<PAGE>
As filed with the Securities and Exchange Commission on October 22, 1999
Registration No. 333-86821
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
Under The Securities Act of 1933
-------------------
RUDOLPH TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)
-------------------
Delaware 3823 22-1628009
(State or other
jurisdiction of
incorporation or
organization)
(Primary Standard Industrial Classification Code Number)
(I.R.S. Employer
Identification Number)
-------------------
Rudolph Technologies, Inc.
One Rudolph Road
Flanders, NJ 07836
(973) 691-1300
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
-------------------
PAUL F. MCLAUGHLIN
President and Chief Executive Officer
Rudolph Technologies, Inc.
One Rudolph Road
Flanders, NJ 07836
(973) 691-1300
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
-------------------
Copies to:
HENRY P. MASSEY, JR. PETER B. TARR
TREVOR J. CHAPLICK JOHN M. WESTCOTT, JR.
Wilson Sonsini Goodrich & Rosati Hale and Dorr LLP
Professional Corporation 60 State Street
650 Page Mill Road Boston, MA 02109
Palo Alto, CA 94304 (617) 526-6000
(650) 493-9300
-------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [_]
-------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell securities, and we are not soliciting offers to buy these +
+securities, in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED OCTOBER 22, 1999
[LOGO OF RUDOLPH TECHNOLOGIES APPEARS HERE]
4,800,000 Shares
Common Stock
This is our initial public offering and no public market currently exists for
our shares. We have applied to have our common stock quoted on The Nasdaq
National Market under the symbol "RTEC." We anticipate that the initial public
offering price will be between $12 and $14 per share.
--------------
Investing in our common stock involves risks.
See "Risk Factors" beginning on page 6.
--------------
<TABLE>
<CAPTION>
Per
Share Total
----- -----
<S> <C> <C>
Public offering price........................................... $ $
Underwriting discounts and commissions.......................... $ $
Proceeds to Rudolph Technologies, Inc. ......................... $ $
</TABLE>
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved these securities, or determined if this prospectus
is truthful or complete. Any representation to the contrary is a criminal
offense.
We have granted the underwriters a 30-day option to purchase up to an
additional 720,000 shares of common stock to cover over-allotments. BancBoston
Robertson Stephens Inc. expects to deliver the shares of common stock to
purchasers on , 1999.
--------------
Robertson Stephens
Bear, Stearns & Co Inc.
CIBC World Markets
The date of this prospectus is , 1999.
<PAGE>
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock.
Until , 1999, all dealers that buy, sell or trade our common stock,
whether or not participating in this offering, may be required to deliver a
prospectus. This requirement is in addition to the dealers' obligation to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotment or subscription.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary.................................................................. 1
Risk Factors............................................................. 6
Use of Proceeds.......................................................... 18
Dividend Policy.......................................................... 18
Capitalization........................................................... 19
Dilution................................................................. 21
Selected Financial Data.................................................. 22
Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 24
Business................................................................. 37
Management............................................................... 52
Certain Relationships and Related Transactions........................... 59
Principal Stockholders................................................... 63
Description of Capital Stock............................................. 66
Shares Eligible for Future Sale.......................................... 68
Underwriting............................................................. 69
Legal Matters............................................................ 71
Experts.................................................................. 71
Where You Can Find More Information...................................... 71
Index to Financial Statements............................................ F-1
</TABLE>
---------------------
Rudolph Technologies, Inc. and the names of our systems are trademarks or
tradenames of Rudolph Technologies, Inc. This prospectus also contains
trademarks and tradenames of other companies.
i
<PAGE>
PROSPECTUS SUMMARY
The following summary highlights information which we present more fully
elsewhere in this prospectus. You should read the entire prospectus carefully.
This prospectus contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those
anticipated in the forward-looking statements as a result of factors described
under the heading "Risk Factors" and elsewhere in this prospectus.
Our Business
Rudolph Technologies, Inc. is a worldwide leader in the design,
development, manufacture and support of high-performance process control
metrology systems used in semiconductor device manufacturing. Metrology systems
measure the thickness and other properties of thin films applied during various
steps in the manufacture of integrated circuits. We provide our customers with
a full-fab metrology solution by offering families of proprietary systems for
both transparent and opaque thin film measurement in various applications
across the semiconductor fabrication process.
Process control metrology is used by semiconductor device manufacturers to
analyze product and process quality at critical steps in the integrated circuit
manufacturing process in order to identify, diagnose and minimize fabrication
defects. The semiconductor device manufacturing industry is experiencing
several trends that are increasing the demand for process control metrology
systems and heightening the need for metrology technology that can deliver a
higher degree of accuracy and repeatability. These industry trends include:
. transition to copper as the material of choice for creating the
circuitry, or interconnect, to link the components of an integrated
circuit;
. development of thinner line widths and spaces, or feature sizes, on
integrated circuits;
. migration to larger 300 millimeter diameter wafers; and
. introduction of new manufacturing process steps, including chemical
mechanical planarization.
We intend to pursue the following strategies in order to be the premier
worldwide provider of thin film metrology systems to semiconductor device
manufacturers:
. extend our technology leadership position by continuing our commitment
to research and development;
. capitalize on our technical heritage in thin film measurement to expand
our relationships with existing customers;
. continue to develop complementary metrology applications; and
. focus our resources on understanding the needs of leading semiconductor
device manufacturers in order to position ourselves as the system of
choice when manufacturers upgrade their fabrication techniques in
response to advances in semiconductor technology.
Since 1940, our technological leadership has earned us a reputation for
metrology excellence. We maintain sales, service or applications offices
throughout the world, including in California, New Jersey, Texas, Germany,
Holland, Ireland, Israel, Korea and Taiwan. Our customers and end users include
most major semiconductor device manufacturers worldwide, including Intel, AMD,
Fujitsu, IBM, Philips, Texas Instruments, TSMC and Toshiba. For the past four
years, we have received the top ranking among our thin film metrology
competitors in the annual VLSI Customer Satisfaction Survey.
