10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

x	Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the fiscal year ended June 30, 2009
Or
o	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the transition period from ______________________________ to ______________________________

Commission file number 0-12944

ZYGO CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	06-0864500
(State or other jurisdiction of	(IRS Employer Identification Number)
incorporation or organization)

Laurel Brook Road, Middlefield, Connecticut 06455-1291

(Address of principal executive offices) (Zip Code)

(860) 347-8506

(Registrant’s telephone number, including area code:)

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.10 Par Value

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

YES o    NO x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

YES o    NO x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES o    NO x

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceeding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YES o    NO o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K(229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in rule 12b-2 of the Exchange act. (Check one):

Large accelerated filer	o		Accelerated filer   x
Non-accelerated filer	o	(Do not check if a smaller reporting company)	Smaller reporting company  o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

YES o    NO x

The aggregate market value of the registrant’s Common Stock held by non-affiliates, based upon the closing price of the Common Stock on December 31, 2008, as reported by the NASDAQ National Market, was $64,026,111. Shares of Common Stock held by each executive officer and director and by each person who owns 5% or more of the outstanding Common Stock, based on filings with the Securities and Exchange Commission, have been excluded since such persons may be deemed affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

Indicate the number of shares outstanding of each of the registrant’s classes of Common Stock, as of the latest practicable date.

16,988,156 Shares of Common Stock, $.10 Par Value, at September 1, 2009

Documents incorporated by reference: Specified portions of the registrant’s Proxy Statement related to the registrant’s 2009 Annual Meeting of Stockholders, to be filed pursuant to Regulation 14A of the Securities Exchange Act of 1934 with the Securities and Exchange Commission, are incorporated by reference into Part II (Item 5) and Part III (Items 10-14) of this Annual Report on Form 10-K to the extent stated herein.

TABLE OF CONTENTS

		Page
------	Forward-Looking Statements	1
PART I
Item 1.	Business	2
------	Executive Officers of the Registrant	9
Item 1A.	Risk Factors	10
Item 1B.	Unresolved Staff Comments	14
Item 2.	Properties	15
Item 3.	Legal Proceedings	16
Item 4.	Submission of Matters to a Vote of Security Holders	16
PART II
Item 5.	Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	17
Item 6.	Selected Financial Data	20
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	31
Item 8.	Financial Statements and Supplementary Data	32
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	32
Item 9A.	Controls and Procedures	33
Item 9B.	Other Information	34
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	34
Item 11.	Executive Compensation	34
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	34
Item 13.	Certain Relationships and Related Transactions, and Director Independence	34
Item 14.	Principal Accountant Fees and Services	34
PART IV
Item 15.	Exhibits, Financial Statement Schedules	35
------	Signatures	38

As used in this Annual Report on Form 10-K, unless the context otherwise requires, the terms “we,” “us,” “our,” “Company,” and “ZYGO” refer to Zygo Corporation, a Delaware corporation.

FORWARD-LOOKING STATEMENTS

All statements other than statements of historical fact included in this Annual Report regarding our financial position, business strategy, plans, anticipated sales, orders, market acceptance, growth rates, market opportunities, and objectives of management for future operations are forward-looking statements. These forward-looking statements include without limitation statements under “Business,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Risk Factors.” Forward-looking statements are intended to provide management’s current expectations or plans for the future operating and financial performance based upon information currently available and assumptions currently believed to be valid. Forward-looking statements can be identified by the use of words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plans,” “strategy,” “project,” and other words of similar meaning in connection with a discussion of future operating or financial performance. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors such as those disclosed under “Risk Factors.” Such statements reflect our current views with respect to future events and are subject to these and other risks, uncertainties, and assumptions relating to the operations, results of operations, and our growth strategy.

Any forward-looking statements included in this Annual Report speak only as of the date of this document. ZYGO undertakes no obligation to publicly update or revise forward-looking statements to reflect events or circumstances occurring after the date of this Annual Report on Form 10-K.

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PART I

Item 1. Business

OVERVIEW

Zygo Corporation (“ZYGO,’’ “we,’’ “us,’’ “our,’’ or “Company’’) designs, develops, and manufactures ultra-high precision measurement solutions to improve our customers’ manufacturing yields, and top-tier optical sub-systems and components for original equipment manufacturers (“OEM”) and end-user applications. We operate within two divisions. Our Metrology Solutions Division (also referred to herein as the “Metrology segment”) manufactures products to improve quality, increase productivity, and decrease the overall cost of product development and manufacturing for high-technology companies. Our Optical Systems Division (also referred to herein as the “Optics segment”) provides leading-edge product development and manufacturing services that leverage a variety of core technologies across medical, defense, semiconductor, laser fusion research, biomedical, and other industrial markets.

Our Metrology Solutions Division serves the industrial and semiconductor markets by providing process control for surface shape, roughness and film thickness, which are critical to all of our markets, and through product offerings that measure surface and material characteristics such as roughness, figure, film thickness and transmitted wavefront of flat, spherical, and aspheric components. Our industrial market products serve the defense/aerospace, automotive, consumer electronics, and commercial optics markets, as well as various other miscellaneous markets other than semiconductor. Industrial market products include measurement-based process control systems for defense and aerospace customers, and measurement-based process control and yield-enhancement systems for automotive, consumer electronics, and commercial optical customers.

Our semiconductor product offerings include semiconductor metrology tools, OEM solutions, in-line automated yield improvement systems for both flat panel displays and advanced integrated circuit packaging manufacturing and technology development projects for the semiconductor capital equipment industry. Our displacement measurement systems are used extensively in ultra-precise wafer positioning systems for the semiconductor capital equipment industry. One of our continuing strategic initiatives is to expand our product offerings by applying our patented technology to integrated in-line technology.

In June 2009, we agreed to a supply agreement with Nanometrics Incorporated (“Nanometrics”), whereby we will supply interferometer sensors to Nanometrics for incorporation into the UniFire™ line of products as well as Nanometrics’ family of automated metrology systems. This agreement enables us to accomplish our goal of accelerating the commercial deployment and market penetration of our core interferometer technology into the worldwide semiconductor industry without the investment associated with system integration, distribution, applications and support. In addition to the applications currently addressed by Nanometrics and ZYGO products, the business partnership allows for the joint development of additional technology solutions targeted at the semiconductor and related industries.

In February 2008, we acquired the assets of Solvision, Inc., a Canadian-based company, including its Singapore subsidiary, and entered the market for in-line inspection of flip chip substrates and integrated circuits (“IC”) packaging.

The worldwide economic recession has had a severe impact on our orders, sales, and net results. As a result of the economic downturn, among other things, we have reevaluated our strategic initiatives and our overall business strategy and operations. We are focusing sales, marketing, and research and development efforts on our core metrology and optics technologies, including the potential for strategic alternatives, which could include partnerships, joint ventures, divestitures, or alliances.

Our solutions are primarily based on optical interferometric technology. We continue to be a world leader in optical interferometry with a patent portfolio of over 300 active patents, most of which are related to the broad field of interferometry and its practical application.

Our Metrology Solutions Division is headquartered in Middlefield, Connecticut with operations in various domestic and international locations.

Our Optical Systems Division specializes in producing high precision integrated optical systems and unique system-critical optical components for a variety of applications that include medical laser delivery systems, U.S. Department of Defense (“Defense Department”) applications, 3D medical imaging, and semiconductor lithography. The division creates long-term customer value through, among other things, proprietary manufacturing technology, design for manufacturing and assembly services and specialized manufacturing know-how required to produce Food and Drug Administration (“FDA”) regulated medical devices.

Our integrated system assembly operation for our Optical Systems Division located in Tucson, Arizona is a tier-one optical system assembly facility for high-precision, volume production. We assemble and integrate devices ranging from medical laser

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delivery systems to 3D dental imaging to opto-electronic surveillance devices. Our integrated system design and prototyping operation, located in Costa Mesa, California, designs and manufactures prototypes utilizing multi-axis alignment, optical contact assembly, custom tooling, single point diamond turning, and our proprietary metrology equipment such as those used to produce lithographic optical systems. We also operate a large format optical fabrication and coating center located in our Middlefield, Connecticut facility. Our vertically integrated approach encompasses CNC glass machining and lightweighting, rotational and double-sided polishing, magneto rheological finishing polishing, and thin film coating, supported by our proprietary metrology equipment. We are one of the world’s largest manufacturers of laser fusion optics and meter-class plano optics, including advanced materials such as sapphire.

We were incorporated in 1970 under the laws of the State of Delaware. The address of our principal executive offices is Laurel Brook Road, Middlefield, Connecticut, 06455-1291. Our telephone number at this address is (860) 347-8506. Our website address is www.zygo.com. The information on our website is not part of this Annual Report on Form 10-K.

MARKETS, PRODUCTS, AND CUSTOMERS

Our business is organized into two operating divisions – Metrology Solutions and Optical Systems. The Metrology segment consists of OEM, in-line, and research instrument products primarily for the semiconductor and industrial markets. The Optics segment consists of components and opto-mechanical assemblies primarily for the medical, defense, and aerospace industries, which are part of the industrial market.

Manufacturers in the semiconductor and industrial markets strive to improve their manufacturing processes and product performance. These improvements allow them to compete more effectively in a marketplace characterized by decreasing product dimensions, increasingly complex manufacturing processes, decreasing product life cycles, declining product prices, and intensifying global competition, among other factors. As such, our precision metrology and optical components and systems are designed to help these manufacturers continually achieve process and design improvements.

Metrology Solutions Division

Semiconductor Market

We serve several areas of the semiconductor market, notably semiconductor manufacturers and capital equipment suppliers, as well as the flat panel display and advanced semiconductor and integrated circuit packaging manufacturers. We have a broad and growing range of products that serve these market areas.

Semiconductor manufacturing processes require demanding metrology and inspection technologies. From bare silicon wafers through the packaged die, metrology and inspection are critical to meeting technology development and process control demands. Recent products introduced by us are enabling high volume semiconductor manufacturing customers to address the challenges of today as well as advanced processing down to and lower than the 45 nanometer (“nm”) node. The majority of our automated semiconductor systems are built on a common, high-throughput platform with a common, configurable sensor head. This approach allows us to leverage engineering and manufacturing investments to produce reliable and cost effective solutions for our customers.

Semiconductor Products

The transistor and associated integrated circuit have transformed the way people work, live and play, creating several multi-billion dollar industries that thrive through innovation, technology, and ultra-large scale integration of micro/nano circuitry. These industries provide components used in everyday appliances, including the more modern mobile phones and wireless internet devices. Due to the ubiquity of the integrated circuit, it is sometimes difficult to fathom the complexities involved in development and manufacturing. State-of-the-art microprocessors have in excess of a billion transistors comprised of components which have physical dimensions as small as 32 nm.

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In June 2009, we agreed to a supply agreement with Nanometrics, whereby we will supply interferometer sensors to Nanometrics for incorporation into the UniFire™ line of products as well as Nanometrics’ family of automated metrology systems. The in-line semiconductor systems we developed over the last five years, encompassing the UniFire product line, will now be manufactured, sold, and serviced through Nanometrics. These systems are designed to help semiconductor and data storage customers control their high volume manufacturing process. The semiconductor products target wafer based applications (prior to die singulation) and can be utilized for all parts of the process flow, from the production of silicon substrates, through the transistor formation in the front end of the line to the interconnects and bump redistribution layers in the back end of the line. Our single, configurable sensor sits on a common platform, each system having a unique sensor configuration and associated applications. Each system incorporates multiple sensors. The multifunction capability of the overall system enables the consolidation of different metrology measurements into a single system, thereby lowering the overall metrology cost of ownership for the customer.

Photolithography scanners and stepper systems form the core of the semiconductor manufacturing process. These systems image the patterns of stacked layers of circuitry that make up transistors. The photolithographic systems image the circuitry onto silicon wafers for both microprocessors and memory chips, as well as flat panel displays for computers, televisions, and other display products. Several of our products enable these systems to image these circuit patterns reliably and with nanometer precision.

Precision Positioning Systems

The layers of circuit patterns must overlay on top of each other to nanometer precision. To achieve nanometer precision overlay, the silicon wafer must be repeatably positioned to one-tenth the overlay tolerance. Photolithography systems, mask and reticle writers, and yield improvement metrology tools rely on displacement measuring interferometers to provide precise feedback to control the position of the silicon wafer. Our Metrology Solutions Division’s ZMI™ 2400 and ZMI™ 4000 precision positioning feedback systems are designed primarily for photolithography systems. They are also used in a broad range of semiconductor metrology and back-end process tools.

Technology Development Projects

Photolithography scanners image the electronic circuit pattern through a precision projection lens. The optical performance of the lenses required for next-generation photolithography scanners often exceeds the capabilities of commercially available measurement systems. Our expertise in optical interferometer technology, and the practical skills needed to apply this technology, make us well suited to deliver custom solutions to leading photolithography equipment suppliers.

Display Solutions

Flat panel displays (“FPD”) were first used in cell phones and laptop computers, and have grown in popularity for most personal electronics. Many large screen televisions are based on flat panel display technology. Our systems, with ultra high precision measurement solutions, enable our customers to improve flat panel display manufacturing yields. Our OneShot and SureShot™ systems are in-line process control yield enhancement tools. The FPD OneShot tool measures the topography and critical dimensions of key color filter features prior to being combined with the thin-film-transistor panel in the ‘one drop fill’ assembly process. This fully automated system incorporates the latest ZYGO Intellisensor™, optical profiler technology, integrated conveyors or robotics with motion stages, mini-clean room environmental enclosures, and factory floor command and control software. The system measures the height and width of key optical components and predicts the fill volume to increase upstream manufacturing yields.

The SureShot™ FPD product provides overlay and critical dimensions metrology of the individual mask layers post-lithography and helps identify process control problems such as those found in the half tone process. These defects, left unchecked, can lead to product performance issues including variances in luminescence (called MURA) in the finished display. The SureShot tool can be used as an off-line process analysis device or in-line in conjunction with closed loop lithography process control.

In addition to process control, ZYGO manufactures inspection tools used to protect color filter manufacturing processes from the yield-robbing effects caused by the introduction of foreign particles. The ZYGO ClearShot™ tool works in conjunction with automated optical inspection systems to review particles and sort those that will cause optical defects due to their height and lateral dimensions, from those that will not. The use of ZYGO technology in the inspection area results in increased manufacturing yields and increased utilization of the panel maker’s deployed capital.

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Advanced Chip Packaging and Assembly

During the manufacture of a semiconductor chip, after the chip making process is complete, the silicon wafer on which the chips are fabricated must be diced into individual chips and packaged for customer use. In advanced chip packaging fabrication facilities, the new CP 6300i™ system measures patterned features and films on the surfaces of diced and un-diced chips for process control and yield improvement. The system incorporates a specialized ZYGO NewView optical profiler and wafer positioning system with pattern recognition software. It can be configured for clean room or laboratory use.

Advanced IC Packaging and Assembly

Before an individual semiconductor chip can be placed on a printed circuit board it must be packaged or encased for protection, identification, and wiring/electrical connection. ZYGO AV9000™ systems inspect these final packages for defects using standard 2D image defect and metrology analysis, as well as rapid 3D metrology. The AV9000 systems are based on ZYGO’s FMI technology acquired with the Solvision, Inc. assets. This product is designed to meet today’s requirements, as well as future requirements of the rapidly growing IC Packaging market.

Printed Circuit Board Substrates

Printed circuit substrates interface IC flip chip packages to printed circuit boards. These substrates make the circuit connection via arrays of miniature solder bumps and balls and ZYGO manufactures several tools to measure these bump and ball arrays for process control and yield improvement. Tool applications range from quality control (NANO 3D™) to high volume manufacturing (HS1000), on singulated substrates (HS2000). The newly released Flip Chip CSP2000H tool enables process control on strip and panel formats. These systems are based on technology acquired with the assets of Solvision, Inc.

Industrial Market

Our industrial market covers all areas other than semiconductor. Metrology products for defense and aerospace companies include measurement-based process control systems. Products for automotive, consumer electronics and other customers are measurement-based process control and yield enhancement systems.

Consumer Electronics

Consumer electronics, including cell phones, digital cameras, DVD and CD players, and optical computer drives, have significant optical content. Consumer electronic optics, which provides imaging and data storage, are manufactured in quantities in the hundreds of thousands to millions of components per year. These complex miniature optical systems require precise optical testing—from development to in-line process control—which our measurement-based process control and yield enhancement systems are designed to perform.

VeriFire Asphere System

The VeriFire Asphere provides high resolution 3-Dimensional surface metrology for aspheric shaped surfaces using patented non-contact interferometric techniques for production and process control. Aspheres are important in consumer electronics products, cameras, military/defense optics, and commercial optics and represent a growing segment in the optics markets.

GPI and VeriFire Systems

The development of new optical systems for any application requires flexible and easy to use test equipment. The ZYGO GPI and VeriFire systems are our latest products in our established product family that has improved optical testing and continues to evolve to meet changing requirements. Consumer electronics production applications for larger optics, greater than a 25 mm diameter, and research and development for any size application rely on these products for critical developmental data and process control feedback in production. These products are widely used due to their configuration flexibility in both hardware set ups and ZYGO’s MetroPro™ data analysis software.

PTI™ 250

Consumer electronics typically contain small optics, less than 30 mm diameter. The PTI 250 is a small bench top optical test system in the tradition of our industry standard GPI. The system meets the consumer market demand by combining high-quality optics with ZYGO’s MetroPro data analysis software.

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DVD™ 400, BluRay™, and HD DVD™

The next generation of DVD players and computer memories use blue light at 405 nm wavelength to increase the amount of data on a DVD disk. ZYGO’s DVD 400 interferometer is used by developers of these next generation systems. ZYGO’s DVD 400P is our system for the production floor.

Automotive Industry

The automotive industry is striving to improve fuel economy and decrease environmental pollution to meet customer demand and adhere to government regulation. Improving both requires more efficient engines, including the fuel injection system. Since high-pressure valves and sealing surfaces found in the fuel injection system must be manufactured to high precision, our measurement-based process control and yield-enhancement systems are used in the development and manufacture of these components.

NewView 7200/7300 and Delta Systems

Our high precision metrology equipment is well suited for fuel injector components, which are ground or lapped to tolerances of one-hundred billionths of a meter. Our patented “FDA” data acquisition system for the NewView optical profiler meets this high-precision measurement requirement. The NewView Delta is a production floor packaged system, also targeted to this growing market.

Defense/Aerospace

GPI and VeriFire Systems

Developing state-of-the-art optical designs and manufacturing technology for the defense/aerospace market also requires leading edge metrology systems for manufacturing process control and development. Our industry standard GPI and VeriFire optical interferometers test both the optical components and systems for design compliance. Our VeriFire Asphere rapidly measures asphere shaped optics in a production environment. Our GPI PE continues our move to the production floor, providing laboratory level results in a production environment. Using patented algorithms, the GPI PE removes the degrading effects of vibration from the measurement without the need for new expensive hardware. This system is primarily used in the production of military and commercial optics.

The GPI FlashPhase system operates on the production floor where standard interferometers cannot measure or do not meet the demanding requirements of the defense/aerospace market. With our proprietary data acquisition, GPI FlashPhase can measure in the turbulent and vibrating environments that are often found in defense/aerospace applications. We are also active in designing and manufacturing custom systems for defense/aerospace applications, especially interferometers that operate at infrared wavelengths, which are unique to this market.

Our major metrology customers include: AU Optronics, Bosch, Canon, Lockheed Martin, Raytheon, and Nikon.

Optical Systems Division

Industrial Market

Supporting both the projection lens and stage positioning systems, we supply high precision stage mirrors and lithographic lenses to leading photolithographic OEM’s and end users. In addition, we design and manufacture deep UV objectives, inspection systems and components to a wide range of industrial customers as well as supporting the optical needs of our Metrology Solutions division.

Defense/Aerospace

Defense and aerospace companies use optical technology in a broad range of applications. One application is the enhancement of human sight through imaging systems, such as telescopes, that are used in satellite and airborne reconnaissance, fire-control systems, and hand-held viewers. Defense Department areas of focus include fire control, remote sensing, flight simulation, avionics, tracking, stealth systems and high energy weapon systems. Our Optical Systems Division participates in a variety of defense applications ranging from high performance sapphire electro magnetic interference (“EMI”) windows used in stealth aircraft and ships to satellite optical sensing packages and state of the art flight simulation helmet mounted displays. In addition to mainstream Defense Department and foreign government applications, we are a leading manufacturer of several critical path components to the largest nuclear research laser system ever deployed by the National Ignition Facility (“NIF”), which is used for both weapons maintenance programs and the development of nuclear fusion energy sources. In addition, our Optical Systems Division has expanded into long range surveillance systems valuable to homeland security applications, such as nuclear power plant perimeter control, border surveillance, and seaport monitoring.

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Nuclear research for both weapons maintenance programs and the development of nuclear fusion energy sources also use large optical lasers at a number of worldwide facilities, including NIF. In addition, projection systems in computer-based flight and battlefield simulation use sophisticated optical systems. Several of our products support these and other defense/aerospace programs.

Medical/Biomedical

The medical and biomedical markets are growing rapidly. The increased demand for high precision medical devices continues to be driven by an aging population and consumers’ desire to improve their quality of life. Our Optical Systems Division addresses this demand with specialized design for manufacturing and assembly services tailored to producing high-end diagnostic, processing and surgical devices. In addition, the group offers a variety of process control advantages including medical device quality management systems, such as ISO 13485:2003. Key application areas are diagnostic and surgical ophthalmic devices, inter-oral 3D imaging, and biomedical cell sorting. Supporting these applications are our facilities in Tucson, Arizona (manufacturing) and Costa Mesa, California (development and prototype manufacturing). Strategically located, these facilities are capable of providing highly focused engineering support to fast growing medical and biomedical regions for both manufacturing and research.

Our major optics customers include Commissariat à l’énergie atomique, Abbott Medical Optics, Lawrence Livermore National Laboratory, 3M, Brontes, and others.

For further information on the Metrology Solutions Division and the Optical Systems Division, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Financial Statements.

Competition

The semiconductor and industrial markets in which we participate are intensely competitive and are characterized by price pressure and rapid technological change. Furthermore, these markets are dominated by a few market leaders. We are one of a limited number of companies that develop and market yield-enhancement solutions. Our primary yield enhancement competitors include Agilent’s Laser Interferometer Positioning Systems Division, Veeco’s Metrology Division, SNU Precision, KLA-Tencor, and Rank Taylor Hobson. The principal factors upon which we compete are performance, flexibility, value, on-time delivery, responsive customer service and support, and breadth of product line.

High precision optics manufacturing is dominated by relatively few companies who have both strong engineering depth and metrology capability. The competition is further segmented by the two groups within the division, Optical Components and Electro-Optics. The Optical components primary competitors include L-3 Tinsley, Exotic Electro-Optics and Sagem, which are able to provide similar performance levels for both meter class plano optics and airborne reconnaissance windows. The Electro-Optics group which provides significant value added engineering coupled with metrology based manufacturing and FDA regulatory control has various levels of competition from Elcan Optical Technologies, Jenoptik and ASML. The principal factors upon which we compete are high precision metrology based manufacturing, value-added engineering, regulatory and quality controls and customer service.

Research, Development and Engineering Operations

We operate in industries that are subject to rapid technological change and engineering innovation. As such, we dedicate substantial resources to research and development. At June 30, 2009, we employed 126 individuals, or approximately 25% of our workforce, within our research and development and engineering operations. Our strategy is to form close technical working relationships with customers and OEM suppliers in our markets to ensure that our products are commercially relevant. We also maintain a close working relationship with various research groups and academic institutions in the United States and abroad. We have been recognized as an innovator in commercializing technology, as evidenced by our numerous achievement awards, including R&D 100 Awards, Photonics Spectra Circle of Excellence Awards, and others. We believe that continued enhancement, development, and commercialization of new and existing products and systems are essential to maintaining and improving our leadership position.

Patents and Other Intellectual Property

Our success and ability to compete depend substantially on our technology. We have been developing a portfolio of intellectual property for over 30 years, and we rely on a combination of patent, copyright, trademark, trade secret laws, and license agreements to establish and protect our proprietary rights for our products.

Since we introduced the first optical interferometer in 1972, we have had 297 United States patents issued, of which approximately 230 are currently active, and approximately 130 foreign patents issued, of which approximately 100 are active. We have approximately 40 United States and approximately 140 foreign patent applications pending. In addition, we have a number of registered and unregistered trademarks.

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While we rely on patent, copyright, trademark, and trade secret laws to protect our technology, we also believe that the technological and creative skills of our personnel, new product developments, frequent product enhancements, and reliable product maintenance are essential to establishing and maintaining a technology leadership position. We do not expect expirations in the near future related to our active patents to have a material effect on our business.

BACKLOG AND ORDERS

Backlog at June 30, 2009 was $38.3 million, a decrease of $34.0 million as compared with $72.3 million at June 30, 2008. The fiscal 2009 year-end backlog consisted of $18.6 million, or 49%, in the Metrology segment and $19.7 million, or 51%, in the Optics segment. Orders for the fiscal year ended June 30, 2009 totaled $82.0 million and consisted of $57.8 million, or 70%, in the Metrology segment and $24.2 million, or 30%, in the Optics segment.

MARKETING AND SALES

Our sales and marketing strategy is to establish and/or solidify strategic relationships with leading OEMs and end-users in targeted sectors within our markets. The selling process for our products is performed through our worldwide sales organization operating out of regional sales offices in California, China, Connecticut, Germany, Japan, Singapore, and Taiwan. Supporting this core sales team are business development, marketing, service, and engineering specialists representing our various optics and metrology units in Connecticut, Arizona, California, Florida, Canada, and Singapore. Product promotion is done through trade shows, printed and e-business advertising, and industry technical organizations.

The following table sets forth the percentage of our total sales by region (based on shipping destination, including sales delivered through distributors) during the past three years:

	Fiscal Year Ended June 30,
	2009			2008			2007
Americas		47	%		48	%		39	%
Far East:
Japan		23	%		28	%		37	%
Pacific Rim		18	%		10	%		13	%
Total Far East		41	%		38	%		50	%
Europe		12	%		14	%		11	%
Total		100	%		100	%		100	%

Customer service is an essential part of our business since product up time is critical given its effect on our customers’ production efficiency. As of June 30, 2009, our global sales customer support and service organization consisted of 93 people skilled in sales, marketing, optical and electro component repair, software, application and system integration, diagnostics, and problem-solving capabilities.

MANUFACTURING, RAW MATERIALS, AND SOURCES OF SUPPLY

Our principal manufacturing activities are conducted at our facilities in Middlefield, Connecticut and Tucson, Arizona. We also perform manufacturing activities in our Canada, Singapore, and China facilities and utilize a third-party assembly operation in Taiwan for our flat panel display systems.

We maintain an advanced optical components manufacturing facility in Middlefield, Connecticut, specializing in the fabrication, polishing, and coating of plano, or flat, optics for sales to third parties, as well as the manufacturing of a wide variety of optics that are used in our metrology products. Our manufacturing activities for our metrology products consist primarily of assembling and testing components and sub-assemblies supplied by us and third-party vendors, and then integrating these components and sub-assemblies into our finished products.

Our optical assembly manufacturing activities are conducted in our Tucson, Arizona facility. We integrate our optics, optics from third party vendors, and mechanical sub-systems utilizing our metrology in this facility.

Certain components and sub-assemblies incorporated into our systems are obtained from a limited group of suppliers. We routinely monitor limited source supply parts, and we endeavor to ensure that adequate inventory is available to maintain manufacturing schedules should the supply of any part be interrupted. Although we seek to reduce our dependence on limited source suppliers, we have not qualified a second source for some of these products and the partial or complete loss of certain of these sources could have a negative impact on our results of operations and damage customer relationships.

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AVAILABLE INFORMATION

We make available free of charge through our website, www.zygo.com, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with the Securities and Exchange Commission (“SEC”). These reports may also be obtained without charge by contacting Investor Relations, Zygo Corporation, Corporate Headquarters, Laurel Brook Road, Middlefield, Connecticut 06455-1291, phone: (860) 347-8506. Our Internet website and the information contained therein or incorporated therein are not intended to be incorporated into this Annual Report on Form 10-K. In addition, the public may read and copy any materials we file with the SEC’s Public Reference Room at 100 F Street, NE, Room 1580, Washington, DC 20549 or may obtain information by calling the SEC at 800-SEC-0330. Moreover, the SEC maintains an Internet website that contains reports, proxy, and information statements, or other information regarding reports that we file electronically with them at http://www.sec.gov.

EMPLOYEES

At June 30, 2009, we employed 484 people and 11 temporary agency and independent contractors worldwide. We employed 194 in manufacturing, 126 in research and development, 93 in sales and marketing, and 82 in management and administration. Our employees are not represented by a labor union or a collective bargaining agreement. We regard our employee relations as satisfactory.

EXECUTIVE OFFICERS OF THE REGISTRANT

J. Bruce Robinson – age 67 – Chief Executive Officer

Mr. Robinson has served as our Chief Executive Officer since June 2009, as Chairman and Chief Executive Officer from December 2006 to May 2009, as Chairman, President, and Chief Executive Officer from November 2000 to November 2006, as President and Chief Executive Officer from November 1999 to November 2000, and as President from February 1999 to November 1999. Previously, he spent 25 years with The Foxboro Company, where his most recent positions were President Worldwide Operations from 1996 to 1998 and President of European Operations from 1990 to 1996. Mr. Robinson is also a director of our company.

John M. Stack – age 44 - President, Optical Systems Division

Mr. Stack joined our company in November 2006 and has served as President of the Optical Systems Division since December 2006. Previously he spent 18 years with Edmund Optics Inc., a supplier of optics and optical components, where his most recent position was President and Chief Operating Officer from 2001 to 2006. Prior to that Mr. Stack held several management positions at Edmund Optics Inc. including Executive Vice President, Director of Engineering and Application Engineering Manager.

Walter A. Shephard – age 55 – Vice President, Finance, Chief Financial Officer, and Treasurer

Mr. Shephard has served as Vice President, Finance, Chief Financial Officer, and Treasurer since February 2004. Previously, he was a Principal with the Loftus Group, LLC, a management consulting firm, from November 2002 to January 2004. From 1983 to 2001, Mr. Shephard served in various capacities with GenRad, Inc., including Vice President Finance and Chief Financial Officer, Vice President of Investor Relations, and Treasurer.

Douglas J. Eccleston – age 60 – Senior Vice President, Precision Positioning Systems

Mr. Eccelston has served as Senior Vice President, Precision Positioning Systems since February 2007 and as Vice President, Precision Positioning Systems from March 2003 to January 2007. From 1977 to 2002, he held various management positions with Corning Incorporated, including most recently as a Business General Manager for the Photonic Technologies division.

William H. Bacon – age 59 – Vice President, Corporate Quality and Support Services

Mr. Bacon has served as Vice President, Corporate Quality and Support Services since March 2003. Previously, he served as our Vice President, Manufacturing from April 2002 to March 2003, Vice President, Metrology Manufacturing from April 2000 to April 2002, and Vice President, Corporate Quality from January 1996 to April 2000. From November 1993 to January 1996, Mr. Bacon was Director of Total Quality and also served as Manager of Instrument Manufacturing from June 1987 to November 1993.

David J. Person - age 61 - Vice President, Human Resources

Mr. Person has served as Vice President, Human Resources since September 1998. Previously, he served in a number of senior human resource management positions with Digital Equipment Corporation from 1972 to September 1998.

Under the By-laws, executive officers serve for a term of one year and until their successors are chosen and qualified unless earlier removed.

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Item 1A. Risk Factors

We are subject to numerous known and unknown risks, many of which are described below and elsewhere in this Annual Report. Any of the events described below could have a material adverse effect on our business, financial condition and results of operations. Additional risks and uncertainties that we are not aware of, or that we currently deem to be immaterial, could also impact our business and results of operations.

General economic conditions and the related deterioration in the global business environment could have a material adverse effect on our business, operating results and financial condition.

Global consumer confidence has eroded amidst concerns over, among other things, declining asset values, inflation, volatility in energy costs, geopolitical issues, the availability and cost of credit, rising unemployment, and the stability and solvency of financial institutions, financial markets, businesses and sovereign nations. These concerns have slowed global economic growth and have resulted in recessions in numerous countries, including many of those in North America, Europe and Asia, where the Company does substantially all of its business. Recent economic conditions had a negative impact on our results of operations during fiscal 2009 due to reduced customer demand and we expect this trend to continue for at least the next several fiscal quarters. As these economic conditions continue to persist, or if they worsen, a number of negative effects on our business could result, including customers or potential customers reducing or delaying orders, the insolvency of key suppliers which could result in production delays, the inability of customers to obtain credit, and the insolvency of one or more customers. Any of these effects could impact our ability to effectively manage inventory levels and collect receivables, create unabsorbed costs due to lower net sales, and ultimately decrease our net sales and profitability including write-downs of assets.

We are subject to environmental laws and regulations and may have liabilities arising from environmental matters.

We are subject to a variety of environmental regulations relating to the use, storage, discharge, and disposal of hazardous chemicals used during our manufacturing processes. Any failure by us to comply with applicable regulations could subject us to future liabilities or the suspension of production. We are aware of certain levels of contamination on our property which are below reportable levels. In addition, we are aware of certain contamination on an adjacent property that we formerly owned. We are unable to determine or reasonably estimate the amount of cost, if any, that we might incur or for which we may potentially be responsible to remediate the situation or for damages which may have resulted or result from the situation. In addition, environmental regulations could restrict our ability to expand our facilities or could require us to acquire costly equipment or to incur other significant expenses to comply with such regulations.

We are dependent on the semiconductor industry which, as a whole, is volatile.

Our business is significantly dependent on capital expenditures and component requirements for manufacturers in the semiconductor industry. This industry is cyclical and has historically experienced periods of oversupply, resulting in significantly reduced demand for capital equipment, including the products manufactured and marketed by us. For the foreseeable future, our operations will continue to be dependent on the capital expenditures in this industry, which in turn is largely dependent on the market demand in the semiconductor markets. There is currently a severe downturn in the capital expenditures of these manufacturers and this downturn may continue for an extended period of time.

We have been dependent on sales to one large customer; the loss of this customer or expected near-term reduction in orders from this customer has and would materially affect our sales and profitability.

During fiscal 2009, 2008, and 2007, sales to Canon, our largest customer in those periods, accounted for 14%, 19%, and 27% of our net sales, respectively. We expect that sales to Canon will continue to represent a significant, yet declining, percentage of our net sales for the near future. Canon is an original investor in our company, the owner at June 30, 2009 of approximately 7% of our outstanding shares of common stock, and is a distributor of certain of our products in the Japanese market. A reduction or delay in orders from this customer, including reductions or delays due to market, economic, or competitive conditions in the industries in which we or our customer serves, could have a material adverse effect upon our results of operations. Our customers, including Canon, generally do not enter into long-term agreements obligating them to purchase our products.

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Our substantial international sales are subject to risk.

We sell our products internationally, primarily to customers in Japan and throughout the Pacific Rim. Net sales to customers outside the United States accounted for approximately 53%, 52%, and 61% of our net sales in each of the fiscal years ended June 30, 2009, 2008, and 2007, respectively, and are expected to continue to account for a substantial percentage of our net sales.

International sales and foreign operations are subject to inherent risks. These risks include the economic conditions in these various foreign countries and their trading partners, political instability, longer payment cycles, greater difficulty in accounts receivable collection, compliance with foreign laws, changes in regulatory requirements, tariffs or other barriers, difficulties in obtaining export licenses, staffing and managing foreign operations, exposure to currency exchange fluctuations, transportation delays, and potentially adverse tax consequences.

