period (except as part of such underwritten registration, if otherwise permitted), unless the underwriters managing the registered public offering otherwise agree. 4. Registration Procedures. Whenever the holders of Registrable ----------------------- Securities have requested that any Registrable Securities be registered pursuant to this Agreement, the Company shall use its best efforts to effect the registration and the sale of such Registrable Securities in accordance with the intended method of disposition thereof, and pursuant thereto the Company shall as expeditiously as possible: (a) prepare and file with the Securities and Exchange Commission a registration statement with respect to such Registrable Securities and use its best efforts to cause such registration statement to become effective; provided -------- that before filing a registration statement or prospectus or any amendments or - ---- supplements thereto, the Company shall furnish to one or more counsel selected by the holders of Registrable Securities covered by such registration statement copies of all such documents proposed to be filed, which documents shall be subject to the review and comment of such counsel; (b) notify each holder of Registrable Securities of the effectiveness of each registration statement filed hereunder and prepare and file with the Securities and Exchange Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for a period of not less than 90 days and comply with the provisions of the Securities Act with respect to the disposition of all -4- securities covered by such registration statement during such period in accordance with the intended methods of disposition by the sellers thereof set forth in such registration statement; (c) furnish to each seller of Registrable Securities such number of copies of such registration statement, each amendment and supplement thereto, the prospectus included in such registration statement (including each preliminary prospectus) and such other documents as such seller may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such seller; (d) use its best efforts to register or qualify such Registrable Securities under such other securities or blue sky laws of such jurisdictions as any seller reasonably requests and do any and all other acts and things which may be reasonably necessary or advisable to enable such seller to consummate the disposition in such jurisdictions of the Registrable Securities owned by such seller; provided that the Company shall not be required to (a) qualify generally -------- ---- to do business in any jurisdiction where it would not otherwise be required to qualify but for this subsection, (b) subject itself to taxation in any such jurisdiction or (c) consent to general service of process in any such jurisdiction; (e) notify each seller of such Registrable Securities, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event as a result of which the prospectus included in such registration statement contains an untrue statement of a material fact or omits any material fact necessary to make the statements therein not misleading, and, at the request of any such seller, the Company shall prepare a supplement or amendment to such prospectus so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus shall not contain an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading; (f) cause all such Registrable Securities to be listed on each securities exchange on which similar securities issued by the Company are then listed and, if not so listed, to be listed on the NASD automated quotation system and, if listed on the NASD automated quotation system, use its reasonable efforts to secure designation of all such Registrable Securities covered by such registration statement as a NASDAQ "national market system security" within the meaning of Rule 11Aa2-1 of the Securities and Exchange Commission or, failing that, to secure NASDAQ authorization for such Registrable Securities and, without limiting the generality of the foregoing, to arrange for at least two market makers to register as such with respect to such Registrable Securities with the NASD; (g) provide a transfer agent and registrar for all such Registrable Securities not later than the effective date of such registration statement; (h) enter into such customary agreements (including underwriting agreements in customary form) and take all such other actions as the holders of a majority of the Registrable Securities being sold or the underwriters, if any, reasonably request in order to expedite or facilitate the disposition of such Registrable Securities (including effecting a stock split or a combination of shares); (i) make available for inspection by any seller of Registrable Securities, any underwriter participating in any disposition pursuant to such registration statement and any attorney, accountant or other agent retained by any such seller or underwriter, all financial and other records, pertinent corporate documents and properties of the Company, and cause the Company's officers, directors, employees and independent accountants to supply all information reasonably requested by any such seller, underwriter, attorney, accountant or agent in connection with such registration statement; -5- (j) otherwise use its best efforts to comply with all applicable rules and regulations of the Securities and Exchange Commission, and make available to its security holders, as soon as reasonably practicable, an earnings statement covering the period of at least twelve months beginning with the first day of the Company's first full calendar quarter after the effective date of the registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder; and (k) in the event of the issuance of any stop order suspending the effectiveness of a registration statement, or of any order suspending or preventing the use of any related prospectus or suspending the qualification of any common stock included in such registration