1
<PAGE>
The Reorganization
The information in this prospectus has been adjusted to reflect several
actions we plan to take immediately before and immediately after this offering
in order to reorganize our corporate structure. Specifically, except where
stated otherwise, all information in this prospectus:
. reflects our authorization of 50,000,000 shares of a new, single class
of common stock and 5,000,000 shares of undesignated preferred stock;
. reflects a 35.66-for-one split of both classes of our outstanding
common stock;
. reflects the exchange of each outstanding share of both classes of our
common stock for one share of the new single class of common stock;
. reflects our use of approximately $7.0 million of the proceeds of this
offering to redeem all outstanding shares of each series of our
existing preferred stock;
. reflects the issuance of 2,039,460 shares of common stock upon the
exercise of warrants assuming an initial public offering price of
$13.00;
. reflects the merger of two of our subsidiaries into us; and
. assumes no exercise of the underwriters' option to purchase additional
shares.
Our audited financial statements included elsewhere in this prospectus are
called Consolidated Financial Statements because they were prepared prior to
the merger of our two subsidiaries into us.
The Offering
The calculation of the shares of common stock outstanding in the table
below is based on the number of shares outstanding as of September 30, 1999.
The number of shares of common stock to be outstanding after the offering
excludes:
. 693,951 shares of common stock underlying outstanding options granted
under our 1996 stock option plan;
. 2,000,000 shares of common stock that have been reserved for issuance
under our 1999 stock plan; and
. 300,000 shares of common stock that have been reserved for purchase by
employees under our employee stock purchase plan.
<TABLE>
<S> <C>
Common stock offered by Rudolph Technologies.... 4,800,000 shares
</TABLE>
<TABLE>
<S> <C>
Common stock to be outstanding after the 13,942,825 shares
offering......................................
</TABLE>
<TABLE>
<S> <C>
Use of proceeds................................. Repayment of approximately $38.4
million of long term debt and accrued
interest, including loans made to
finance the acquisition of our
predecessor company, redemption of
preferred stock, potential
acquisitions of technology or
businesses, working capital and
general corporate purposes
</TABLE>
<TABLE>
<S> <C>
Proposed Nasdaq National Market symbol.......... RTEC
</TABLE>
2
<PAGE>
Summary Financial Data
(in thousands, except share and per share data)
The following summary financial data should be read in conjunction with our
Consolidated Financial Statements and the related Notes thereto appearing
elsewhere in this prospectus, "Selected Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
Nine Months
Year Ended December 31, Ended September 30,
------------------------------ --------------------
Combined
1996 1997 1998 1998 1999
-------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues................ $ 31,874 $35,339 $ 20,106 $14,725 $25,220
Cost of revenues........ 14,076 13,903 13,179 8,667 12,115
-------- --------- --------- --------- ---------
Gross profit............ 17,798 21,436 6,927 6,058 13,105
Operating expenses:
Research and
development.......... 4,162 5,750 5,096 3,842 3,596
In-process research
and development...... 3,821 -- -- -- --
Selling, general and
administrative....... 8,484 9,475 7,077 4,808 5,761
Write-down of
intangibles.......... 6,734 -- -- -- --
Amortization.......... 3,669 4,201 4,208 3,156 197
-------- --------- --------- --------- ---------
Total operating
expenses........... 26,870 19,426 16,381 11,806 9,554
-------- --------- --------- --------- ---------
Operating (loss)
income................. (9,072) 2,010 (9,454) (5,748) 3,551
Interest expense........ 2,068 3,717 4,210 3,200 3,297
Other income............ (182) (92) (199) (47) (37)
-------- --------- --------- --------- ---------
Income (loss) before
income taxes........... (10,958) (1,615) (13,465) (8,901) 291
Provision (benefit) for
income taxes........... 143 (614) 613 (699) 121
-------- --------- --------- --------- ---------
Net income (loss)....... (11,101) (1,001) (14,078) (8,202) 170
Preferred stock
dividends.............. 239 468 507 376 423
-------- --------- --------- --------- ---------
Loss available to common
stockholders........... $(11,340) $ (1,469) $(14,585) $(8,578) $ (253)
======== ========= ========= ========= =========
Net loss per share
available to common
stockholders:
Basic................. $ (0.56) $ (3.24) $(2.31) $ (0.04)
Diluted............... $ (0.56) $ (3.24) $(2.31) $ (0.04)
Weighted average common
shares outstanding:
Basic................. 2,617,373 4,503,396 3,717,695 6,880,504
Diluted............... 2,617,373 4,503,396 3,717,695 6,880,504
Pro forma net loss per
share available to
common stockholders:
Basic................. $(2.23) $(1.49) $ (0.03)
Diluted............... $(2.23) $(1.49) $ (0.03)
Pro forma weighted
average common shares
outstanding:
Basic................. 6,542,856 5,757,155 8,919,964
Diluted............... 6,542,856 5,757,155 8,919,964
Other Financial Data:
EBITA................... $6,303 $(5,047) $(2,545) $3,785
EBITDA.................. 6,751 (4,269) (2,154) 4,202
Net cash used in
operating
activities........... (1,959) (6,872) (4,498) (1,282)
Net cash used in
investing
activities........... (586) (904) (545) (590)
Net cash provided by
financing
activities........... 1,200 8,000 5,400 1,718
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
December 31, September 30, 1999 September 30, 1999
---------------------------- ------------------ ------------------
Pro Forma
1996 1997 1998 Actual As Adjusted
-------- -------- -------- ------------------ ------------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents........... $ 1,578 $ 189 $ 431 $ 285 $ 11,004
Working capital
(deficit)............. 4,262 3,134 (1,052) (769) 23,775
Total assets............ 27,013 28,513 21,121 25,071 35,790
Long-term debt, less
current portion....... 26,000 24,000 25,370 25,550 --
Redeemable preferred
stock:
Class A................ 4,791 5,188 5,619 5,979 --
Class B................ 848 919 995 1,059 --
Accumulated deficit..... (14,953) (15,954) (30,032) (29,862) (31,310)
Total stockholders'
equity (deficit)...... (13,707) (15,327) (26,759) (26,875) 29,908
</TABLE>
Our statement of operations data as of and for the years ended December 31,
1997 and 1998 were derived from audited consolidated financial statements
included elsewhere in this prospectus. The combined 1996 statement of
operations data represent a combination, without adjustment, of the historical
results of our predecessor company for the period from January 1, 1996 to June
13, 1996 and our historical results for the period from June 14, 1996 to
December 31, 1996. The historical results for each of the periods January 1,
1996 to June 13, 1996 and June 14, 1996 to December 31, 1996 were also derived
from audited financial statements included elsewhere in this prospectus.