Our sales and costs are negotiated and paid primarily in U.S. dollars. However, changes in the values of foreign currencies relative to the value of the U.S. dollar can render our products comparatively more expensive to the extent locally produced alternative products are available. Such conditions could negatively affect international sales of our products and foreign operations, as would changes in the general economic conditions in those markets. For our sales that are based in local currency, we are exposed to foreign exchange fluctuations from the time customers are invoiced in local currency until collection occurs. For fiscal 2009, approximately 24% of our sales were denominated in foreign currencies. We hedge certain intercompany transactions by entering into forward contracts to reduce the impact of adverse fluctuations on earnings associated with foreign currency exchange rate changes. We do not enter into any derivative transactions for speculative purposes. These contracts are entered into for periods consistent with the currency transaction exposures, generally three to nine months. Generally, any gains and losses on the fair value of these contracts are expected to be largely offset by gains and losses on the underlying transactions. There can be no assurance that risks inherent in international sales and foreign operations will not have a material adverse effect on our results of operations in the future.

Acquisitions may entail certain operational and financial risks.

Our growth strategy includes expanding our products and services, and we may seek acquisitions or make internal investments to strategically expand our business. We regularly review potential acquisitions of businesses, technologies, or products complementary to our business and periodically engage in discussions regarding such possible acquisitions. Acquisitions involve numerous risks, including some or all of the following: substantial cash expenditures and capital investments; potentially dilutive issuance of equity securities; incurrence of debt and contingent liabilities; amortization of certain intangible assets; difficulties in assimilating the operations and products of the acquired companies; diverting our management’s attention away from other business concerns; risks of entering markets in which we have limited or no direct experience; the inability to manage the growth expected for various acquisitions; potential loss of key employees of the acquired companies in the process of integrating personnel with disparate business backgrounds; and combining different corporate cultures.

We cannot assure you that any acquisition, including the acquisition of the Solvision, Inc. assets which generated losses in fiscal 2009 and 2008, will result in long-term benefits to us or that our management will be able to effectively manage the acquired businesses. We may also incorrectly judge the value or worth of an acquired company or business or of a line of business to which we devote internal resources and funding. We have in the past disposed or divested ourselves of several companies or lines of business that previously were acquired by us or in which we internally invested, at a significant net loss to us.

Our quarterly operating results fluctuate and may continue to fluctuate in the future.

Our quarterly and annual operating results have varied in the past and may vary significantly in the future depending on factors such as: budgeting cycles of our customers; the size, timing, and recognition of revenue from significant orders; increased competition; our ability to develop innovative products; the timing of new product releases by us or our competitors; market acceptance of our products; changes in our and our competitors’ pricing policies; changes in operating expenses and personnel changes; the effect of our acquisitions and consequent integration; changes in our business strategy; and general economic factors.

Due to these and other factors, we believe that quarter-to-quarter comparisons of our operating results may not be meaningful. You should not rely on our results for one quarter as any indication of our future performance. In future periods, our operating results may be below the expectations of public market analysts or investors. If this occurs, the price of our common stock would likely decrease.

Current conditions in the domestic and global economies are extremely uncertain. As a result, it is difficult to estimate the level of growth for the economy as a whole or of capital expenditures in the semiconductor and industrial markets. Because all of the components of our budgeting and forecasting are dependent on estimates of spending within these markets, the prevailing economic uncertainty renders estimates of future revenue and expenses even more difficult than usual to make.

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Our scheduled backlog may not result in future sales.

We schedule the production of our systems based in part upon order backlog. Due to possible customer changes in delivery schedules and cancellations of orders, our backlog at any particular date is not necessarily indicative of actual sales for any succeeding period. There can be no assurance that amounts included in our backlog will ultimately result in future sales. We have experienced push-outs and cancellations in the semiconductor capital equipment and electro-optics sectors. A reduction in backlog during any particular period, or the failure of our backlog to result in future sales could adversely affect our results of operations.

Our lengthy sales cycle could affect our manufacturing schedule and cause us to incur expenses without realizing sales.

Our lengthy and variable qualification and sales cycle makes it difficult to predict the timing of a sale or whether a sale will be made, which may cause us to have excess manufacturing capacity or inventory and negatively affect our operating results. As is typical in the industry, our customers generally expend significant efforts in evaluating and qualifying our products and manufacturing process. This evaluation and qualification process frequently results in a lengthy sales cycle, typically ranging from three to six months and sometimes longer. While our customers are evaluating our products and before they place an order with us, we may incur substantial sales, marketing, and research and development expenses, expend significant management efforts, increase manufacturing capacity and order long-lead-time supplies prior to receiving an order. Even after this evaluation process, it is possible that a potential customer will not purchase our products. In addition, product purchases are frequently subject to unplanned processing and other delays, particularly with respect to larger customers for which our products represent a very small percentage of their overall purchasing activity.

If we increase capacity and order supplies in anticipation of an order that does not materialize, our gross margins may be negatively impacted, and we may have to carry or write off excess inventory. Even if we receive an order, the additional manufacturing capacity that we add to service the customer’s requirements may be underutilized in a subsequent quarter. Either situation could cause our results of operations to be adversely affected. Our long sales cycles also may cause our revenues and operating results to vary significantly and unexpectedly from quarter to quarter and make us more susceptible to the effects of general economic downturns.

We face risks associated with manufacturing forecasts.

If we fail to predict our manufacturing requirements accurately, we could incur additional costs or experience manufacturing delays, which could cause us to lose orders or customers and result in lower net sales. We currently use a rolling 12-month forecast based primarily on our anticipated product orders and our product order history to help determine our requirements for components and materials. It is very important that we accurately predict both the demand for our products and the lead-time required to obtain the necessary components and raw materials. Lead times for materials and components that we order vary significantly and depend on factors such as the specific supplier, the size of the order, contract terms, and demand for each component at a given time. If we underestimate our requirements, we may have inadequate manufacturing capacity or inventory, which could interrupt manufacturing of our products and result in delays in shipments and net sales. If we overestimate our requirements, we could have excess inventory of parts. In addition, delays in the manufacturing of our products could cause us to lose orders or customers.

Our stock price may fluctuate significantly due to a variety of risks.

We believe that factors such as the announcement of new products or technologies by us or our competitors, market conditions in the semiconductor and industrial markets, and quarterly fluctuations in financial results can be expected to cause the market price of our common stock to vary substantially. Further, our net sales or results of operations in future quarters may be below the expectations of public market securities analysts and investors. In such event, the price of the common stock would likely decline. In addition, historically the stock market has experienced price and volume fluctuations that have particularly affected the market prices for many high technology companies and which often have been unrelated to the operating performance of such companies. The market volatility may adversely affect the market price of shares of our common stock. Furthermore, our common stock trading price may be more susceptible to market fluctuations due to the relatively small public float and trading volume of our stock and our dependence on a limited number of industries.

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We operate in a highly competitive industry.

We face competition from a number of companies in all our markets, many of which have greater manufacturing and marketing capabilities, and greater financial, technological, and personnel resources. In addition, we compete with the internal development efforts of our current and prospective customers, some of which may attempt to become vertically integrated. Our competitors can be expected to continue to improve the design and performance of their products and to introduce new products with competitive price/performance characteristics. Competitive pressures may necessitate price reductions, which can adversely affect results of operations. Although we believe that we have certain technical and other advantages over some of our competitors, maintaining such advantages will require a continued high level of investment by our company in research and development and sales, marketing, and service. There can be no assurance that we will have sufficient resources to continue to make such investments or that we will be able to make the technological advances necessary to maintain such competitive advantages. In addition, due to historical relationships and possible prior investments by potential customers in competitive product lines, it may be more difficult for us to realize certain of our growth strategies and initiatives. There can be no assurance that the basis of competition in the industries in which we compete will not shift.

Our inability to anticipate and keep pace with rapidly changing technological developments in the markets in which we operate could have a material adverse effect on our business.

The market for our products is characterized by rapidly changing technology. Our future success will continue to depend upon our ability to enhance our current products and to develop and introduce new products that keep pace with technological developments and evolving industry standards, respond to changes in customer requirements, and achieve market acceptance. The development of new technologically advanced products is a complex and uncertain process requiring high levels of innovation, as well as the accurate anticipation of technological and market trends. With continuing advances in technology, potential product advancements require an increasing allocation of resources, including potentially more resources than we then would have available.

We commit significant financial and personnel resources on a continuous basis to redesign and enhance our instruments, systems, and components and upgrade our proprietary software technology incorporated in our products. Any failure by us to anticipate or respond adequately to technological developments and customer requirements, or any significant delays in product development or introduction, could have a material adverse effect on our business and impact our relationships with customers. This could have an impact on customers’ willingness to share proprietary information about their requirements and participate in collaborative efforts with us. There can be no assurance that our customers will continue to provide us with timely access to such information, that we will be successful in developing and marketing new products and services or product and service enhancements on a timely basis, or respond effectively to technological changes or new product announcements by others. In addition, there can be no assurance the new products and services or product enhancements, if any, which we developed will achieve market acceptance.

We may be unable to enforce or defend our ownership and use of proprietary technology.

Our success is heavily dependent upon our proprietary technology. There can be no assurance that the steps taken by us to protect our proprietary technology will be adequate to prevent misappropriation of our technology by third parties or will be adequate under the laws of some foreign countries, which may not protect our proprietary rights to the same extent as do laws of the United States. We have been experiencing an increased level of sales in China and other foreign countries which historically have created concerns for various companies. In addition, there remains the possibility that others will “reverse engineer” our products in order to determine their method of operation and introduce competing products or that others will develop competing technology independently. Any such adverse circumstances could have a material adverse effect on our results of operations.

Our business depends on management and technical personnel who are in great demand.

Our success depends in large part upon the continued services of many of our highly skilled personnel involved in management, research, development and engineering, sales and marketing, manufacturing, and support and upon our ability to attract and retain additional highly qualified employees. Our employees may voluntarily terminate their employment with us at any time. Competition for these individuals from a variety of employers, including our competitors and companies in computer or technology-related industries, at times is intense. In response to the difficult economic environment, we instituted certain reductions in workforce and furlough programs this past year, which may further make it difficult to attract and retain highly qualified personnel. We cannot assure you that we will be able to retain our existing personnel or attract and retain additional personnel.

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We are exposed to significant delays and additional costs if we do not receive adequate or timely supplies of raw materials and other supplies upon which we depend.

We are dependent on suppliers for raw materials and various electrical, mechanical, and optical supplies. Although we enter, either directly or through our contract manufacturers, into purchase orders with our suppliers based on our forecasts, we do not have any guaranteed supply arrangements with these suppliers. Moreover, as our demand for supplies increases, we may not be able to obtain these supplies in a timely manner. If any relationship with a key supplier is terminated or if a supplier fails or is unable to provide reliable services or equipment and we are unable to reach suitable alternative solutions quickly, we may experience significant delays and additional costs in the manufacturing of our products. If our key suppliers cease manufacturing the supplies we require, if their manufacturing operations are interrupted for any significant amount of time, or if they are unable or unwilling to supply us for any other reason, including capacity constraints, then we may be at least temporarily unable to obtain these supplies, thus exposing us to significant delays and additional costs. Currently there are only a limited number of companies that are capable of supplying optical materials in the quantity and of the quality we require.

We assemble our flat panel display systems in Taiwan through a third party. We are dependent on the third party to assemble the systems accurately and on a timely basis. To the extent the quality of work, including any individual unit, causes delays or cancellations in shipments to our customers, our results could be adversely affected.

Our products may contain defects that are undetected until after our products are installed which may lead to a loss of reputation and customers.

Our products are deployed in large and complex systems and may contain defects that are not detected until after our products have been installed, which could damage our reputation and cause us to lose customers. We design some of our products for deployment in large and complex optical networks. Because of the nature of these products, they can only be fully tested for reliability when deployed in networks for long periods of time. Our customers may discover defects in our products only after they have been fully deployed and operated under peak stress conditions. In addition, our products are combined with products from other vendors. As a result, should problems occur, it might be difficult to identify the source of the problem. These conditions increase the risk that we could experience, among other things: loss of customers; damage to our brand reputation; failure to attract new customers or achieve market acceptance; diversion of development and engineering resources; and legal actions by our customers. The occurrence of any one or more of the foregoing factors could cause us to experience losses, incur liabilities, and cause our net sales to decline.

Our investments in marketable securities may lose their value if economic conditions were to deteriorate.

Our marketable securities represent approximately 3.6% of our total assets at June 30, 2009. To the extent credit markets tighten, interest rates increase, or other economic conditions influence the liquidity of our marketable securities, the value and liquidity of our marketable securities may be adversely affected. In addition, we may have to record an impairment charge for marketable securities if we determine that an other-than-temporary decline in the fair value of a marketable security has taken place. For fiscal 2009, we have recorded an impairment charge for a marketable security of $0.3 million.

Item 1B. Unresolved Staff Comments

We have received no written comments regarding our periodic or current reports from the staff of the SEC that were issued 180 days or more preceding the end of our fiscal year 2009 that remain unresolved.

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Item 2. Properties

We own our principal manufacturing facility and corporate headquarters, which is located on Laurel Brook Road in Middlefield, Connecticut. This facility consists of one 153,500-square-foot building on approximately 13 acres. The following table sets forth information with respect to our facilities which are used by both of our operating segments, except as identified otherwise below:

	Square Footage		Owned / Leased Expiration Date
Operation/Location	Manufacturing	Total
Corporate Headquarters, Eastern Regional Sales Office, and Metrology and Optics Manufacturing
Middlefield, Connecticut	89,000	153,500	Owned
Zygo - Optical Systems
Tucson, Arizona	14,560	22,560	Leased - 08/31/11
Flat Panel Display Metrology Engineering & Support
Boca Raton, Florida	1,500	3,000	Leased - 06/30/10
Zygo - Optical Systems
Costa Mesa, California	0	13,714	Leased - 10/18/10
Western Regional Sales Office and R&D Center
Freemont, California	0	5,975	Leased - 02/1/11
Semiconductor Process Metrology Office
Hillsboro, Oregon	0	6,410	Leased - 12/31/12
Zygo - Laser Technology Metrology (R& D)
Watsonville, California	0	1,452	Leased - 04/14/11
Office
Franklin, Massachusetts	0	400	Leased - 06/30/10
Zygo PTE Ltd
Singapore	0	803	Leased - 01/14/10
Zygo Taiwan
Sales Office	0	3,961	Leased - 09/30/09
Service Office	0	2,772	Leased - 09/30/09
ZygoLOT
Germany	0	3,702	Leased - 10/01/09
Zygo KK
Japan	0	1,705	Leased - 07/31/11
Zygo Lamda
China	3,552	12,206	Leased - 09/16/12
Zygo Canada, Inc.
Canada	2,447	6,851	Leased - 07/31/13
Machine Vision International, PTE
Singapore	2,500	10,828	Leased - 04/22/10
Total	113,559	249,839

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Item 3. Legal Proceedings

From time to time, we are subject to certain legal proceedings and claims that arise in the normal course of our business. In the opinion of management, we are not party to any litigation that we believe could have a material adverse effect on our financial condition, results of operation or liquidity.

Item 4. Submission of Matters to a Vote of Security Holders

The 2008 Annual Meeting of Stockholders was held on June 16, 2009. The following matters were submitted to a vote of the Company’s stockholders:

Proposal No. 1 – Election of Board of Directors
The following individuals were elected as a result of the following vote:
	For		Withheld
Eugene G. Banucci		11,152,469		2,630,708
Stephen D. Fantone		12,881,256		901,921
Samuel H. Fuller		13,220,115		563,062
Seymour E. Liebman		13,103,169		680,008
J. Bruce Robinson		11,158,641		2,624,536
Robert B. Taylor		13,116,712		666,465
Carol P. Wallace		13,400,929		382,248
Gary K. Willis		13,167,191		615,986
Bruce W. Worster		11,126,834		2,656,343
Proposal No. 2 – Ratification of appointment of Deloitte & Touche LLP as our independent registered public accounting firm for fiscal 2009 were as follows:

For		Against		Abstain
	13,495,791		81,325		206,060

There were no other matters submitted to a vote of our stockholders.

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PART II

Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our shares of common stock are traded over-the-counter and are quoted on the NASDAQ/National Market under the symbol “ZIGO.” The following table provides information about the high and low sales prices of the Company’s common stock by quarter for fiscal 2009 and 2008.

	Fiscal Year Ended June 30, 2009				Fiscal Year Ended June 30, 2008
	High		Low		High		Low
First quarter	$	13.79	$	8.80	$	14.55	$	11.33
Second quarter	$	12.47	$	4.66	$	13.50	$	10.79
Third quarter	$	7.93	$	3.06	$	12.94	$	10.72
Fourth quarter	$	6.42	$	4.11	$	13.50	$	9.76

These over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not necessarily represent actual transactions.

The number of record holders of our common stock at September 1, 2009 was 436. Our closing stock price as of June 30, 2009 was $4.66.

We have never declared or paid a cash dividend on our capital stock and do not anticipate paying any cash dividends in the foreseeable future.

As previously announced, in August 2007, our Board of Directors authorized the repurchase of up to $25.0 million of our outstanding common stock. As of June 30, 2009, we have repurchased outstanding common shares having an aggregate market value of $20.0 million (determined at the time of their respective repurchases). Repurchases occur from time to time as market conditions warrant through transactions in the open market. The share repurchases are effected pursuant to a plan in conformity with Rule 10b5-1 under the Securities Exchange Act of 1934. This rule allows public companies to adopt written, pre-arranged stock trading plans when they do not have material, non-public information in their possession. The adoption of this stock trading plan allows us to repurchase our shares during periods when we otherwise might be prevented from doing so under insider trading laws or because of self-imposed trading blackout periods. There were no repurchases under this stock trading plan in fiscal 2009.

We also at times grant restricted stock awards. These awards generally allow recipients to sell a portion of the stock award back to us, in order to cover tax liabilities resulting from the vesting of the award.

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Common stock repurchases under our authorized purchase plan and restricted stock repurchases in connection with the surrender of shares to cover taxes upon vesting in each quarter of fiscal 2009 were as follows:

Period	Total number of shares purchased		Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs		Aproximate dollar value of shares that may yet be purchased under the plans or programs (in millions)
July 1, 2008 - September 30, 2008		12,835	$	9.70		—	$	5.0
October 1, 2008 - December 31, 2008		111	$	10.49		—	$	5.0
January 1, 2009 - March 31, 2009		5,853	$	4.58		—	$	5.0
April 1, 2009 - June 30, 2009		17,270	$	4.94		—	$	5.0

Common stock repurchases under our authorized purchase plan and restricted stock repurchases in connection with the surrender of shares to cover taxes upon vesting in the fourth quarter of fiscal year 2009 were as follows:

Period	Total number of shares purchased		Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs		Approximate dollar value of shares that may yet be purchased under the plans or programs (in millions)
April 1, 2009 - April 30, 2009		7,543	$	4.74		—	$	5.0
May 1, 2009 - May 31, 2009		—		—		—	$	5.0
June 1, 2009 - June 30, 2009		9,727	$	5.09		—	$	5.0

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PERFORMANCE GRAPH

The Stock Price Performance graph below and related information shall not be deemed solicitating material or to be”filed” with the Securities and Exchange Commision, nor shall such information be incorporated by reference into any filing under the Securities Act of 1933, as amended, or under the Securities Exchange Act of 1934, as amended, except to the extent ZYGO specifically incorporates this information by reference.

The graph below compares cumulative total return of our common stock with the cumulative total return of (i) the NASDAQ Composite, and (ii) a group of peer companies weighted to reflect differing market capitalizations. Companies in the peer group are Nanometrics, Inc., Rudolph Technologies, Inc., Veeco Instruments, Inc, II-VI, Incorporated, Mattson Technology, Inc., Semitool, Inc., Photon Dynamics, Inc., Electro Scientific Industries, Inc., GSI Group Inc., and Ultratech, Inc. The peer group consists of issuers selected primarily based on market capitalization and the markets they serve.

	06/30/04		06/30/05		06/30/06		06/30/07		06/30/08		06/30/09
ZYGO CORPORATION		100.00		87.58		146.47		127.70		87.85		41.64
NASDAQ COMPOSITE		100.00		101.09		109.49		132.47		117.33		92.91
PEER GROUP		100.00		75.35		80.28		86.02		70.67		42.82

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Zygo Corporation, The NASDAQ Composite Index
And A Peer Group

* $100 invested on 6/30/04 in stock or index, including reinvestment of dividends.
Fiscal year ending June 30.

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Item 6. Selected Financial Data

The financial data set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and with our Consolidated Financial Statements and notes thereto included elsewhere in this Form 10-K.

(Thousands, except for per share, number of employees, percentages, and ratio amounts)

	Fiscal Year Ended June 30,
	2009			2008			2007			2006			2005
Net sales	$	116,040		$	159,036		$	180,988		$	168,137		$	141,349
Gross profit	$	31,468		$	64,823		$	77,183		$	65,771		$	53,290
% of sales		27	%		41	%		43	%		39	%		38	%
Earnings (loss) from continuing operations	($	66,064	)	$	1,239		$	15,142		$	14,485		$	9,350
% of sales		-57	%		1	%		8	%		9	%		7	%
Earnings (loss) per share from continuing operations:
Basic	($	3.92	)	$	0.07		$	0.83		$	0.80		$	0.52
Diluted	($	3.92	)	$	0.07		$	0.81		$	0.79		$	0.52
Net earnings (loss)	($	66,064	)	$	1,239		$	15,142		$	14,485		$	8,984
Net earnings (loss) per share:
Basic	($	3.92	)	$	0.07		$	0.83		$	0.80		$	0.50
Diluted	($	3.92	)	$	0.07		$	0.81		$	0.79		$	0.50
Weighted average number of shares:
Basic		16,843			17,295			18,156			18,054			17,950
Diluted		16,843			17,648			18,601			18,367			18,140
Research, development, and engineering	$	24,715		$	24,275		$	22,038		$	15,901		$	13,377
Capital expenditures	$	4,255		$	6,580		$	10,149		$	7,441		$	9,987
Depreciation and amortization	$	8,167		$	7,478		$	6,519		$	6,214		$	5,880
	June 30,
	2009			2008			2007			2006			2005
Working capital	$	69,742		$	104,851		$	107,834		$	81,914		$	63,379
Current ratio		4.3			5.7			4.3			2.8			2.3
Total assets	$	124,099		$	190,008		$	211,594		$	206,183		$	190,182
Stockholders’ equity	$	98,689		$	162,946		$	177,777		$	158,938		$	141,153
Price-earnings ratio		—			140			18			21			20
Number of employees at year-end		484			595			575			570			526
Sales per employee – average	$	240		$	267		$	315		$	295		$	269
Book value per share	$	5.83		$	9.74		$	9.75		$	8.78		$	7.85
Market price per share at year-end	$	4.66		$	9.83		$	14.29		$	16.39		$	9.80

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

CRITICAL ACCOUNTING POLICIES, SIGNIFICANT JUDGMENTS, AND ESTIMATES

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses, and related disclosures at the date of our consolidated financial statements. On an on-going basis, management evaluates its estimates and judgments, including those related to bad debts, inventories, marketable securities, share-based compensation, warranty obligations, self-insured healthcare claims, income taxes, and long-lived assets. Management bases its estimates and judgments on historical experience and current market conditions and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We consider certain accounting policies related to revenue recognition and allowance for doubtful accounts, inventory valuation, valuation of marketable securities, share-based compensation, warranty costs, self-insured health insurance costs, accounting for income taxes, and valuation of long-lived assets to be critical policies due to the estimates and judgments involved in each.

Revenue Recognition and Allowance for Doubtful Accounts

We recognize revenue based on guidance provided in SEC Staff Accounting Bulletin (“SAB”) No. 104, “Revenue Recognition” and in accordance with the Emerging Issues Task Force (“EITF”) Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables.” We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, our price is fixed or determinable, and collectibility is reasonably assured. We recognize revenue on our standard products when title passes to the customer upon shipment. While our standard products generally require installation, the installation is considered a perfunctory performance obligation. Standard products do not have customer acceptance criteria. Generally, software is a component of our standard product and, as such, is not separately recognized as revenue. We have standard rights of return for defective products that we account for as a warranty provision under Statement of Financial Accounting Standards (“SFAS”) No. 5, “Accounting for Contingencies.” We do not have any price protection agreements or other post shipment obligations. For custom equipment where customer acceptance is part of the sales agreement, revenue is recognized when the customer has accepted the product. In cases where custom equipment does not have customer acceptance as part of the sales agreement, we recognize revenue upon shipment as long as the system meets the specifications as agreed upon with the customer. Certain transactions have multiple deliverables, with the deliverables clearly defined. To the extent that the secondary deliverables are other than perfunctory, we recognize the revenue on each deliverable, if separable, or on the completion of all deliverables, if not separable, all in a manner consistent with SAB No. 104 and EITF 00-21. Standalone software products are recognized as revenue when they are shipped. Revenue generated from development contracts are recorded on a cost-plus basis in the period services are rendered.

Certain customer transactions include payment terms whereby we receive a partial payment of the total order amount prior to the related sale being recognized in our financial statements. These advance payments are included in accrued progress payments and deferred revenue in the consolidated balance sheet. Generally, these progress payments relate to orders for custom equipment that require a lengthy build cycle and, in some cases, acceptance by the customer. We may negotiate payment terms with these customers on these particular orders and secure certain payments prior to or on shipment of the equipment. These payments remain in accrued progress payments and deferred revenue until our applicable revenue recognition criteria have been met.

We maintain an allowance for doubtful accounts based on a continuous review of customer accounts, payment patterns, and specific collection issues. We perform on-going credit evaluations of our customers and do not require collateral from our customers. For many of our international customers, we require an irrevocable letter of credit from our customer before a shipment is made. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances would be required.

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Inventory Valuation

Inventories are valued at the lower of cost or market, cost being determined on a first-in, first-out basis. Management evaluates the need to record adjustments for impairment of inventory on a monthly basis. Our policy is to assess the valuation of all inventories, including raw materials, work-in-process, and finished goods. Obsolete inventory or inventory in excess of management’s estimated future usage is written down to its estimated market value, if less than its cost. Contracts with fixed prices are evaluated to determine if estimated total costs will exceed revenues. A loss provision is recorded when the judgment is made that actual costs incurred plus estimated costs remaining to be incurred based on management’s estimates will exceed total revenues from the contract. Inherent in the estimates of market value are management’s estimates related to current economic trends, future demand for our products, and technological obsolescence. Management estimates future product sales and service requirements, and evaluates technological changes and other possible uses to determine if inventory is excess or obsolete. If actual market conditions are different than those projected by management, additional inventory adjustments negatively or positively affecting earnings may be required.

Other Than Temporary Impairment of Marketable Securities

Marketable securities have been primarily classified as held-to-maturity, which requires them to be carried at amortized cost. We also have certain securities that are classified as available-for-sale and trading. Management evaluates the need to record adjustments for impairment of marketable securities on a quarterly basis. Marketable securities with unrealized depreciation in fair value for twelve or more consecutive months and other securities with unrealized losses are reviewed to determine whether the decline in fair value is other than temporary. Investment ratings, company-specific events, general economic conditions, and other reasons are evaluated in determining if the decline in fair value is other than temporary. If it is judged that a decline in fair value is other than temporary, the marketable security is valued at the current fair value and an impairment charge is reflected in earnings.

Share-Based Compensation

We calculate share-based compensation expense in accordance with SFAS 123(R), “Share-Based Payment (as amended)” using the Black-Scholes option-pricing model to calculate the fair value of share-based awards. The key assumptions for this valuation method include the expected term of an option grant, stock price volatility, risk-free interest rate, dividend yield, and forfeiture rate. The determination of these assumptions is based on past history and future expectations, and is subject to a high level of judgment. To the extent any of the assumptions were to change from year to year, the fair value of new option grants may vary significantly.

Warranty Costs

We provide for the estimated cost of product warranties at the time revenue is recognized. We consider historical warranty costs actually incurred and specifically identified circumstances to establish the warranty liability. The warranty liability is reviewed on a quarterly basis. Should actual costs differ from management’s estimates, revisions to the estimated warranty liability would be required. A one percent change in actual costs would have an immaterial impact on our financial condition and results of operations.

Accounting for Income Taxes

Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax bases, and operating loss and tax credit carryforwards. SFAS No. 109, “Accounting for Income Taxes,” requires the establishment of a valuation allowance to reflect the likelihood of the realization of deferred tax assets. We record a valuation allowance to reduce our deferred tax assets to an estimated realizable amount based on historical and forecasted results. Management has considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance. In fiscal 2009, management determined that it is more likely than not that we would not be able to realize our deferred tax assets in the future and an adjustment to record a full valuation allowance was charged to income tax expense. Should management determine that it would be able to realize all or part of its net deferred tax assets in the future, an adjustment to the valuation allowance would increase income in the period such determination was made. Our effective tax rate may vary from period to period based on changes to the valuation allowance, changes in pre-tax income between jurisdictions that have higher or lower tax rates, changes to federal, state, or foreign tax laws, and deductibility of certain costs and expenses by jurisdiction.

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We adopted the provisions of FASB Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes,” on July 1, 2007. Among other tax guidance, FIN 48 requires applying a “more likely than not” threshold to the recognition and de-recognition of tax positions. As a result of this adoption, we recognized a liability for unrecognized income tax benefits of $1.5 million, an increase in income tax receivables of $0.6 million, and a charge of approximately $0.9 million to the July 1, 2007 retained earnings balance. As of the adoption date, we had gross tax-affected unrecognized tax benefits of $1.8 million, of which $1.2 million, if recognized, would affect the effective tax rate. Due to our net operating loss carryforwards, we have accrued no interest and penalties for the unrecognized tax benefits; however, our accounting policy is to recognize interest related to unrecognized tax benefits in interest expense. Penalties, if incurred, would be recognized as a component of income tax expense. In the normal course of business, we provide for uncertain tax positions and adjust our unrecognized tax benefits accordingly. For the year ended June 30, 2008, we recognized an additional liability of $0.1 million for uncertain tax positions. The total liability for uncertain tax liabilities was $1.9 million at June 30, 2008. We are not aware of any tax positions that would create a significant adjustment to the unrecognized tax benefits for the fiscal year ended June 30, 2009.

Valuation of Long-Lived Assets

In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” the carrying value of intangible assets and other long-lived assets is reviewed on a regular basis for the existence of facts or circumstances, both internally and externally, that may suggest impairment. Some factors we consider important, which could trigger the impairment review, include a significant decrease in the market value of an asset, a significant change in the extent or manner in which an asset is used, a significant adverse change in the business climate that could affect the value of an asset, an accumulation of costs for an asset in excess of the amount originally expected, a current period operating loss or cash flow decline combined with a history of operating loss or cash flow uses or a projection that demonstrates continuing losses, and a current expectation that, it is more likely than not, a long-lived asset will be disposed of at a loss before the end of its estimated useful life.

If one or more of such facts or circumstances exist, we evaluate the carrying value of long-lived assets to determine if an impairment exists based upon estimated undiscounted future cash flows over the remaining useful life of the assets and comparing that value to the carrying value of the assets. If the carrying value of the assets is greater than the estimated future cash flows, the assets are written down to the estimated fair value. We determine the estimated fair value of the assets based on a current market value of the assets. If a current market value is not readily available, a projected discounted cash flow method is applied using a discount rate determined by management to be commensurate with the risk inherent in the current business model. Our cash flow estimates contain management’s best estimates, using appropriate and customary assumptions and projections at the time. During fiscal 2009, we recorded impairment charges on property, plant, and equipment, intangible assets, and marketable securities.

Health Insurance

We are self-insured for the majority of our group health insurance. We rely on claims experience in determining an adequate liability for claims incurred, but not reported. To the extent actual claims exceed estimates, we may be required to record additional expense. A one percent change in actual claims would have an immaterial impact on our financial condition and results of operations.

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OVERVIEW

Zygo Corporation is a worldwide supplier of optical metrology instruments, precision optics, and electro-optical design and manufacturing services, serving customers in the semiconductor capital equipment and industrial markets. Optical instruments products encompass non-contact optical measurement instruments. Optics products consist of high performance macro-optics components, optical coatings, and optical system assemblies. We conduct the majority of our manufacturing in our 153,500 square foot facility in Middlefield, Connecticut and a 22,560 square foot leased facility in Tucson, Arizona.

The worldwide economic recession has had a severe impact on our orders, sales, and net results. As a result of the economic downturn, among other things, we have reevaluated our strategic initiatives and our overall business strategy and operations. We are focusing sales, marketing, and research and development efforts on our core metrology and optics technologies, including the potential for strategic alternatives, which could include partnerships, joint ventures, divestitures, or alliances similar to the agreement described below.

On June 17, 2009, ZYGO and Nanometrics Incorporated (“Nanometrics”) announced that Nanometrics has purchased inventory and certain other assets relating to ZYGO’s Semiconductor Solutions business for approximately $3.4 million and that the two companies have entered into a supply agreement. Under an exclusive OEM supply agreement, ZYGO will provide interferometer sensors to Nanometrics for incorporation into the Unifire™ line of products as well as Nanometrics’ family of automated metrology systems. Nanometrics will assume all inventory, backlog and customer sales and support responsibilities and ZYGO will provide measurement sensors for integration by Nanometrics. In addition to the applications currently addressed by Nanometrics and ZYGO products, the business partnership allows for the joint development of additional technology solutions targeted at the semiconductor and related industries. This sale and supply agreement enables us to accomplish our goal of accelerating the commercial deployment and market penetration of our core interferometer technology into the worldwide semiconductor industry without the investment associated with system integration, distribution, applications and support.

In response to the decline in sales and orders, we have taken and continue to take various permanent and temporary actions to mitigate the effects on our company of the downturn in the global economy, including reductions in work force, salary adjustments, unpaid furloughs, suspension of our matching 401(k) program, and a reduction in director fees. These actions are expected to save us in excess of over $17 million on an annualized basis. We continue to be mindful of our cash position and to investigate strategic alternatives which may be beneficial to our company.

Our backlog at June 30, 2009 was $38.3 million, a decrease of $34.0 million from June 30, 2008. Orders were $15.3 million in the fourth quarter of fiscal 2009. Orders for the fourth quarter from the Company’s Metrology segment accounted for 71% of the orders received, with the Optics segment accounting for the remaining 29%. For fiscal 2009, orders were $82.0 million, a decrease of 48% over fiscal 2008. As a result of a decline in orders related to our PPS product line, which supplies our lithography customers, we evaluated our assets supporting this product for potential impairment. We recorded an impairment charge during the fourth quarter of fiscal 2009 against intangible assets of $2.9 million and property, plant, and equipment of $4.0 million. Based on our backlog and order levels, we also evaluated our inventory levels in our various product lines. We recorded inventory reserves of $5.7 million against various product lines. Indications received from our customers lead us to believe that our order levels have stabilized. While this does not mean a rapid upturn in orders is imminent, it does allow us to focus our attention on growth and concentrate our efforts on our core metrology and optics technologies. We are experiencing a greater than expected order demand in China through our joint venture for our metrology products. We still expect a continued depression in lithography sales, especially to our largest customer.

On February 28, 2008, we acquired certain assets of Solvision, Inc. (“Solvision”), a Canadian-based company, including the shares of its Singapore subsidiary. In fiscal 2009, the final valuation was completed resulting in a final purchase price of $4.2 million in cash (net of cash received of $0.1 million). In addition, the Company had also loaned to Solvision $1.5 million of which substantially none of the loan was recouped as part of the purchase price allocation based on asset values. The Solvision acquisition is currently included in our Metrology Solutions Division as the vision systems business unit. During the third quarter of fiscal 2009 we recorded impairment charges against vision systems’s intangible assets of $2.1 million.