statement for sale in any jurisdiction, the Company shall use its best efforts promptly to obtain the withdrawal of such order. If any such registration or comparable statement refers to any holder by name or otherwise as the holder of any securities of the Company and if in its sole and exclusive judgment, such holder is or might be deemed to be a controlling person of the Company, such holder shall have the right to require (i) the insertion therein of language, in form and substance satisfactory to such holder and presented to the Company in writing, to the effect that the holding by such holder of such securities is not to be construed as a recommendation by such holder of the investment quality of the Company's securities covered thereby and that such holding does not imply that such holder shall assist in meeting any future financial requirements of the Company, or (ii) in the event that such reference to such holder by name or otherwise is not required by the Securities Act or any similar Federal statute then in force (or any rules and regulations promulgated thereunder), the deletion of the reference to such holder; provided -------- that with respect to this clause (ii) such holder shall furnish to the Company - ---- an opinion of counsel to such effect, which opinion and counsel shall be reasonably satisfactory to the Company. 5. Registration Expenses. --------------------- (a) All expenses incident to the Company's performance of or compliance with this Agreement, including without limitation all registration and filing fees, fees and expenses of compliance with securities or blue sky laws, printing expenses, messenger and delivery expenses, fees and disbursements of custodians, and fees and disbursements of counsel for the Company and all independent certified public accountants, underwriters (excluding discounts and commissions) and other Persons retained by the Company (all such expenses being herein called "Registration Expenses"), shall be borne as provided in this --------------------- Agreement, except that the Company shall, in any event, pay its internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit or quarterly review, the expense of any liability insurance and the expenses and fees for listing the securities to be registered on each securities exchange on which similar securities issued by the Company are then listed or on the NASD automated quotation system. (b) In connection with each Demand Registration and each Piggyback Registration, the Company shall reimburse the holders of Registrable Securities included in such registration for the reasonable fees and disbursements of one counsel who shall represent all holders including shares in such registration (other than with respect to the rendering of legal opinions to the underwriters) and who shall be chosen by the holders of a majority of the Registrable Securities included in such registration and for the reasonable fees and disbursements of each additional counsel retained by any holder of Registrable Securities for the purpose of rendering a legal opinion to the underwriters on behalf of such holder in connection with the underwriting of any Demand Registration or Piggyback Registration. -6- (c) To the extent Registration Expenses are not required to be paid by the Company, each holder of securities included in any registration hereunder shall pay those Registration Expenses allocable to the registration of such holder's securities so included, and any Registration Expenses not so allocable shall be borne by all sellers of securities included in such registration in proportion to the aggregate selling price of the securities to be so registered. 6. Indemnification. --------------- (a) The Company agrees to indemnify, to the extent permitted by law, each holder of Registrable Securities, its officers and directors and each Person who controls such holder (within the meaning of the Securities Act) against all losses, claims, damages, liabilities and expenses caused by any untrue or alleged untrue statement of material fact contained in any registration statement, prospectus or preliminary prospectus or any amendment thereof or supplement thereto or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as the same are caused by or contained in any information furnished in writing to the Company by such holder expressly for use therein or by such holder's failure to deliver a copy of the registration statement or prospectus or any amendments or supplements thereto after the Company has furnished such holder with a sufficient number of copies of the same. In connection with an underwritten offering, the Company shall indemnify such underwriters, their officers and directors and each Person who controls such underwriters (within the meaning of the Securities Act) to the same extent as provided above with respect to the indemnification of the holders of Registrable Securities. (b) In connection with any registration statement in which a holder of Registrable Securities is participating, each such holder shall furnish to the Company in writing such information and affidavits as the Company reasonably requests for use in connection with any such registration statement or prospectus and, to the extent permitted by law, shall indemnify the Company, its directors and officers and each Person who controls the Company (within the meaning of the Securities Act) against any losses, claims, damages, liabilities and expenses resulting from any untrue or alleged untrue statement of material fact contained in the registration statement, prospectus or preliminary prospectus or any amendment thereof or supplement thereto or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, but only to the extent that such untrue statement or omission is contained in or based on any information or affidavit so furnished in writing by such holder; provided that the obligation -------- ---- to indemnify shall be individual to each holder and shall be