We are presenting the combined historical results for the year ended
December 31, 1996 for convenience only, to assist investors in assessing our
underlying business trends. These combined results exclude the full year effect
of purchase accounting adjustments, specifically increased interest expense and
amortization of intangibles. In addition, the predecessor company had a lower
effective tax rate than we do because it was taxed as an S-corporation while we
are taxed as a C-corporation. Further, our results of operations for the period
from June 14, 1996 to December 31, 1996, which are a component of the combined
1996 results, include various non-recurring expenses including in-process
research and development and the write-down of intangibles. As a result, the
combined 1996 results of operations are not fully comparable to our historical
results of operations for periods after 1996.
Our results of operations for the nine months ended September 30, 1998 and
1999 were derived from our unaudited financial statements and in our opinion
reflect and include all adjustments consisting of normal recurring adjustments
necessary for a fair presentation of such data. Our results of operations data
for the nine months ended September 30, 1999 are not necessarily indicative of
the results that may be expected for the year ending December 31, 1999.
EBITA and EBITDA are also included in our statement of operations data.
EBITA is defined as income before provision for income taxes, interest expense
and amortization of intangibles. EBITDA is defined as income before provision
for income taxes, interest expense, depreciation and amortization. EBITA and
EBITDA are presented as supplemental information and should not be considered
as an alternative to net income as an indicator of our operating performance,
or to cash flow from operating activities as an indicator of our liquidity. We
believe that EBITA and EBITDA are standard measures commonly reported and
widely used by analysts, investors and other interested parties in the
semiconductor capital equipment industry. However, EBITA and EBITDA as
presented herein may not be comparable to similarly titled measures reported by
other companies.
The Pro Forma As Adjusted amounts in our balance sheet data give effect to
the sale of 4.8 million shares of common stock offered by us at an assumed
initial public offering price of $13.00 per share and the application of the
estimated net proceeds as set forth under "Use of Proceeds."
4
<PAGE>
The Pro Forma As Adjusted amounts also reflect an increase in accumulated
deficit of $449,000 for an extraordinary loss related to the write-off of
deferred financing costs due to our repayment out of the proceeds of the
offering of a senior term loan, a subordinated term loan, a junior subordinated
note and a senior revolving term loan and a charge of $999,000 related to the
accelerated vesting of 107,852 options granted in July 1999.
Our headquarters are located at One Rudolph Road, Flanders, New Jersey
07836 and our telephone number is (973) 691-1300.
5
<PAGE>
RISK FACTORS
You should carefully consider the risks described below in analyzing an
investment in our common stock. If any of the events described below occurs,
our business, financial condition and results of operations would likely
suffer, the trading price of our common stock could fall and you could lose all
or part of the money you paid for our common stock. This prospectus contains
forward-looking statements that involve risks and uncertainties. Our actual
results could differ materially from those anticipated in the forward-looking
statements as a result of various factors, including those identified below as
well as those discussed elsewhere in this prospectus.
Risks Related to our Company
Cyclicality in the semiconductor device industry has led to substantial
decreases in demand for our systems and may from time to time continue to do so
Our operating results will be subject to significant variation due to the
cyclical nature of the semiconductor device industry. The semiconductor device
industry recently experienced a downturn which has seriously harmed our recent
operating results. Downturns in the semiconductor industry will likely lead to
proportionately greater downturns in our revenues. Our business depends upon
the capital expenditures of semiconductor device manufacturers, which, in turn,
depend upon the current and anticipated market demand for semiconductors and
products using semiconductors. The semiconductor device industry is cyclical
and has historically experienced periodic downturns, which have often resulted
in substantial decreases in the semiconductor device industry's demand for
capital equipment, including its thin film metrology equipment. There is
typically a six to twelve month lag between a change in the economic condition
of the semiconductor device industry and the resulting change in the level of
capital expenditures by semiconductor device manufacturers. In most cases, the
resulting decrease in capital expenditures has been more pronounced than the
precipitating downturn in semiconductor device industry revenues. The
semiconductor device industry experienced downturns in 1998 and 1996, during
which industry revenues declined by an estimated 8.4% and 8.6% as reported by
World Semiconductor Trade Statistics, Inc. Our revenues decreased from $35.3
million in 1997 to $20.1 million in 1998. Dataquest forecasts that sales of
semiconductor capital equipment will decrease by approximately 1.7% in 1999 as
compared to 1998. Although there are indications that the semiconductor device
industry is recovering,
. the semiconductor device industry may not continue to improve;
. the semiconductor device industry may experience other, possibly more
severe and prolonged, downturns in the future; and
. any continued recovery of the semiconductor device industry may not
result in an increased demand by semiconductor device manufacturers for
capital equipment.
Any future downturn in the semiconductor device industry, or any failure of
that industry to fully recover from its recent downturn, will seriously harm
our business, financial condition and results of operations.