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On October 16, 2008, we and Electro Scientific Industries, Inc. (“ESI”) jointly announced the execution of a definitive agreement, providing for the two companies to merge in an all stock transaction, subject to the prior satisfaction of certain enumerated conditions precedent. On January 20, 2009, ZYGO announced that it notified ESI of ZYGO’s Board of Directors’ withdrawal of its recommendation in favor of the previously announced merger agreement with ESI. A reevaluation of the proposed merger with ESI by ZYGO’s Board of Directors was necessitated by changes in conditions since the merger agreement was executed on October 15, 2008, and the ZYGO Board’s view of the impact of these changes on the current and expected performance and operations of ZYGO and ESI. On April 2, 2009, ESI and ZYGO agreed to terminate their previously executed merger agreement. Pursuant to the terms of the settlement agreement, ZYGO paid ESI a break up fee of $5.4 million, and is liable for an additional $1.2 million in the event that on or before November 2, 2009, ZYGO’s Board of Directors approves an alternate transaction proposal for the merger or sale of the company. During fiscal 2009, we paid an additional $2.9 million related to the merger in professional fees and various other expenses.

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RESULTS OF OPERATIONS

Fiscal 2009 Compared with Fiscal 2008

Net Sales

	Year Ended
(Dollars in millions)	June 30, 2009		Net Sales %			June 30, 2008		Net Sales %
Segment
Metrology	$	84.1		73	%	$	105.7		66	%
Optics		31.9		27	%		53.3		34	%
Total	$	116.0		100	%	$	159.0		100	%

Net sales in the Metrology segment decreased 20% in fiscal 2009 as compared with the prior year. The decrease in net sales of $21.6 million within the Metrology segment was primarily due to sales volume decreases in lithography of $14.8 million, instrument sales of $13.4 million, and semiconductor sales of $0.7 million, partially offset by an increase in display sales of $6.8 million and in vision systems sales of $0.6 million. The general economic recession has led to low sales volume. We believe our products are still well accepted in the markets we serve. The lithography market is expected to continue to be depressed for at least the next six months.

Net sales in the Optics segment decreased 40% in fiscal 2009 as compared with the prior year. The decrease in net sales of $21.4 million within the Optics segment was due to a decrease in volume of contract manufacturing of $11.1 million and laser and precision optics of $10.3 million. The decrease in all optics areas generally is related to a decline in the orders from existing customers due primarily to the economic recession.

Approximately 76% of all fiscal 2009 net sales were denominated in U.S. dollars, the same percentage of sales we experienced in fiscal 2008. Significant changes in the values of foreign currencies relative to the value of the U.S. dollar can influence the sales of our products in export markets, as would changes in the general economic conditions in those markets.

Gross Profit

	Year Ended
(Dollars in millions)	June 30, 2009		Net Sales %			June 30, 2008		Net Sales %
Segment
Metrology	$	27.5		33	%	$	50.5		48	%
Optics		4.0		13	%		14.3		27	%
Total	$	31.5		27	%	$	64.8		41	%

In fiscal 2009, gross profit as a percentage of net sales in the Metrology segment decreased fifteen percentage points as compared with the prior year. This decrease was due primarily to intangible and fixed asset impairments of $5.6 million and inventory reserves of $4.9 million. Excluding these charges, our gross profit as a percentage of sales for the Metrology segment would have been 45%. The decrease from 48% in fiscal 2008 to 45% in fiscal 2009 (excluding $10.5 million of referenced charges) is due to lower sales volume. Gross profit as a percentage of sales in the Optics segment decreased by fourteen percentage points for fiscal 2009 as compared with the prior year. This decrease included charges of $1.6 million for fixed asset impairments, restructuring, and severance, which account for 5 percentage points of the change year over year. The remainder of the change is primarily related to underutilization of the factory based on low sales volume. Optics components rely upon a capital intensive production facility and certain expenditures, such as depreciation, cannot be reduced as readily as a labor intensive environment.

Selling, General, and Administrative Expenses (“SG&A”)

	Year Ended
(Dollars in millions)	June 30, 2009		Net Sales %			June 30, 2008		Net Sales %
	$	51.0		44	%	$	38.5		24	%

SG&A in fiscal 2009 as compared with fiscal 2008 increased $12.5 million primarily due to increases in general and administration costs of $12.1 million, partially offset by a decrease in selling and marketing activities of $0.4 million. The increase in general and administrative costs included $8.3 million in merger-related expenses, $2.9 million in bad debt reserves, $1.4 in legal accruals, and $0.4 million in severance. Sales and marketing expenses for fiscal 2009 also included

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charges of $0.9 million in intangible asset impairment charges related to the vision systems business and $0.6 million in severance. Excluding these charges, SG&A costs would have been $36.5 million for fiscal 2009, a 5% decrease over fiscal 2008. The inclusion of vision systems for the entire fiscal year 2009 increased SG&A by $2.5 million. This increase was partially offset by cost cutting measures implemented during fiscal 2009, which decreased salaries and wages by $1.3 million.

Research, Development, and Engineering Expenses (“RD&E”)

	Year Ended
(Dollars in millions)	June 30, 2009		Net Sales %			June 30, 2008		Net Sales %
	$	24.7		21	%	$	24.3		15	%

The increase in RD&E costs in fiscal 2009 was primarily related to intangible asset and fixed asset impairment charges of $2.8 million and $0.2 million in severance costs during the year. Excluding these charges, RD&E for fiscal 2009 would have decreased to $21.7 million. The decrease in RD&E from $24.3 million in fiscal 2008 to $21.7 million (excluding $3.0 million in referenced charges) in fiscal 2009 is primarily due to decreases in our stage metrology ($1.2 million) and semiconductor ($1.2 million) RD&E spending. Stage metrology spending was reduced in response to the lack of customer demand related to the slowdown in the semiconductor market and the general economic recession. Semiconductor RD&E spending decreased as several large RD&E projects related to new product development were completed or are nearing completion. Fiscal 2009 spending on these projects was less than in fiscal 2008. We expect future RD&E spending in the semiconductor unit to be limited to sensor development to support the supply agreement with Nanometrics in June 2009.

Income Tax Benefit (Expense)

	Year Ended
(Dollars in millions)	June 30, 2009			Tax Rate %			June 30, 2008		Tax Rate %
	$	(22.3	)		-52	%	$	1.5		37	%

Income tax expense in fiscal 2009 included a valuation allowance of $37.4 million against all net deferred tax assets. Fiscal 2009 also does not include any tax benefit associated with the net operating loss for the fiscal year or tax credits earned in the fiscal year. Management believes, based upon the uncertain and volatile market conditions and the fact that the Company is now in a cumulative pre-tax accounting loss position over a three year period, it is no longer more likely than not that the current net deferred tax assets will be realized. In future periods, the valuation allowance could be reduced based on sufficient evidence indicating that it is more likely than not that a portion of the deferred tax assets will be realized.

Net Earnings (Loss)

	Year Ended
(Dollars in millions)	June 30, 2009			Sales %			June 30, 2008		Sales %
	$	(66.1	)		-57	%	$	1.2		1	%

Net loss in fiscal 2009 was $66.1 million compared with net earnings of $1.2 million in the prior year. Net loss per diluted share was $3.92 for fiscal 2009, as compared with net earnings of $0.07 per diluted share for fiscal 2008. The net loss in fiscal 2009 included $41.8 million in significant charges, net of taxes, which included asset impairment charges, write-downs and reserves on various other balance sheet items, and a valuation allowance on our deferred tax assets. These charges were incurred primarily as a result of the economic downturn, recent changes in our business strategy and operations, and the resulting in re-evaluation of certain of our assets.

Backlog

Backlog at June 30, 2009 totaled $38.3 million, a decrease of $34.0 million from June 30, 2008. The year-end fiscal 2009 backlog consisted of $18.6 million, or 49%, in the Metrology segment and $19.7 million, or 51%, in the Optics segment. Orders for fiscal 2009 totaled $82.0 million. Orders by segment for fiscal 2009 consisted of $57.8 million, or 70%, in the Metrology segment and $24.2 million, or 30%, in the Optics segment.

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Fiscal 2008 Compared with Fiscal 2007

Net Sales

	Year Ended
(Dollars in millions)	June 30, 2008		Net Sales %			June 30, 2007		Net Sales %
Segment
Metrology	$	105.7		66	%	$	132.3		73	%
Optics		53.3		34	%		48.7		27	%
Total	$	159.0		100	%	$	181.0		100	%

Net sales in the Metrology segment decreased 20% in fiscal 2008 as compared with the prior year. The decrease in net sales of $26.6 million within the Metrology segment was primarily due to volume decreases in lithography sales of $24.6 million, display sales of $10.5 million, and semiconductor sales of $2.5 million, partially offset by an increase in instrument sales of $9.0 million and vision systems sales from the Solvision acquisition of $2.1million. The increase in instrument sales was primarily due to a $5.1 million increase in sales in our Europe region based on volume.

Net sales in the Optics segment increased 9% in fiscal 2008 as compared with the prior year. The increase in net sales of $4.6 million within the Optics segment was primarily due to an increased volume of laser and precision optics of $4.8 million, offset by a decrease in contract manufacturing sales, which includes medical components, of $0.2 million.

Approximately 76% of all fiscal 2008 net sales were denominated in U.S. dollars. Significant changes in the values of foreign currencies relative to the value of the U.S. dollar can influence the sales of our products in export markets, as would changes in the general economic conditions in those markets.

Gross Profit

	Year Ended
(Dollars in millions)	June 30, 2008		Net Sales %			June 30, 2007		Net Sales %
Segment
Metrology	$	50.5		48	%	$	62.2		47	%
Optics		14.3		27	%		15.0		31	%
Total	$	64.8		41	%	$	77.2		43	%

In fiscal 2008, gross profit as a percentage of net sales in the Metrology segment increased one percentage point as compared with the prior year. Gross profit as a percentage of sales in the Optics segment decreased by four percentage points for fiscal 2008 as compared with the prior year. This decrease was primarily due to shipments in the first half of fiscal 2008 for the initial production run of the helmet mounted display units that resulted in zero margin due to cost over-runs on the initial units.

Selling, General, and Administrative Expenses (“SG&A”)

	Year Ended
(Dollars in millions)	June 30, 2008		Net Sales %			June 30, 2007		Net Sales %
	$	38.5		24	%	$	32.9		18	%

SG&A in fiscal 2008 as compared with fiscal 2007 increased $5.6 million primarily due to increases in selling and marketing activities of $7.0 million, partially offset by a reduction in general and administrative expenses of $1.4 million. The increase 29 in selling and marketing expenses included an additional $2.4 million in commission expense, primarily related to instrument sales in Europe, an increase of $1.5 million related to the planned increased presence in Asia, a $0.9 million increase in semiconductor sales and marketing efforts, an $0.8 million increase in optics division sales and marketing efforts, and the incurrence of $0.6 million in expenses for vision systems for the four month period. The decrease in general and administrative costs was primarily related to a reduction in employee costs of $3.1 million, including management bonus and employee profit sharing expense, offset by an increase for vision systems of $1.0 million for the first four months of operation, and of $0.8 million related to share-based compensation expense.

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Research, Development, and Engineering Expenses (“RD&E”)

	Year Ended
(Dollars in millions)	June 30, 2008		Net Sales %			June 30, 2007		Net Sales %
	$	24.3		15	%	$	22.0		12	%

The increase in RD&E costs in fiscal 2008 was primarily related to increased spending on semiconductor initiatives of $1.7 million, display solutions of $1.0 million, and vision systems of $0.9 million, and within the optics division of $0.5 million. These RD&E cost increases were partially offset by a decrease of $1.7 million in our precision positioning systems and instruments business. We continue to focus and build on our semiconductor initiatives as one of our core areas of expected future growth.

Income Tax Expense

	Year Ended
(Dollars in millions)	June 30, 2008		Tax Rate %			June 30, 2007		Tax Rate %
	$	1.5		37	%	$	9.1		36	%

The overall tax rate increased by one percentage point when compared with the prior year primarily due to the repeal of the deduction attributable to the Extraterritorial Income Exclusion on December 31, 2006.

Net Earnings

	Year Ended
(Dollars in millions)	June 30, 2008		Sales %			June 30, 2007		Sales %
	$	1.2		1	%	$	15.1		8	%

Net earnings in fiscal 2008 decreased by 92% as compared with the prior year. Net earnings per diluted share were $0.07 for fiscal 2008, as compared with $0.81 per diluted share for fiscal 2007. The decreased earnings were primarily the result of decreased net sales in precision positioning systems, display solutions, and semiconductor solutions and increased SG&A and R&D expenses due to additional spending within instruments, the semiconductor initiatives and the inclusion of Solvision operating expenses, which are reflected in our results for the last four months of the fiscal year.

TRANSACTIONS WITH STOCKHOLDER

Sales to Canon, a stockholder, customer, and distributor of certain of our products in Japan amounted to $16.2 million (14% of net sales), $30.7 million (19% of net sales), and $48.1 million (27% of net sales), for the years ended June 30, 2009, 2008, and 2007, respectively. Selling prices of products sold to Canon are based, generally, on the normal terms customarily given to distributors. Revenues generated (in fiscal 2007 and prior) from a development contract with Canon were recorded on a cost-plus basis. At June 30, 2009 and 2008, there was in the aggregate, $0.6 million and $3.0 million, respectively, of trade accounts receivable from Canon.

In September 2002, we entered into a contract with Canon related to the development of certain interferometers. In March 2004, we signed a preliminary agreement to begin further add-on work; the definitive agreement for this additional work was signed in December 2004. In February 2005, we entered into two additional agreements with Canon related to the development of prototype production tools and accessories. During the twelve months ended June 30, 2007, we recognized 30 revenue of $4.1 million under the Canon development services contract. Our development services contract with Canon was completed during the third quarter of fiscal 2007.

29

LIQUIDITY AND CAPITAL RESOURCES

At June 30, 2009, cash and marketable securities was $36.7 million, a decrease of $14.3 million from $51.0 million at June 30, 2008. The decrease in cash was primarily attributable to merger related costs of $8.3 million (which includes a merger termination fee of $5.4 million) and, among other factors, $1.7 million of severance costs.

Cash flows used for operating activities were $6.4 million for fiscal 2009 as compared with cash flows provided by operating activities of $14.6 million in fiscal 2008. Operating cash flows in fiscal 2009 were impacted primarily by the net loss offset by a decrease in receivables and inventory.

Cash flows provided by investing activities for fiscal 2009 were $14.4 million as compared with $14.7 million in fiscal 2008. Purchases and proceeds of marketable securities activities were $8.2 million and $27.8 million, respectively, in fiscal 2009 and $20.9 million and $48.4 million, respectively, in fiscal 2008. In fiscal 2009, we decreased our capital spending by $2.3 million. In fiscal 2008, we acquired certain assets of Solvision, including the shares of its Singapore subsidiary, for $5.1 million in cash (net of cash received).

Cash flows used for financing activities for fiscal 2009 were $1.2 million as compared with $19.9 million in fiscal 2008. In August 2007, our Board of Directors approved a stock repurchase program of up to $25.0 million. We repurchased $20.0 million of stock in fiscal 2008. There were no repurchases in fiscal 2009.

The composition of our marketable securities by industry sector is as follows: 22.5% Finance; 22.1% Utilities; 22.0% Real Estate, and 33.4% other. We hold five corporate bonds at June 30, 2009, with the largest individual bond having a value at maturity of $1.0 million. We have the ability and intent to hold all the securities to maturity, the last maturity of which is on December 1, 2009. We believe there are no impairments in our investments other than an impairment of $0.6 million on an auction rate security recorded during fiscal 2009. Such auction rate security is valued at $0 at June 30, 2009.

Although cash requirements will fluctuate during the fiscal year, management believes that cash generated from operations, together with the liquidity provided by existing cash balances, will be sufficient to satisfy our liquidity requirements for at least the next 12 months. We have no line of credit or readily available borrowing capacity. There is no assurance that we would be able to secure financing if the need arose.

CONTRACTUAL OBLIGATIONS

The following table summarizes our significant contractual obligations at June 30, 2009, and the effect such obligations are expected to have on our liquidity and cash flows in future periods.

	Payments Due By Period (Dollars in millions)
	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Operating leases*	$	3.4	$	1.6	$	1.7	$	0.1	$	—
Total	$	3.4	$	1.6	$	1.7	$	0.1	$	—

* Does not include sublease income of aproximately $0.1 million per year through 2013

At June 30, 2009, we also have a liability for uncertain tax benefits of $1.8 million, which was recorded in accordance with FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes”. The timing of the settlement of such liability cannot presently be determined.

OFF-BALANCE SHEET ARRANGEMENTS

We have not created, and are not party to, any special-purpose or off-balance sheet entities for the purpose of raising capital, incurring debt, or operating parts of our business that are not consolidated into our financial statements. We have not guaranteed any obligations of a third party.

30

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

The following discussion about our market risk involves forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements. We are exposed to market risk related to changes in interest rates, changes in the investment grade of marketable securities, and foreign currency exchange rates. We do not use derivative financial instruments for speculative or trading purposes.

Interest Rate Sensitivity

We maintain a portfolio of cash equivalents and marketable securities including institutional money market funds (which may include commercial paper, certificates of deposit, and U.S. treasury securities), and corporate bonds. Our interest income is sensitive to changes in the general level of U.S. interest rates, particularly on our short-term instruments. The table below presents investment amounts and related weighted average interest rates by year of maturity for our investment portfolio.

Fair value of investments as of June 30, 2009 maturing in:

(Dollars in millions)	2010			2011			Thereafter
Cash equivalents
Fixed rate investments	$	—		$	—		$	—
Weighted average interest rate		2.2	%		—			—
Marketable securities
Fixed rate investments	$	4.0		$	—		$	—
Weighted average interest rate		5.4	%		0.0	%		0.0	%

On June 30, 2009, the Company had variable interest rate money market accounts valued at $19.0 million.

Marketable Securities Fair Market Value Sensitivity

At June 30, 2009, our investment portfolio included an auction rate security of $0.6 million, which is believed to have risk exposure in sub-prime markets. We have reviewed, along with our investment advisor, current investment ratings, company specific events, and general economic conditions in determining whether there is a significant decline in fair value that is other than temporary. We have concluded that there is an other than temporary decline in fair value and have recorded an impairment charge on the full value of the security.

Exchange Rate Sensitivity

Approximately 76% of our fiscal 2009 net sales were denominated in U.S. dollars. At June 30, 2009, our backlog included orders in U.S. dollars of $34.1 million, or 89% of the total backlog. Substantially all of our costs are negotiated and paid in U.S. dollars. Significant changes in the values of foreign currencies relative to the value of the U.S. dollar can impact sales of our products in export markets as would changes in the general economic conditions in those markets. For our sales that are based in local currency, we are exposed to foreign exchange fluctuations from the time customers are invoiced in local currency until collection occurs.

We enter into forward contracts to reduce the impact of adverse fluctuations on earnings associated with foreign currency exchange rate changes. We do not enter into any derivative transactions for speculative purposes. These forward contracts are entered into for periods consistent with the currency transaction exposures, generally three to nine months. Any gains and losses on the fair value of these contracts would largely offset corresponding losses and gains on the underlying transactions. The majority of our foreign currency transactions and foreign operations are denominated in the euro and japanese yen. In the absence of a substantial increase in sales orders in currencies other than U.S. dollars, we believe a 5% 32 appreciation or depreciation of the U.S. dollar against the euro and yen would have an immaterial impact on our consolidated financial position and results of operations.

31

Item 8. Financial Statements and Supplementary Data

Financial statements and supplementary data required pursuant to this item begin on Page F-1 of this Annual Report on Form 10-K.

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

None.

32

Item 9A. Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, carried out an evaluation, as of the end of the period covered by this report, of the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based upon their evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of such period, our disclosure controls and procedures were effective in recording, processing, summarizing and reporting on a timely basis information required to be disclosed by us in the reports that we file or submit under the Exchange Act and were effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

There were no changes in our internal controls over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Report of Management on Zygo Corporation’s Internal Control Over Financial Reporting

We, as members of management of Zygo Corporation (the “Company”), are responsible for establishing and maintaining adequate internal control over financial reporting, as such term is identified in Exchange Act Rule 13a-15(f). The Company’s internal control over financial reporting is a process designed to provide reasonable assurance to the Company’s management and Board of Directors regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America. Internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the consolidated financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.

Under the supervision and with the participation of management, including our principal executive and financial officers, we assessed the Company’s internal control over financial reporting as of June 30, 2009, based on criteria for effective internal control over financial reporting established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, we concluded that the Company maintained effective internal control over financial reporting as of June 30, 2009 based on the specified criteria.

Deloitte & Touche LLP, the independent registered public accounting firm that also audited the Company’s consolidated financial statements included in this Form 10-K, audited the operating effectiveness of internal control over financial reporting and issued their attestation report which is included on page F-2.

		Zygo Corporation
September 14, 2009	By:	/s/ J. Bruce Robinson
		J. Bruce Robinson
		Chief Executive Officer
September 14, 2009	By:	/s/ Walter A. Shephard
		Walter A. Shephard
		Vice President, Finance, Chief Financial Officer,
		and Treasurer

33

Item 9B. Other Information

None.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

Except for the information concerning executive officers which is set forth in Part I of this Annual Report on Form 10-K, information required by this item will be included under the captions “Election of Board of Directors” and “Corporate Governance” in our Proxy Statement to be filed pursuant to Regulation 14A for use in connection with our company’s 2009 Annual Meeting of Stockholders (referred to below as our “2009 Proxy Statement” and is incorporated herein by reference.

Item 11. Executive Compensation

Information required by this item will be included in our 2009 Proxy Statement under the captions “Compensation of Executive Officers” and “Corporate Governance” and is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Information required by this item will be included in our 2009 Proxy Statement under the captions “Equity Compensation Plan Information,” and “Security Ownership of Certain Beneficial Owners” and is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions, and Director Independence

Information required by this item will be included in our 2009 Proxy Statement under the captions “Certain Relationships and Related Transactions,” “Election of Board of Directors,” and “Corporate Governance” and is incorporated herein by reference.

Item 14. Principal Accountant Fees and Services

Information required by this item will be included in our 2009 Proxy Statement under the caption “Relationship with Independent Public Accountants” and is incorporated herein by reference.

34

PART IV

Item 15. Exhibits, Financial Statement Schedules

(a)	The following documents are filed as part of this report:
	1. and 2. Consolidated Financial Statements and Financial Statement Schedule:
		An index to the consolidated financial statements and financial statement schedule filed is located on page F-1.
	3.	EXHIBITS
	3.(i)	Restated Certificate of Incorporation of the Company and amendments thereto (Exhibit 3.(i) to the Company’s Annual Report on Form 10-K for its year ended June 30, 1993)*
	3.(ii)	Certificate of Amendment of Certificate of Incorporation, filed June 3, 1996 (Exhibit 3.(ii) to the Company’s Annual Report on Form 10-K 405 for its year ended June 30, 1996)*
	3.(iii)	By-laws of the Company (Exhibit (3)(b) to Registration No. 2-87253 on Form S-1 hereinafter “Registration No. 2-87253”)*
	4.1	Zygo Corporation Code of Ethics (Exhibit 14.1 to the Company’s Quarterly Report on Form 10-Q for its quarterly period ended March 26, 2004)*
	10.1	Confidentiality and Non-Competition Agreement dated October 25, 1983, between the Company and Carl A. Zanoni (Exhibit (10)(b) to Registration No. 2-87253)*
	10.2	Agreement dated November 20, 1980, between the Company and Canon Inc. regarding exchange of information (Exhibit (10)(y) to Registration No. 2-87253)*
	10.3	Amended and Restated Zygo Corporation Profit Sharing Plan (Exhibit 10.15 to the Company’s Annual Report on Form 10-K 405 for its year ended June 30, 1995)*
	10.4	Canon/ZYGO Confidentiality Agreement dated March 7, 1990, between the Company and Canon Inc. regarding confidential technical information received from each other (Exhibit 10.42 to the Company’s Annual Report on Form 10-K for its year ended June 30, 1991)*
	10.5	Zygo Corporation Amended and Restated Non-Qualified Stock Option Plan ratified and approved by the Company’s Stockholders on November 19, 1992 (Exhibit 10.30 to the Company’s Annual Report on Form 10-K for its year ended June 30, 1993)*
	10.6	Zygo Corporation Non-Employee Director Stock Option Plan ratified and approved by the Company’s Stockholders on November 17, 1994 (Exhibit 10.30 to the Company’s Annual Report on Form 10-K 405 for its year ended June 30, 1996)*
	10.7	Employment Agreement dated January 15, 1999, between Zygo Corporation and J. Bruce Robinson (Exhibit 10.34 to the Company’s Annual Report on Form 10-K 405 for its year ended June 30, 1999)*
	10.8	Zygo Corporation Amended and Restated Non-Employee Director Stock Option Plan ratified and approved by the Company’s Stockholders on November 17, 1999 (Exhibit to the Company’s Definitive Proxy Statement for its year ended June 30, 1999)*
	10.9	Employment agreement dated July 1, 1999, between Zygo Corporation and Brian J. Monti (Exhibit 10.22 to the Company’s Annual Report on Form 10-K 405 for its year ended June 30, 2000)*

35

10.10	Subcontract B519044 between The Regents of The University of California Lawrence Livermore National Laboratory and Zygo Corporation dated January 14, 2002 (Exhibit 10.25 to the Company’s Annual Report on Form 10-K for its year ended June 30, 2002)*
10.11	Development Agreement dated September 11, 2002, between Zygo Corporation and Canon, Inc. (Exhibit 99.2 to the Company’s Current Reports on Form 8-K dated September 17, 2002)*
10.12	Development and Manufacturing Support Services Agreement effective December 1, 2001, between Zygo Corporation and Philips Electronics North America Corporation. (Exhibit 99.1 to the Company’s Current Report on Form 8-K dated October 22, 2002)*
10.13	Development Agreement Amendment dated December 20, 2004, between Zygo Corporation and Canon Inc. (Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for its quarterly period ended December 31, 2004)*
10.14	Development Agreement Amendment dated February 26, 2005, between Zygo Corporation and Canon Inc. (Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for its quarterly period ended March 31, 2005)*
10.15	Development Agreement dated February 23, 2005, between Zygo Corporation and Canon Inc. (Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for its quarterly period ended March 31, 2005)*
10.16	Zygo Corporation 2002 Equity Incentive Plan Restricted Stock Agreement. (Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for its quarterly period ended September 30, 2005)*
10.17	Zygo Corporation 2002 Equity Incentive Plan Stock Option Agreement. (Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for its quarterly period ended September 30, 2005)*
10.18	Employment contract dated October 23, 2006 between Zygo Corporation and James Northup. (Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for its quarterly period ended December 31, 2006)*
10.19	Employment contract dated November 20, 2006 between Zygo Corporation and John Stack. (Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for its quarterly period ended December 31, 2006)*
10.20	Agreement dated February 8, 2007 between Zygo Corporation and Carl A. Zanoni. (Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for its quarterly period ended March 31, 2007)*
10.21	Employment contract dated June 15, 2007 between Zygo Corporation and Walter A. Shephard. (Exhibit 10.23 to the Company’s Annual Report on Form 10-K for its annual period ended June 31, 2007)*
10.22	Employment Agreement dated November 19, 2007 between Zygo Corporation and Mr. Douglas J. Eccleston (Exhibit 99.1 to the Company’s Current report on Form 8-K dated November 20, 2007)*
10.23	Press Release, dated February 28, 2008, issued by Zygo Corporation which announces that it acquired the assets of Solvision, Inc. (Exhibit 99.1 to the Company’s Current Reports on Form 8-K dated February 29, 2008)*
10.24	Restricted Stock Unit Agreement dated January 31, 2008 between ZYGO Corporation and J. Bruce Robinson (Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for its quarterly period ended March 31, 2008)*
10.25	Entry into an agreement and plan of merger and reorganization (Exhibit 2.1 to the Company’s Current Reports on Form 8-K dated October 21, 2008)
10.26	Employment agreement amendments between Zygo Corporation and J. Bruce Robinson, James R. Northup, and John M. Stack, dated October 21, 2008 (Exhibit 10.1, 10.2, and 10.3, respectively, to the Company’s Current Reports on Form 8-K dated October 21, 2008)*

36

10.27	Audited consolidated financial statements of Solvision Inc. (Exhibit 99.1 to the Company’s Current Report on Form 8-K/A dated February 28, 2008)
10.28	Employment Agreement amendment, dated January 15, 2009, between Zygo Corporation and Brian M. Monti (Exhibit 99.1 to the Company’s Current Report on Form 8-K dated January 22, 2009)*
10.29	Settlement Agreement and Mutual Release, dated as of April 2, 2009, by and among Electro Scientific Industries, Inc., Zirkon Merger Sub, LLC, and Zygo Corporation (Exhibit 2.1 to the Company’s Current Report on Form 8-K dated April 3, 2009)
10.30	Asset Transfer Agreement, dated as of June 17, 2009, by and between Zygo Corporation and Nanometrics Corporation. **
10.31	Supply Agreement, dated as of June 17, 2009, by and between Zygo Corporation and Nanometrics Corporation. **
10.32	Employment contract dated November 16, 2007 between Zygo Corporation and David Person.
21.	Subsidiaries of Registrant
23.1	Consent of Independent Registered Public Accounting Firm
24.	Power of Attorney (included in the signature page)
31.1	Certification Pursuant to Rule 13A-14(a) or 15D-14(a) of the Securities Exchange Act of 1934, as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification Pursuant to Rule 13A-14(a) or 15D-14(a) of the Securities Exchange Act of 1934, as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Exhibit numbers 10.3, 10.5, 10.6, 10.7, 10.8, 10.9, 10.16, 10.17, 10.18, 10.19, 10.20, 10.21, 10.22, 10.24, 10.26, 10.28, and 10.32 are management contracts, compensatory plans or compensatory arrangements.

* Incorporated herein by reference.

** Confidential treatment has been requested for portions of this exhibit. Omitted portions have been filed separately with the Securities Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

37

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

ZYGO CORPORATION
Registrant
By	/s/ Walter A. Shephard	Date	September 14, 2009
	Walter A. Shephard
	Vice President, Finance, Chief Financial Officer, and Treasurer

Know all persons by these presents, that each person whose signature appears below constitutes and appoints J. Bruce Robinson and Walter A. Shephard, jointly and severally, his attorneys-in-fact, each with the power of substitution, for each of them in any and all capacities, to sign any amendments to this report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorney’s-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

/s/ J. Bruce Robinson	Chief Executive Officer (principal	September 14, 2009
	executive officer) and Director
J. Bruce Robinson
/s/ Walter A. Shephard	Vice President, Finance, Chief	September 14, 2009
	Financial Officer, and Treasurer
Walter A. Shephard	(principal financial and accounting officer)
/s/ Eugene G. Banucci	Director	September 14, 2009
Eugene G. Banucci
/s/ Stephen D. Fantone	Director	September 14, 2009
Stephen D. Fantone
/s/ Samuel H. Fuller	Director	September 14, 2009
Samuel H. Fuller
/s/ Seymour E. Liebman	Director	September 14, 2009
Seymour E. Liebman
/s/ Robert B. Taylor	Director	September 14, 2009
Robert B. Taylor
/s/ Carol P. Wallace	Director	September 14, 2009
Carol P. Wallace
/s/ Gary K. Willis	Director	September 14, 2009
Gary K. Willis
/s/ Bruce W. Worster	Director - Chairman	September 14, 2009
Bruce W. Worster

38

ZYGO CORPORATION AND CONSOLIDATED SUBSIDIARIES

Index to Consolidated Financial Statements and Schedule

Page
F-2	Report of Independent Registered Public Accounting Firm
F-4	Consolidated balance sheets at June 30, 2009 and 2008
F-5	Consolidated statements of operations for the years ended June 30, 2009, 2008, and 2007
F-6	Consolidated statements of stockholders’ equity for the years ended June 30, 2009, 2008, and 2007
F-7	Consolidated statements of cash flows for the years ended June 30, 2009, 2008, and 2007
F-8 to F-29	Notes to consolidated financial statements
	Supplemental Schedules
S-1	Report of Independent Registered Public Accounting Firm
S-2	Schedule II -Valuation and qualifying accounts

All other schedules have been omitted since the required information is not present or not present in amounts sufficient to require submission of the schedules or the information required is included in the consolidated financial statements or notes thereto.

F - 1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders
Zygo Corporation
Middlefield, Connecticut

We have audited the accompanying consolidated balance sheets of Zygo Corporation and subsidiaries (the “Company”) as of June 30, 2009 and 2008 and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended June 30, 2009. We also have audited the Company’s internal control over financial reporting as of June 30, 2009, based on the criteria established in “Internal Control — Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of Management on Zygo Corporation’s Internal Control Over Financial Reporting (Item 9A). Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included 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. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

F - 2

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Zygo Corporation and subsidiaries as of June 30, 2009 and 2008 and the results of their operations and their cash flows for each of the three years in the period ended June 30, 2009, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30, 2009, based on the criteria established in “Internal Control — Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission.

As discussed in Notes 1and 16 to the consolidated financial statements, the Company adopted Financial Accounting Standards Board Implementation No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109”, on July 1, 2007.

/s/ Deloitte & Touche LLP

Hartford, Connecticut

September 14, 2009

F - 3

CONSOLIDATED BALANCE SHEETS
(Thousands of dollars, except share amounts)

	June 30, 2009			June 30, 2008
Assets
Current assets:
Cash and cash equivalents	$	32,723		$	26,421
Marketable securities (note 4)		4,015			17,639
Receivables, net of allowance for doubtful accounts of $2,550 and $349, respectively (notes 2, 6 and 18)		21,143			31,036
Inventories (notes 2 and 7)		30,452			37,542
Prepaid expenses		1,552			2,230
Income tax receivable (note 16)		1,022			241
Deferred income taxes (note 16)		—			12,143
Total current assets		90,907			127,252
Marketable securities (note 4)		499			6,963
Property, plant, and equipment, net (notes 2 and 8)		27,469			36,371
Deferred income taxes (note 16)		—			8,904
Intangible assets, net (notes 2 and 9)		4,211			9,522
Other assets		1,013			996
Total assets	$	124,099		$	190,008
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	5,191		$	7,955
Accrued progress payments and deferred revenue		5,924			5,226
Accrued salaries and wages		3,648			4,156
Other accrued expenses (note 11)		6,402			5,032
Deferred income taxes		—			32
Total current liabilities		21,165			22,401
Long-term income tax payable		1,826			1,973
Other long-term liabilities		1,081			844
Minority interest		1,338			1,844
Commitments and contingencies (note 12)
Stockholders’ equity (notes 13, 14, and 15):
Common stock, $.10 par value per share:
40,000,000 shares authorized; 19,044,331 shares issued (18,824,670 in 2008); 16,914,978 shares outstanding (16,732,399 in 2008)		1,904			1,882
Additional paid-in capital		156,176			152,663
Retained earnings (Accumulated deficit)		(33,550	)		32,514
Accumulated other comprehensive income (loss):
Currency translation effects		(200	)		1,316
Net unrealized loss on marketable securities (note 4)		—			(39	)
		124,330			188,336
Less treasury stock, at cost; 2,129,353 common shares (2,092,271 in 2008)		25,641			25,390
Total stockholders’ equity		98,689			162,946
Total liabilities and stockholders’ equity	$	124,099		$	190,008

See accompanying notes to consolidated financial statements.

F - 4

CONSOLIDATED STATEMENTS OF OPERATIONS
(Thousands except per share amounts)

	Fiscal Year Ended June 30,
	2009			2008			2007
Net sales:
Products	$	116,040		$	159,036		$	176,937
Development services (note 18)		—			—			4,051
		116,040			159,036			180,988
Cost of goods sold:
Products		84,572			94,213			100,835
Development services		—			—			2,970
		84,572			94,213			103,805
Gross profit		31,468			64,823			77,183
Selling, general, and administrative expenses		51,006			38,501			32,876
Research, development, and engineering expenses		24,715			24,275			22,038
Operating profit (loss)		(44,253	)		2,047			22,269
Other income:
Interest income		885			2,367			2,990
Miscellaneous income (expense), net		444			(235	)		(9	)
Total other income		1,329			2,132			2,981
Earnings (loss) from operations before income tax expense and minority interest		(42,924	)		4,179			25,250
Income tax expense (note 16)		(22,345	)		(1,542	)		(9,132	)
Minority interest		(795	)		(1,398	)		(976	)
Net earnings (loss)	$	(66,064	)	$	1,239		$	15,142
Basic - Earnings (loss) per share:	$	(3.92	)	$	0.07		$	0.83
Diluted - Earnings (loss) per share:	$	(3.92	)	$	0.07		$	0.81
Weighted average number of shares:
Basic		16,843			17,295			18,156
Diluted		16,843			17,648			18,601

See accompanying notes to consolidated financial statements.