limited to the net amount of proceeds received by such holder from the sale of Registrable Securities pursuant to such registration statement. (c) Any Person entitled to indemnification hereunder shall (i) give prompt written notice to the indemnifying party of any claim with respect to which it seeks indemnification; provided that the failure to give prompt notice -------- ---- shall not impair any Person's right to indemnification hereunder to the extent such failure has not prejudiced the indemnifying party and (ii) unless in such indemnified party's reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist with respect to such claim, permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party. If such defense is assumed, the indemnifying party shall not be subject to any liability for any settlement made by the indemnified party without its consent (but such consent shall not be unreasonably withheld). An indemnifying party who is not entitled to, or elects not to, assume the defense of a claim shall not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such indemnifying party with respect to such claim, unless in the reasonable judgment of any indemnified party a conflict of interest may exist between such indemnified party and any other of such indemnified parties with respect to such claim. -7- (d) The indemnification provided for under this Agreement shall remain in full force and effect regardless of any investigation made by or on behalf of the indemnified party or any officer, director or controlling Person of such indemnified party and shall survive the transfer of securities. The Company and each holder of Registrable Securities also agree to make such provisions, as are reasonably requested by any indemnified party, for contribution to such party in the event the Company's or such holders' indemnification is unavailable for any reason. 7. Participation in Underwritten Registrations. No Person may ------------------------------------------- participate in any registration hereunder which is underwritten unless such Person (a) agrees to sell such Person's securities on the basis provided in any underwriting arrangements approved by the Person or Persons entitled hereunder to approve such arrangements, (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements and (iii) agrees to such other undertakings reasonably requested by the Company or the underwriters to comply with the applicable provisions of the Securities Act and the Securities Exchange Act; provided that no holder of Investor Registrable -------- ---- Securities included in any underwritten registration shall be required to make any representations or warranties to the Company or the underwriters other than representations and warranties regarding such holder and such holder's intended method of distribution. 8. Definitions. ----------- "Common Stock" means the Class A Common Stock and Class B Common Stock ------------ of the Company. "Investor Registrable Securities" means Registrable Securities issued ------------------------------- or issuable to the Investors and their transferees. "Liberty Registrable Securities" means Investor Registrable Securities ------------------------------ issued or issuable to LPH and its transferees. "NASD" means the National Association of Securities Dealers. ---- "Option" means the option to purchase shares of Common Stock issued by ------ the Company to McLaughlin pursuant to the Company's 1996 Stock Option Plan. "Person" means an individual, a partnership, a corporation, a limited ------ liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization and a governmental entity or any department, agency or political subdivision thereof. "Purchase Agreement" shall have the meaning set forth in the preamble ------------------ hereto. "Registrable Securities" means (a) any Common Stock issued pursuant to ---------------------- the Purchase Agreement, the Management Agreement or the Investors Purchase Agreement on the date hereof, (b) any Common Stock issued pursuant to the Warrant, (c) any Common Stock issued upon exercise of the Option, and (d) any Common Stock issued or issuable with respect to the securities referred to in clauses (a), (b) or (c) above by way of a stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization. As to any particular Registrable Securities, such securities shall cease to be Registrable Securities (x) when they have been distributed to the public pursuant to an offering registered under the Securities Act, or (y) when they have been sold to -8- the public through a broker, dealer or market maker in compliance with Rule 144 under the Securities Act (or any similar rule then in force). For purposes of this Agreement, a Person shall be deemed to be a holder of Registrable Securities whenever such Person has the right to acquire directly or indirectly such Registrable Securities (upon conversion or exercise in connection with a transfer of securities or otherwise, but disregarding any restrictions or limitations upon the exercise of such right), whether or not such acquisition has actually been effected. "Riverside Registrable Securities" means Investor Registrable -------------------------------- Securities issued or issuable to Riverside and its transferees. "Warrant" means the Common Stock Purchase Warrant issued by the ------- Company to LPH pursuant to the Purchase Agreement. 