We have had significant net losses in the past, and we may have net losses in
the future
Prior to the second quarter of 1999, we had not reported net income since
our predecessor company was acquired by our management and a group of investors
in June 1996. We reported a net loss available to common stockholders for the
first three quarters of 1999 of $0.3 million and for 1998 of $14.6 million. If
we continue to suffer losses and are not able to achieve profitability, our
business will suffer and the price of our common stock will substantially
decline. Because of a recent downturn in the semiconductor device industry and
a related downturn in the semiconductor capital equipment industry, weak
economic conditions in the Asia Pacific region and other reasons, we expect to
be only slightly profitable, if profitable at all, at least through the fourth
quarter of 1999, and we may not achieve or sustain profitability in any
subsequent period.
6
<PAGE>
Our operating results have in the past varied and probably will in the future
continue to vary significantly from quarter to quarter, causing volatility in
our stock price
Our quarterly operating results have varied significantly in the past and
may continue to do so in the future, which could cause our stock price to
decline. Some of the factors that may influence our operating results and
subject our stock to extreme price and volume fluctuations include:
. changes in customer demand for our systems, which is influenced by
economic conditions in the semiconductor device industry, demand for
products that use semiconductors, market acceptance of our systems and
those of our customers and changes in our product offerings;
. seasonal variations in customer demand, including the tendency of
European sales to slow significantly in the third quarter of each year;
. the timing, cancellation or delay of customer orders and shipments;
. product development costs, including increased research, development,
engineering and marketing expenses associated with our introduction of
new products and product enhancements; and
. the levels of our fixed expenses, including research and development
costs associated with product development, relative to our revenue
levels.
Our revenue may vary significantly each quarter due to relatively small
fluctuations in our unit sales
During any quarter, a significant portion of our revenue may be derived
from the sale of a relatively small number of systems. Our transparent film
measurement systems range in price from approximately $200,000 to $1.0 million
per system and our opaque film measurement systems range in price from
approximately $900,000 to $1.6 million per system. Accordingly, a small change
in the number of systems we sell may also cause significant changes in our
operating results. This, in turn, could cause fluctuations in the market price
of our common stock.
Variations in the amount of time it takes for us to sell our systems may cause
fluctuations in our operating results, which could cause our stock price to
decline
Variations in the length of our sales cycles could cause our revenue, and
thus our business, financial condition and operating results, to fluctuate
widely from period to period. This variation could cause our stock price to
decline. Our customers generally take a long time to evaluate our film
metrology systems and many people are involved in the evaluation process. We
expend significant resources educating and providing information to our
prospective customers regarding the uses and benefits of our systems in the
semiconductor fabrication process. The length of time it takes for us to make a
sale depends upon many factors, including:
. the efforts of our sales force and our independent sales representatives
and distributors;
. the complexity of the customer's fabrication processes;
. the internal technical capabilities and sophistication of the customer;
. the customer's budgetary constraints; and
. the quality and sophistication of the customer's current metrology
equipment.
Because of the number of factors influencing the sales process, the period
between our initial contact with a customer and the time when we recognize
revenue from that customer, if ever, varies widely in length. Our
7
<PAGE>
sales cycles, including the time it takes for us to build a product to customer
specifications after receiving an order, typically range from six to 15 months.
Sometimes our sales cycles can be much longer, particularly with customers in
Japan. During these cycles, we commit substantial resources to our sales
efforts in advance of receiving any revenue, and we may never receive any
revenue from a customer despite our sales efforts.
If we do make a sale, our customers often purchase only one of our systems,
and then evaluate its performance for a lengthy period before purchasing any
more of our systems. The number of additional products a customer purchases, if
any, depends on many factors, including a customer's capacity requirements. The
period between a customer's initial purchase and any subsequent purchases can
vary from six months to a year or longer, and variations in the length of this
period could cause further fluctuations in our operating results and possibly
in our stock price.
Our largest customers account for a significant portion of our revenues, and
our revenues would significantly decline if one or more of these customers were
to purchase significantly fewer of our systems or they delayed or cancelled a
large order
Historically, a significant portion of our revenues in each quarter and
year has been derived from sales to relatively few customers, and we expect
this trend to continue. If any of our key customers were to purchase
significantly fewer of our systems in the future, or if a large order were
delayed or cancelled, our revenues would significantly decline. In 1998 and in
the nine months ended September 30, 1999, sales to customers that individually
represented at least five percent of our revenues accounted for 43.2% and 52.5%
of our revenues. In 1998, sales to Intel and Advanced Micro Devices accounted
for 19.8% and 11.1% of our revenues. In the nine months ended September 30,
1999, sales to Intel accounted for 34.2% of our revenues. There are only a
limited number of mostly large companies operating in the highly concentrated,
capital intensive semiconductor device manufacturing industry. Accordingly, we
expect that we will continue to depend on a small number of large customers for
a significant portion of our revenues for at least the next several years. In
addition, as large semiconductor device manufacturers seek to establish closer
relationships with their suppliers, we expect that our customer base will
become even more concentrated.
If we are not successful in developing new and enhanced products for the
semiconductor device manufacturing industry we will lose market share to our
competitors
We operate in an industry that is subject to evolving industry standards,
rapid technological changes, rapid changes in consumer demands and the rapid
introduction of new, higher performance systems with shorter product life
cycles. To be competitive in our demanding market, we must continually design,
develop and introduce in a timely manner new film metrology systems that meet
the performance and price demands of semiconductor device manufacturers. We
must also continue to refine our current systems so that they remain
competitive. We may experience difficulties or delays in our development
efforts with respect to new systems, and we may not ultimately be successful in
developing them. Any significant delay in releasing new systems could adversely
affect our reputation, give a competitor a first-to-market advantage or cause a
competitor to achieve greater market share. Approximately 75% of our revenues
in the first three quarters of 1999 were derived from the sale of systems that
we did not begin selling until the first quarter of 1997 or later.