F - 5

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Thousands of dollars)

	Total			Compre- hensive Income (Loss)			Retained Earnings (Deficit)			Accumulated Other Compre- hensive Income (Loss)			Common Stock		Treasury Stock			Paid-In Capital
Balance at July 1, 2006		158,938						17,052			93			1,855		(5,287	)		145,225
Comprehensive income:
Net earnings		15,142		$	15,142			15,142
Other comprehensive income (loss), net of tax:
Unrealized loss on marketable securities		(19	)		(19	)
Foreign currency translation effect		131			131
Other comprehensive income					112						112
Comprehensive income				$	15,254
Non-cash compensation charges related to stock options		2,189																	2,189
Employee stock purchase		323												2					321
Repurchase of company stock		(48	)													(48	)
Exercise of employee stock options and related tax effect		1,121												12					1,109
Balance at June 30, 2007		177,777						32,194			205			1,869		(5,335	)		148,844
Comprehensive income:
Net earnings		1,239		$	1,239			1,239
Other comprehensive income, net of tax:
Unrealized loss on marketable securities		(39	)		(39	)
Foreign currency translation effect		1,111			1,111
Other comprehensive income					1,072						1,072
Comprehensive income				$	2,311
Non-cash compensation charges related to stock options		2,921																	2,921
Employee stock purchase		267												2					265
Restricted stock vesting and related tax effect		(88	)											4		(6	)		(86	)
Exercise of employee stock options and related tax effect		726												7					719
Adjustment recorded upon adoption of FIN 48 (note 16)		(919	)					(919	)
Repurchase of company stock		(20,049	)													(20,049	)
Balance at June 30, 2008		162,946						32,514			1,277			1,882		(25,390	)		152,663
Comprehensive income (loss):
Net loss		(66,064	)	$	(66,064	)		(66,064	)
Other comprehensive income (loss), net of tax:
Unrealized gain on marketable securities		39			39
Foreign currency translation effect		(1,516	)		(1,516	)
Other comprehensive loss					(1,477	)					(1,477	)
Comprehensive loss				$	(67,541	)
Non-cash compensation charges related to stock awards		2,924																	2,924
Employee stock purchase		207												3					204
Restricted stock vesting and related tax effect		(251	)											17		(251	)		(17	)
Exercise of employee stock options and related tax effect		404												2					402
Balance at June 30, 2009	$	98,689					$	(33,550	)	$	(200	)	$	1,904	$	(25,641	)	$	156,176

See accompanying notes to consolidated financial statements.

F - 6

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of dollars)

	Fiscal Year Ended June 30,
	2009			2008			2007
Cash provided by (used for) operating activities:
Net earnings (loss)	$	(66,064	)	$	1,239		$	15,142
Adjustments to reconcile net earnings (loss) to cash provided by (used for) operating activities:
Depreciation and amortization		8,167			7,478			6,519
Loss on disposal of assets		196			70			190
Deferred income taxes		21,211			(379	)		6,606
Impairment of marketable securities		309			291			—
Impairment of property, plant, and equipment		4,460			—			—
Impairment of intangible assets		5,084			—			—
Restructuring charges		452			—			—
Inventory valuation reserves		4,949			239			341
Provision for doubtful accounts		3,142			566			(245	)
Compensation cost related to share-based payment arrangements		2,924			2,921			2,189
Excess tax benefits from share-based payment arrangements		(9	)		(43	)		(190	)
Minority interest		795			1,398			976
Other		(463	)		198			356
Changes in operating accounts, excluding the effect of acquisition:
Receivables		11,047			3,505			1,833
Inventories		(792	)		8,692			(5,305	)
Prepaid expenses		(100	)		(136	)		(138	)
Accounts payable, accrued expenses, and taxes payable		(1,738	)		(11,462	)		(13,193	)
Net cash provided by (used for) operating activities		(6,430	)		14,577			15,081
Cash provided by (used for) investing activities:
Additions to property, plant, and equipment		(4,255	)		(6,580	)		(10,149	)
Purchase of marketable securities		(8,174	)		(20,934	)		(38,546	)
Additions to intangibles and other assets		(950	)		(716	)		(490	)
Issuance of note receivable		—			(559	)		—
Investments and acquisitions, excluding cash acquired		—			(5,079	)		—
Proceeds from the sale and maturity of marketable securities		27,812			48,388			31,402
Proceeds from the formation of the joint venture and sale of other assets		11			222			24
Net cash provided by (used for) investing activities		14,444			14,742			(17,759	)
Cash provided by (used for) financing activities:
Dividend payments to minority interest		(1,301	)		(751	)		(1,287	)
Employee stock purchase		207			267			323
Excess tax benefits from share-based payment arrangements		9			43			190
Repurchase of company stock		—			(20,049	)		(48	)
Restricted stock vesting and related tax benefits		(251	)		(88	)		—
Exercise of employee stock options		185			726			1,121
Net cash provided by (used for) financing activities		(1,151	)		(19,852	)		299
Effect of exchange rate changes on cash and cash equivalents		(561	)		(872	)		(113	)
Net increase (decrease) in cash and cash equivalents		6,302			8,595			(2,492	)
Cash and cash equivalents, beginning of year		26,421			17,826			20,318
Cash and cash equivalents, end of year	$	32,723		$	26,421		$	17,826

Supplemental Cash flow information:

Cash paid (refunded) for income taxes were ($2,340), $1,375, and $3,272 in fiscal 2009, 2008, and 2007, respectively.

See accompanying notes to consolidated financial statements.

F - 7

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended June 30, 2009, 2008, and 2007

(Dollars in thousands, except for per share amounts)

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Operations and Principles of Consolidation

Zygo Corporation is a worldwide supplier in optical metrology instruments, precision optics, and elecro-optical design and manufacturing services, serving customers in the semiconductor capital equipment and industrial markets. The accompanying consolidated financial statements are prepared in conformity with accounting priciples generally accepted in the United States of America (U.S. “GAAP”) and include the accounts of Zygo Corporation and its subsidiaries (“ZYGO,” “we,” “us,” “our” or “Company”). All transactions and accounts with the subsidiaries have been eliminated from the consolidated financial statements. Minority interest related to our ownership interests of less than 100% is reported as minority interest in subsidiaries in the consolidated balance sheets. The minority ownership interest of our earnings, net of tax, is reported as minority interest in the consolidated statements of operations. We have adopted Statement of Financial Accounting Standards (“SFAS”) No. 165, “Subsequent Events” (“SFAS 165”) effective beginning the quarter ended June 30, 2009 and have evaluated for disclosure subsequent events that have occurred up to September 14, 2009, the date of issuance of our financial statements.

Translation of Foreign Currency Financial Statements

ZYGO’s reporting currency is the U.S. dollar. The functional currency of the majority of our foreign subsidiaries is their local currency and, as such, amounts included in the consolidated statements of operations are translated at the weighted-average exchange rates for the period. Assets and liabilities are translated at period-end exchange rates and resulting foreign exchange translation adjustments are recorded in the consolidated balance sheets as a component of accumulated other comprehensive income (loss).

Foreign Currency Transactions

Monetary assets and liabilities denominated in currencies other than the functional currency are remeasured into their respective functional currencies at exchange rates in effect at the balance sheet date. The resulting exchange gain or loss is included in our consolidated statements of operations as miscellaneous income (expense), net.

Cash and Cash Equivalents

We consider cash and investments in securities with maturities at the date of purchase of three months or less to be cash and cash equivalents.

Marketable Securities

We consider investments in securities with maturities at the date of purchase in excess of three months as marketable securities. Marketable securities consist of corporate securities. Securities held by us at June 30, 2009 and 2008 were classified as held-to-maturity, available-for-sale, and trading. The held-to-maturity investments are recorded at amortized cost. The available-for-sale investment is recorded at fair value and adjusted through stockholders’ equity. Trading investments are recorded at fair value and adjusted through the statement of operations.

Inventories

Inventories are stated at the lower of cost (determined on a first-in, first-out basis) or market. Obsolete inventory or inventory in excess of management’s estimated future usage is written down to its estimated market value, if less than its cost.

Property, Plant, and Equipment

Property, plant, and equipment are stated at cost. Maintenance and repairs are charged to expense as incurred. Management evaluates, on an ongoing basis, the carrying value of our property, plant, and equipment and makes adjustments when impairments are identified. Depreciation is based on the estimated useful lives of the various classes of assets and is computed using the straight-line method.

Intangible Assets

Intangible assets include patents, trademarks, license agreements and customer lists. The cost of intangible assets is amortized on a straight-line basis, over estimated useful lives ranging from 5-17 years.

F - 8

Valuation of Long-Lived Assets

In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” the carrying value of intangible assets and other long-lived assets is reviewed on a regular basis for the existence of facts or circumstances, both internally and externally, that may suggest impairment. Some factors considered important, which could trigger an impairment review, include a significant decrease in the market value of an asset, a significant change in the extent or manner in which an asset is used, a significant adverse change in the business climate that could affect the value of an asset, an accumulation of costs for an asset in excess of the amount originally expected, a current period operating loss or cash flow decline combined with a history of operating losses or cash flow uses or a projection that demonstrates continuing losses, and a current expectation that, it is more likely than not, a long-lived asset will be disposed of at a loss before the end of its estimated useful life.

If any such facts or circumstances exist, the carrying value of long-lived assets are evaluated to determine if impairment exists based upon estimated undiscounted future cash flows over the remaining useful life of the assets and comparing that value to the carrying value of the assets. If the carrying value of the assets is greater than the estimated future cash flows, the assets are written down to the estimated fair value. The estimated fair value of the assets is based on a current market value of the assets. If a current market value is not readily available, a projected discounted cash flow method is applied using a discount rate determined by management to be commensurate with the risk inherent in the current business model. Our cash flow estimates contain management’s best estimates, using appropriate and customary assumptions and projections at the time.

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by valuation allowances if it is determined that it is more likely than not that the deferred tax asset will not be realized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

On July 1, 2008, ZYGO adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (“FIN 48”). We apply a more likely than not threshold to the recognition and de-recognition of tax benefits. The calculation of the tax liabilities involves dealing with uncertainties in the application of complex tax regulations in a multitude of jurisdictions across our global operations. We also recognize potential liabilities for anticipated tax audit issues in the U.S. and other tax jurisdictions based on an estimate of whether it is more likely than not additional taxes will be due.

Revenue Recognition

We recognize revenue based on guidance provided in Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”) No. 104, “Revenue Recognition,” and in accordance with Emerging Issues Task Force (“EITF”) Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables.” We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, our price is fixed or determinable, and collectibility is reasonably assured. We recognize revenue on our standard products when title passes to the customer upon shipment. While our standard products generally require installation, the installation is considered a perfunctory performance obligation. The standard products do not have customer acceptance criteria. Generally, software is a component of our standard product and, as such, is not separately recognized as revenue. Standalone software products are recognized as revenue when they are shipped. We have standard rights of return for defective products that we account for as a warranty provision under SFAS No. 5, “Accounting for Contingencies.” We do not have any price protection agreements or other post shipment obligations. For custom equipment where customer acceptance is part of the sales agreement, revenue is recognized when the customer has accepted the product. In cases where custom equipment does not have customer acceptance as part of the sales agreement, we recognize revenue upon shipment, as long as the system meets the specifications as agreed upon with the customer. Certain transactions have multiple deliverables, with the deliverables clearly defined. To the extent that the secondary deliverables are other than perfunctory, we recognize the revenue on each deliverable, if separable, or on the completion of all deliverables, if not separable. Revenue generated from development contracts are recorded on a cost-plus basis in the period services are rendered.

F - 9

Certain customer transactions include payment terms whereby we receive a partial payment of the total order amount prior to the related sale being recognized in its financial statements. These advance payments are included in accrued progress payments and deferred revenue in the consolidated balance sheet. Generally, these progress payments relate to orders for custom equipment that require a lengthy build cycle and, in some cases, acceptance by the customer. We may negotiate payment terms with these customers on these particular orders and secure certain payments prior to or on shipment of the equipment. These payments remain in accrued progress payments and deferred revenue until our applicable revenue recognition criteria have been met.

Research and Development

Research and development costs are expensed as incurred. For fiscal 2009, 2008, and 2007, we expensed $14,385, $20,350, and $16,791 of research and development expense. Reimbursements from customers for research and development costs are recorded as offsets to the expenses. In fiscal 2007, reimbursements totaled $170. There were no reimbursed research and development costs in fiscal 2009 and 2008.

Earnings Per Share

Basic and diluted earnings per share are calculated in accordance with SFAS No. 128, “Earnings Per Share.” The following table sets forth the reconciliation of weighted average shares outstanding and diluted weighted average shares outstanding:

	June 30, 2009	June 30, 2008	June 30, 2007
Weighted average shares outstanding	16,843,186	17,294,973	18,155,627
Dilutive effect of stock options and restricted stock	—	353,090	445,675
Diluted weighted average shares outstanding	16,843,186	17,648,063	18,601,302

For fiscal 2009, 2008, and 2007, 2,170,002, 1,165,069, and 808,665, respectively, of the Company’s outstanding stock options and restricted stock awards were excluded from the calculation of diluted earnings per share because they were antidilutive.

Share-Based Compensation

We have two share-based compensation plans, which are described in Note 14. We account for share-based compensation in accordance with SFAS 123(R), “Share-Based Payment (as amended).” SFAS No. 123(R) eliminates the alternative to use the intrinsic value method of accounting that was provided in SFAS No. 123, which generally resulted in no compensation expense recorded in the financial statements related to the issuance of equity awards to employees and directors to the extent issued at fair market value. SFAS No. 123(R) requires that the cost resulting from all share-based payment transactions be recognized in the financial statements. SFAS No. 123(R) establishes fair value as the measurement objective in accounting for share-based payment arrangements and requires all companies to apply a fair-value-based measurement method in accounting generally for all share-based payment transactions with employees. SFAS 123(R) does not require the recording of compensation expense in periods prior to the date of adoption.

Share-based compensation expense for the fiscal year ended June 30, 2009 was $2,924, with a related tax benefit of $1,053. This increased cost of sales by $349, selling, general, and administration by $2,177, and research, development, and engineering by $398. Share-based compensation expense for the fiscal year ended June 30, 2008 was $2,921, with a related tax benefit of $1,052. This increased cost of sales by $239, selling, general, and administration by $2,340, and research, development, and engineering by $342. Share-based compensation expense for the fiscal year ended June 30, 2007 was $2,189, with a related tax benefit of $788. This increased cost of sales by $244, selling, general, and administration by $1,497, and research, development, and engineering by $448.

Fair Value of Financial Instruments

SFAS No. 107, “Disclosures about Fair Value of Financial Instruments,” requires that reporting entities provide, to the extent practicable, the fair value of financial instruments, both assets and liabilities. The carrying amounts of cash, accounts receivable, accounts payable, and accrued expenses approximate fair value because they are short-term in nature.

Use of Estimates

Management has made a number of estimates and assumptions relating to the reporting of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with U.S. GAAP. On an ongoing basis, management evaluates its estimates and judgments, including those related to allowances for bad debts, reserves for excess and obsolete inventories, impairments and recoverability of long-lived assets, share-based compensation, income taxes, and warranty obligations. Actual results could differ from those estimates.

F - 10

Adoption of New Accounting Pronouncements

In April 2009, the FASB issued Staff Position (“FSP”) FSP FAS 157-4, “Determining Fair Value When Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly” (FSP 157-4). FSP 157-4 provides guidance on how to determine the fair value of assets and liabilities when the volume and level of activity for the asset/liability has significantly decreased. FSP 157-4 also provides guidance on identifying circumstances that indicate a transaction is not orderly. In addition, FSP 157-4 requires disclosure in interim and annual periods of the inputs and valuation techniques used to measure fair value and a discussion of changes in valuation techniques. FSP 157-4 is effective for us beginning in the fourth quarter of fiscal year 2009. The adoption of FSP 157-4 did not have a significant impact on our consolidated financial statements.

In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairment” (“FSP 115-2/124-2”). FSP 115-2/124-2 amends the requirements for the recognition and measurement of other-than-temporary impairments for debt securities by modifying the pre-existing “intent and ability” indicator. Under FSP 115-2/124-2, an other-than-temporary impairment is triggered when there is an intent to sell the security, it is more likely than not that the security will be required to be sold before recovery, or the security is not expected to recover the entire amortized cost basis of the security. Additionally, FSP 115-2/124-2 changes the presentation of an other-than-temporary impairment in the income statement for those impairments involving credit losses. The credit loss component will be recognized in earnings and the remainder of the impairment will be recorded in other comprehensive income. FSP 115-2/124-2 is effective for us beginning in the fourth quarter of fiscal year 2009. The adoption of FSP 115-2/124-2 did not have a significant impact on our consolidated financial statements.

In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, “Interim Disclosure about Fair Value of Financial Instruments” (FSP 107-1/APB 28-1). FSP 107-1/APB 28-1 requires interim disclosures regarding the fair values of financial instruments that are within the scope of FAS 107, “Disclosures about the Fair Value of Financial Instruments.” Additionally, FSP 107-1/APB 28-1 requires disclosure of the methods and significant assumptions used to estimate the fair value of financial instruments on an interim basis as well as changes of the methods and significant assumptions from prior periods. FSP 107-1/APB 28-1 does not change the accounting treatment for these financial instruments and is effective for us beginning in the fourth quarter of fiscal year 2009. The adoption of FSP 107-1/APB 28-1 did not have a significant impact on our consolidated financial statements.

On July 1, 2008, we adopted the provisions of Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. The adoption of the provisions of SFAS 157 is not expected to have a material effect on us. In February 2008, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position FAS 157-1, Application of SFAS No. 157 to SFAS No. 13 and Its Related Interpretative Accounting Pronouncements that Address Leasing Transactions (“FSP No. 157-1”) and FASB Staff Position FAS 157-2, Effective Date of SFAS No. 157 (“FSP No. 157-2”). FSP No. 157-1 excludes SFAS No. 13, Accounting for Leases, and its related interpretive accounting pronouncements that address leasing transactions, with the exception of fair value measurements of assets and liabilities recorded as a result of a lease transaction but measured pursuant to other pronouncements within the scope of SFAS No. 157. FSP No. 157-2 delays the effective date of SFAS No. 157 for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). FSP No. 157-1 and FSP No. 157-2 became effective for us upon adoption of SFAS No. 157. In October 2008, the FASB issued FASB Staff Position No. 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active (“FSP No. 157-3”). FSP No. 157-3 clarifies the application of SFAS No. 157 in cases where a market is not active. The Company has considered FSP No. 157-3 in its determination of estimated fair values as of June 30, 2009, and the impact was not material.

On July 1, 2008, we adopted the provisions of SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value, with unrealized gains and losses related to these financial instruments reported in earnings at each subsequent reporting date. We have chosen not to measure any other financial instrument or other items at fair value that are not currently required to be measured at fair value.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133” (“SFAS 161”). SFAS 161 requires disclosures of how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for and how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. SFAS 161 was effective for us in the third quarter of fiscal 2009. The adoption of SFAS 161 did not have a material effect on our consolidated financial statements.

F - 11

New Accounting Pronouncements

In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162 (“SFAS No. 168”). The FASB Accounting Standards Codification (Codification) will become the source of authoritative U.S. generally accepted accounting principles (U.S. GAAP) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the SEC under authority of federal securities law are also sources of authoritative U.S. GAAP for SEC registrants. On the effective date of SFAS No. 168, the Codification will supersede all then-existing non-SEC accounting and reporting standards. All other non-grandfathered non-SEC accounting literature not included in the Codification will become nonauthoritative. Following SFAS No. 168, FASB will not issue new standards in the form of Statements (SFAS’s) FASB Staff Positions (FSP’s) or Emerging Issues Task Force Abstracts (EITF’s), but rather it will issue Accounting Standards Updates (ASU’s). FASB will not consider ASU’s as authoritative in their own right as they will only serve to update the Codification, provide background information about guidance and provide the bases for conclusions on the changes in the Codification. SFAS No. 168 is effective for the financial statements issued for interim and annual periods ending after September 15, 2009. We expect to revise the disclosure of the U.S. GAAP source references in our financial reporting upon the adoption of SFAS No. 168.

In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)” (“SFAS No. 167”). SFAS No. 167 amends the consolidation guidance that applies to all variable interest entities (VIEs) within the scope of FASB Interpretation No. 46(R), Consolidation of Variable Interest Entities (FIN 46(R)) with focus on structured finance entities, as well as qualifying special-purpose entities currently outside the scope of FIN 46(R). SFAS No. 167 requires an enterprise to 1) determine whether an entity is a VIE, 2) whether the enterprise has controlling financial interest/is a primary beneficiary in a VIE, and 3) provide enhanced disclosures about an enterprise’s involvement in VIEs. SFAS No. 167 is effective as of the beginning of the first fiscal year that begins after November 15, 2009. We are in the process of evaluating the impact SFAS No. 167 will have on our consolidated financial statements.

In April 2008, the FASB issued FSP No. FAS 142-3, “Determination of the Useful Life of Intangible Assets”. The FSP amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS 142, “Goodwill and Other Intangible Assets”. The FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. We are in the process of evaluating the impact FSP 142-3 may have on our consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141R, “Business Combinations” (“SFAS 141R”). SFAS 141R offers specific guidance on how the acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any non-controlling interest in the acquirer, and goodwill acquired or any bargain purchase gains. The provisions of SFAS 141R are effective for our fiscal year beginning July 1, 2009. We are in the process of evaluating the impact SFAS 141R may have on our consolidated financial statements.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51” (“SFAS 160”). SFAS 160 requires that the ownership interests in subsidiaries held by parties other than the parent be clearly identified, labeled, and presented in the consolidated balance sheets within equity, but separate from the parent’s equity. Furthermore, the amount of consolidated net income attributable to the parent and to the non-controlling interest must be clearly identified and presented on the face of the consolidated statement of operations. The provisions of SFAS 160 are effective for our fiscal year beginning July 1, 2009. The adoption of SFAS 160 will not have a material effect on our consolidated financial statements.

F - 12

NOTE 2: ACQUISITIONS

On February 28, 2008, we acquired certain assets of Solvision, Inc. (“Solvision”), a Canadian-based company, including the shares of its Singapore subsidiary for $4,155, net of cash received, under the purchase method of accounting with the purchase price allocation being finalized in fiscal 2009. This final amount represents $4,240 of cash and $17 representing the value of assets received for the forgiveness of a $1,500 note extended to Solvision. In fiscal 2009 (as part of the final purchase price allocation) and 2008, $924 and $559, respectively, of the note was charged to bad debt expense. This acquisition allowed us to enter the market for in-line inspection of flip chip substrates and packaged integrated circuits. Included in the acquisition is the patented Fast Moiré Interferometer (“FMI”) technology for rapid 3D inspection. This acquisition was integrated into the Metrology segment. The results of operations of this acquisition have been included in the consolidated statement of operations commencing on February 28, 2008.

The following is the final purchase price allocation based on the estimated fair values of the assets acquired and liabilities assumed as of the date of acquisition:

Cash	$	102
Deposits		12
Accounts receivable		589
Inventory		1,376
Property and equipment		671
Customer relationships		1,165
Technology		1,847
Total assets		5,762
Less: Liabilities assumed		1,239
Deferred tax liability		266
Total	$	4,257

The following disclosure presents certain information regarding the Company’s acquired intangible assets as of June 30, 2009 and 2008. All acquired intangible assets were being amortized over their initial estimated useful lives of seven years with no estimated residual values. Annually we review our intangible assets for impairment. During our fiscal 2009 annual review of intangible assets, we determined, based on the downturn in the business climate for this product line and the level of current period operating losses, that all of the acquired intangible assets resulting from the acquisition in the prior year were impaired.

	Customer Relationships			Technology			Total
Balance at February 28, 2008	$	1,290		$	2,046		$	3,336
Effect of foreign exchange		(9	)		(16	)		(25	)
Amortization expense		(60	)		(96	)		(156	)
Balance at June 30, 2008		1,221			1,934			3,155
Purchase accounting adjustments		(56	)		(87	)		(143	)
Effect of foreign exchange		(171	)		(277	)		(448	)
Amortization expense		(162	)		(253	)		(415	)
Impairment charges		(832	)		(1,317	)		(2,149	)
Balance at June 30, 2009	$	—		$	—		$	—

The following unaudited pro forma condensed financial information shows the results of operations for the years ended June 30, 2008 and 2007 as though the acquisition of the Solvision, Inc. assets had occurred at the beginning of each respective fiscal year. The proforma information is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have been achieved had the acquisition been consummated as of that time:

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	Year Ended June 30,
	2008			2007
Net sales	$	161,585		$	186,561
Income (loss) before extraordinary items, discontinued operations, and the cumulative effect of an accounting change	$	(1,422	)	$	8,562
Net income (loss)	$	(1,422	)	$	8,562
Earnings (loss) per share amounts:
Basic- Earnings (loss) per share	$	(0.08	)	$	0.47
Diluted - Earnings (loss) per share	$	(0.08	)	$	0.46

On October 16, 2008, we and Electro Scientific Industries, Inc. (“ESI”) jointly announced the execution of a definitive agreement, providing for the two companies to merge in an all stock transaction, subject to the prior satisfaction of certain enumerated conditions precedent. On January 20, 2009, ZYGO announced that it notified ESI of ZYGO’s Board of Directors’ withdrawal of its recommendation in favor of the previously announced merger agreement with ESI. On April 2, 2009, ESI and ZYGO agreed to terminate their previously executed merger agreement. Pursuant to the terms of the settlement agreement, ZYGO paid ESI a break-up fee of $5.4 million, and is liable for an additional $1.2 million in the event that on or before November 2, 2009, ZYGO’s Board of directors approves an alternate transaction proposal for the merger or sale of the company. During fiscal 2009, we paid an additional $2.9 million related to the merger in legal and various other related expenses. The break-up fee, legal and other expenses are included in selling, general, and administrative expenses.

NOTE 3: RESTRUCTURING AND RELATED COSTS

During fiscal 2009, we initiated restructuring actions related to ongoing cost reduction efforts comprised of workforce reductions and the consolidation of manufacturing operations in Tuscon, Arizona. During this period, we recorded restructuring and related charges totaling $2,158, including $955 in cost of sales, $1,013 in selling, general, and administration, and $190 in research, development, and engineering.

The following table summarizes the accrual balances and utilization by cost type for the fiscal 2009 and fiscal 2008 restructuring actions:

	Severance			Facility Consolidation Costs		Total
Balance at June 30, 2008	$	226		$	—	$	226
Restructuring charges		1,706			452		2,158
Payments		(1,670	)		—		(1,670	)
Balance at June 30, 2009	$	262		$	452	$	714

	Severance			Facility Consolidation Costs		Total
Balance at June 30, 2007	$	94		$	—	$	94
Restructuring charges		537			—		537
Payments		(405	)		—		(405	)
Balance at June 30, 2008	$	226		$	—	$	226

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NOTE 4: MARKETABLE SECURITIES

Marketable securities consisted primarily of corporate and government agency securities for fiscal 2009 and 2008. The Company classifies these securities as held-to-maturity, trading, or available-for-sale.

Dividend and interest income is recognized when earned. Straight-line amortization related to discounts and premiums on the purchase of marketable securities is recorded in interest income. Realized gains and losses are included in earnings and are derived using the specific identification method for determining the cost of securities sold.

The amortized cost, gross unrealized gains and losses, and fair value of held-to-maturity securities at June 30, 2009 and 2008 were as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
At June 30, 2009 Corporate bonds	$	4,015	$	35	$	—		$	4,050
At June 30, 2008 Corporate bonds	$	22,695	$	103	$	(51	)	$	22,747

At June 30, 2009 and 2008, all held-to-maturity securities consisted of corporate bonds. At June 30, 2009 these corporate bonds were in the following sectors: 22.5% in finance, 22.1% in utilities, 22.0% in real estate, and 33.4% in other. We have both the intent and the ability to hold such securities to maturity.

The cost, gross unrealized gains and losses, and fair value of available-for-sale securities, consisting of auction rate securities, at June 30, 2009 and 2008 were as follows:

	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
At June 30, 2009 Corporate bonds	$	600	$	—	$	(600	)	$	—
At June 30, 2008 Corporate and local municipal bonds	$	1,600	$	—	$	(330	)	$	1,270

Trading securities consist of a mutual fund investment corresponding to elections made in our deferred compensation program. The cost, gross unrealized gains and losses, and fair value of trading securities at June 30, 2009 and 2008 were as follows:

	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
At June 30, 2009 Mutual fund	$	499	$	—	$	—		$	499
At June 30, 2008 Mutual Fund	$	682	$	—	$	(45	)	$	637

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Maturities of investment securities classified as held-to-maturity at June 30, 2009 and 2008 were as follows:

	June 30, 2009				June 30, 2008
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due within one year	$	4,015	$	4,050	$	17,639	$	17,668
Due after one year through five years		—		—		5,056		5,079
	$	4,015	$	4,050	$	22,695	$	22,747

Maturities of investment securities classified as available-for-sale at June 30, 2009 and 2008 were as follows:

	June 30, 2009				June 30, 2008
	Cost		Fair Value		Cost		Fair Value
Due within one year	$	—	$	—	$	—	$	—
Due after one year		600		—		1,600		1,270
	$	600	$	—	$	1,600	$	1,270

The following table shows our investment gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at June 30, 2008. There were no securities in a continuous unrealized loss position at June 30, 2009

	Less than 12 months					Fiscal Year 2008 More than 12 months					Total
	Market Value		Gross Unrealized Losses			Market Value		Gross Unrealized Losses			Market Value		Gross Unrealized Losses
Corporate and other	$	6,154	$	(25	)	$	1,245	$	(65	)	$	7,399	$	(90	)

In determining whether investment holdings are other than temporarily impaired, we consider the nature, cause, severity, and duration of the impairment. We and our investment advisors use analyst reports, credit ratings and other items as part of our review. We recognized an other-than-temporary impairment on one available-for-sale auction rate security during fiscal 2009 resulting in a loss of $309, which was recorded in the statements of operations as part of miscellaneous income (expense).

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NOTE 5: FAIR VALUE MEASUREMENTS

The Company adopted SFAS No. 157 and SFAS No. 159 effective July 1, 2008 and did not elect the fair value option for its financial instruments with the exception of the application of the statement to non-recurring non-financial assets and non-financial liabilities. Non-recurring non-financial assets and non-financial liabilities for which the Company has not applied the provisions of SFAS No. 157 include those initially measured at fair value in a business combination. SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands the related disclosure requirements. The statement indicates, among other things, that a fair value measurement assumes that the transaction to sell an asset or transfer a liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. SFAS No. 157 defines fair value based upon an exit price model.

SFAS No. 157 establishes a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on the management’s assumptions used to measure assets and liabilities at fair value. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

The following table provides the assets and liabilities carried at fair value measured on a recurring basis as of June 30, 2009:

Assets Measured at Fair Value:
(Dollars in thousands)

				Fair value measurements at June 30, 2009
	Total carrying value at June 30, 2009			Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)			Significant unobservable inputs (Level 3)
Trading securities	$	499		$	499	$	—		$	—
Foreign currency hedge		(14	)		—		(14	)		—
Total	$	485		$	499	$	(14	)	$	—

Assets Measured at Fair Value on a Nonrecurring Basis:
(Dollars in thousands)

			Fair value measurements at June 30, 2009
	Total carrying value at June 30, 2009		Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Total Gains (Losses)
Property, plant, and equipment (1)	$	1,237	$	—	$	—	$	1,237	$	(4,460	)
Intangible assets (2)		649		—		—		649		(5,084	)
Total	$	1,886	$	—	$	—	$	1,886	$	(9,544	)

(1) See Note 8

(2) See Note 9

When available, the Company uses quoted market prices to determine the fair value of its marketable securities included in Level 1. When quoted market prices are unobservable, the Company uses quotes from independent pricing vendors based on recent trading activity and other relevant information. The investment in Level 3 is an auction-rate security. For the period from July 1, 2008 to June 30, 2009, Level 3 assets were reduced from $270 to $0 as the result of an other than temporary impairment. There were no other activities in Level 3 fair value measurements during the period.

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The carrying value of other financial instruments, including cash, accounts receivable, accounts payable, and accrued liabilities approximate fair value due to their short maturities. The remainder of our marketable securities at June 30, 2009 are accounted for as held-to-maturity investments and are recorded at amortized cost of $4,015.

NOTE 6: RECEIVABLES

At June 30, 2009 and 2008, receivables were as follows:

	June 30, 2009			June 30, 2008
Trade	$	19,870		$	30,816
Receivable from Nanometrics for sale of certain assets		3,392			—
Other		431			569
		23,693			31,385
Allowance for doubtful accounts		(2,550	)		(349	)
	$	21,143		$	31,036

On June 17, 2009, we and Nanometrics Incorporated (“Nanometrics”) announced that Nanometrics has purchased inventory and certain other assets relating to ZYGO’s Semiconductor Solutions business for approximately $3,392 and that the two companies have entered into a supply agreement. Under an exclusive OEM supply agreement, ZYGO will provide interferometer sensors to Nanometrics for incorporation into the Unifire™ line of products as well as Nanometrics’ family of automated metrology systems. The arrangement is structured as an asset purchase and exclusive OEM supply agreement aimed at wafer-based markets. Nanometrics will assume all inventory, backlog and customer sales and support responsibilities and ZYGO will provide measurement sensors for integration by Nanometrics.

The allowance for bad debt increased in fiscal 2009 by $2,201 primarily due to additional allowances of $1,961 due to delays in receiving final payments in sales to certain customers in the Asia-Pacific region.

NOTE 7: INVENTORIES

At June 30, 2009 and 2008, inventories were as follows:

	June 30, 2009		June 30, 2008
Raw materials and manufactured parts	$	15,214	$	17,049
Work in process		11,313		14,763
Finished goods		3,925		5,730
	$	30,452	$	37,542

Inventories were reduced by reserves for excess and obsolete items of $9,551 and $4,602 as of June 30, 2009 and 2008, respectively.

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NOTE 8: PROPERTY, PLANT, AND EQUIPMENT

At June 30, 2009 and 2008, property, plant, and equipment, at cost, were as follows:

	June 30, 2009			June 30, 2008			Estimated Useful Life (Years)
Land	$	615		$	615			—
Building and improvements		17,390			17,270			15-40
Machinery, equipment, and office furniture		56,214			62,940			3-8
Leasehold improvements		908			903			1-5
Construction in progress		570			2,050			—
		75,697			83,778
Less accumulated depreciation		(48,228	)		(47,407	)
	$	27,469		$	36,371

Depreciation expense for the fiscal years ended June 30, 2009, 2008, and 2007 was $7,337, $7,008, and $6,246, respectively. We recorded impairment charges on our plant, property, and equipment of $4,460 including $4,004 related to our precision positioning systems product lines in our metrology segment, as result of our review of our business operations in the current economic downturn. We utilized a future discounted cash flow model over five years to assess the net realizable value of our property, plant, and equipment in our positioning systems product line. These charges were included in cost of sales ($2,911), SG&A ($82) and RD&E ($1,467) on the consolidated statement of operations.

NOTE 9: INTANGIBLE ASSETS

Intangible assets, at cost, at June 30, 2009 and 2008 were as follows:

	June 30, 2009			June 30, 2008			Estimated Useful Life (Years)
Patents and Trademarks	$	5,586		$	8,106			5-17
Covenant not-to-compete		851			—			4
Customer relationships and technology		—			3,311			7
		6,437			11,417
Accumulated Amortization		(2,226	)		(1,895	)
Total	$	4,211		$	9,522

A non-compete agreement went into effect with the retirement of an officer of the company in February 2009. This agreement requires payments totaling $878 over four years, including imputed interest of $27.