9. Miscellaneous. ------------- (a) No Inconsistent Agreements. The Company shall not hereafter -------------------------- enter into any agreement with respect to its securities which is inconsistent with or violates the rights granted to the holders of Registrable Securities in this Agreement. (b) Adjustments Affecting Registrable Securities. The Company -------------------------------------------- shall not take any action, or permit any change to occur, with respect to its securities which would materially and adversely affect the ability of the holders of Registrable Securities to include such Registrable Securities in a registration undertaken pursuant to this Agreement or which would materially and adversely affect the marketability of such Registrable Securities in any such registration (including, without limitation, effecting a stock split or a combination of shares). (c) Remedies. Any Person having rights under any provision of -------- this Agreement shall be entitled to enforce such rights specifically to recover damages caused by reason of any breach of any provision of this Agreement and to exercise all other rights granted by law. The parties hereto agree and acknowledge that money damages may not be an adequate remedy for any breach of the provisions of this Agreement and that any party may in its sole discretion apply to any court of law or equity of competent jurisdiction (without posting any bond or other security) for specific performance and for other injunctive relief in order to enforce or prevent violation of the provisions of this Agreement. (d) Amendments and Waivers. Except as otherwise provided herein, ---------------------- the provisions of this Agreement may be amended or waived only upon the prior written consent of the Company, the holders of a majority of the Liberty Registrable Securities, and the holders of a majority of the Riverside Registrable Securities. (e) Successors and Assigns. All covenants and agreements in this ---------------------- Agreement by or on behalf of any of the parties hereto shall bind and inure to the benefit of the respective successors and assigns of the parties hereto whether so expressed or not; provided that each such successor or assign -------- ---- acquires at least 1,000 shares of Registrable Securities (as adjusted for any stock split, stock dividend, combinations of shares or any other recapitalization). In addition, whether or not any express assignment has been made, the provisions of this Agreement which are for the benefit of purchasers or holders of Registrable Securities are also for the benefit of, and enforceable by, any subsequent holder of Registrable Securities. -9- (f) Severability. Whenever possible, each provision of this ------------ Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement. (g) Counterparts. This Agreement may be executed simultaneously ------------ in two or more counterparts, any one of which need not contain the signatures of more than one party, but all such counterparts taken together shall constitute one and the same Agreement. (h) Descriptive Headings. The descriptive headings of this -------------------- Agreement are inserted for convenience only and do not constitute a part of this Agreement. (i) Governing Law. The corporate law of the State of Delaware ------------- shall govern all issues and questions concerning the relative rights of the Company and its stockholders. All other issues and questions concerning the construction, validity, interpretation and enforcement of this Agreement and the exhibits and schedules hereto shall be governed by, and construed in accordance with, the laws of the State of New York, without giving effect to any choice of law or conflict of law rules or provisions (whether of the State of New York or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of New York. (j) Notices. All notices, demands or other communications to be ------- given or delivered under or by reason of this Agreement shall be in writing and shall be either personally delivered, sent by telecopy (with hard copy to follow via regular mail), or mailed by registered or certified mail (return receipt requested, postage prepaid) or sent to the recipient by reputable overnight courier service (charges prepaid). Notices shall be deemed to have been given hereunder when delivered personally, the day sent by telecopy, three days after deposit in the U.S. mail and one day after deposit with a reputable overnight courier service. Such notices, demands and other communications shall be sent to each Investor at the address indicated in the books and records of the Company and to the Company at the address indicated below: If to the Company: ----------------- Rudolph Holdings Corporation c/o Rudolph Technologies, Inc. One Rudolph Road Flanders, New Jersey 07836 Attention: President with a copy to: -------------- Liberty Capital Partners, L.P. 1177 Avenue of the Americas, 34th Floor New York, NY 10036 Attention: Steven J. Fisher -10- or to such other address or to the attention of such other Person as the recipient party has specified by prior written notice to the sending party. * * * * * IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above. RUDOLPH HOLDINGS CORPORATION By: /s/ Paul F. McLaughlin ---------------------------------- Its: President --------------------------------- LIBERTY PARTNERS HOLDINGS 11, L.L.C. By: Liberty Partners, L.P. Its: Manager By: Liberty Capital Partners, Inc. Its: General Partner By: /s/ Steven R. Roth ---------------------------------- Its: Vice-President --------------------------------- RIVERSIDE RUDOLPH, L.L.C. By: /s/ Brian ---------------------------------- Its: Vice-President --------------------------------- /s/ Richard F. Spanier -------------------------------------- DR. RICHARD F. SPANIER /s/ Paul F. Laughlin ------------------------------------- PAUL F. MCLAUGHLIN /s/ Dale Moorman ------------------------------------- DALE MOORMAN EX-23.2 13 CONSENT OF PRICEWATERHOUSECOOPERS LLP EXHIBIT 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the use in this Registration Statement on Form S-1 of our reports dated October 1, 1999 and September 7, 1999, relating to the financial statements and financial statement schedule of Rudolph Technologies, Inc. and Rudolph Research Corporation, which appear in such Registration Statement. We also consent to the reference to us under the heading "Experts" in such Registration Statement. PricewaterhouseCoopers LLP Florham Park, New Jersey October 1, 1999 -----END PRIVACY-ENHANCED MESSAGE-----