Even if we are able to successfully develop new products, if these products do
not gain general market acceptance we will not be able to generate revenues and
recover our research and development costs
Metrology product development is inherently risky because it is difficult
to foresee developments in semiconductor device manufacturing technology,
coordinate technical personnel and identify and eliminate metrology system
design flaws. We are developing our Matrix Metrology systems, which are thin
film metrology systems specifically designed for use in the CMP, etch,
diffusion and other portions of the semiconductor device manufacturing process
where we do not currently have significant market share. Any new systems
introduced by us may not achieve a significant degree of market acceptance or,
once accepted, may fail to sell well for any significant period.
8
<PAGE>
We expect to spend a significant amount of time and resources to develop
new systems and refine existing systems. In light of the long product
development cycles inherent in our industry, these expenditures will be made
well in advance of the prospect of deriving revenue from the sale of new
systems. Our ability to commercially introduce and successfully market new
systems is subject to a wide variety of challenges during this development
cycle, including start-up bugs, design defects and other matters that could
delay introduction of these systems. In addition, since our customers are not
obligated by long-term contracts to purchase our systems, our anticipated
product orders may not materialize, or orders that do materialize may be
cancelled. As a result, if we do not achieve market acceptance of new products,
we may not be able to realize sufficient sales of our systems in order to
recoup research and development expenditures.
Even if we are able to develop new products that gain market acceptance, sales
of new products could impair our ability to sell existing product lines
Competition from our new Matrix Metrology systems could have a negative
effect on sales of our other transparent thin film metrology systems, including
our SpectraLASER and FOCUS systems, and the prices we could charge for these
systems. We may also divert sales and marketing resources from our current
systems in order to successfully launch and promote our new Matrix Metrology
systems. This diversion of resources could have a further negative effect on
sales of our current systems.
If our relationships with our large customers deteriorate, our product
development activities could be jeopardized
The success of our product development efforts depends on our ability to
anticipate market trends and the price, performance and functionality
requirements of semiconductor device manufacturers. In order to anticipate
these trends and ensure that critical development projects proceed in a
coordinated manner, we must continue to collaborate closely with our largest
customers. Our relationships with these and other customers provide us with
access to valuable information regarding trends in the semiconductor device
industry, which enables us to better plan our product development activities.
If our current relationships with our large customers are impaired, or if we
are unable to develop similar collaborative relationships with important
customers in the future, our long-term ability to produce commercially
successful systems will be impaired.
Our ability to reduce costs is limited by our ongoing need to invest in
research and development
Our industry is characterized by the need for continual investment in
research and development as well as customer service and support. As a result
of our need to maintain our spending levels in these areas, our operating
results could be materially harmed if our revenues fall below expectations. In
addition, because of our emphasis on research and development and technological
innovation, our operating costs may increase further in the future. We expect
our level of research and development expenses to increase in absolute dollar
terms for at least the next several years.
We may fail to adequately protect our intellectual property and, therefore,
lose our competitive advantage
Our future success and competitive position depend in part upon our ability
to obtain and maintain proprietary technology for our principal product
families, and we rely, in part, on patent, trade secret and trademark law to
protect that technology. If we fail to adequately protect our intellectual
property, it will be easier for our competitors to sell competing products. We
own or have licensed a number of patents relating to our transparent and opaque
thin film metrology systems, and have filed applications for additional
patents. Any of our pending patent applications may be rejected, and we may not
in the future be able to develop additional proprietary technology that is
patentable. In addition, the patents we do own or that have been issued or
licensed to us may not provide us with competitive advantages and may be
challenged by third parties. Third parties may also design around these
patents.
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In addition to patent protection, we rely upon trade secret protection for
our confidential and proprietary information and technology. We routinely enter
into confidentiality agreements with our employees. However, in the event that
these agreements may be breached, we may not have adequate remedies. Our
confidential and proprietary information and technology might also be
independently developed by or become otherwise known to third parties.
Successful infringement claims by third parties could result in substantial
damages, lost product sales and the loss of important intellectual property
rights by us
Our commercial success depends in part on our ability to avoid infringing
or misappropriating patents or other proprietary rights owned by third parties.
From time to time we may receive communications from third parties asserting
that our products or systems infringe, or may infringe, the proprietary rights
of these third parties. These claims of infringement may lead to protracted and
costly litigation which could require us to pay substantial damages or have the
sale of our products or systems stopped by an injunction. Infringement claims
could also cause product or system delays or require us to redesign our
products or systems, and these delays could result in the loss of substantial
revenues. We may also be required to obtain a license from the third party or
cease activities utilizing the third party's proprietary rights. We may not be
able to enter into such a license or such license may not be available on
commercially reasonable terms. The loss of important intellectual property
rights could therefore prevent our ability to sell our systems, or make the
sale of such systems more expensive for us.
Protection of our intellectual property rights, or the efforts of third parties
to enforce their own intellectual property rights against us, has in the past
resulted and may in the future result in costly and time-consuming litigation
We may be required to initiate litigation in order to enforce any patents
issued to or licensed by us, or to determine the scope or validity of a third
party's patent or other proprietary rights. In addition, we may be subject to
lawsuits by third parties seeking to enforce their own intellectual property
rights. Any such litigation, regardless of outcome, could be expensive and time
consuming, and could subject us to significant liabilities or require us to re-
engineer our product or obtain expensive licenses from third parties.
For example, we are presently involved in a patent interference proceeding
with a competitor, Therma-Wave, Inc., in the United States Patent Office. In
this proceeding, we are defending our patent rights with respect to some of the
multiple angle, multiple wavelength ellipsometry technology we use in our
transparent thin film measurement systems. Therma-Wave requested the proceeding
be initiated in 1993 by filing a reissue application for one of its own
patents, and the proceeding was initiated in June 1998. If we lose the
interference, a reissue patent will be granted to Therma-Wave permitting
Therma-Wave to assert patent rights against the ellipsometers we use in our
transparent thin film measurement systems. In that event, we would either have
to pay future royalties to Therma-Wave or redesign our transparent thin film
measurement systems. Either of these events could harm our business, financial
condition and results of operations. See "Business--Legal Proceedings." In
addition, in a letter dated February 10, 1998, Therma-Wave asked us to review
our technology for possible infringement of several of Therma-Wave's patents.