Intangible amortization expense for the fiscal years ended June 30, 2009, 2008 and 2007 was $803, $570, and $322, respectively. Intangible amortization expense is estimated to be approximately $515 in fiscal 2010 and approximately $461, $407, $366, and $332 annually in fiscal 2011-2014, respectively. Amortization expense related to patents and trademarks is included in cost of goods sold in the consolidated statements of operations. Amortization expense related to customer relationships and technology is included in selling, general and administrative expense in the consolidated statements of operations.

We recorded an impairment charge of $2,935 on our patents related to our precision positioning systems product line in our metrology segment that was included in cost of sales on the consolidated statement of operations as result of our review of our business operations in the current economic downturn. We utilized a future discounted cash flow model over five years to assess the net realizable value of our patents in our precision positioning systems product line. In addition, we recorded an impairment charge of $2,149 on our customer relationships and technology that was included in total in selling, general and administrative expenses and research, development and engineering expenses on the consolidated statement of operations, as noted in Note 2.

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NOTE 10: BANK LINE OF CREDIT

We had a $3,000 unsecured bank line of credit agreement bearing interest at our choice of either the prime rate (5.00% at June 30, 2008) or the one month LIBOR rate plus a variable interest rate of 1.0% to 2.5%, based on a pricing grid related to a certain debt ratio, adjusted quarterly. The agreement contained certain financial covenants which, among others, related to debt service and consolidated debt ratios. The line of credit expired in February 2009 and was not renewed. At June 30 2008, no amounts were outstanding under the bank line of credit.

NOTE 11: WARRANTY LIABILITY

A limited warranty is provided on our products for periods typically ranging from 3 to 24 months and allowances for estimated warranty costs are recorded during the period of sale. The determination of such allowances requires management to make estimates of product return rates and expected costs to repair or replace products under warranty. If actual return rates or repair and replacement costs, or both, differ significantly from management’s estimates, adjustments to recognize additional expense may be required.

As part of the asset purchase by Nanometrics, all related semiconductor systems will be warranted by us through June 2011. Nanometrics will provide warranty service and invoice us incurred expenses including a thirty percent mark-up. As of June 30, 2009, $162 of our warranty liability relates to these semiconductor systems.

The following is a reconciliation of the beginning and ending balances of our accrued warranty liability, which is included in the “other accrued expenses” line item in the consolidated balance sheets:

	June 30, 2009			June 30, 2008
Beginning balance	$	1,263		$	1,552
Reductions for payments made		(1,067	)		(1,012	)
Changes in accruals related to warranties issued in the current period		2,273			1,810
Changes in accrual related to pre-existing warranties		(855	)		(1,087	)
Ending balance	$	1,614		$	1,263

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NOTE 12: COMMITMENTS AND CONTINGENCIES

From time to time, we are subject to certain legal proceedings and claims that arise in the normal course of our business. During the twelve months ended June 30, 2009, we recorded a reserve of $1,360 for potential royalty claims. In the opinion of management, any excess settlement of the royalty claims above the amount recorded is not expected to have an adverse effect on our financial condition, results of operation, or liquidity.

We are aware of certain levels of contamination on our property which are below reportable levels. In addition, we are aware of certain contamination on an adjacent property that we formerly owned. The future effect of environmental matters, including potential liabilities, is often difficult to estimate. Presently, we are unable to determine or reasonably estimate the amount of costs, if any, that we might incur or for which we may potentially be responsible. We will record an environmental reserve when it is both probable that a liability has been incurred and the amount of any liability can be reasonably estimated, whether a claim has been asserted or unasserted.

We lease certain manufacturing equipment and facilities under operating leases, some of which include cost escalation clauses, expiring on various dates through fiscal 2014. Total lease expense, net, charged to operations was $2,420 (including $452 attributable to restructuring expense related to the Tucson manufacturing facility as described in Note 3), $1,844, and $1,363, in fiscal 2009, 2008, 2007, respectively. At June 30, 2009, the minimum future lease commitments under noncancellable leases payable over the remaining lives of the leases are as follows:

Year ending June 30,	Minimum Future Gross Lease Commitments
2010	$	1,563
2011		1,156
2012		380
2013		225
2014		68
Total minimum lease payments	$	3,392

Nanometrics, as part of the asset sale, has agreed to sublease our Oregon facility for approximately $90 per year through March 2013.

NOTE 13: PROFIT-SHARING PLAN

We maintain a deferred profit-sharing plan under which substantially all full-time employees are eligible to participate. The profit-sharing plan consists of a cash distribution and a 401(k) program. Profit-sharing cash distributions are determined annually at the discretion of the Board of Directors. There have been no profit sharing cash distributions for fiscal 2009. We also maintain a 401(k) tax deferred payroll deduction program and an Employee Stock Ownership Program. Under the 401(k) program, employees may contribute a tax-deferred amount of up to 60% of their compensation, as defined. We contribute to the 401(k) program based on matching up to 4% of an employee’s contributions. The 401(k) match has been suspended as of April, 1, 2009 as part of our cost-savings measures. Under the Employee Stock Ownership Program, we may, at the discretion of the Board of Directors, contribute our own stock or contribute cash to purchase our own stock. The purchased stock’s fair market value cannot exceed the maximum amount of employee stock ownership credit as determined under Section 416 of the Internal Revenue Code. Our contribution expenses related to the plans for the years ended June 30, 2009, 2008, and 2007, amounted to $967, $1,035, and $3,630, respectively.

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NOTE 14: SHARE-BASED COMPENSATION PLANS

Share-Based Compensation Plans

ZYGO has two share-based compensation plans. The Zygo Corporation 2002 Equity Incentive Plan (“2002 Plan”) permits the granting of stock options to purchase shares of common stock and the granting of restricted stock up to a total of 3,300,000 shares. The exercise price per share of common stock covered by an option may not be less than the par value per share on the date of grant, and in the case of an incentive stock option, the exercise price may not be less than the market value per share on the date of grant. These options generally vest over a four year period at a rate of 25% each year. Generally, restricted stock awards have 50% of their restrictions lapse after three years and the remaining 50% lapse after four years. The 2002 Plan will expire on August 27, 2012. Pursuant to the terms of the 2002 Plan, the Board of Directors may also amend the 2002 Plan to authorize the grant of other types of equity-based awards, without further action by our stockholders. Options issued to non-employee directors are now issued under this plan. As part of director’s compensation for services to our company, non-employee directors are granted 5,000 restricted shares, and the chairman of the board is granted 7,500 restricted shares, which vest after one year, on an annual basis and each new non-employee director will be granted options to purchase 16,000 shares of common stock on his or her first day of service, at the market value per share on the date of grant. These options will vest over a four year period at a rate of 25% each year.

The Zygo Corporation Amended and Restated Non-Employee Director Stock Option Plan (“Director Plan”) permits the granting of non-qualified options to purchase a total of 620,000 shares (adjusted for stock splits) of common stock at prices not less than the market value of the stock on the date of grant. Under the terms of the Director Plan, as amended on September 24, 1999, each new non-employee director (other than a person who was previously an employee of ZYGO or any of our subsidiaries) was granted an option to purchase 8,000 shares of common stock, generally, on his or her first day of service as a non-employee director; and each other non-employee director was granted an option to purchase 3,000 shares of common stock on an annual basis. All options were fully exercisable on the date of grant and had a 10-year term. The Director Plan, as amended, will expire on November 17, 2009. The Company ceased granting options under this plan in fiscal 2003 and does not intend to grant further options under the Director Plan.

On June 26, 2001, the Board of Directors granted a warrant to purchase 25,000 shares of our common stock to the Zetetic Institute, a non-profit organization that provides assistance to us in connection with certain research and development activities. The warrant has an exercise price of $18.64 per share, the closing price of the common stock on the date of the grant, and vested in equal annual increments over the four-year period following the date of grant. The warrant will expire in fiscal 2011.

We use the Black-Scholes option-pricing model to calculate the fair value of stock option awards. The key assumptions for this valuation method include the expected term of the option, stock price volatility, risk-free interest rate, dividend yield, exercise price, and forfeiture rate. Under the assumptions indicated below, the weighted-average fair value of stock option grants for fiscal 2009, 2008, and 2007 were $3.77, $4.99, and $6.23, respectively. The table below indicates the key assumptions used in the option valuation calculations for options granted in fiscal 2009, 2008, and 2007, and a discussion of our methodology for developing each of the assumptions used in the valuation model:

	Fiscal Years Ended June 30,
	2009			2008			2007
Term		4-4.6 Years			4.0 Years			4.1 Years
Volatility		45.5	%		45.7	%		52.1	%
Dividend yield		0.0	%		0.0	%		0.0	%
Risk-free interest rate		0.5-2.9	%		2.5-4.2	%		4.7-4.8	%
Forfeiture rate		9.5	%		11.0	%		10.7	%

Term – This is the period of time over which the options granted are expected to remain outstanding. Options granted generally have a maximum term of ten years. An increase in the expected term will increase compensation expense.

Volatility – This is a measure of the amount by which a price has fluctuated or is expected to fluctuate. Volatilities are based on implied volatilities from traded options of ZYGO’s shares and historical volatility of ZYGO’s shares. An increase in the expected volatility will increase compensation expense.

Risk-Free Interest Rate – This is the U.S. Treasury rate for the week of the grant having a term equal to the expected term of the option. An increase in the risk-free interest rate will increase compensation expense.

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Dividend Yield – We did not make any dividend payments during the last five fiscal years and we have no plans to pay dividends in the foreseeable future. An increase in the dividend yield will decrease compensation expense.

Forfeiture Rate – This is the estimated percentage of options granted that are expected to be forfeited or canceled before becoming fully vested. An increase in the forfeiture rate will decrease compensation expense.

Stock Options

Included in the information below are outstanding options from the Zygo Corporation Amended and Restated Non-Qualified Stock Option Plan which expired in fiscal 2003, to the extent the options remain available for exercise.

The following table summarizes information about our stock options granted under our share-based compensation plans for fiscal 2009, 2008, and 2007:

	June 30, 2009					June 30, 2008					June 30, 2007
	Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price
Outstanding at beginning of year		2,058,639		$	25.33		2,057,766		$	25.80		2,082,636		$	26.03
Granted		169,000		$	9.61		125,900		$	12.30		175,000		$	13.47
Exercised		(21,125	)	$	8.65		(69,848	)	$	8.44		(108,740	)	$	8.85
Expired or cancelled		(297,942	)	$	37.01		(55,179	)	$	34.05		(91,130	)	$	27.75
Options - Outstanding-end of year		1,908,572		$	22.72		2,058,639		$	25.33		2,057,766		$	25.80
Options vested or expected to vest		1,846,583		$	23.10		2,004,989		$	25.68		2,018,558		$	26.05
Options - Exercisable-end of year		1,573,272		$	25.19		1,718,789		$	27.95		1,668,766		$	29.13

At June 30, 2009, outstanding options at the end of the year had no intrinsic value with a weighted average remaining contractual life of 4.4 years. At June 30, 2009, options vested or expected to vest at the end of the year had no intrinsic value. In addition, exercisable options at the end of the year had no intrinsic value with a weighted average remaining contractual life of 3.5 years.

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The following table summarizes information about our stock options granted under our share-based compensation plans as of June 30, 2009.

	Options Outstanding						Options Exercisable
Range of Exercise Prices	Number Outstanding as of June 30, 2009		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price		Number Exercisable as of June 30, 2009		Weighted Average Exercise Price
$  5.09 - $  7.67		215,238		4.3	$	6.28		183,238	$	6.49
$  7.90 - $11.99		749,250		5.4	$	10.12		578,250	$	9.94
$12.29 - $18.64		635,914		4.8	$	14.62		503,614	$	15.04
$18.74 - $32.09		9,100		1.7	$	23.37		9,100	$	23.37
$33.18 - $65.69		17,600		1.3	$	44.39		17,600	$	44.39
$70.00 - $90.81		281,470		1.2	$	85.73		281,470	$	85.73
$  5.09 - $90.81		1,908,572		4.4	$	22.72		1,573,272	$	25.19

As of June 30, 2009, there was $1,165 of total unrecognized compensation cost related to stock options. These costs are expected to be recognized over a weighted average period of 2.31 years.

The total intrinsic value of stock options exercised was $56, $280, and $778 and the total fair value of stock awards vested was $754, $1,005, and 1,267 during the fiscal year ended June 30, 2009, 2008 and 2007, respectively.

Cash received from stock option exercises and the associated tax benefit for the fiscal year ended June 30, 2009 was $203.

Restricted Stock

The following table summarizes information about restricted stock awards granted under share-based compensation plans for the fiscal years ended June 30, 2009, 2008, and 2007:

	June 30, 2009					June 30, 2008					June 30, 2007
	Shares			Weighted Average Fair Value		Shares			Weighted Average Fair Value		Shares			Weighted Average Fair Value
Non vested balance at beginning of year		635,147		$	12.23		368,176		$	12.90		148,200		$	11.51
Granted		189,200		$	9.72		327,050		$	12.00		261,450		$	13.92
Vested		(213,060	)	$	11.63		(43,858	)	$	16.46		(8,457	)	$	16.33
Forfeited		(59,637	)	$	11.87		(16,221	)	$	11.86		(33,017	)	$	13.86
Non vested balance at end of year		551,650		$	11.46		635,147		$	12.23		368,176		$	12.90

As of June 30, 2009, there was $4,307 of total unrecognized compensation costs related to restricted stock awards. These costs are expected to be recognized over a weighted average period of 2.2 years.

At June 30, 2009, an aggregate of 1,210,537 shares remained available for future grants under our share-based compensation plans, which cover stock awards and stock options. We issue shares to satisfy stock option exercises and restricted stock awards, as applicable.

NOTE 15: EMPLOYEE STOCK PURCHASE PLAN

ZYGO cancelled its non-compensatory Employee Stock Purchase Plan (“ESPP”) during fiscal 2009. Under the ESPP, employees who elected to participate had the ability to purchase common stock at a 5% discount from the market value of such stock. The ESPP permitted an enrolled employee to make contributions to purchase shares of common stock by having withheld from his or her salary an amount between 1% and 10% of compensation. The total number of shares of common stock available under the ESPP was 500,000. At June 30, 2008 and 2007, we had withheld from employees $144 and $145, respectively, for the purchases of shares under this plan, and in July 2008 and 2007, we issued approximately 13,072 and 10,325 shares of common stock, respectively. In January 2009, we issued 12,897 shares of common stock under the plan.

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NOTE 16: INCOME TAXES

Total income tax expense (benefit) for each year is as follows:

	Fiscal Year Ended June 30,
	2009		2008			2007
Earnings from operations	$	22,066	$	1,542		$	9,132
Amounts charged to stockholders’ equity		279		(56	)		(164	)
	$	22,345	$	1,486		$	8,968

The income tax expense (benefit) for operations listed above were provided on the following pre-tax book income (loss) amounts:

	Fiscal Year Ended June 30,
	2009			2008			2007
Earnings (loss) from operations - U.S.	$	(39,440	)	$	(959	)	$	21,612
Earnings (loss) from foreign operations		(3,484	)		5,138			3,638
	$	(42,924	)	$	4,179		$	25,250

The provision (benefit) for income taxes consists of the following:

	Fiscal Year Ended June 30,
	2009			2008			2007
Current:
Federal	$	(20	)	$	44		$	403
State		185			(201	)		325
Foreign		1,190			2,078			1,626
		1,355			1,921			2,354
Deferred:
Federal		18,277			(246	)		6,411
State		2,567			221			439
Foreign		146			(354	)		(72	)
		20,990			(379	)		6,778
Total	$	22,345		$	1,542		$	9,132

The total income tax expense differs from the amount computed by applying the applicable U.S. federal income tax rate of 35% in fiscal 2009, 2008, and 2007 to earnings before income taxes for the following reasons:

	Fiscal Year Ended June 30,
	2009			2008			2007
Computed “expected tax expense (benefit)”	$	(15,023	)	$	1,463		$	8,837
Increases (reductions) in taxes resulting from:
State taxes, net of federal income tax benefit		1,789			13			497
Export tax incentives		—			—			(372	)
Research credit		—			—			(62	)
Permanent items		83			—			—
Foreign tax differential		584			(29	)		208
Deferred tax asset valuation allowance		36,037
Other, net		(1,125	)		95			24
	$	22,345		$	1,542		$	9,132

F - 25

The Company’s tax rate for fiscal 2007 was negatively impacted by the repeal of the EIE. The Company claimed a benefit on foreign trading income from foreign sales through December 31, 2006. The Company does not expect any significant tax benefit from the Manufacturing Deduction as provided in IRC Sec. 199 due to its net operating loss carryforward (“NOL”) position.

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities as of June 30, 2009 and 2008 are presented below:

	June 30, 2009			June 30, 2008
Deferred tax assets:
Accounts receivable	$	321		$	75
Accrued liabilities and other		6,297			1,388
Inventory valuation		1,349			2,908
Stock award compensation		2,486			2,039
Federal, foreign, and state net operating loss carryforwards and credits		29,950			20,377
Contributions		73			63
Deferred tax assets		40,476			26,850
Deferred tax liabilities:
Prepaid expenses		(152	)		(108	)
Property, plant, and equipment		(791	)		(3,492	)
Intangible assets		11			(277	)
Deferred tax liability		(932	)		(3,877	)
Net deferred tax assets before valuation allowance		39,544			22,973
Valuation allowance		(39,544	)		(2,105	)
Net deferred tax asset	$	—		$	20,868

The net current deferred tax assets and net non-current deferred tax assets as recorded on the balance sheet as of June 30, 2009 and 2008 are as follows:

	June 30, 2009		June 30, 2008
Net current deferrred tax asset	$	—	$	12,111
Net noncurrent deferred tax asset				8,757
Net deferred tax asset	$	—	$	20,868

The deferred tax provisions for 2009 and 2008 do not reflect the tax benefit (expense) of ($279) and $56, respectively, resulting from amounts charged to other comprehensive income and paid in capital, from the exercise of employee stock options.

Management believes, based upon the uncertain and volatile market conditions and the fact that the Company is now in a cumulative pre tax accounting loss position (exclusive of permanent items) over the evaluation period, it is no longer more likely than not that the current deferred tax assets, net of deferred tax liabilities, of $39,544 as of June 30, 2009 will be realized. The evaluation period used by the Company is three years. In future periods, the allowance could be reduced based on future positive evidence indicating that it is more likely than not that a portion of the deferred tax assets will be realized.

At June 30, 2009, our share of the cumulative undistributed earnings of foreign subsidiaries was $1,733. No provision has been made for U.S. or additional foreign taxes on the undistributed earnings of foreign subsidiaries because we intend to continue to reinvest these earnings. Determination of the amount of unrecognized deferred tax liability associated with these earnings is not practicable.

At June 30, 2009, we have federal, state, and foreign NOL carryforwards of approximately $56,253, $3,805, and $3,674, respectively, and various state and foreign credit carryforwards of $3,636 and $110. The federal NOL will expire from fiscal 2023 through fiscal 2028, while the state NOL and credits will expire from fiscal 2013 through fiscal 2028. The foreign NOL will begin to expire in 2014. We also have federal general business credit carryforwards of approximately $4,911, which are available to reduce federal income taxes, if any, through 2019 and begin to expire in 2012. In addition, the Company also has

F - 26

alternative minimum tax credit carryforwards of approximately $789, which are available to reduce future federal regular income taxes, if any, over an indefinite period. All deferred assets relating to the NOL’s and credits has been fully reserved in the valuation allowance at June 30, 2009.

We adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes,” on July 1, 2007. As a result of this adoption, we recognized a liability for unrecognized income tax benefits of $1,535, an increase in income tax receivables of $616, and a charge of approximately $919 to the July 1, 2007 retained earnings balance. As of the adoption date, we had gross tax-affected unrecognized tax benefits of $1,784, of which $1,168, if recognized, would affect the effective tax rate. Due to our net operating loss carryforwards, we have accrued no interest and penalties for the unrecognized tax benefits; however, our accounting policy is to recognize interest related to unrecognized tax benefits in interest expense. Penalties, if incurred, would be recognized as a component of income tax expense. In the normal course of business, we provide for uncertain tax positions and adjust our unrecognized tax benefits accordingly. For the year ended June 30, 2008, we recognized an additional liability of $88 for uncertain tax positions and for the year ended June 30, 2009, we released a reserve for $46. The total liability for unrecognized tax benefits was $1,826 at June 30, 2009. We are not aware of any other tax positions that would create a significant adjustment to the unrecognized tax benefits during July 1, 2008 through June 30, 2009.

The following table is a reconciliation of the beginning and ending balances of unrecognized tax benefits:

Unrecognized tax benefit, July 1, 2007	$	1,784
Gross increases - 2008 filing positions		88
Unrecognized tax benefit, June 30, 2008		1,872
Gross increases - current filing positions		(46	)
Unrecognized tax benefit, June 30, 2009	$	1,826

We are subject to U.S. federal income tax as well as income tax in multiple state and foreign jurisdictions. We are no longer subject to U.S. federal income tax audit or tax adjustments for years prior to June 30, 1997. We are no longer subject to state and foreign income tax audit or tax adjustments for years prior to June 30, 2005. We are currently under an income tax audit by the IRS for domestic taxes for the period ended June 30, 2007.

NOTE 17: SEGMENT REPORTING

Our business is organized into two operating divisions – Metrology Solutions (Metrology segment) and Optical Systems (Optics segment). Consistent with our business structure, we reported our segments as Metrology and Optics. The Metrology segment consists of OEM and in-line products primarily for the semiconductor and industrial markets. The Optics segment consists of components and opto-mechanical assemblies primarily for the medical, defense, and aerospace industries, which are included in the industrial market. The chief operating decision-maker uses this information to allocate resources.

	Fiscal Year Ended June 30,
	2009			2008			2007
Metrology
Sales	$	84,072		$	105,700		$	132,264
Gross profit		27,462			50,529			62,189
Gross profit as a % of sales		33	%		48	%		47	%
Optics
Sales	$	31,968		$	53,336		$	48,724
Gross profit		4,006			14,294			14,994
Gross profit as a % of sales		13	%		27	%		31	%
Total
Sales	$	116,040		$	159,036		$	180,988
Gross profit		31,468			64,823			77,183
Gross profit as a % of sales		27	%		41	%		43	%

F - 27

Separate financial information by segment for total assets, capital expenditures, and depreciation and amortization is not available and is not evaluated by the chief operating decision-maker.

Substantially all of our operating assets, depreciation, and amortization are U.S. based. Sales by geographic area based on shipping destination were as follows:

	Fiscal Year Ended June 30,
	2009		2008		2007
Americas:
America	$	53,999	$	75,596	$	71,330
Canada		1,457		1,551		—
Total Americas		55,456		77,147		71,330
Far East:
Japan		26,352		44,354		66,613
Pacific Rim		20,721		15,202		23,985
Total Far East		47,073		59,556		90,598
Europe		13,511		22,333		19,060
Total	$	116,040	$	159,036	$	180,988

NOTE 18: TRANSACTIONS WITH STOCKHOLDER

Sales to Canon, Inc., a stockholder representing approximately 7% ownership at June 30, 2009, and Canon Sales Co., Inc., a distributor of certain of our products in Japan and a subsidiary of Canon Inc. (collectively “Canon”), amounted to $16,229 (14% of net sales), $30,711 (19% of net sales), and $48,147 (27% of net sales), for the years ended June 30, 2009, 2008, and 2007, respectively. Substantially all of these sales occurred in the Metrology segment. Selling prices of products sold to Canon are based, generally, on the normal terms given to distributors. Revenues generated from development contracts were recorded on a cost-plus basis.

In September 2002, we entered into a contract with Canon related to the development of certain interferometers. In March 2004, we signed a preliminary agreement to begin further add-on work; the definitive agreement for this additional work was signed in December 2004. In February 2005, we entered into two additional agreements with Canon related to the development of prototype production tools and accessories. Work on these development services was completed during the third quarter of fiscal 2007. During fiscal 2007, we recognized revenue in the Metrology segment of $4,051, for the original contract and subsequent add-on work. At June 30, 2009 and 2008, there were, in the aggregate, $592 and $3,032, respectively, of trade accounts receivable from Canon.

NOTE 19: HEDGING ACTIVITIES

We enter into foreign currency forward contracts to reduce the impact of adverse fluctuations on earnings associated with foreign currency exchange rate changes. We do not enter into any derivative transactions for speculative purposes. These contracts are not designated as cash flow, fair value, or net investment hedges under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended, and therefore, are marked-to-market with changes in fair value recorded to earnings. These contracts are entered into for periods consistent with the currency transaction exposures, generally three to six months. Any gains and losses on the fair value of these contracts would largely offset corresponding losses and gains on the underlying transactions.

As of June 30, 2009, we had seven foreign currency forward contracts outstanding with notional amount aggregating to $3,170. Net unrealized (loss) gains recognized from foreign currency forward contracts for fiscal 2009, 2008 and 2007 was ($49), ($161), and $148, respectively, and are included in other income in the consolidated statements of operations. These gains or losses are substantially offset by foreign exchange losses or gains on intercompany balances recorded by our subsidiaries.

F - 28

NOTE 20: QUARTERLY RESULTS (UNAUDITED)

The following table sets forth certain unaudited quarterly financial data:

	For the Fiscal Year Ended June 30, 2009
	September 30,			December 31,			March 31,			June 30, (a)
Net sales	$	38,392		$	33,450		$	20,031		$	24,167
Gross profit (loss)	$	16,811		$	12,256		$	3,156		$	(755	)
Net earnings (loss)	$	503		$	(4,041	)	$	(15,101	)	$	(47,425	)
Basic earnings (loss) per share	$	0.03		$	(0.24	)	$	(0.90	)	$	(2.81	)
Diluted earnings (loss) per share	$	0.03		$	(0.24	)	$	(0.90	)	$	(2.81	)
	For the Fiscal Year Ended June 30, 2008
	September 30,			December 31,			March 31,			June 30,
Net sales	$	31,714		$	40,369		$	38,456		$	48,497
Gross profit	$	11,052		$	16,646		$	15,549		$	21,576
Net earnings (loss)	$	(944	)	$	1,179		$	(49	)	$	1,053
Basic earnings (loss) per share	$	(0.05	)	$	0.07		$	—		$	0.06
Diluted earnings (loss) per share	$	(0.05	)	$	0.07		$	—		$	0.06

(a) Significant fourth quarter fiscal 2009 charges consisted of a valuation allowance on deferred tax assets of $35,805, asset impairment charges of $7,498, provision for doubtful accounts $1,961, and severance and restucturing charges of $1,290.

*     *     *     *     *

F - 29

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
Zygo Corporation
Middlefield, Connecticut

We have audited the consolidated financial statements of Zygo Corporation and subsidiaries (the “Company”) as of June 30, 2009 and 2008, and for each of the three years in the period ended June 30, 2009, and the Company’s internal control over financial reporting as of June 30, 2009, and have issued our report thereon dated September 14, 2009 (which report expresses an unqualified opinion and includes an explanatory paragraph relating to the adoption of Financial Accounting Standards Board Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109”, on July 1, 2007); such consolidated financial statements and report is included elsewhere in this Annual Report on Form 10-K. Our audits also included the consolidated financial statement schedule of the Company listed on page F-1 of this Annual Report on Form 10-K. This consolidated financial statement schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

/s/ Deloitte & Touche LLP

Hartford, Connecticut
September 14, 2009

S - 1

ZYGO CORPORATION AND CONSOLIDATED SUBSIDIARY

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

Years ended June 30, 2009, 2008, and 2007

(Thousands of dollars)

Description	Balance at Beginning of Year		Provision			Write-Offs and Other		Balance at End of Year
Year Ended June 30, 2009
Allowance for doubtful accounts	$	349	$	3,142		$	941	$	2,550
Valuation allowance on net deferred tax assets	$	2,105	$	37,439		$	—	$	39,544
Year Ended June 30, 2008
Allowance for doubtful accounts	$	333	$	566		$	550	$	349
Valuation allowance on net deferred tax assets	$	2,170	$	(65	)	$	—	$	2,105
Year Ended June 30, 2007
Allowance for doubtful accounts	$	588	$	(245	)	$	10	$	333
Valuation allowance on net deferred tax assets	$	1,630	$	564		$	24	$	2,170

S - 2

EXHIBIT INDEX

EXHIBIT TABLE NUMBER
	10.30	Asset Transfer Agreement, dated as of June 17, 2009, by and between Zygo Corporation and Nanometrics Corporation.
	10.31	Supply Agreement, dated as of June 17, 2009, by and between Zygo Corporation and Nanometrics Corporation.
	10.32	Employment contract dated November 16, 2007 between Zygo Corporation and David Person.
	21	Subsidiaries of Registrant
	23.1	Consent of Independent Registered Public Accounting Firm
	31.1	Certification Pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	31.2	Certification Pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	32.1	Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	32.2	Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

EX-10.30

EXHIBIT 10.30

EXECUTION COPY

ASSET TRANSFER AGREEMENT

This Asset Transfer Agreement (this "Agreement") dated as of June 17, 2009, is entered into by and between Zygo Corporation, a Delaware corporation (“Zygo”), and Nanometrics Incorporated, a Delaware corporation (“Nano”).

RECITALS

A.Zygo has developed and is the owner of certain technology related to interferometers (the “Automated Interferometers”), including the "heads," the control, monitoring and analysis software, and electronic control systems, as well as the automation of the systems that use these technologies.

B.Zygo seeks to establish a relationship with Nano, and Nano intends to establish a relationship with Zygo, pursuant to which Nano becomes the exclusive provider of the product referred to by Zygo as the "Unifire" and other Approved Systems (as defined below) in the Approved Markets (as defined below) that incorporate Heads (as defined below), subject to the terms and conditions hereof, and in that certain Supply Agreement, dated as of the Closing Date, by and between Zygo and Nano, attached hereto as Exhibit D (the “Supply Agreement”).

AGREEMENT

In consideration of the foregoing and the respective representations, warranties, covenants and agreements contained in this Agreement and the Supply Agreement, and other good and valuable consideration, the receipt and sufficiency of which each of the parties hereby acknowledges, and intending to be legally bound hereby, the parties agree as follows:

ARTICLE I

PURCHASE OF ASSETS AND ASSUMPTION OF LIABILITIES

1.1Transfer of Assets. Upon and subject to the terms and conditions of this Agreement, Zygo shall transfer, convey, assign and deliver to Nano at the Closing, for the consideration specified in Section 1.3 below, (a) all right, title and interest in, to and under the Acquired Assets (which are listed on Schedule A-1 hereto), and (b) subject to Section 4.6 hereof, all its rights and obligations under the Assigned Contracts (which are listed on Schedule A-2 hereto).

1.2Assumption of Liabilities. Upon and subject to the terms and conditions of this Agreement, Nano shall assume as of the Closing and become responsible for the Assumed Liabilities (which are listed on ScheduleB hereto).

1.3Consideration. The consideration for the transfer of assets is the execution of the Supply Agreement and this Agreement, and the related covenants of Nano hereunder and thereunder.

1.4          The Closing.

(a)          The Closing shall take place at the offices of Fulbright & Jaworski L.L.P. in New York, New York, commencing at 1:00 p.m. local time on the Closing Date. All transactions at the Closing shall be deemed to take place simultaneously, and no transaction shall be deemed to have been completed and no documents or certificates shall be deemed to have been delivered until all other transactions are completed and all other documents and certificates are delivered.

(b)          At the Closing:

(i)           Zygo shall execute and deliver to Nano a bill of sale in the form attached hereto as Exhibit A (the “Bill of Sale”), and such other instruments of conveyance as Nano may reasonably request in order to (A) effect the sale, transfer, conveyance and assignment to Nano of valid ownership of the Acquired Assets, and (B) subject to Section 4.6 hereof, assign to Nano all its rights and obligations under the Assigned Contracts;

(ii)          Zygo shall deliver to Nano, or otherwise put Nano in possession and control of, all of the Acquired Assets of a tangible nature;

(iii)         Nano and Zygo shall execute and deliver to each other a cross-receipt evidencing the transactions referred to above;

(iv)         Nano shall execute an instrument of assumption in substantially the form attached hereto as Exhibit B (the “Assumption Agreement”) to effect the assumption of the Assumed Liabilities;

(v)          Nano and Zygo shall execute and deliver to each other the Supply Agreement; and

(vi)         Nano and Zygo shall execute and deliver to each other the Sublease Agreement.

(c)          As soon as practicable after the Closing, but in any event prior to the shipment by Zygo to Nano of the Purchased Inventory or the Demo Equipment, Nano shall execute and deliver to Zygo a security agreement granting Zygo a first perfected security interest

- 2 -

in the Purchased Inventory and Demo Equipment (as later defined), and a corresponding UCC-1 financing statement, both in a form reasonably acceptable to Zygo, to ensure Zygo’s receipt of the Purchased Inventory Purchase Price and Demo Equipment Purchase Price or the return of such transferred assets.

1.5          Sublease of Hillsboro Facility.

(a)          At Closing, Nano and Zygo shall enter into a sublease agreement (the "Sublease Agreement") pursuant to which Nano will sublease from Zygo, and Zygo will sublease to Nano, Zygo's facility located at 2925 N.W. Aloclek Drive, Suite # 100 Hillsboro, Oregon (the “Oregon Facility”), consisting of 6,410 square feet of space, through December 31, 2012, for monthly rent in an amount equal to the current base rent and any other charges otherwise payable by Zygo under its existing lease of the Oregon Facility.

(b)           As of the Closing, Nano and Zygo agree as follows

(i)           Zygo hereby leases to Nano and Nano hereby leases from Zygo, for the monthly rent equal to the amortization of the fixed assets described in Section 2.15 of Exhibit C over the life of the Sublease Agreement based on an interest rate of zero percent, the Personal Property (as hereinafter defined) on the terms and conditions of this Section 1.5(b). The term “Personal Property” means certain improvements, furniture, phone system and fixed assets described in Section  2.7 of Exhibit C. This lease of Personal Property shall expire and terminate at such time the Sublease Agreement shall expire or earlier terminate. This lease of Personal Property and any conveyance of Personal Property are made AS-IS, WHERE-IS, without any warranty of merchantability of suitability for any particular purpose, all rights waived by Nano.

(ii)          Nano shall maintain the Personal Property in its existing condition, ordinary wear and tear excepted, at its sole cost and expense. Nano shall bear the entire risk of loss or damage to the Personal Property during the term of this lease, and Nano shall insure the Personal Property at all times against risks of loss or damage by fire, theft and such other risks as may be covered by the insurance generally carried by Nano in respect of its personal property. All insurance proceeds shall be payable to Nano, and Nano shall pay to Zygo all insurance proceeds paid to Nano in respect of the Personal Property. Nano may not remove the Personal Property from the Oregon Facility without the consent of Zygo. Nano shall not grant any security interest in the Personal Property or in any other manner assign, pledge, hypothecate, mortgage, lease, sublease, encumber or otherwise transfer the Personal Property or its interest in the Personal Property.

(iii)        Upon termination of this lease of Personal Property, Nano shall return the Personal Property to Zygo in the condition in which it was leased to Nano, ordinary wear and tear excepted.