We denied any such infringement in a letter to Therma-Wave dated March 10,
1998. In a letter dated March 13, 1998, Therma-Wave requested further
information regarding the basis for our belief that our technology did not
infringe Therma-Wave's patents. There has been no further correspondence
between us and Therma-Wave regarding Therma-Wave's patent inquiries. Although
we do not believe that we are infringing any of Therma-Wave's patents, Therma-
Wave could nevertheless initiate an infringement action against us, which would
be costly and distracting regardless of its outcome.
In a letter dated December 3, 1998, Axic, Inc. asked us to review our
technology for possible infringement of one of Axic's patents. We denied any
such infringement in a letter to Axic dated December 22, 1998. There has been
no further correspondence between us and Axic regarding its patent infringement
claims.
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Our efforts to protect our intellectual property may be less effective in some
foreign countries where intellectual property rights are not as well protected
as in the United States
Currently nearly fifty percent of our revenue is derived from sales in
foreign countries, including certain countries in Asia such as Taiwan, Korea
and Japan. The laws of some foreign countries do not protect our proprietary
rights to as great an extent as do the laws of the United States, and many U.
S. companies have encountered substantial problems in protecting their
proprietary rights against infringement in such countries, some of which are
countries in which we have sold and continue to sell systems. For example,
Taiwan is not a signatory of the Patent Cooperation Treaty, which is designed
to specify rules and methods for defending intellectual property
internationally. The publication of a patent in Taiwan prior to the filing of a
patent in Taiwan would invalidate the ability of a company to obtain a patent
in Taiwan. Similarly, in contrast to the United States where the contents of
patents remain confidential during the patent prosecution process, the contents
of a patent are published upon filing which provides competitors an advanced
view of the contents of a patent application prior to the establishment of
patent rights. There is a risk that our means of protecting our proprietary
rights may not be adequate in these countries. For example, our competitors in
these countries may independently develop similar technology or duplicate our
systems. If we fail to adequately protect our intellectual property in these
countries, it would be easier for our competitors to sell competing products in
those countries.
Our current and potential competitors have significantly greater resources than
we do, and increased competition could impair sales of our products or cause us
to reduce our prices
We operate in the highly competitive semiconductor capital equipment
industry and face competition from a number of companies, many of which have
greater financial, engineering, manufacturing, marketing and customer support
resources and broader product offerings than we do. As a result, our
competitors may be able to respond more quickly to new or emerging technologies
or market developments by devoting greater resources to the development,
promotion and sale of products which could impair sales of our products.
Moreover, there has been significant merger and acquisition activity among our
competitors and potential competitors, particularly during the recent downturn
in the semiconductor device and semiconductor capital equipment industries.
These transactions by our competitors and potential competitors may provide
them with a competitive advantage over us by enabling them to rapidly expand
their product offerings and service capabilities to meet a broader range of
customer needs. Many of our customers and potential customers in the
semiconductor device manufacturing industry are large companies that require
global support and service for their semiconductor capital equipment. While we
believe that our global support and service infrastructure is sufficient to
meet the needs of our customers and potential customers, our larger competitors
have more extensive infrastructures than we do, which could place us at a
disadvantage when competing for the business of global semiconductor device
manufacturers.
Many of our competitors are investing heavily in the development of new
systems that will compete directly with ours. We have from time to time
selectively reduced prices on our systems in order to protect our market share,
and competitive pressures may necessitate further price reductions. We expect
our competitors in each product area to continue to improve the design and
performance of their products and to introduce new products with competitive
prices and performance characteristics. Such product introductions by our
competitors would likely cause us to decrease the prices of our systems and
increase the level of discounts we grant our customers.
Because of the high cost of switching equipment vendors in our markets, it is
sometimes difficult for us to win customers from our competitors even if our
systems are superior to theirs
We believe that once a semiconductor device manufacturer has selected one
vendor's capital equipment for a production line application, the manufacturer
generally relies upon that capital equipment and, to the
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extent possible, subsequent generations of the same vendor's equipment, for the
life of the application. Once a vendor's equipment has been installed in a
production line application, a semiconductor device manufacturer must often
make substantial technical modifications and may experience production-line
downtime in order to switch to another vendor's equipment. Accordingly, unless
our systems offer performance or cost advantages that outweigh a customer's
expense of switching to our systems, it will be difficult for us to achieve
significant sales to that customer once it has selected another vendor's
capital equipment for an application.
We must attract and retain key personnel with knowledge of semiconductor device
manufacturing and metrology equipment to help support our future growth, and
competition for such personnel in our industry is high
Our success depends to a significant degree upon the continued
contributions of our key management, engineering, sales and marketing, customer
support, finance and manufacturing personnel. The loss of any of these key
personnel, who would be extremely difficult to replace, could harm our business
and operating results. During downturns in our industry, we have often
experienced significant employee attrition, and we may experience further
attrition in the event of a future downturn. Although we have employment and
noncompetition agreements with key members of our senior management team,
including Messrs. McLaughlin, Loiterman and Roth, these individuals or other
key employees may nevertheless leave our company. We do not have key person
life insurance on any of our executives. In addition, to support our future
growth, we will need to attract and retain additional qualified employees.
Competition for such personnel in our industry is intense, and we may not be
successful in attracting and retaining qualified employees.
We obtain some of the components and subassemblies included in our systems from
a single source or a limited group of suppliers, and the partial or complete
loss of one of these suppliers could cause production delays and a substantial
loss of revenue
Coherent, Inc. is our sole supplier of the lasers we use in some of our
systems, and we also obtain some of the other components and subassemblies
included in our systems from a single supplier or a limited group of suppliers.