- 3 -

1.6       Payment for Inventory.

(a)          Nano is purchasing the inventory described in Schedule A-1 (the “Purchased Inventory”) for $2,014,000, subject to adjustment after Closing pursuant to Section 1.6(c) hereof (the “Purchased Inventory Purchase Price”). Nano shall pay for the Purchased Inventory in the manner described in this Section. Within ten (10) days after the end of the month in which Nano receives payment on the sale by Nano of each Automated Interferometer System that includes Purchased Inventory, Nano shall pay to Zygo an amount equal to the price paid to Nano by Nano's customer for such entire system (adding back the dollar amount of any set-offs or other types of credits, or reductions to the purchase price actually applied, for amounts Nano may otherwise owe to such customer) but reducing such by the cost of the Head included in the Automated Interferometer System (which will be paid for in accordance with the Supply Agreement), to be applied toward the Purchased Inventory Purchase Price, until the total Purchased Inventory Purchase Price has been paid in full, and thereafter to the Demo Equipment Purchase Price (as defined below) until such amount has been paid in full. For example, if Nano sells an Automated Interferometer System for $1,200,000 that includes any Purchased Inventory, and the outstanding balance of the Purchased Inventory Purchase Price exceeds $1,200,000 at the time of such sale, then Nano shall pay to Zygo the amount of $1,200,000 less the cost of the Head included in such System (which will be paid for in accordance with the Supply Agreement) within ten (10) days after the end of the month in which Nano receives payment from Nano's customer, and such amount shall be applied toward the outstanding balance of the Purchased Inventory Purchase Price.

(b)          Nano hereby agrees that, from and after the Closing Date until such time as the Purchased Inventory Purchase Price and the Demo Equipment Purchase Price have been paid in full (or, in the case of subsection (b)(v) below, until 30 days following the calendar quarter during which the last of such outstanding amounts shall have been paid in full):

(i)           in the production of any Automated Interferometer System, Nano shall first utilize the Purchased Inventory prior to utilizing alternatively available inventory

(ii)          Nano shall not use Purchased Inventory for any purpose other than the production of such systems or in connection with providing warranty service or other service with respect to Automated Interferometer Systems sold by Zygo or by Nano;

(iii)         Nano shall sell the Automated Interferometer System for cash consideration (including a check or money order) and shall set pricing based on its standard practices for ordinary course arms-length third party transactions (“Standard Prices”);

(iv)         Nano shall make diligent efforts, consistent with its historical practice, to collect payment for all sales of its Automated Interferometer Systems as to which all or any portion of such payment shall be paid to Zygo pursuant to the provisions of Sections 1.6 and/or 1.7 hereof; and

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(v)          No later than 30 days following each calendar quarter, Nano will provide Zygo with a statement of its sales of Automated Interferometer Systems, certified by Nano’s Chief Financial Officer. Upon reasonable notice, and at Zygo’s cost and expense, Nano will permit Zygo and its representatives to audit Nano’s books and records as they pertain to sales of Automated Interferometer Systems; provided that if an audit reveals discrepancy of greater than the lesser of (x) $50,000 or (y) five (5) times aggregate dollar sales, then the cost and expense of such audit shall be borne by Nano.

(c)          No later than fifteen (15) business days after the Closing Date, Zygo shall perform a physical inventory on the Purchased Inventory in accordance with generally accepted accounting principles applied consistently with Zygo’s past practices. Nano, or their respective representatives, shall observe the taking of the inventory at its sole cost and expense. Disputes between Zygo and Nano with respect to the merchandise inventory shall be resolved by Zygo and Nano at the time the physical inventory is being taken. The results of the inventory shall conclusively be deemed to be the Purchased Inventory for purposes of this Agreement. As part of this inventory, Zygo shall determine the book value of the Purchased Inventory as of the Closing Date, in accordance with generally accepted accounting principles applied consistently with Zygo’s past practices. The determination of the book value of the Purchased Inventory as of the Closing Date pursuant to this Section 1.6(c), shall, for all purposes of this Agreement, be the Purchased Inventory Purchase Price. All work sheets used in determining the foregoing shall be signed by Zygo and Nano or their respective representatives.

1.7          Payment for Demo Equipment. Nano is purchasing the Demo equipment described in Schedule A-1 (the “Demo Equipment”) for $1,583,224.66, which the parties hereby agree is the net book value (NBV) thereof as of the Closing Date (the “Demo Equipment Purchase Price”). Nano shall pay for such equipment in the manner described in this Section. After the outstanding balance of the Purchased Inventory Purchase Price shall have been reduced to zero pursuant to Section 1.6 of this Agreement, then within ten (10) days after the end of the month in which Nano receives payment on the sale by Nano of each Automated Interferometer System, Nano shall pay to Zygo an amount equal to the price paid to Nano by Nano's customer for such system, to be applied toward the price of the Demo Equipment, until the Demo Equipment Purchase Price shall have been paid in full. For example, if, after the Purchased Inventory Purchase Price shall have been reduced to zero pursuant to Section 1.6 of this Agreement, Nano sells an Automated Interferometer System for $1,200,000 and the outstanding balance of the Demo Equipment Purchase Price exceeds $1,200,000 at the time of such sale, then Nano shall pay to Zygo the amount of $1,200,000 within ten (10) days after the end of the month in which Nano receives payment of $1,200,000 from Nano's customer, and such $1,200,000 shall be applied toward the outstanding balance of the Demo Equipment Purchase Price.

1.8        [...*...].

_________________________

* CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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1.9          Full Payment of Acquired Assets. Notwithstanding the provisions of Sections 1.6 and 1.7 above or any other provision of this Agreement, full payment by Nano to Zygo for the Purchased Inventory Purchase Price and Demo Equipment Purchase Price shall be completed (paid in full) no later than ten (10) business days after the first anniversary of the Closing.

ARTICLE II

REPRESENTATIONS AND WARRANTIES OF ZYGO

Zygo represents and warrants to Nano that the statements contained in this Article II are true and correct as of the date of this Agreement, except to the extent such representations and warranties are specifically made as of a particular date (in which case such representations and warranties will be true and correct as of such date).

The Disclosure Schedule attached hereto as Exhibit C is arranged in sections and subsections corresponding to the numbered and lettered sections and subsections contained in this Article II. The disclosures in any section or subsection of the Disclosure Schedule will qualify the corresponding section or subsection in this Article II and any other sections or subsections to which their applicability is reasonably apparent. For purposes of this Article II, the phrase “to the knowledge of Zygo” or any phrase of similar import shall be deemed to refer to the actual knowledge (without independent inquiry or investigation) of the Key Persons.

2.1          Organization, Qualification and Corporate Power. Zygo is a corporation duly organized, validly existing and in corporate and tax good standing under the laws of the State of Delaware and has all requisite corporate power and authority to carry on the Business and to own and use the properties owned and used by it in the Business. Zygo is qualified to do business and is in corporate and tax good standing in the state of Oregon.

2.2          Authorization of Transaction. Zygo has all requisite power and authority to execute and deliver this Agreement and the Ancillary Documents and to perform its obligations hereunder and thereunder. The execution and delivery by Zygo of this Agreement and the Ancillary Documents, the performance by Zygo of this Agreement and the Ancillary Documents and the consummation by Zygo of the transactions contemplated hereby and thereby have been duly and validly authorized by all necessary corporate action on the part of Zygo. Each of this Agreement and the Ancillary Documents has been duly and validly executed and delivered by Zygo and constitutes a valid and binding obligation of Zygo, enforceable against Zygo in accordance with its terms, except as enforceability may be limited by (a) applicable bankruptcy, insolvency, reorganization, fraudulent transfer, moratorium or similar laws in effect from time to time affecting creditors’ rights generally, and (b) general principles of law or equity.

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2.3          Noncontravention. Neither the execution and delivery by Zygo of this Agreement and the Ancillary Documents, nor the consummation by Zygo of the transactions contemplated hereby or thereby, will (a) conflict with or violate any provision of the Certificate of Incorporation or by-laws of Zygo, (b) except for required filings with the Securities and Exchange Commission, or other public company filings, require on the part of Zygo any notice to or filing with, or any permit, authorization, consent or approval of, any Governmental Entity, (c) conflict with, result in a breach of, constitute (with or without due notice or lapse of time or both) a default under, result in the acceleration of obligations under, create in any party the right to terminate, modify or cancel, or require any notice, consent or waiver under, any contract or instrument to which Zygo is a party or by which Zygo is bound, or (d) result in the imposition of any Security Interest upon any Acquired Assets, except, in all instances of (b), (c) and (d) above, for (i) any conflict, breach, default, acceleration, termination, modification or cancellation which would not adversely affect the consummation of the transactions contemplated hereby or (ii) any notice, consent or waiver the absence of which would not adversely affect the consummation of the transactions contemplated hereby.

2.4       Ownership and Condition of Acquired Assets.

(a)          Zygo is the true and lawful owner, and has good title to, all of the Acquired Assets, free and clear of all Security Interests. Upon execution and delivery by Zygo to Nano of the instruments of conveyance referred to above, Nano will receive the Acquired Assets, free and clear of all Security Interests, except as provided in Section 1.4(b)(iv) hereof.

(b)          Each tangible Acquired Asset listed on Schedule A-1 is free from material defects, has been maintained in accordance with normal industry practice, is in good operating condition and repair (subject to normal wear and tear) and is suitable for the purposes for which it presently is used.

(c)          Schedule A-1 lists individually all Acquired Assets which are Demo Equipment, indicating the cost, accumulated book depreciation (if any) and the net book value of each such fixed asset as of the Closing Date.

2.5          Intellectual Property. None of the Acquired Assets infringes, misappropriates or otherwise violates any patent, copyright, mask work right, trademark right, trade dress right, trade secret right, or other intellectual property right of any Person. The use, sale, export and import of such Acquired Assets do not infringe or misappropriate any intellectual property rights of any Person. Zygo makes the representations and warranties in this Section only as to the Acquired Assets that have not been modified in any way after delivery to Nano hereunder where the modification causes any claimed infringement.

2.6          Inventory. All inventory included in the Acquired Assets consists of a quality and quantity usable and saleable in the ordinary course of business, except for obsolete items and items of below standard quality which are identified in Section 2.6 of Exhibit C.

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2.7          Contracts. Zygo has delivered to Nano a complete and accurate copy of each of the Assigned Contracts. With respect to each Assigned Contract: (i) the agreement is legal, valid, binding and enforceable and in full force and effect; (ii) subject to obtaining the consent contemplated by Section 4.6 hereof, the agreement is assignable by Zygo to Nano and will continue to be legal, valid, binding and enforceable and in full force and effect immediately following the Closing in accordance with the terms thereof as in effect immediately prior to the Closing; and (iii) neither Zygo nor, to the knowledge of Zygo, any other party, is in material breach or violation of, or default under, any such agreement, and no event has occurred, is pending or, to the knowledge of Zygo, is threatened, which, after the giving of notice, with lapse of time, or otherwise, would constitute a material breach or default by Zygo or, to the knowledge of Zygo, any other party under such agreement.

2.8          Litigation. There is no Legal Proceeding which is pending or, to Zygo’s knowledge, has been threatened against Zygo related to the Business or the Acquired Assets. There are no judgments, orders or decrees outstanding against Zygo related to the Business or the Acquired Assets.

2.9          Warranties. No product or service manufactured, sold, leased, licensed or delivered by Zygo, the obligation of which is being assumed by Nano, in connection with the Business is subject to any guaranty, warranty, right of return, right of credit or other indemnity other than (i) the applicable standard terms and conditions of sale or lease of Zygo, which are set forth in the Assigned Contracts, and (ii) manufacturers’ warranties for which Zygo has no liability.

2.10       Employees. Section 2.10 of Exhibit C contains a list of all employees (and their status of citizenship) of Zygo whose services relate primarily to the Business. To the knowledge of Zygo, no employee or group of employees listed on Schedule 4.4 hereto has informed Zygo that such employee(s) plan not to accept employment with Nano if so offered by Nano. Zygo is not a party to or bound by any collective bargaining agreement, and has not experienced any strikes, grievances, claims of unfair labor practices or other collective bargaining disputes that relate to the Acquired Assets or the employees of Zygo listed on Schedule 4.4 hereto. Zygo has no knowledge of any organizational effort made or threatened, either currently or within the past two years, by or on behalf of any labor union with respect to the employees of Zygo listed on Schedule 4.4 hereto.

2.11       Legal Compliance. Zygo is currently conducting, and has at all times in the past two years conducted, the Business in compliance with each applicable law (including rules and regulations thereunder) of any federal, state, local or foreign government, or any Governmental Entity, except for any violations or defaults that, individually or in the aggregate, have not had and would not reasonably be expected to be materially adverse to the Business as a whole. To Zygo’s knowledge, it has not received any notice or communication from any Governmental Entity alleging noncompliance with any applicable law, rule or regulation related to the Business.

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2.12       Customers and Suppliers. Section 2.12 of Exhibit C sets forth a list of each supplier that is the sole supplier of any significant product or service to Zygo related to the Business. Section 2.12 also sets forth a list of each customer of the Business, and each party with whom Zygo has engaged over the past twelve months as a prospective customer of the Business, including a summary description of the status of such engagement. To Zygo’s knowledge, no such customer or supplier has indicated within the past year that it will stop, or decrease the rate of, buying products or supplying products, as applicable, to Zygo. No purchase order or commitment of Zygo which is an Assigned Contract was in excess of normal requirements at the time entered into.

2.13       Permits. To Zygo’s knowledge, there are no material permits, licenses, rights, registrations or other authorizations (collectively, “Permits”) required in connection with Zygo’s conduct of the Business. Notwithstanding the foregoing, Nano’s sole recourse with respect to a breach of this representation shall be fulfillment of Zygo’s obligations under Section 4.12 hereof.

2.14       Brokers’ Fees. Zygo has no liability or obligation to pay any fees or commissions to any broker, finder or agent with respect to the transactions contemplated by this Agreement.

2.15       Fixed Assets. Section 2.15 of Exhibit C sets forth a list or description of all fixed assets located in the Oregon Facility that are the subject of the Sublease Agreement. There are no liens on such fixed assets, other than customary landlord’s liens.

2.16       Lease for the Oregon Facility. Attached as Section 2.16 of Exhibit C is a true and correct copy of Zygo's lease of the Oregon Facility (the "Lease"). Zygo has paid all amounts due to date under the Lease and has performed all obligations of Zygo required to date under the Lease.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF NANO

Nano represents and warrants to Zygo that the statements contained in this Article III are true and correct as of the date of this Agreement.

3.1          Organization and Corporate Power. Nano is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Nano has all requisite corporate power and authority to carry on the businesses in which it is engaged and to own and use the properties owned and used by it.

3.2          Authorization of the Transaction. Nano has all requisite power and authority to execute and deliver this Agreement and the Ancillary Documents and to perform its obligations hereunder and thereunder. The execution and delivery by Nano of this Agreement and the

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Ancillary Documents and the consummation by Nano of the transactions contemplated hereby and thereby have been duly and validly authorized by all necessary corporate action on the part of Nano. This Agreement has been duly and validly executed and delivered by Nano and constitutes a valid and binding obligation of Nano, enforceable against it in accordance with its terms, except as enforceability may be limited by (a) applicable bankruptcy, insolvency, reorganization, fraudulent transfer, moratorium or similar laws in effect from time to time affecting creditors’ rights generally, and (b) general principles of law or equity.

3.3          Noncontravention. Neither the execution and delivery by Nano of this Agreement or the Ancillary Documents, nor the consummation by Nano of the transactions contemplated hereby or thereby, will (a) conflict with or violate any provision of the Certificate of Incorporation or by-laws of Nano, (b) except for required filings with the Securities and Exchange Commission, or other public company filings, require on the part of Nano any filing with, or permit, authorization, consent or approval of, any Governmental Entity, (c) conflict with, result in breach of, constitute (with or without due notice or lapse of time or both) a default under, result in the acceleration of obligations under, create in any party any right to terminate, modify or cancel, or require any notice, consent or waiver under, any contract or instrument to which Nano is a party or by which it is bound or to which any of its assets is subject, except for (i) any conflict, breach, default, acceleration, termination, modification or cancellation which would not adversely affect the consummation of the transactions contemplated hereby or (ii) any notice, consent or waiver the absence of which would not adversely affect the consummation of the transactions contemplated hereby, or (d) violate any order, writ, injunction, decree, statute, rule or regulation applicable to Nano or any of its properties or assets.

3.4          Use of Technology. In addition to selling the Zygo Unifire system, Nano is entering into this Agreement and the Supply Agreement with the current intention of using commercially reasonable efforts to market and sell all four types of systems enumerated as clauses (a) through (d) in the definition of "Approved Systems."

3.5          Viability. To Nano's knowledge, it has sufficient resources, financial and otherwise, to satisfy each of its obligations hereunder and under the Supply Agreement as each comes due.

ARTICLE IV

COVENANTS

4.1          Proprietary Information. From and after the Closing, neither Party shall disclose or make use of (except to pursue its rights under this Agreement or the Ancillary Documents), and each Party shall use its best efforts to cause all of its Affiliates or other advisors or representatives not to disclose or make use of, any knowledge, information or documents of a confidential nature or not generally known to the public with respect to Acquired Assets, the Business or the other Party or its business (including the financial information, technical

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information or data relating to its products and names of its customers), except to the extent that such knowledge, information or documents shall have become public knowledge other than through improper disclosure by such Party or an Affiliate or other advisor or representative thereof. Notwithstanding the foregoing, nothing in this Agreement shall be construed to prevent Zygo or Nano from making its required filings with the Securities and Exchange Commission, or other public company filings, including without limitation any filing requiring attachment of this Agreement or the Supply Agreement as an exhibit.. Zygo shall use commercially reasonable efforts to enforce, for the benefit of Nano, all confidentiality agreements, invention assignments and similar agreements between such party and any other party relating to the Acquired Assets.

4.2          Non-Competition.

(a)          During the term of the Supply Agreement and for a period of twelve months thereafter, Zygo shall not, either directly or indirectly as a stockholder, investor, partner, consultant or otherwise, market or sell Automated Interferometer Systems in Approved Markets, or sell Heads or Automated Interferometer Systems to any other Person with the actual knowledge that such Person will utilize the Heads in Automated Interferometer Systems in Approved Markets. Zygo shall enforce, for the benefit of Nano, all non-competition and similar agreements between Zygo and any other party which are not Assigned Contracts, in all instances only to the extent such agreements would prevent such third party from marketing or selling Approved Systems in Approved Markets. Notwithstanding the foregoing or anything to the contrary in this Agreement, nothing herein shall prevent Zygo from providing, directly or indirectly, (i) Automated Interferometer Systems in any markets other than the Approved Markets or (ii) any other products, including without limitation laboratory systems, semi-automated systems, and stage metrology systems (such as distance measuring interferometry systems) in any market.

(b)          Zygo agrees that the duration and geographic scope of the non-competition provisions set forth in this Section are reasonable. In the event that any court determines that the duration or the geographic scope, or both, are unreasonable and that such provision is to that extent unenforceable, the Parties agree that the provision shall remain in full force and effect for the greatest time period and in the greatest area that would not render it unenforceable.

4.3          Cooperation in Litigation. From and after the Closing Date, each Party shall fully cooperate with the others in the defense or prosecution of any litigation or proceeding already instituted or which may be instituted hereafter against or by such Party relating to or arising out of the conduct of the Business by Zygo or Nano prior to or after the Closing Date (other than litigation among the Parties and/or their Affiliates arising out the transactions contemplated by this Agreement). The Party requesting such cooperation shall pay the reasonable out-of-pocket expenses incurred in providing such cooperation (including legal fees and disbursements) by the Party providing such cooperation and by its officers, directors, employees and agents, but shall not be responsible for reimbursing such Parties or their officers, directors, employees and agents, for their time spent in such cooperation.

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4.4          Employees. Nano will offer employment as of the Closing Date to, and hire if such offer is accepted, and Zygo hereby consents to the hiring by Nano of, those employees listed on Schedule 4.4 hereto. Nano hereby agrees that it will offer employment to such persons on substantially similar terms as those provided to such persons by Zygo, which terms Nano acknowledges have been disclosed in writing by Zygo to Nano prior to the date of this Agreement. Nano hereby agrees that, from and after the Closing Date, it will be responsible for any separation, termination or similar costs or other payments to each employee listed on Schedule 4.4 (the "Obligations") provided that (a) such employee accepts employment with Nano and commences work for Nano after the date hereof, and (b) Nano has offered such rights to the particular employee. Zygo hereby waives, with respect to the employment by Nano of such employees, any claims or rights Zygo may have against Nano or any such employee under any non-competition, confidentiality or employment agreement, to the extent it relates to the Business.

4.5          Warranty Claims. Nano shall assume as of the Closing, and become responsible for, all warranty obligations of Zygo related to any Automated Interferometer, any Automated Interferometer System or component of any Automated Interferometer System, in all instances to the extent sold by Zygo prior to the signing of this Agreement in Nano’s Field of Use. In furtherance thereof, Nano agrees to perform all such warranty obligations and to maintain sufficiently qualified personnel in order to satisfy its obligations hereunder. With respect to each such warranty claim actually made, Zygo shall pay to Nano, within thirty (30) days after receiving Nano's invoice, an amount equal to (a) all direct, actual costs incurred by Nano in responding to such warranty claim and performing the applicable warranty obligations, plus (b) 30% of such costs. This clause is not applicable for warranty claims for heads or components sold by Zygo to Nano after this Agreement is signed.

4.6       [...*...].

4.7       [...*...].

4.8          Assigned Contracts. Nano shall perform, in accordance with the terms of all Assigned Contracts, the obligations of Zygo arising thereunder after the Closing.

4.9          Assumed Liabilities. Nano shall satisfy all Assumed Liabilities in accordance with the terms thereof.

4.10       Oregon Facility Assets. Zygo shall not at any time remove from the Oregon Facility any of the equipment, furniture, furnishings, phone system, fixed assets or supplies located at the Oregon Facility (other than letterhead stationery and similar supplies that contain Zygo's name or trademarks). Nano shall not at any time remove from the Oregon Facility any of

_________________________

* CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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the equipment, furniture, furnishings, phone system, fixed assets or supplies provided by Zygo at the Oregon Facility.

4.11       Contracts. Zygo agrees that, to the extent the Assigned Contracts and the rights obtained by Nano under this Agreement and the Supply Agreement are insufficient to conduct the Business from and after the Closing in the manner it was conducted by Zygo prior to the Closing, then Zygo shall, at Zygo’s expense, use commercially reasonable efforts to provide Nano with such rights as would be sufficient to so conduct the Business.

4.12       Permits. Zygo agrees that, to the extent any Permits were required but not obtained prior to the Closing, in connection with Zygo’s conduct of the Business prior to the Closing, and such failure to hold any such Permit results in any Damages to Nano, then Zygo shall, at Zygo’s expense, use commercially reasonable efforts to obtain such Permits.

ARTICLE V

INDEMNIFICATION

5.1          Indemnification by Zygo. Zygo shall indemnify Nano in respect of, and hold Nano harmless against, Damages incurred or suffered by Nano or any Affiliate thereof resulting from, relating to or constituting:

(a)          any breach, as of the date of this Agreement, of any representation or warranty of Zygo contained in this Agreement, any Ancillary Document or any other agreement or instrument furnished by Zygo to Nano pursuant to this Agreement, or

(b)          any failure to perform any covenant or agreement of Zygo contained in this Agreement, any Ancillary Document or any other agreement or instrument furnished by Zygo to Nano pursuant to this Agreement.

5.2          Indemnification by Nano. Nano shall indemnify Zygo in respect of, and hold it harmless against, any and all Damages incurred or suffered by Zygo resulting from, relating to or constituting:

(a)          any breach, as of the date of this Agreement, of any representation or warranty of Nano contained in this Agreement, any Ancillary Document or any other agreement or instrument furnished by Nano to Zygo pursuant to this Agreement,

(b)          any failure to perform any covenant or agreement of Nano contained in this Agreement, any Ancillary Document or any other agreement or instrument furnished by Nano to Zygo pursuant to this Agreement,

(c)          any failure to perform any obligation assumed by Nano pursuant to the Assigned Contracts, or

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 (d)      any Assumed Liability.

5.3      Indemnification Claims

An Indemnified Party shall give written notification to the Indemnifying Party of the commencement of any Third Party Action. Such notification shall be given within 20 days after receipt by the Indemnified Party of notice of such Third Party Action, and shall describe in reasonable detail (to the extent known by the Indemnified Party) the facts constituting the basis for such Third Party Action and the amount of the claimed damages; provided, however, that no delay or failure on the part of the Indemnified Party in so notifying the Indemnifying Party shall relieve the Indemnifying Party of any liability or obligation hereunder except to the extent of any damage or liability caused by or arising out of such failure. Within 20 days after delivery of such notification, the Indemnifying Party may, upon written notice thereof to the Indemnified Party, assume control of the defense of such Third Party Action with counsel reasonably satisfactory to the Indemnified Party; provided that the Indemnifying Party may not assume control of the defense of Third Party Action involving criminal liability or in which equitable relief is sought against the Indemnified Party. If the Indemnifying Party does not, or is not permitted under the terms hereof to, so assume control of the defense of a Third Party Action, the Indemnified Party shall control such defense. The Non-controlling Party may participate in such defense at its own expense. The Controlling Party shall keep the Non-controlling Party advised of the status of such Third Party Action and the defense thereof and shall consider in good faith recommendations made by the Non-controlling Party with respect thereto. The Non-controlling Party shall promptly furnish the Controlling Party with such information as it may have or receive with respect to such Third Party Action (including copies of any summons, complaint or other pleading which may have been served on such party and any written claim, demand, invoice, billing or other document evidencing or asserting the same) and shall otherwise cooperate with and assist the Controlling Party in the defense of such Third Party Action. The fees and expenses of counsel to the Indemnified Party with respect to a Third Party Action shall be considered Damages for purposes of this Agreement if (x) the Indemnified Party controls the defense of such Third Party Action pursuant to the terms of this Section 5.3 or (y) the Indemnifying Party assumes control of such defense and the Indemnified Party reasonably concludes that the Indemnifying Party and the Indemnified Party have conflicting interests with respect to such Third Party Action. The Indemnifying Party shall not agree to any settlement of, or the entry of any judgment arising from, any Third Party Action without the prior written consent of the Indemnified Party, which shall not be unreasonably withheld, conditioned or delayed. The Indemnified Party shall not agree to any settlement of, or the entry of any judgment arising from, any such Third Party Action without the prior written consent of the Indemnifying Party, which shall not be unreasonably withheld, conditioned or delayed.

5.4     Arbitration.

(a)          Any controversy, dispute or claim arising under or in connection with this Agreement (including, without limitation, the existence, validity, interpretation or breach hereof and any claim based on contract, tort of statute) shall be resolved by a binding arbitration, to be

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held in Portland, Oregon (or its nearest surrounding area) pursuant to the Federal Arbitration Act and in accordance with the then-prevailing International Arbitration Rules of the AAA.

(b)          The parties shall commence the arbitration by jointly filing a written submission with the Portland, Oregon (or its nearest surrounding area) office of the AAA in accordance with Commercial Rule 5 (or any successor provision).

(c)          The Arbitrator shall have no power or authority, under the Commercial Rules or otherwise, to (i) modify or disregard any provision of this Agreement or any Ancillary Document, or (ii) address or resolve any issue not submitted by the parties.

(d)          In connection with any arbitration proceeding pursuant to this Agreement, each party shall bear its own costs and expenses, except that the fees and costs of the AAA and the Arbitrator, the costs and expenses of obtaining the facility where the arbitration hearing is held, and such other costs and expenses as the Arbitrator may determine to be directly related to the conduct of the arbitration and appropriately borne jointly by the parties (which shall not include any party’s attorneys’ fees or costs, witness fees (if any), costs of investigation and similar expenses) shall be shared equally by the Indemnified Party and the Indemnifying Party.

5.5          Survival of Representations and Warranties. All representations and warranties that are covered by the indemnification agreements in Section 5.1(a) and Section 5.2(a) shall (a) survive the Closing and (b) shall expire on the date 18 months following the Closing Date, except that the representations and warranties set forth in Sections 2.1, 2.2, 3.1 and 3.2 shall survive the Closing. If an Indemnified Party delivers to an Indemnifying Party, before expiration of a representation or warranty, either a Claim Notice based upon a breach of such representation or warranty, or an Expected Claim Notice based upon a breach of such representation or warranty, then the applicable representation or warranty shall survive until, but only for purposes of, the resolution of the matter covered by such notice. If the legal proceeding or written claim with respect to which an Expected Claim Notice has been given is definitively withdrawn or resolved in favor of the Indemnified Party, the Indemnified Party shall promptly so notify the Indemnifying Party. The rights to indemnification set forth in this Article V shall not be affected by (x) any investigation conducted by or on behalf of an Indemnified Party or any knowledge acquired (or capable of being acquired) by an Indemnified Party, whether before or after the Closing Date, with respect to the inaccuracy or noncompliance with any representation, warranty, covenant or obligation which is the subject of indemnification hereunder or (y) any waiver by an Indemnified Party of any closing condition relating to the accuracy of any representations and warranties or the performance of or compliance with agreements and covenants.

5.6          Limitations. Notwithstanding anything to the contrary herein, Zygo shall not be liable under this Article V unless and until the aggregate Damages for which it would otherwise

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be liable under this Article V exceed [...*...].. Thereafter Zygo will be responsible for such excess Damages in an amount not to exceed [...*...].. Notwithstanding anything to the contrary contained in this Agreement, in no event shall Zygo be liable for any consequential, indirect, punitive, individual or special damages of any nature, or any damage or claim for lost profits.

5.7          Treatment of Indemnity Payments. Any payments made to an Indemnified Party pursuant to this Article V shall be treated as an adjustment to the consideration paid hereunder for tax purposes.

ARTICLE VI

DEFINITIONS

For purposes of this Agreement, each of the following terms shall have the meaning set forth below.

“AAA” shall mean the American Arbitration Association.

“Acquired Assets” shall mean the assets of Zygo set forth on Schedule A-1 hereto.

“Affiliate” means, with respect to any Person, any other Person that, directly or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such Person, and the term “control” (including the terms “controlled by” and “under common control with”) means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through owners of voting securities, by contract or otherwise.

“Ancillary Documents” shall mean the Supply Agreement, that certain Confidentiality Agreement dated as of February 23, 2009 by and between the Parties, the Bill of Sale, the Assumption Agreement, the Sublease Agreement and the documents executed and delivered by the Parties pursuant to Section 1.4(c).

"Approved Markets" means the following markets in which Nano will have the exclusive right to market and sell Approved Systems, but limited to Nano’s Field of Use (defined below): [...*...].

"Approved Systems" means the following types of systems that Nano will have exclusive rights to market and sell in Approved Markets pursuant to the terms of this Agreement and the Supply Agreement: [...*...].

_________________________

* CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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“Arbitrator” shall mean a single arbitrator selected by Nano and Zygo in accordance with the Commercial Rules.

“Assigned Contracts” shall mean those contracts set forth on Schedule A-2 hereto.

“Assumed Liabilities” shall mean those liabilities set forth on Schedule B hereto and all obligations of Zygo arising after the Closing under the Assigned Contracts.

"Automated Interferometer System" means an interferometer system including fully-automated wafer handling equipment sufficient to enable in-line operation in the Approved Markets for Nano's Field of Use, and specifically excluding laboratory tool interferometer systems and semi-automated interferometer systems (such as those with motorized stages). "Automated Interferometer Systems" can be a stand-alone metrology unit or it can be incorporated into another unit, such as a production unit to, for example, provide real-time metrology feedback during production of a device.

"Business" shall mean the marketing and sale of Approved Systems in Approved Markets.

“Buyer” shall have the meaning set forth in the first paragraph of this Agreement.

“Claim Notice” shall mean written notification which contains (a) a description of the Damages incurred or reasonably expected to be incurred by the Indemnified Party and the Claimed Amount of such Damages, to the extent then known, (b) a statement that the Indemnified Party is entitled to indemnification under Article V for such Damages and a reasonable explanation of the basis therefor, and (c) a demand for payment in the amount of such Damages.

“Claimed Amount” shall mean the amount of any Damages incurred or reasonably expected to be incurred by the Indemnified Party.

“Closing” shall mean the closing of the transactions contemplated by this Agreement.

“Closing Date” shall mean the date of this Agreement.

“Commercial Rules” shall mean the Commercial Arbitration Rules of the AAA.

“Controlling Party” shall mean the party controlling the defense of any Third Party Action.

“Damages” shall mean any and all debts, obligations and other liabilities (whether absolute, accrued, contingent, fixed or otherwise, or whether known or unknown, or due or to become due or otherwise), diminution in value, monetary damages, fines, fees, penalties, interest obligations, deficiencies, losses and expenses (including amounts paid in settlement, interest, court costs, costs of investigators, fees and expenses of attorneys, accountants, financial advisors

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and other experts, and other expenses of litigation), in all instances actually and directly incurred, and other than those costs and expenses of arbitration of a Dispute which are to be shared equally by the Indemnified Party and the Indemnifying Party.

“Disclosure Schedule” shall mean the disclosure schedule provided by Zygo to Nano and attached hereto.

“Dispute” shall mean the dispute resulting if the Indemnifying Party in a Response disputes its liability for all or part of the Claimed Amount.

“Documentation” shall mean printed, visual or electronic materials, reports, white papers, documentation, specifications, designs, flow charts, code listings, instructions, user manuals, frequently asked questions, release notes, recall notices, error logs, diagnostic reports, marketing materials, packaging, labeling, service manuals and other information describing the use, operation, installation, configuration, features, functionality, pricing, marketing or correction of a product, whether or not provided to end user.

“Expected Claim Notice” shall mean a notice that, as a result of a legal proceeding instituted by or written claim made by a third party, an Indemnified Party reasonably expects to incur Damages for which it is entitled to indemnification under Article V.

“Exploit” shall mean develop, design, test, modify, make, use, sell, have made, used and sold, import, reproduce, market, distribute, commercialize, support, maintain, correct and create derivative works of.

“GAAP” shall mean United States generally accepted accounting principles.

“Governmental Entity” means any government or governmental or regulatory entity or body thereof, or political subdivision thereof, whether Federal, state, local or foreign, or any commission, agency, instrumentality or authority thereof, or any court, tribunal or arbitrator (public or private).

"Heads" means the heads for interferometers made by or for Zygo as described in Exhibit A to the Supply Agreement as well as any heads hereafter made by or for Zygo that include modifications or improvements but are generally the same as, or a successor of, such heads described in Exhibit A to the Supply Agreement.

“Indemnified Party” shall mean a party entitled, or seeking to assert rights, to indemnification under Article V of this Agreement.

“Indemnifying Party” shall mean the party from whom indemnification is sought by the Indemnified Party.

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“Key Person” shall mean Zygo’s chief executive officer, divisional president, chief financial officer, senior vice president of technology, and vice president of semiconductor solutions.

“Legal Proceeding” shall mean any action, suit, proceeding, claim, arbitration or investigation before any Governmental Entity or before any arbitrator.

"Nano's Field of Use" means in-line, fully–automated wafer handling equipment, as opposed to laboratory tools or semi-automated systems (such as those with motorized stages).

“Non-controlling Party” shall mean the party not controlling the defense of any Third Party Action.

“Ordinary Course of Business” shall mean the ordinary course of business consistent with past custom and practice (including with respect to frequency and amount).

“Parties” shall mean Nano and Zygo.

“Person” means any individual, corporation, partnership, firm, joint venture, association, joint-stock company, trust, unincorporated organization, Governmental Entity.

“Requisite Approvals” shall mean the approval of the sale of the Acquired Assets by Zygo to Nano as contemplated by this Agreement by the directors of Zygo.

“Retained Liabilities” shall mean any and all liabilities or obligations (whether known or unknown, absolute or contingent, liquidated or unliquidated, due or to become due and accrued or unaccrued, and whether claims with respect thereto are asserted before or after the Closing) of Zygo that are not Assumed Liabilities.

“Security Interest” shall mean any mortgage, pledge, security interest, encumbrance, charge or other lien (whether arising by contract or by operation of law), other than (a) mechanic’s, materialmen’s, and similar liens, (b) liens arising under worker’s compensation, unemployment insurance, social security, retirement, and similar legislation and (c) liens on goods in transit incurred pursuant to documentary letters of credit, in each case arising in the Ordinary Course of Business of Zygo and not material to Zygo.