Although our supply agreement with Coherent has expired, we are currently
negotiating a follow-on contract with Coherent. We do not have long-term
contracts with many of our suppliers. Our dependence on sole source suppliers
of components exposes us to several risks, including a potential inability to
obtain an adequate supply of components, price increases, late deliveries and
poor component quality. Disruption or termination of the supply of these
components could delay shipments of our systems, damage our customer
relationships and reduce our sales. From time to time in the past, we have
experienced temporary difficulties in receiving shipments from our suppliers.
The lead time required for shipments of some of our components can be as long
as four months. In addition, the lead time required to qualify new suppliers
for lasers could be as long as a year, and the lead time required to qualify
new suppliers of other components could be as long as nine months. If we are
unable to accurately predict our component needs, or if our component supply is
disrupted, we may miss market opportunities by not being able to meet the
demand for our systems. Further, a significant increase in the price of one or
more of these components or subassemblies included in our systems could
seriously harm our results of operations.
We manufacture all of our systems at a single facility, and any prolonged
disruption in the operations of that facility could have a material adverse
effect on our revenue
We produce all of our systems in our manufacturing facility located in
Ledgewood, New Jersey. Our manufacturing processes are highly complex and
require sophisticated and costly equipment and a specially designed facility.
As a result, any prolonged disruption in the operations of our manufacturing
facility, whether due to technical or labor difficulties, destruction of or
damage as a result of a fire or any other reason, could seriously harm our
ability to satisfy our customer order deadlines. If we cannot timely deliver
our systems, our revenue could be adversely affected.
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We rely upon independent sales representatives and distributors for a
significant portion of our sales, and a disruption in our relationships with
these representatives or distributors could have a negative impact on our sales
in Japan, Taiwan, China and Singapore
Historically, a substantial portion of our sales have been made through
independent sales representatives and distributors. We expect that sales
through independent sales representatives and distributors will represent a
material portion of our sales for the next several years. In particular, all of
our sales in Japan will continue to be made through an independent distributor
for the next several years, and all our sales in Taiwan, China and Singapore
will continue to be made through independent sales representatives for the next
several years. In 1998, sales to Tokyo Electron Limited, our exclusive
distributor in Japan, accounted for 17.6% of our revenues. In some locations,
including Japan, our independent sales representatives or distributors also
provide field service to our customers. The activities of these representatives
and distributors are not within our control. A reduction in the sales or
service efforts or financial viability of any of our independent sales
representatives and distributors, or a termination of our relationships with
them, could harm our sales, our financial results and our ability to support
our customers. Although we believe that we maintain good relations with our
independent sales representatives and distributors, such relationships may
nevertheless deteriorate in the future.
Because we derive a significant portion of our revenues from sales in Asia, our
sales and results of operations could be adversely affected by the instability
of Asian economies
Our sales to customers in Asian markets represented approximately 22.7% and
41.7% of our revenues in the first three quarters of 1999 and in 1998.
Countries in the Asia Pacific region, including Japan, Korea and Taiwan, each
of which accounted for a significant portion of our business in that region,
have experienced currency, banking and equity market weaknesses over the last
18 months. These weaknesses began to adversely affect our sales to
semiconductor device and capital equipment manufacturers located in these
regions in the fourth quarter of 1997, and continued to adversely affect our
sales in 1998 and the first half of 1999. Although we have recently received an
increased level of orders from customers in the Asia Pacific region, we expect
that turbulence in the Asian markets could adversely affect our sales in future
periods.
Due to our significant level of international sales, we are subject to
operational, financial and political risks such as unexpected changes in
regulatory requirements, tariffs, political and economic instability, outbreaks
of hostilities, adverse tax consequences and difficulties in managing foreign
sales representatives and foreign branch operations
International sales accounted for approximately 46.7% and 58.2% of our
revenues in the first three quarters of 1999 and in 1998. We anticipate that
international sales will continue to account for a significant portion of our
revenue for at least the next five years. Due to the significant level of our
international sales, we are subject to material risks which include:
. Unexpected changes in regulatory requirements including tariffs and
other market barriers. The semiconductor device industry is a high-
visibility industry in many of the European and Asian countries in
which we sell our products. Because the governments of these countries
have provided extensive financial support to our semiconductor device
manufacturing customers in these countries, we believe that our
customers could be disproportionately affected by any trade embargos,
excise taxes or other restrictions imposed by their governments on
trade with United States companies such as ourselves. Any such
restrictions could lead to a reduction in our sales to customers in
these countries.
. Political and economic instability. There is considerable political
instability in Taiwan related to its disputes with China and in South
Korea related to its disputes with North Korea. In addition, several
Asian countries, particularly Japan, have recently experienced
significant economic instability. An outbreak of hostilities or other
political upheaval in Taiwan or South Korea, or an economic downturn
in Japan, would likely harm the operations of our customers in these
countries, causing our sales to suffer. The effect of such events on
our revenues could be material because we derive
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substantial revenues from sales to semiconductor device foundries in
Taiwan such as TSMC and UMC, from memory chip manufacturers in South
Korea such as Hyundai and Samsung, and from semiconductor device
manufacturers in Japan such as NEC and Toshiba.
. Difficulties in staffing and managing foreign branch
operations. During periods of tension between the governments of the
United States and other countries, it is often difficult for United
States companies such as ourselves to staff and manage operations in
such countries. We have only recently established a direct sales force
in Europe, and we are continuing to build our sales infrastructure in
that region. Because our European sales operations are new and our
sales employees in Europe have only recently begun working for us,
these operations could be particularly susceptible to any periods of
tension that may arise between the United States and any European
country in which we operate.