“Software” shall mean computer software code, applications, utilities, development tools, diagnostics, databases and embedded systems, whether in source code, interpreted code or object code form.

“Third Party Action” shall mean any suit or proceeding by a person or entity other than a Party for which indemnification may be sought by a Party under Article V.

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ARTICLE VII

MISCELLANEOUS

7.1          Press Releases and Announcements. Neither Party shall issue any press release or public announcement relating to the subject matter of this Agreement without the prior written approval of the other Party; provided, however, that either Party may make any public disclosure it believes in good faith is required by applicable law, regulation or stock market rules (in which case the disclosing Party shall use reasonable efforts to advise the other Party and provide it with a copy of the proposed disclosure prior to making the disclosure).

7.2          No Third Party Beneficiaries. This Agreement shall not confer any rights or remedies upon any person other than the Parties and their respective successors and permitted assigns.

7.3          Entire Agreement. This Agreement (including the documents referred to herein) constitutes the entire agreement between the Parties and supersedes any prior understandings, agreements, or representations by or between the Parties, written or oral, with respect to the subject matter hereof; provided that the Confidentiality Agreement dated February 23, 2009 between Nano and Zygo shall remain in effect in accordance with its terms.

7.4          Succession and Assignment. This Agreement shall be binding upon and inure to the benefit of the Parties named herein and their respective successors and permitted assigns. Neither Party may assign either this Agreement or any of its rights, interests, or obligations hereunder without the prior written approval of the other Party. Any attempted assignment in contravention of this provision shall be void.

7.5          Counterparts and Facsimile Signature. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. This Agreement may be executed by facsimile signature.

7.6          Headings. The section headings contained in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement.

7.7          Notices. All notices, requests, demands, claims, and other communications hereunder shall be in writing. Any notice, request, demand, claim, or other communication hereunder shall be deemed duly delivered four business days after it is sent by registered or certified mail, return receipt requested, postage prepaid, or one business day after it is sent for next business day delivery via a reputable nationwide overnight courier service, in each case to the intended recipient as set forth below:

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If to Zygo: Zygo Corporation Laurel Brook Road Middlefield, CT 06455-0448 Attn: Chief Executive Officer Tel: 860-704-5109 Fax: 860-347-8372	Copy to: Fulbright & Jaworski L.L.P. 666 Fifth Avenue New York, NY 10103 Attn: Sheldon Nussbaum Tel: (212) 318-3000 Fax: (212) 318-3400
If to Nano: Nanometrics Incorporated 1550 Buckeye Drive Milpitas, CA 95035 Attn: Chief Executive Officer Tel: (408) 545-6000 Fax: (408) 904-6278	Copy to: Perkins Coie LLP 101 Jefferson Drive Menlo Park, CA 94025 Attn: Buddy Arnheim Tel: (650) 838-4300 Fax: (650) 838-4350

Either Party may give any notice, request, demand, claim, or other communication hereunder using any other means (including personal delivery, expedited courier, messenger service, telecopy, telex, ordinary mail, or electronic mail), but no such notice, request, demand, claim, or other communication shall be deemed to have been duly given unless and until it actually is received by the party for whom it is intended. Either Party may change the address to which notices, requests, demands, claims, and other communications hereunder are to be delivered by giving the other Party notice in the manner herein set forth.

7.8          Governing Law. This Agreement (including the validity and applicability of the arbitration provisions of this Agreement, the conduct of any arbitration of a Dispute, the enforcement of any arbitral award made hereunder and any other questions of arbitration law or procedure arising hereunder) shall be governed by, and construed in accordance with, the laws of the State of Delaware, without giving effect to any choice or conflict of law provision or rule (whether of the State of Delaware or of any other jurisdiction) that would cause the application of laws of any jurisdiction other than the State of Delaware.

7.9          Amendments and Waivers. The Parties may mutually amend any provision of this Agreement at any time prior to the Closing. No amendment of any provision of this Agreement shall be valid unless the same shall be in writing and signed by each of the Parties. No waiver by either Party of any right or remedy hereunder shall be valid unless the same shall be in writing and signed by the Party giving such waiver. No waiver by either Party with respect to any default, misrepresentation, or breach of warranty or covenant hereunder shall be deemed to extend to any prior or subsequent default, misrepresentation, or breach of warranty or covenant hereunder or affect in any way any rights arising by virtue of any prior or subsequent such occurrence.

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7.10       Severability. Any term or provision of this Agreement that is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction. If the final judgment of a court of competent jurisdiction declares that any term or provision hereof is invalid or unenforceable, the Parties agree that the court making the determination of invalidity or unenforceability shall have the power to limit the term or provision, to delete specific words or phrases, or to replace any invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision, and this Agreement shall be enforceable as so modified.

7.11       Expenses. Each Party shall bear its own costs and expenses (including legal fees and expenses) incurred in connection with this Agreement and the transactions contemplated hereby.

7.12       Service of Process. Each party agrees to accept service of any summons, complaint or other initial pleading made in the manner provided for the giving of notices in Section 7.7, provided that nothing in this Section 7.12 shall affect the right of either Party to serve such summons, complaint or other initial pleading in any other manner permitted by law.

7.13       Specific Performance. Each Party acknowledges and agrees that the other Party would be damaged irreparably in the event any of the provisions of this Agreement are not performed in accordance with their specific terms or otherwise are breached. Accordingly, each Party agrees that the other Party shall be entitled to an injunction or other equitable relief to prevent breaches of the provisions of this Agreement and to enforce specifically this Agreement and the terms and provisions hereof in any action instituted in any court of the United States or any state thereof having jurisdiction over the Parties and the matter, in addition to any other remedy to which it may be entitled, at law or in equity.

7.14     Construction.

(a)          The language used in this Agreement shall be deemed to be the language chosen by the Parties to express their mutual intent, and no rule of strict construction shall be applied against either Party.

(b)          Any reference to any federal, state, local, or foreign statute or law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise.

(c)          Any reference herein to “including” shall be interpreted as “including without limitation.”

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(d)          Any reference to any Article, Section or paragraph shall be deemed to refer to an Article, Section or paragraph of this Agreement, unless the context clearly indicates otherwise.

7.15       Cross Default. A breach by either party under the Supply Agreement shall be deemed to constitute a breach by that party under this Agreement.

[Remainder of page intentionally left blank]

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IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date first above written.

NANOMETRICS INCORPORATED

By: /s/ Timothy J. Stultz, Ph.D.               

Title: President and Chief Executive Officer  

ZYGO CORPORATION

By: /s/ J. Bruce Robinson                           

Title: Chief Executive Officer                          

EXHIBIT A

EXECUTION COPY

BILL OF SALE AND ASSIGNMENT

THIS BILL OF SALE AND ASSIGNMENT is made and entered into as of June 17, 2009, by and among Zygo Corporation, a Delaware corporation (“Zygo”); and Nanometrics Incorporated, a Delaware corporation (“Nano”).

W I T N E S S E T H:

WHEREAS, Zygo and Nano have entered into that certain Asset Transfer Agreement dated June 17, 2009 (the “Asset Transfer Agreement”), pursuant to which Zygo has agreed to convey, and Nano has agreed to acquire, the Acquired Assets (as such term is defined in the Asset Transfer Agreement) and all of Zygo’s rights and obligations under the Assigned Contracts (as such term is defined in the Asset Transfer Agreement), for the consideration therein provided.

NOW, THEREFORE, in consideration of the foregoing and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Zygo and Nano hereby agree as follows:

1.            Definitions. Capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Asset Transfer Agreement.

2.            Sale of Assets; Assignment of Contract. Zygo hereby sells, transfers, conveys, assigns and delivers to Nano at the Closing, for the consideration specified in Section 1.3 of the Asset Transfer Agreement, (a) all right, title and interest in, to and under the Acquired Assets, and (b) subject to Section 4.6 of the Asset Transfer Agreement, all its rights and obligations under the contract listed on Schedule A-2 to the Asset Transfer Agreement (the “Assigned Contract”).

3.            Acceptance. Nano hereby accepts (a) the sale, transfer, conveyance and assignment to Nano of valid ownership of the Acquired Assets and (b) subject to Section 4.6 of the Asset Transfer Agreement, all of Zygo’s rights and obligations under the Assigned Contract.

4.            Miscellaneous.

(a)         All of the representations, warranties, covenants and agreements contained in the Asset Transfer Agreement with respect to the Assets being sold, conveyed, assigned, transferred and delivered hereby shall survive the delivery of this Bill of Sale and Assignment and the Closing of the transactions referred to in the Asset Transfer Agreement to the extent set forth in the Asset Transfer Agreement.

(b)        This instrument is being delivered pursuant to Section 1.4(b)(i) of the Asset Transfer Agreement and shall be construed consistent therewith. This instrument is not intended to,

and does not, in any manner enlarge, diminish or modify the rights and obligations of the parties to the Asset Transfer Agreement.

(c)         This instrument shall be governed by and construed in accordance with the laws of the State of Delaware.

5.            Counterparts. This Bill of Sale and Assignment may be executed in any number of counterparts and any party hereto may execute any such counterpart, each of which when executed and delivered shall be deemed to be an original and all of which counterparts taken together shall constitute but one and the same instrument. This Bill of Sale and Assignment shall become binding when one or more counterparts taken together shall have been executed and delivered by the parties. It shall not be necessary in making proof of this Bill of Sale and Assignment or any counterpart hereof to produce or account for any of the other counterparts.

IN WITNESS WHEREOF, the parties hereto have caused this instrument to be duly executed and delivered as of the day and year first above written.

NANOMETRICS INCORPORATED

By:

Title:                                                                 

ZYGO CORPORATION

By:

Title:                                                                 

EXHIBIT B

EXECUTION COPY

ASSIGNMENT AND ASSUMPTION AGREEMENT

This Assignment and Assumption Agreement (this “Assignment and Assumption Agreement”) is made and entered into is made and entered into as of June 17, 2009, by and among Zygo Corporation, a Delaware corporation (“Assignor”); and Nanometrics Incorporated, a Delaware corporation (“Assignee”).

WHEREAS, Assignor and Assignee are parties to that certain Asset Transfer Agreement dated as of June 17, 2009 (the “Purchase Agreement”), pursuant to which Assignee has purchased substantially all of the assets of Assignor; and

WHEREAS, pursuant to the Purchase Agreement, Assignor has agreed to assign certain rights and agreements to Assignee, and Assignee has agreed to assume certain obligations of Assignor, as set forth herein, and this Assignment and Assumption Agreement is contemplated by Section 1.4(b)(iv) of the Purchase Agreement.

NOW, THEREFORE, for and in consideration of the premises and the mutual covenants contained herein, and for other good and valuable consideration, the receipt, adequacy and legal sufficiency of which are hereby acknowledged, the parties do hereby agree as follows:

1.            Capitalized Terms. Capitalized terms used but not defined herein shall have the meanings for such terms that are set forth in the Purchase Agreement.

2.            Assignment and Assumption. Effective as of 1:00 p.m. New York time on the date hereof (the “Effective Time”), Assignor hereby assigns, sells, transfers and sets over (collectively, the “Assignment”) to Assignee the Assumed Liabilities, as contemplated pursuant to Section 1.2 of the Purchase Agreement. Assignee hereby accepts the Assignment and assumes and agrees to observe and perform all of the duties, obligations, terms, provisions and covenants, and to pay and discharge all of the liabilities of Assignor to be observed, performed, paid or discharged from and after the Closing, in connection with the Assumed Liabilities.

3.            Further Actions. Each of the parties hereto covenants and agrees, at its own expense, to execute and deliver, at the request of the other party hereto, such further instruments of transfer and assignment and to take such other action as such other party may reasonably request to more effectively consummate the assignments and assumptions contemplated by this Assignment and Assumption Agreement.

4.            Expenses. Each party hereto shall pay its own expenses incidental to the preparation of this Assignment and Assumption Agreement and the carrying out of the provisions of this Assignment and Assumption Agreement.

5.Miscellaneous.

(a)          All of the representations, warranties, covenants and agreements contained in the Asset Transfer Agreement with respect to the Assets being sold, conveyed, assigned, transferred and delivered hereby shall survive the delivery of this Assignment and Assumption Agreement and the Closing of the transactions referred to in the Asset Transfer Agreement to the extent set forth in the Asset Transfer Agreement.

(b)          This instrument is being delivered pursuant to Section 1.4(b)(iv) of the Asset Transfer Agreement and shall be construed consistent therewith. This instrument is not intended to, and does not, in any manner enlarge, diminish or modify the rights and obligations of the parties to the Asset Transfer Agreement.

(c)          This instrument shall be governed by and construed in accordance with the laws of the State of Delaware.

6.            Counterparts. This Assignment and Assumption Agreement may be executed in any number of counterparts and any party hereto may execute any such counterpart, each of which when executed and delivered shall be deemed to be an original and all of which counterparts taken together shall constitute but one and the same instrument. This Assignment and Assumption Agreement shall become binding when one or more counterparts taken together shall have been executed and delivered by the parties. It shall not be necessary in making proof of this Assignment and Assumption Agreement or any counterpart hereof to produce or account for any of the other counterparts.

IN WITNESS WHEREOF, the parties have executed this Assignment and Assumption Agreement as of the date first above written.

NANOMETRICS INCORPORATED

By:

Title:                                                                 

ZYGO CORPORATION

By:

Title:                                                                 

EXHIBIT C

[...*...]

_________________________

* CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

EXHIBIT D

[Supply Agreement]

EX-10.31

EXHIBIT 10.31

EXECUTION COPY

SUPPLY AGREEMENT

This Supply Agreement (this “Agreement”) dated as of June 17, 2009 (the “Effective Date”) is entered into between Zygo Corporation, a Delaware corporation (“Zygo”) and Nanometrics Incorporated, a Delaware corporation (“Nano”).

RECITALS

A.          Zygo has developed and is the owner of certain technology related to “Automated Interferometer Systems” (as defined below), including the Heads (as defined below), the control, monitoring and analysis software, and electronic control systems) as well as the automation of the systems that use these technologies.

B.          Zygo seeks to establish a relationship with Nano, and Nano intends to establish a relationship with Zygo, pursuant to which Nano becomes the exclusive provider of the product referred to by Zygo as the “Unifire” and other Approved Systems (as defined below) in the Approved Markets (as defined below) that incorporate Heads.

C.          As such, Zygo seeks to supply to Nano the Heads (as defined below), the Components (as defined below), and certain other parts and components, and to transfer to Nano certain flow through license rights and assets related to the Heads, Components and the Unifire, in order to empower Nano as the exclusive provider of Approved Systems in Approved Markets as described below.

AGREEMENT

In consideration of the foregoing and the respective representations, warranties, covenants and agreements contained in this Agreement and the Asset Transfer Agreement (as defined below), and other good and valuable consideration, the receipt and sufficiency of which each of the parties hereby acknowledges, and intending to be legally bound hereby, the parties agree as follows:

1.          Definitions. As used in this Agreement, the terms set forth in this Section 1 shall have the meanings set forth below.

                    1.1          “Approved Markets” means the following markets in which Nano will have the exclusive right to market and sell Approved Systems, but limited to Nano’s Field of Use (defined below): [___ * ___].

                    1.2          “Approved Systems” means the following types of systems that Nano will have exclusive rights to market and sell in Approved Markets pursuant to the terms of this Agreement: [___ * ___].

                    1.3          “Asset Transfer Agreement” means that certain Asset Transfer Agreement of even date herewith entered into by Zygo and Nano.

                    1.4          “Automated Interferometer System” means an interferometer system including fully-automated wafer handling equipment sufficient to enable in-line operation in the Approved Markets for Nano’s Field of Use, and specifically excluding laboratory tool interferometer systems and semi-automated interferometer systems (such as those with motorized stages). The Automated Interferometer Systems can be a stand-alone metrology unit or it can be incorporated into another unit, such as a production unit to, for example, provide real-time metrology feedback during production of a device.

                    1.5          “Components” means all components of any of the Heads (defined below), all improvements or modifications of such components made or acquired by Zygo during the term of this Agreement, and all replacements for or successors of such components made or acquired by Zygo during the term of this Agreement.

                    1.6          “Flow-Through Licensed Technology” means [___ * ___].

                    1.7          “Heads” means the heads for interferometers made by or for Zygo as described in Exhibit A attached hereto as well as any heads hereafter made by or for Zygo that include modifications or improvements but are generally the same as, or a successor of, such heads described in Exhibit A.

* CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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                    1.8          “Nano’s Field of Use” means in-line, fully–automated wafer handling equipment, as opposed to laboratory tools or semi-automated systems (such as those with motorized stages).

                    1.9          “Net Revenues” means the revenues received by Nano from the sale of Approved Systems. Net Revenues do not include any amounts which are (a) collected by Nano as sales tax, use tax, or other taxes; or (b) refunded or otherwise credited to the Person from whom Nano received such amounts; provided, however, that the calculation for Net Revenues shall add back the dollar amount of any set-offs or other types of credits paid, or reductions to the purchase price for, amounts Nano may otherwise owe, to such customer for matters unrelated to the sale of Approved Systems. For purposes of determining Net Revenues, revenues from Approved Systems sold by Nano on credit shall not be considered received by Nano unless and until such payments are actually collected by Nano.

                    1.10         “Person” means any individual, partnership, corporation, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization, government entity, agency or political subdivision of any governmental entity, or any other entity.

2.          Purchase and Sale of Heads and Components.

                    2.1          Supply of Heads and Components. Zygo shall sell and deliver to Nano such Heads and Components as Nano may order from Zygo during the term of this Agreement, in accordance with the terms hereof.

                    2.2          Orders. Each of Nano’s orders for Heads or Components (an “Order”) shall contain a description of the Heads or Components ordered, specify the quantity and price of the Heads or Components ordered, specify the date on which each order of Heads or Components is to be delivered and specify the address to which the Heads or Components are to be shipped. Such specifications will be within the parameters for Orders set forth on Schedule 2.2 hereto.

                    2.3          Purchase Price.

                                   2.3.1          [___ * ___].

                      2.3.2          The price to be paid by Nano to Zygo for any Heads or Components not listed on Exhibit B shall be determined in accordance with the provisions of this subsection.

                      (a)             With respect to each Head or Component not listed on Exhibit B that is substantially the same as a Head or Component listed on Exhibit B (a “Category #1 New Head or Component”) the price to Nano of such Category #1 New Head or Component shall be equal to the price to Nano of the Head or Component listed on Exhibit B that is substantially the same as the Category #1 New Head or Component.

                      (b)             With respect to each Head or Component not listed on Exhibit B that is not a Category #1 New Head or Component (a “Category #2 New Head or Component”), the price to Nano of such Category #2 New Head or Component shall be, from time to time, an amount that [___ * ___] listed on Exhibit B (regardless of how similar or dissimilar the Category #2 New Head or Component may be from a Head or Component listed on Exhibit B). For clarification, the parties acknowledge that the gross margins received by Zygo on the sales of Head hardware, Head software and other Components described in Exhibit B may be different.

                      (c)             Zygo and Nano agree to negotiate in good faith to agree upon the prices to be paid by Nano for any Heads and Components not listed on Exhibit B, consistent with the provisions of Section 2.3.2(b) above.

                    2.4          Payment. Zygo shall issue its invoice to Nano for the price of Heads and Components purchased by Nano upon delivery of such Heads and Components. Nano shall pay Zygo the amount due under each of Zygo’s invoices within 30 days after Nano’s receipt of the invoice or delivery of the Heads or Components, whichever is later. Zygo shall promptly furnish Nano with such documentation and information as Nano may reasonably request to verify the amount due under any of Zygo’s invoices. Notwithstanding the foregoing, to the extent any such Head or Component is determined by Nano, after inspection as provided in Section 4 hereof, not to comply with specifications, payment for such non-complying Head or Component only, may be withheld by Nano, with the remainder of the invoice paid in full. In such event, Nano shall notify Zygo of such determination of non-compliance and, at the request of Zygo, Nano shall return such non-complying Head or Component to Zygo.

                    2.5          Cancellation of Orders. Nano may at any time cancel any Order placed in good faith, as to all or any portion of the Heads or Components not then delivered to and accepted by Nano, by giving Zygo written notice of such cancellation. [___ * ___] In the event any Order is cancelled by Nano, Nano will be responsible for cancellation charges as follows:

                    (a)          [___ * ___];

                    (b)          [___ * ___];

                    (c)          [___ * ___];

                    (d)          [___ * ___].

* CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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[___ * ___].

                    2.6          Taxes. The prices specified in this Agreement do not include sales taxes that may be imposed upon the sale of Heads or Components under this Agreement. Nano shall pay such taxes that are properly due and payable. At Zygo’s request, Nano shall provide Zygo with reasonable justification for Nano’s position that any such taxes are not properly due or payable (e.g., certification that such sales are exempt from tax). If Zygo receives any assessment or other notice with regard to any such taxes, Zygo shall immediately provide Nano with a copy of such notice.

                    2.7          Exclusivity. During the term of this Agreement, Zygo will not directly or indirectly (a) sell to any Person other than Nano any Heads or Components for Approved Systems, or Automated Interferometer Systems, to be marketed or sold in the Approved Markets, or any Unifires or any other Approved Systems to be marketed or sold in the Approved Markets, (b) make, have made, use, import, export, maintain or repair any Approved Systems or portion thereof including the Head for marketing or sale in any Approved Markets, (c) grant any right or license to any Person other than Nano to make, have made, use, sell, license, import, export, maintain or repair any Approved System or portion thereof including the Head for marketing or sale in the Approved Markets, (d) provide any Person with any training or other service pertaining to the Flow-Through Licensed Technology with respect to the Approved Systems to be marketed or sold in the Approved Markets, (e) exercise any rights under any third party rights that are included in the Flow-Through Licensed Technology with respect to the Approved Systems in the Approved Markets; or (f) sublicense or assign any rights in the Flow-Through Licensed Technology with respect to the Approved Systems in the Approved Markets. Notwithstanding the foregoing or anything to the contrary in this Agreement, nothing herein shall prevent Zygo from providing, directly or indirectly, (i) Automated Interferometer Systems in any markets other than the Approved Markets or (ii) any other products, including without limitation laboratory systems, semi-automated systems, and stage metrology interferometer systems (such as distance measuring interferometry systems), in any market.

3.          Delivery.

                    3.1          Point of Delivery. Zygo shall deliver all Heads and Components to Nano or to Nano’s customers F.O.B. or FCA (Incoterms) Zygo’s facility located at Middlefield, Connecticut.

                    3.2          Shipment. Zygo shall properly mark and otherwise identify the Heads and Components for shipment to Nano or such other destination as may be specified by Nano in the Order for such Heads and Components.

                    3.3          Packaging. Zygo shall properly package the Heads and Components for protection against damage or deterioration that may result from shipment, handling, storage or other cause.

                    3.4          Schedule. Zygo shall deliver the Heads and Components to Nano on the delivery date specified in the Order for such Heads and Components. However, Zygo shall not be liable for delays in delivery due to causes which are not reasonably foreseeable and which are beyond Zygo’s control provided that, to the extent practicable, Zygo gives Nano prompt written notice of the circumstances giving rise to the delay, the anticipated duration of the delay and the action being taken by Zygo to overcome or mitigate the delay. The specified delivery date shall be extended by the period of any such delay.

4.          Inspection.

                    4.1          Zygo’s Plant. Zygo’s facilities at which Zygo manufactures any Heads or Components shall be subject to inspection by Nano during normal business hours provided that reasonable notice is given to Zygo to accommodate such inspection. Zygo shall provide Nano with safe and sufficient access for such inspection. Nano shall perform any such inspection in such a manner as to minimize disruption of Zygo’s business and operations at such facility.

                    4.2          By Zygo. Zygo shall perform such detailed inspections and tests of the Heads and Components sold by Zygo to Nano as are reasonably necessary to ensure that such Heads and Components comply with the requirements of this Agreement and applicable regulations governing the manufacture, supply and delivery of such Heads and Components to Nano as provided hereunder. Without limiting the generality of the foregoing, Zygo shall comply with the inspection procedures applicable to the Heads and Components. Zygo shall keep and maintain complete and adequate records of all inspections and tests performed on Heads and Components. Final test documentation shall be shipped with each Head and component assembly. Zygo shall make such records available to Nano for examination, copying and audit, for a period of two (2) years from the date of sale.

                    4.3          By Nano. All Heads and Components purchased by Nano shall be subject to reasonable inspection and testing by Nano; and provided such inspection and testing is performed in such a manner as to minimize disruption to Zygo’s business and operations. Zygo shall provide Nano with safe and sufficient access, equipment and facilities for any such inspection or test prior to delivery. No acceptance of any Heads or Components shall be construed to result from any inspection, test or delay or failure to inspect or test by Nano prior to final inspection and test of such Heads or Components by Nano in accordance with this Section 4.3. Payment for any Heads or Components shall not constitute acceptance of such units. Nano shall inspect and test the Heads and Components at its specified destination within three (3) months of receipt (the “Inspection Period”), and any failure to notify Zygo of a problem or defect within the Inspection Period shall be deemed an acceptance by Nano of such Heads or Components. No inspection, test, delay or failure to inspect or test, or failure to discover any defect or noncompliance by Nano prior to expiration of the Inspection Period shall relieve Zygo of any of its obligations under this Agreement or impair Nano’s right to reject defective or noncomplying Heads or Components or any other right or remedy afforded to Nano.

* CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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5.          Compliance with Standards.

                    5.1          General. Zygo shall use commercially reasonable good faith efforts to comply in all material respects, and to ensure that all Heads, Components and Unifires assembled by Zygo comply in all material respects, with all applicable laws, ordinances, rules, regulations, orders, licenses, permits and other requirements, now or hereafter in effect, of any governmental authority that are applicable to the manufacture, supply or delivery of the Heads, Components and Unifire as provided hereunder. Upon reasonable request, Zygo shall furnish such documents as may be required to effect or evidence such compliance. Notwithstanding any other provision of this Agreement, Zygo will, after a reasonable but expeditious opportunity to cure any such non-compliance, make Nano whole for any such non-compliance that results directly in Nano bearing any costs, obligations or damages therefrom, subject to the damage limitations in Section 17.18 hereof. Any such non-compliance will not constitute a breach of this Agreement unless Zygo does not satisfy its obligations defined in the immediately preceding sentence.

                    5.2          Industry Standards. Zygo shall produce all Heads, Components and Unifire in accordance with, and shall ensure that each unit of Heads, Components and Unifire complies with, the following requirements as now or hereafter in effect:

                          (a)          CE standard specifications; and

                          (b)          Semiconductor industry specifications for electronic equipment and Underwriters Laboratory (or UL) rating.

                    Zygo shall provide Nano with such specifications, testimony and other assistance as Nano may reasonably request in connection with the listing, approval, registration or satisfaction of similar requirements of any trade association or other organization, as the same may apply to any Heads or Components.

6.          Training and Technical Support. Zygo will provide training to Nano personnel according to the terms, scheduling, and compensation set forth on Exhibit C. Zygo will also provide technical support services to Nano in accordance with the provisions of Exhibit C during the term and thereafter until the expiration of the warranty period for all Heads and Components delivered under this Agreement.

7.          Development Services and Sustaining Engineering Services/Minimum Volume. Beginning on July 1, 2010, Nano shall pay Zygo a Sustaining Engineering Fee (the “Sustaining Engineering Fee”) which shall be applied to any engineering requests that Nano should request from Zygo to facilitate the commercial development of Automated Interferometer Systems (see Exhibit C, Section (b) and (c) for terms, scheduling and compensation). Zygo shall be under no obligation to provide engineering and/or development services beyond those paid for through the Sustaining Engineering Fee, with any such supplemental services to be provided by Zygo (if at all) on mutually agreeable pricing and terms.

8.          [___ * ___].

9.          Confidentiality. Zygo and Nano have entered into a separate Non-Disclosure Agreement. Each of the parties shall perform their obligations under such Non-Disclosure Agreement with respect to Confidential Information received by the parties in connection with the performance of this Agreement.

10.         Warranty.

                    10.1          Warranty. Zygo warrants to Nano that:

(a)          the Heads and Components shall be free from defects in materials, workmanship and design;

(b)          all materials, parts, components and other items incorporated in the Heads and Components shall be new and suitable for its intended purposes;

(c)          the Heads and Components shall comply with the specifications applicable to such Heads and Components, the documentation provided by Zygo pertaining to such Heads and Components, and to any samples of such Heads and Components provided by Zygo;

(d)          the Heads and Components shall comply with the requirements of this Agreement and the Order pursuant to which it is purchased by Nano; and

(e)          Zygo will not, without the prior written consent of Nano, alter or change the existing design of the Heads to be provided to Nano in any way that would require Nano to create new designs for integration of the Heads or Components into its products. Specifically, Zygo is aware that certain customers maintain “Copy Exact” requirements and Zygo agrees to maintain a product in compliance therewith. Nothing in this section shall preclude Zygo from changing the design of other heads which Zygo may manufacture or produce for its own use or for sale to others so long as Zygo continues to supply Nano “copy exact” Heads as Nano so requests.

                    10.2          [___ * ___].

                    10.3          Correction of Noncompliance. If at any time during the warranty period Nano notifies Zygo of any failure of any unit of the Heads or Components to comply with any applicable warranty, Zygo shall correct such noncompliance within three (3) business days after receiving Nano’s notice (i.e., by repair or replacement of the noncomplying

* CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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unit) and remedy any damage to such unit of the Head or Component resulting from such failure. All transportation and other costs incidental to such correction and remedying shall be borne by Zygo. If Nano rejects any Heads or Components that do not comply with any applicable warranty, Zygo shall have a reasonable time to correct the noncompliance. If Zygo fails to correct the noncompliance within a reasonable time, Nano may cancel the Order as it applies to the noncomplying Heads or Components without any cost to Nano with respect to such Heads or Components, in which event Nano shall promptly return to Zygo any noncomplying Heads or Components from the cancelled Order of which it still has possession.

                    10.4          Warranty Service by Zygo. Zygo shall maintain a list, by serial numbers of Heads and Components, of the shipment date of each unit and a toll-free service number for the purpose of notifying Zygo of warranty claims. Upon receipt of each such claim, Zygo shall determine whether the warranty period with respect to such unit has expired. If the warranty period has not expired, Zygo shall perform warranty service as required under this Section. Zygo shall provide technical phone response upon notification of a field failure from Nano’s field service or factory personnel. Zygo’s warranty service includes telephone support and technical assistance by email to support diagnosis of problems and repair of Heads in the field by Nano that can reasonably be serviced in the field by Nano. If Nano or Zygo determine that a Head cannot be reasonably serviced in the field, Nano will remove the Head and ship the Head to Zygo for repair. Zygo shall maintain sufficient inventory of Heads and Components to enable Zygo to ship a replacement Head or Component to Nano within three (3) business days after receiving notice from Nano. Zygo shall ship replacement Heads and Components to Nano within three (3) business days after receiving notice from Nano of the requirement for a replacement Head, provided that Nano shall ship the Head requiring repair back to Zygo promptly after giving such notice. If the claim is not within Zygo’s warranty obligations, Zygo shall so notify Nano and, at Nano’s option, shall either return such unit to Nano, at Nano’s expense, or shall perform the required service as directed by Nano, at such price as Nano and Zygo shall agree.

                    10.5          Limitation on Warranty. Notwithstanding anything contained in this Section 10 or any other provision of this Agreement, Zygo will not have any warranty obligations for any products on which Nano performs repairs in addition to those for “first level” issues (as provided in Section 8 hereof), or on which Nano personnel have performed or attempted repairs that are not in accordance with the training provided by Zygo (as provided in Section 6 hereof).

11.          [___ * ___].

                    11.1        [___ * ___].

                    11.2        [___ * ___].

                    11.3        [___ * ___].

                                   11.3.1        [___ * ___].

                    11.4        [___ * ___].

                    11.5          Non-Assertion of Rights. Zygo shall not assert any patent, copyright, trade secret rights or other intellectual property rights against Nano or Nano’s sublicensees or customers relating to the manufacture, use, sale or importation of the Approved Systems in the Approved Markets, in a manner consistent with and as authorized and approved herein, or with respect to the use of the Flow-Through Licensed Technology by Nano or Nano’s sublicensees or customers in connection with the Approved Systems in the Approved Markets, in a manner consistent with and as authorized and approved herein.

12          Intellectual Property Infringement. [___ * ___].

                    12.1          In the event that Zygo fails to promptly or effectively respond to any such claim or to defend any such suit or proceeding brought against Nano or any of Nano’s sublicensees or customers, or Zygo notifies Nano that Zygo has opted not to do so, Nano may, but shall not be obligated to, respond, at Nano’s sole cost, to the claim or defend or assume the defense of the suit or proceeding, in which event Nano is hereby authorized, upon giving prior written notice to Zygo, to proceed, if it so elects, in its own name or the name(s) of its sublicensee(s) or customer(s).

                    12.2          Zygo shall defend, indemnify and hold Nano (including its officers, agents, directors and employees) and Nano’s sublicensees and customers harmless from and against all costs, expenses, royalties, damages, losses, harm, and liabilities (including, without limitation attorneys’ fees and expenses) (the “Costs”), arising out of any such claim, suit or proceeding for which Zygo is obligated to indemnify pursuant to the provisions of the first paragraph of this Section 12, in all instances up to [___ * ___] (the “Indemnity Cap”). Notwithstanding any other provision in this Agreement, Zygo’s obligation under this indemnity section will not extend to claims of lost profit by the third party intellectual property owner, Nano, or any other third party, or any consequential damages resulting from an injunction against Nano or its customers, or any consequential, indirect, punitive, individual or special damages of any nature. If applicable, Zygo will negotiate in good-faith with Nano to adjust the purchase price of subsequent Zygo-made Heads to account for the third party intellectual property.

* CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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                           12.2.1     In the event the suit or proceeding is settled or otherwise terminated without a final judgment setting forth the reasonable royalty for those Zygo-made Heads and those Zygo-designed “Unifire” automated interferometer systems determined to have infringed the third party intellectual property, the Parties will negotiate in good-faith to determine what portion of the settlement is attributable to a reasonable royalty for the accused Zygo-made Heads and Zygo-designed “Unifire” automated interferometer systems. The settlement price can be considered in determining the reasonable royalty, but is not dispositive of it.

                           12.2.2     If the Indemnity Cap is less than the total Costs, Nano shall have the right to terminate this Agreement upon sixty (60) days written notice to Zygo, except that, Zygo, in response to Nano’s written notice, can elect to pay Nano the difference between the Costs and the Indemnity Cap within the sixty (60)-day period to keep this Agreement in force.

                    12.3.          Actions Against Infringers

                                      Enforcement against any third party of any Zygo patent related to this Agreement shall be at Zygo’s sole discretion. Nano shall promptly provide notice to Zygo if Nano becomes aware of any third party patent infringement, and in response Zygo shall determine in good faith whether the commercial consequences to Zygo of that third party’s patent infringement (including with respect to the sale of Zygo Heads to Nano under this Supply Agreement) merit enforcement of a Zygo patent(s) against that third party. If Zygo decides not to pursue enforcement of its patent(s), and Nano can demonstrate in good faith that the third party infringement has substantial commercial consequences adverse to Nano, then Nano and Zygo shall have 30 days (the “Renegotiation Period”) after notice thereof from Nano to Zygo to renegotiate in good faith the Purchase Price of the Zygo Heads sold to Nano under this Supply Agreement. In such event, if no agreement is reached within the Renegotiation Period, then Nano shall have the right to terminate this Supply Agreement by notice given to Zygo not more than 10 business days after the expiration of the Renegotiation Period; provided that no such termination shall affect Nano’s obligation to pay for Heads previously delivered to Nano, or for Heads in production by Zygo pursuant to an accepted Order (except as permitted by Section 2.5 hereof).

13.          Improvements.

                    13.1          Improvements By Zygo. Zygo shall deliver to Nano all improvements, enhancements, derivative works and modifications (collectively, “Zygo Improvements”) in, of or to any Flow-Through Licensed Technology used in the Approved Systems in the Approved Markets hereafter developed or acquired by Zygo. During the term of this Agreement, Zygo shall deliver all such updating information to Nano within 10 business days after Nano’s request therefor, but in no event more than once per calendar quarter. All sales of Approved Systems by Nano subsequent to its receipt of any such Zygo Improvements that are not required to be “copy exact” shall include such Zygo Improvements; provided, however, that Nano will have no such obligation if including such Zygo Improvements would require Nano to make a modification to the Approved System that Nano, in its sole discretion, deems undesirable; but further provided, in such instance, that Zygo shall not be liable for damages under Section 12 hereof subsequent to Nano’s receipt of any such Zygo Improvements in the event that the Zygo Improvement would have rectified or otherwise minimized any such intellectual property infringement. Zygo shall be the sole owner of any and all Zygo Improvements in, of or to any Flow-Through Licensed Technology made independently by Zygo.

                    13.2          Improvements by Nano. Nano shall be the sole owner of any and all improvements, enhancements, derivative works and modifications in, of or to any Flow-Through Licensed Technology, used in the Approved Systems in the Approved Markets, made independently by Nano.

                    13.3          Joint Improvements. Nano and Zygo shall jointly own any improvements, enhancements, derivative works and modifications in, of or to any Flow-Through Licensed Technology, used in the Approved Systems in the Approved Markets, made jointly by Nano and Zygo. Neither Nano nor Zygo shall have any obligation to (a) share with the other party any revenue or profits derived from the exploitation of such jointly owned property, or (b) provide any accounting to the other party. Each party shall be the sole owner of any improvements, enhancements, derivative works and modifications made by such party in, of, or to any jointly owned technology. Ownership of joint improvements pertaining solely to Heads shall revert back to Zygo upon termination of this Agreement; provided Nano retains a perpetual, non-exclusive, royalty free license for such joint improvements.

14.          Zygo Representations. Zygo hereby represents and warrants to Nano that the following are true and correct as of the date of this Agreement, and, except for the representations and warranties in Section 14.3 hereof, with respect to all modifications and improvements of Flow-Through Licensed Technology delivered by Zygo to Nano during the term of this Agreement, as of the date of each delivery of such modifications and improvements.

                    14.1          Good Title, Free of Rights of Others. Zygo owns all Flow-Through Licensed Technology, free and clear of all security interests, liens, encumbrances, restrictions, licenses, rights and claims of any Person, or otherwise has sufficient rights, title and interest in and to the Flow-Through Licensed Technology necessary to grant the rights and licenses set forth in this Agreement, and to perform Zygo’s obligations under this Agreement.

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                    14.2          No Conflicting Licenses. Zygo is not a party to any outstanding options, licenses or agreements of any kind relating to the Unifire, or the Flow-Through Licensed Technology used in Approved Systems in Approved Markets, or to the manufacture, use, or sale of Approved Systems, or their improvements, in Approved Markets, [___ * ___].

                    14.3          No Infringement. As of the date hereof, (a) neither the Unifire nor the Zygo-made Head infringes, misappropriates or otherwise violates any patent, copyright, mask work right, trademark right, trade dress right, trade secret right, or other intellectual property right of any Person; and (b) the manufacture, use, sale, export and import of the Heads, Components or Unifires do not infringe or misappropriate any intellectual property rights of any Person. Zygo makes the representations and warranties in this Section 14.3 only as to Heads, Components and Unifires that have not been modified in any way after manufacture or sale by Zygo where the modification directly or indirectly causes the claimed infringement. Nothing in this paragraph shall extinguish Zygo’s indemnity obligation under the paragraphs of Section 12 with respect to modifications and improvements made by Zygo to the Heads after the Effective Date of this Agreement where such Heads are sold to Nano.

                    14.4          No Violation of Obligations of Zygo. The licenses granted by Zygo in this Agreement, and the other obligations of Zygo under this Agreement do not constitute a breach of, default under or other violation of any agreement, contract or obligation of Zygo.

15.          Payment of Technology Transfer Fees to Zygo. Nano shall pay Zygo [___ * ___] in technology transfer fees (the “Technology Transfer Fees”) in accordance with this Section 15.

                    15.1          [___ * ___].

                    15.2          [___ * ___].

                    15.3          Reports. Nano shall deliver to Zygo a report within thirty (30) days after the end of each calendar quarter during the Fee Period, stating the number of Approved Systems (including Upgrade Sales) sold by Nano during such calendar quarter.

                    15.4          Payments. Concurrently with each report under Section 15.3, Nano shall pay to Zygo the Technology Transfer Fees due to Zygo for each unit sold by Nano pursuant to 15.1, at Zygo’s office in Middlefield, Connecticut, or at such other address as may be designated in writing.

                    15.5          Records. Nano shall keep records and books of account which shall show the Net Revenues received by Nano from each Approved System sold by Nano during the Fee Period. Zygo will have the right to conduct annual audits of reports submitted during the prior six (6) calendar years. Such audits shall be conducted by a certified public accountant at the expense of Zygo, unless an underpayment of ten percent (10%) or more is found for any calendar year, in which case the expense shall be borne by Nano.

                    15.6          Covenants as to Net Revenues.

(a)          Nano shall sell Approved Systems for cash consideration, including a check or money order, and shall determine the pricing for sales of Approved Systems based on its standard practice for ordinary course, arms-length transactions.

(b)          Nano shall not make sales of Approved Systems on credit outside of its ordinary course of business, or on terms or for reasons inconsistent with past practice.

(c)          Nano will diligently pursue collection of amounts due from sales of Approved Systems on a good faith basis.

                    15.7          Consideration. In clarification of this Section 15, the Technology Transfer Fees due Zygo under this Section are separate from, and in addition to, the Sustaining Engineering Fee due Zygo under Section 7 and Exhibit C and the Purchase Price of Zygo Heads by Nano under Sections 2.3 and 2.4.

16.          Additional Obligations of Zygo.

                    16.1.          Spare Parts. Zygo shall supply to Nano a spare parts price list no later than thirty (30) days after the date of this Agreement and shall supply Nano with a revised spare parts price list as revisions are made. The prices included on such price list shall be Zygo’s then-current list price for such spare parts. Zygo shall stock parts reasonably required for the repair and servicing of Heads and Components by Nano, and shall sell such parts to Nano pursuant to the terms of this Agreement. Zygo shall test and inspect all parts using the same procedures as Zygo uses for like components of the Heads and Components. Zygo shall maintain the capability of repairing and otherwise servicing Heads and Components and furnishing spare parts manufactured by Zygo until the expiration of at least five (5) years after the date of Zygo’s delivery of such Head or Component. Zygo shall use its best efforts to ship parts ordered by Nano within two (2) business days after receipt and acceptance of Nano’s order. Zygo shall notify Nano promptly of the date by which such shipment will occur if such shipment will not be made within such two (2) business day period.

                    16.2          Service Not Covered by Warranty. In the event that any unit requires repair or other service that is not covered by Zygo’s warranty obligations (e.g., after expiration of the warranty period), Zygo shall be obligated to provide such service at Zygo’s then-applicable labor rate and parts prices unless Zygo is otherwise no longer in the business of selling or supporting such parts. Zygo shall use its best efforts to complete such repairs within ten (10) business days.

* CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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                    16.3          Defect Notification. Zygo shall immediately notify Nano of any material or recurring defect, deficiency or nonconformity discovered with respect to any of the Heads or Components manufactured by Zygo.

                    16.4          Head Modifications and Life Cycle Management. Zygo will satisfy all “Copy Exact” requirements so that Nano can fulfill such requirements to [___ * ___] and other customers. If Zygo at any time modifies any Heads, Zygo shall, if requested by Nano in Nano’s sole discretion, continue to make and supply Nano with unmodified Heads during the remaining term of this Agreement. Zygo will notify Nano at least six months prior to making any change in the design, performance, function, material or components of any Head purchased by Nano. Zygo shall use good faith efforts to notify Nano of any engineering change in any Head or Component sufficiently in advance of making any engineering change to enable Nano to provide comments and input into Zygo’s engineering change control process. Zygo shall not modify or authorize any modification affecting fit, form or function of any of the Heads or Components, or which would be significant with respect to requirements of any governmental authority.

                    16.5          Documentation. Zygo shall deliver a copy of the user manuals (hard or soft), if any, with each unit of Heads and Components. Zygo shall update all documentation as necessary to keep it current, accurate and complete. Nano shall have a nonexclusive, royalty-free license to use, reproduce and distribute any and all documentation in connection with the marketing, use or distribution of Heads and Components or products or systems into which any of the Heads or Components are incorporated.

17.       General.

                    17.1          Independent Contractors. The parties to this Agreement are acting as independent contractors with respect to each other; neither is an employee, partner or joint venturer of the other with respect to this Agreement. Neither party is authorized to act on behalf of, make representations for, or bind the other in any way.

                    17.2          Successors and Assigns. Each party may assign all of its rights and delegate all of its duties hereunder to an entity which acquires at least that portion of its business to which this Agreement relates, or to any corporate successor by way of merger or consolidation; provided, however, that such assignee assumes all of such parties obligations hereunder; and provided further that Nano may not make such assignment or delegation to those specific entities listed on Schedule 17.2 hereto. Subject to the foregoing, this Agreement shall be fully binding upon, inure to the benefit of and be enforceable by the parties and their respective successors, assigns and legal representatives.

                    17.3          Time of Essence. Time is of the essence in the performance of each party’s obligations under this Agreement.

                    17.4          Force Majeure. Neither party shall be liable for any delays in performance due to causes beyond its reasonable control, including but not limited to acts of God, public enemy, governmental laws, regulations or requirements, civil or military authority, labor disputes, fires, riots, wars, embargoes, epidemic, or floods.

                    17.5          Notices. Any notices required or permitted to be given by one party under this Agreement shall be deemed given to the other party when delivered in hand or three days after deposit with the United States Postal Service, registered or certified mail, postage prepaid, addressed as follows:

          If to Zygo:

Zygo Corporation

Laurel Brook Road

Middlefield, CT 06455-0448

Attention: Chief Executive Officer

Tel: 860-704-5109

Fax: 860-347-8372

          With a copy to:

Fulbright & Jaworski L.L.P.

666 Fifth Avenue

New York, NY 10103

Attention: Sheldon Nussbaum

Tel: (212) 318-3000

Fax: (212) 318-3400

          If to Nano:

Nanometrics Incorporated

1550 Buckeye Drive

Milpitas, CA 95035

Attention: Chief Executive Officer

Tel: (408) 545-6000

Fax: (408) 904-6278

* CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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          With a copy to:

Perkins Coie LLP

101 Jefferson Drive

Menlo Park, CA 94025

Attention: Buddy Arnheim

Tel: (650) 838-4300

Fax: (650) 838-4350

                    17.6          Severability. If any provision of this Agreement shall be held to be invalid or unenforceable by a court of competent jurisdiction, then that provision shall be deemed omitted form this Agreement, and all remaining provisions shall remain in effect and enforceable according to their terms; provided, however, that if the result of this severability provision is to substantially alter the obligations of the parties or the underlying intent of this Agreement, then either party may at its option rescind this Agreement.

                    17.7          Governing Law; Venue. This Agreement and performance under it are governed by the laws of the State of Delaware, exclusive of choice of law rules.

                    17.8          Arbitration.

(a)          Any controversy, dispute or claim arising under or in connection with this Agreement (including, without limitation, the existence, validity, interpretation or breach hereof and any claim based on contract, tort of statute) shall be resolved by a binding arbitration, to be held in Portland, Oregon (or its nearest surrounding area) pursuant to the Federal Arbitration Act and in accordance with the then-prevailing International Arbitration Rules of the American Arbitration Association (“AAA”).

(b)          The parties shall commence the arbitration by jointly filing a written submission with the Portland, Oregon (or its nearest surrounding area) office of the AAA in accordance with Commercial Rule 5 (or any successor provision). The arbitration shall be conducted by a single arbitrator (the “Arbitrator”) selected by Nano and Zygo in accordance with the Commercial Arbitration Rules of the AAA (the “Commercial Rules”).

(c)          The Arbitrator shall have no power or authority, under the Commercial Rules or otherwise, to (i) modify or disregard any provision of this Agreement, or (ii) address or resolve any issue not submitted by the parties.

(d)          In connection with any arbitration proceeding pursuant to this Agreement, each party shall bear its own costs and expenses, except that the fees and costs of the AAA and the Arbitrator, the costs and expenses of obtaining the facility where the arbitration hearing is held, and such other costs and expenses as the Arbitrator may determine to be directly related to the conduct of the arbitration and appropriately borne jointly by the parties (which shall not include any party’s attorneys’ fees or costs, witness fees (if any), costs of investigation and similar expenses) shall be shared equally by the parties.

                    17.9          Attorneys’ Fees. If any action or suit is instituted to enforce the obligations of this Agreement, the prevailing party shall be entitled to recover from the other party, in addition to any other rights and remedies it may have, all reasonable expenses and attorneys’ fees incurred up to and including arbitration, trial, appeal, and any petition for review.

                    17.10        Titles and Subheadings. The use of titles and subheadings in this Agreement is for the convenience of the parties only. They do not constitute binding portions and are not to be used in the interpretation of this Agreement.

                    17.11        Exhibits. The following Exhibits are attached and are part of this Agreement:

Exhibit A:	Descriptions of Heads and Components
Exhibit B:	Price List
Exhibit C:	Training
Exhibit D	Orders

                    17.12         Complete Agreement. This Agreement, together with the related Asset Transfer Agreement and Non-Disclosure Agreement, constitute the entire understanding of the parties with respect to its subject matter and supersedes all prior agreements and understandings of the parties. A breach by either party under the Asset Transfer Agreement shall be deemed to constitute a breach by that party under this Agreement. Nano shall not be bound by, and specifically objects to, any term, condition or other provision which is different from or in addition to the provisions of this Agreement (whether or not it would materially alter this Agreement) and which is proposed by Zygo in any quotation, invoice, shipping document, acceptance, confirmation, correspondence or otherwise, unless Nano specifically agrees to such provision in a written instrument signed by Nano.

                    17.13         Modification by Signed Writing Only; Waiver. No modification, change, amendment, or any waiver of rights with respect to this Agreement shall be binding unless in writing signed by the party to be charged. No waiver of any violation or nonperformance of this Agreement in one instance shall be deemed to be a waiver of any subsequent violation or nonperformance.

                    17.14         Nonwaiver. The failure of any party to insist upon or enforce performance of any of the provisions of this Agreement or to exercise any rights under this Agreement shall not be construed as a waiver or relinquishment to any

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extent of such party’s right to assert or rely upon any such provisions or rights in that or any other instance; rather, the same shall be and remain in full force and effect.

                    17.15        Implementation. Each party shall take such action (including, but not limited to, the execution, acknowledgment and delivery of documents) as may reasonably be requested by any other party for the implementation or continuing performance of this Agreement. Without limiting the generality of the foregoing, Zygo shall execute, acknowledge and deliver to Nano all such further assurance as Nano may reasonably request to evidence, vest and confirm the rights granted to Nano under this Agreement.

                    17.16        Remedies. The rights and remedies provided in this Agreement shall be the exclusive rights or remedies of the parties for monetary damages with respect to the matters covered herein.

                    17.17         Set-Off. All claims for monies due or to become due from Nano under this Agreement or otherwise shall be absolute, and there shall be no right to deduction by Nano for any setoff arising out of this or any other transaction between Nano and Zygo.

                    17.18        Damages. Notwithstanding anything contained in any other provision of this Agreement, (a) in the case of Zygo, damages hereunder will not exceed the [___ * ___]; (b) Zygo shall have no obligation to Nano in respect of any claim by Nano relating to any Head or Component, other than servicing or replacing such Head or Component in accordance with Section 10; and (c) in no event will consequential, indirect, punitive, individual or special damages of any nature, or any damage or claim for lost profits, be awarded to either party under any circumstances. Notwithstanding the foregoing, the indemnification obligations under Section 12 hereof are excluded from the foregoing as provided in Section 12.

                    17.19        Equitable Relief. Each party acknowledges that the provisions of this Agreement pertaining to the other party’s interests in the Flow-Through Licensed Technology are essential to the other party; that the other party would not enter into this Agreement if this Agreement did not include such provisions; and that damages sustained by the other party as a result of a breach of such provisions cannot be adequately remedied by monetary damages. Each party agrees that the other party, in addition to any other remedy it may have under this Agreement or at law, shall be entitled to injunctive and other judicial equitable relief to prevent or curtail a party from breaching the provisions of this Agreement.

                    17.20        [___ * ___].

                    17.21        Nano shall use good faith efforts to market and sell the Approved Systems in the Approved Markets.

* CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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ZYGO CORPORATION (“Zygo”)		NANOMETRICS CORPORATION (“Nano”)
By:	/s/ J. Bruce Robinson	By:	/s/ Timothy J. Stultz, Ph.D.
Its:	Chief Executive Officer	Its:	President and Chief Executive Officer

EXHIBIT A

Descriptions of Heads and Components

For purposes of clarification, the term “Head” is exemplified by the Head in the Unifire and includes:
	(a)          optical lens subassemblies, light source, components, power supplies, filters, cameras, image processing and pattern recognition software and algorithms and related mounting or bridging hardware required to embody the head in an automated final assembly;
	(b)          the control, modeling and analysis software, and related algorithms, utilized by and in the Automated Interferometer Systems developed and marketed by Zygo;
	(c)          the electronic control systems utilized by and in the Automated Interferometer Systems developed and marketed by Zygo (which may or may not be contained in the “Head” assembly);
	(d)          the know-how, software, systems and hardware that automates the systems;
	(e)          all parts, components and subassemblies of the products described in clause (a) above;
	(f)          all equipment and goods that are or may be used in connection with or ancillary to the manufacture, testing, use, calibration, maintenance or repair of “Heads”;
	(g)          all modifications and enhancements to any of the foregoing; and
	(h)          all replacements for and successors of any of the foregoing products made, used, sold or acquired by Zygo during the term of this Agreement.
“Head” also includes any improvements or modifications that arise during the term of this Agreement. Reference is made to Section 10.1(e) of the Agreement regarding “Copy Exact” requirements.
Notes:
The light source for the Head will be a white-light LED. The head can accept a Xenon light source as an option, but this is priced separately. There is no laser.

EXHIBIT B

Price List

[___ * ___]

* CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

EXHIBIT C

Training, Sustaining Engineering Services and Development Services

[___ * ___]

* CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

EX-10.32

EXHIBIT 10.32

EMPLOYMENT AGREEMENT

AGREEMENT made as of November 16, 2007, between ZYGO CORPORATION, a Delaware corporation with an office at Laurel Brook Road, Middlefield, Connecticut 06455 (the "Company") and DAVID PERSON, residing at an address on file with the Company, (the "Executive).

WITNESSETH:

WHEREAS, the Company desires that Executive be employed to serve in a senior executive capacity with the Company, and Executive desires to be so employed by the Company upon the terms and conditions herein set forth.

NOW, THEREFORE, in consideration of the premises and of the mutual promises, representations, and covenants herein contained, the parties hereto agree as follows:

1. EMPLOYMENT

The Executive has served as the Vice President, Human Resources since September 1998, reporting to the Chief Executive Officer of the Company and Company desires to continue to employ Executive and Executive desires to continue such employment, subject to the terms and conditions herein set forth.

2. TERM

The initial term of employment under this Agreement shall begin on the effective date of this Agreement (the "Employment Date") and shall continue for a period of (1) year from that date, subject to prior termination in accordance with the terms hereof. Thereafter, this Agreement shall automatically be renewed for successive one year terms unless either party shall give the other thirty (30) days prior written notice of its or his intent not to renew this Agreement. The initial one-year term together with all such additional one-year period(s) of employment, if any, are collectively referred to herein as the "term" of this Agreement.

3. COMPENSATION

As compensation for the employment services to be rendered by Executive hereunder, including all services as an officer or director of the Company and any of its subsidiaries, the Company agrees to pay, or cause to be paid, to Executive, and Executive agrees to accept, payable in equal installments in accordance with Company practice an annual salary which shall be in no event less than $197,000 or such higher amount as the Board of Directors may determine from time to time. In addition, Executive shall be entitled to additional contingent compensation from time to time by the Compensation Committee of the Board.

4. EXPENSES

The Company shall pay or reimburse Executive, upon presentation of suitable vouchers, for all reasonable business and travel expenses which may be incurred or paid by Executive in connection with his employment hereunder. Executive shall comply with such restrictions and shall keep such records as the Company may deem necessary to meet the requirements of the Internal Revenue Code of 1986, as amended from time to time, and regulations promulgated thereunder.

5. AUTOMOBILE

The Company shall, during the term of Executive's employment hereunder, provide Executive with an annual allowance for an automobile in the amount of $10,800 in lieu of any expense reimbursement for Company use of an automobile.

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6. INSURANCE AND OTHER BENEFITS

Executive shall be entitled to such vacations and to participate in and receive any other benefits customarily provided by the Company (including, but not limited to, any profit sharing, pension, health insurance, dental coverage, AD&D, and short and long-term disability in accordance with the terms of such plans) and including stock options, restricted stock and RSUs, all as determined from time to time by the Board of Directors of the Company or appropriate committee thereof. Unused annual vacations may be carried over to the extent permitted by Company policy.

7. DUTIES

(a) Executive shall perform such duties and functions as the Chairman and Chief Executive Officer and Board of Directors of the Company shall from time to time determine and Executive shall comply in the performance of his duties with the policies of, and be subject to, the direction of the Chairman and Chief Executive Officer and the Board of Directors.

(b) Executive agrees to devote substantially all his working time, attention, and energies to the performance of the business of the Company and of any of its subsidiaries by which he may be employed, and Executive shall not, directly or indirectly, alone or as a member of any partnership or other organization, or as an officer, director, or employee of any other corporation, partnership, or other organization, be actively engaged in or concerned with any other duties or pursuits which interfere with the performance of his duties hereunder, or which, even if non-interfering, may be inimical, or contrary, to the best interests of the Company, except those duties or pursuits specifically authorized by the Board of Directors.

8. TERMINATION OF EMPLOYMENT; EFFECT OF TERMINATION

(a) Executive's employment hereunder may be terminated at any time upon written notice from the Company to Executive,

(i) upon the determination by the Board of Directors that Executive's performance of his duties has not been fully satisfactory for any reason which would not constitute justifiable cause (as hereinafter defined) upon five (5) days' prior written notice to Executive; or

(b) Executive's employment shall terminate upon:

(i) the death of the Executive; or

(ii) the "disability" of Executive (as hereinafter defined pursuant to subsection c herein).

(iii) the determination by the Board of Directors that justifiable cause exists therefor.

(c) For the purposes of this Agreement, the term "disability" shall mean the inability of Executive, due to illness, accident, or any other physical or mental incapacity, to perform the essential functions of his job, with or without a reasonable accommodation, for a period of three (3) consecutive months or for a total of six (6) months (whether or not consecutive) in any twelve (12)-month period during the term of this Agreement.

(d) For the purposes hereof, the term "justifiable cause" shall mean and be limited to any willful breach by Executive of the performance of any of his duties pursuant to this Agreement; Executive's conviction (which, through lapse of time or otherwise, is not subject to appeal) of any crime or offense involving money or other property of the Company or its subsidiaries or which constitutes a felony in the jurisdiction involved; Executive's performance of any act or his failure to act, for which if he were prosecuted and convicted, a crime or offense involving money or property of the Company or its subsidiaries, or which constitutes a felony on the jurisdiction involved, would have occurred; any disclosure by Executive to any person, firm, or corporation other than the Company, its subsidiaries and its and their directors, officers, and employees, of any confidential information or trade secret of the Company or any of its subsidiaries; any attempt by Executive to secure any personal profit in connection with the business of the Company or any of its subsidiaries; or the engaging by Executive in any business other than the business of the Company and its subsidiaries which interferes with the performance of his duties hereunder.

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(e) If Executive shall die during the term of his employment hereunder, this Agreement shall terminate immediately. In such event, the estate of Executive shall thereupon be entitled to receive such portion of Executive's annual salary as has been accrued through the date of his death.

(f) Upon Executive's "disability," the Company shall have the right to terminate Executive's employment. Notwithstanding any inability to perform his duties, Executive shall be entitled to receive his compensation as provided herein until the termination of his employment for disability. Any termination pursuant to this subsection shall be effective on the date 30 days after which Executive shall have received written notice of the Company's election to terminate.

(g) Notwithstanding any provision to the contrary contained herein, in the event that Executive's employment is terminated by the Company, at any time for any reason other than justifiable cause, disability, or death, the Company shall pay Executive's salary (payable in such amount and in such manner as set forth in Section 3 herein) from and after the date of such termination for a period ending six (6) months after the date of termination which amount shall be in lieu of any and all other payments due and owing to executive under the terms of this Agreement; provided, however, that if such termination without justifiable cause occurs after a "Change in Control" (as defined in subsection (h) below), the Company shall (I) continue existing health insurance, dental coverage, AD&O, and long-term disability coverage in effect for Executive at the time of termination for a period of the lesser of six months or until covered by another plan; and (II) continue Executive's salary for a period of six (6) months after the date of termination, provided,however, that to the extent the Company's benefit programs do not provide for the continuation of benefits after termination of employment, the Company will pay to Executive the funds necessary to obtain reasonably equivalent coverage; and (III) pay the Executive a pro-rated bonus (based on the target bonus amount for the fiscal year in which the change of control occurs providing Executive is still employed 90 days after the change of control).

(h) A “Change in Control” shall mean the occurrence of any of the following events:

(i) The Company is merged with or consolidated with another corporation in a transaction in which (x) the Company is not the surviving corporation and (y) the Company's stockholders immediately prior to such transaction do not own at least 70% of the outstanding voting securities of the surviving corporation immediately following the transaction; or

(ii) Any person or entity or affiliated group of persons or entities becomes the holder of more than 51% of the Company's outstanding shares of Common Stock.

9.REPRESENTATIONS AND AGREEMENTS OF EXECUTIVE

(a) Executive represents and warrants that he is free to enter into this Agreement and to perform the duties required hereunder, and that there are no employment contracts or understandings, restrictive covenants, or other restrictions, whether written or oral, preventing the performance of his duties hereunder. Executive further represents and warrants that he is in full compliance with all existing agreements between himself and the Company.

10. NON-COMPETITION

(a) Executive agrees that during his employment by the Company (which shall be deemed to include the period in which Executive is receiving any severance payments set forth in Section 9(g) hereto), and for a period of one (1) year and after the later of (i) the final severance payment, or (ii) termination of Executive's employment hereunder, as the case may be (the “Non-Competitive Period"), Executive shall not, directly or indirectly, as owner, partner, joint venturer, stockholder, employee, broker, agent, principal, trustee, corporate officer, director, licensor, or in any capacity whatsoever engage in, become financially interested in, be employed by, render any consultation or business advice with respect to, or have any connection with, any business engaged in the research, development, testing, design, manufacture, sale, lease, marketing, utilization, or exploitation of any products or services which are designed for the same purpose as, are similar to, or are otherwise competitive with, products or services of the Company or any of its subsidiaries, in any geographic area where, at the time of the termination of his employment hereunder, the business of the Company or any of its subsidiaries was being conducted or was proposed to be conducted in any manner whatsoever; provided, however, that Executive may own any securities of any corporation which is engaged in such business and is publicly owned and traded but in an amount not to exceed at anyone time one percent (1 %) of any class of stock or securities of such corporation; provided, further, the foregoing provisions shall not restrict Executive from employment with an investment bank, leveraged buy-out firm, venture capital firm, or similar entity. In addition, Executive shall not, directly or indirectly, during the Non-Competitive Period, request or cause contracting parties, suppliers, or customers with whom the Company or any of its subsidiaries has a business relationship to cancel or terminate

3

any such business relationship with the Company or any of its subsidiaries or solicit, interfere with, or entice from the Company any employee (or former employee) of the Company.

(b) Notwithstanding any provisions in this Section 11 hereto, if Executive is terminated for any reason without ''justifiable cause" the Non-Competitive Period shall be a period of six months after the later of (i) the final severance payment or (ii) termination of Executive's Employment.

(c) If any portion of the restrictions set forth in this Section 11 should, for any reason whatsoever, be declared invalid by a court of competent jurisdiction, the validity or enforceability of the remainder of such restrictions shall not thereby be adversely affected.

(d) Executive acknowledges that the Company conducts business on a worldwide basis, that its sales and marketing prospects are for continued expansion into world markets and that; therefore, the territorial and time limitations set forth in this Section 11 are reasonable and properly required for the adequate protection of the business of the Company and its subsidiaries. In the event any such territorial or time limitation is deemed to be unreasonable by a court of competent jurisdiction, Executive agrees to the reduction of the territorial or time limitation to the area or period which such court deems reasonable.

11. NON-DISCLOSURE AND INVENTIONS AND DISCOVERIES AGREEMENT

Executive will execute the form of "Zygo Corporation Non-Disclosure and Assignment of Inventions Agreement USA" in the form of Exhibit A.

12. RIGHT TO INJUNCTION

Executive recognizes that the services to be rendered by him hereunder are of a special, unique, unusual, extraordinary, and intellectual character involving skill of the highest order and giving them peculiar value the loss of which cannot be adequately compensated for in damages. In the event of a breach of this Agreement by Executive, the Company shall be entitled to injunctive relief or any other legal or equitable remedies. Executive agrees that the Company may recover by appropriate action the amount of the actual damage caused the Company by any failure, refusal, or neglect of Executive to perform his agreements, representations, and warranties herein contained. The remedies provided in this Agreement shall be deemed cumulative and the exercise of one shall not preclude the exercise of any other remedy at law or in equity for the same event or any other event.

13.AMENDMENT OR ALTERATION

No amendment or alteration of the terms of this Agreement shall be valid unless made in writing and signed by both of the parties hereto.

14.GOVERNING LAW

This Agreement shall be governed by the laws of the State of Connecticut applicable to agreements made and to be performed therein.

15.SEVERABILITY

The holding of any provision of this Agreement to be invalid or unenforceable by a court of competent jurisdiction shall not affect any other provision of this Agreement, which shall remain in full force and effect.

16.NOTICES

Any notices required or pennitted to be given hereunder shall be sufficient if in writing, and if delivered by hand, or sent by certified mail, return receipt requested, to the addresses set forth above or such other address as either party may from time to time designate in writing to the other, and shall be deemed given as of the date of the delivery or mailing.

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17.WAIVER OR BREACH

It is agreed that a waiver by either party of a breach of any provision of this Agreement shall not operate, or be construed, as a waiver of any subsequent breach by that same party.

18.ENTIRE AGREEMENT AND BINDING EFFECT

This Agreement contains the entire agreement of the parties with respect to the subject matter hereof and shall be binding upon and inure to the benefit of the parties hereto and their respective legal representatives, heirs, distributors, successors, and assigns. Notwithstanding the foregoing, all prior agreements between Executive and the Company relating to the confidentiality of information, trade secrets, and patents shall not be affected by this Agreement.

19.SURVIVAL

The termination of Executive's employment hereunder shall not affect the enforceability of Sections 7, 8, 9, 11, 12 and 13 hereof.

20.FURTHER ASSURANCES

The parties agree to execute and deliver all such further documents, agreements, and instruments and take each other and further action as may be necessary or appropriate to carry out the purposes and intent of this Agreement. Executive represents and warrants that he is free to enter into this Agreement and to perfonn the duties required hereunder, and that there are no employment contracts or understandings, restrictive covenants or other restrictions, whether written or oral, preventing the performance of his duties under the Agreement.

21.HEADINGS

The Sections headings appearing in this Agreement are for the purposes of easy reference and shall not be considered a part of this Agreement or in any way modify, demand, or affect its provisions.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

ZYGO CORPORATION

By	/s/ J.Bruce Robinson	By	/s/ Dave Person
Date:	November 19, 2007	Date:	November 19, 2007

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EX-21

EXHIBIT 21

SUBSIDIARIES OF ZYGO CORPORATION (DELAWARE)

Technical Instrument Company (California)
100% owned by Registrant (effective as of August 8, 1996)

Syncotec Neue Technologien und Instrumente GmbH (Germany)
100% owned by Technical Instrument Company (effective as of September 1, 1997)

NexStar Corporation (Colorado)
100% owned by Registrant (effective as of September 12, 1996)

TechniStar Corporation (Delaware)
25% owned by NexStar Corporation

Zygo TeraOptix, Inc. (Delaware)
100% owned by Registrant (effective as of May 5, 2000)

Zygo KK (Japan)
100% owned by Registrant (effective as of October 1, 1999)

Zygo PTE LTD (Singapore)
100% owned by Registrant (effective as of January 1, 1998)

ZygoLamda Metrology Instrument (Shanghai) Co., Ltd. (China)
66% owned by Zygo PTE LTD (effective as of April 3, 2008)

Zygo Germany, GmbH (Germany)
100% owned by Registrant (effective as of December 1, 2006)

ZygoLOT GmbH (Germany)
60% owned by Zygo Germany, GmbH (effective as of December 28, 2006)

Six Brookside Drive (Connecticut)
100% owned by Registrant (effective as of January 9, 1998)

ZYGO Canada Inc. (Canada)
100% owned by Registrant (effective as of February 22, 2008)

Zygo Singapore Inspection Systems PTE. LTD. (Singapore)
100% owned by ZYGO Canada Inc. (effective as of February 28, 2008)

EX-23.1

EXHIBIT 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statements No. 333-105180, No. 33-51990, No. 333-44333, No. 33-62087, No. 33-57060, No. 33-20880, and No. 33-34619 on Form S-8 of our report dated September 14, 2009, (which report expresses an unqualified opinion and includes an explanatory paragraph relating to the adoption of Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109, on July 1, 2007), relating to the financial statements of Zygo Corporation appearing in this Annual Report on Form 10-K of Zygo Corporation for the year ended June 30, 2009.

/s/ Deloitte & Touche LLP

Hartford, Connecticut
September 14, 2009

EX-31.1

EXHIBIT 31.1

CERTIFICATION PURSUANT TO RULE 13a-14(a) OR 15d-14(a) OF THE SECURITIES EXCHANGE ACT OF
1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, J. Bruce Robinson, certify that:

1)	I have reviewed this annual report on Form 10-K of Zygo Corporation;
2)	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3)	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4)	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
		a)          Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
		b)          Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
		c)          Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
		d)          Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5)	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
		a)          All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
		b)          Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: September 14, 2009
	/s/ J. Bruce Robinson
	J. Bruce Robinson
	Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION PURSUANT TO RULE 13a-14(a) OR 15d-14(a) OF THE SECURITIES EXCHANGE ACT OF
1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Walter A. Shephard, certify that:

1)	I have reviewed this annual report on Form 10-K of Zygo Corporation;
2)	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3)	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4)	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
		a)          Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
		b)          Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
		c)          Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
		d)          Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5)	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
		a)          All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
		b)          Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: September 14, 2009
	/s/ Walter A. Shephard
	Walter A. Shephard
	Vice President, Finance,
	Chief Financial Officer, and Treasurer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, J. Bruce Robinson, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report of Zygo Corporation on Form 10-K for the fiscal year ended June 30, 2009, as filed with the Securities and Exchange Commission (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Zygo Corporation.

A signed original of this written statement required by Section 906 has been provided to Zygo Corporation and will be retained by Zygo Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

Dated: September 14, 2009

/s/ J. Bruce Robinson

J. Bruce Robinson

Chief Executive Officer of

Zygo Corporation

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Walter A. Shephard, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report of Zygo Corporation on Form 10-K for the fiscal year ended June 30, 2009, as filed with the Securities and Exchange Commission (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Zygo Corporation.

A signed original of this written statement required by Section 906 has been provided to Zygo Corporation and will be retained by Zygo Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

Dated: September 14, 2009

/s/ Walter A. Shephard

Walter A. Shephard

Vice President, Finance,

Chief Financial Officer, and Treasurer of

Zygo Corporation