Since a substantial portion of our revenues are derived from sales in other
countries yet are denominated in U.S. dollars, we could experience a
significant decline in sales or experience collection problems in the event
the dollar becomes more expensive relative to local currencies
A substantial portion of our international sales are denominated in U.S.
dollars. As a result, if the dollar rises in value in relation to foreign
currencies, our systems will become more expensive to customers outside the
United States and less competitive with systems produced by competitors
outside the United States. Such conditions could negatively impact our
international sales. Foreign sales also expose us to collection risk in the
event it becomes more expensive for our foreign customers to convert their
local currencies into U.S. dollars.
If we choose to acquire new and complementary businesses, products or
technologies instead of developing them ourselves, we may be unable to
complete these acquisitions or may not be able to successfully integrate an
acquired business in a cost-effective and non-disruptive manner
Our success depends on our ability to continually enhance and broaden our
product offerings in response to changing technologies, customer demands and
competitive pressures. To this end, we may choose to acquire new and
complementary businesses, products, or technologies instead of developing them
ourselves. We may, however, face competition for acquisition targets from
larger and more established companies with greater financial resources, making
it more difficult for us to complete acquisitions. We do not know if we will
be able to complete any acquisitions, or whether we will be able to
successfully integrate any acquired business, operate it profitably or retain
its key employees. Integrating any business, product or technology we acquire
could be expensive and time-consuming, could disrupt our ongoing business and
could distract our management. In addition, in order to finance any
acquisitions, we might need to raise additional funds through public or
private equity or debt financings. In that event, we could be forced to obtain
financing on terms that are not favorable to us and, in the case of equity
financing, that result in dilution to our stockholders. If we are unable to
integrate any acquired entities, products or technologies effectively, our
business, financial condition and operating results will suffer. In addition,
any amortization of goodwill or other assets or charges resulting from the
costs of acquisitions could harm our business and operating results.
If we deliver systems with defects, our credibility will be harmed and the
sales and market acceptance of our systems will decrease
Our systems are complex and sometimes have contained errors, defects and
bugs when introduced. If we deliver systems with errors, defects or bugs, our
credibility and the market acceptance and sales of our systems could be
harmed. Further, if our systems contain errors, defects or bugs, we may be
required to expend significant capital and resources to alleviate such
problems. Defects could also lead to product liability as a result of product
liability lawsuits against us or against our customers. We have agreed to
indemnify our customers in some circumstances against liability arising from
defects in our systems. Our product liability policy currently provides only
$2 million of coverage per claim with an overall umbrella limit of $4 million.
In
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the event of a successful product liability claim, we could be obligated to pay
damages significantly in excess of our product liability insurance limits.
A small group of major stockholders will continue to have significant influence
over our business after this offering, and could delay, deter or prevent a
change of control or other business combination
Upon completion of this offering, Liberty Partners, Riverside Partners and
Paul F. McLaughlin will hold approximately 59.7% of our outstanding stock, or
56.8% if the underwriters' option to purchase additional shares is exercised in
full. We anticipate that five of the eight directors on our board following
this offering will be representatives of these stockholders. In addition, prior
to this offering, these stockholders intend to enter into an agreement under
which each party will agree to vote its shares in favor of one nominee of each
other party to serve on our board of directors. The interests of these
stockholders may not always coincide with our interests or those of our other
stockholders. By virtue of their stock ownership and board representation,
these stockholders will continue to have a significant influence over all
matters submitted to our board and our stockholders, including the election of
our directors, and will be able to exercise significant control over our
business, policies and affairs. Through their concentration of voting power,
these stockholders, acting individually or together, could cause us to take
actions that we would not consider absent their influence, or could delay,
deter or prevent a change of control of our company or other business
combination that might otherwise be beneficial to our public stockholders.
Provisions of our charter documents and Delaware law could discourage potential
acquisition proposals and could delay, deter or prevent a change in control of
our company
Provisions of our certificate of incorporation and bylaws may inhibit
changes in control of our company not approved by our board of directors. These
provisions also limit the circumstances in which a premium can be paid for the
common stock, and in which a proxy contest for control of our board may be
initiated.
These provisions provide for:
. a prohibition on stockholder actions through written consent;
. a requirement that special meetings of stockholders be called only by
our chief executive officer or board of directors;
. advance notice requirements for stockholder proposals and director
nominations by stockholders;
. limitations on the ability of stockholders to amend, alter or repeal
our by-laws; and
. the authority of our board to issue, without stockholder approval,
preferred stock with such terms as the board may determine.
We will also be afforded the protections of Section 203 of the Delaware
General Corporation Law, which could have similar effects. See "Description of
Capital Stock."
If we are forced to devote substantial resources to Year 2000 remediation
efforts, if we incur significant liability due to Year 2000 problems in our
products, or if Year 2000 problems among our suppliers or customers cause
delays in our shipping or receipt of systems, we may experience a substantial
loss in revenue
We have implemented a multi-phase Year 2000 project consisting of
assessment, remediation and testing following remediation. Despite our efforts,
however, we may not have identified all of the potential risks. Our failure to
identify and remediate all material Year 2000 risks could adversely affect our
business, financial condition and results of operations. The Year 2000 risks
facing us include:
. the entities on whom we rely for important goods and services may not
be successful in addressing all of their software and systems problems
in order to operate without disruption in the year 2000 and beyond;
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. our customers or potential customers may be affected by Year 2000
issues that may, among other things:
. cause a reduction, delay or cancellation of customer orders;
. cause a delay in payments for products shipped; and
. cause customers to expend significant resources on Year 2000
compliance matters rather than investing in our systems; and
. we have not developed a contingency plan related to a failure of our
or a third-party's Year 2000 remediation efforts, and we may not be
adequately prepared for such an event.
We have made efforts to identify any Year 2000 compliance problems in our
existing systems, and to make available to our customers who have purchased
such systems software revisions or plug-ins correcting any Year 2000 problems.
Nevertheless, these customers may assert claims against us alleging that our
systems should have been Year 2000 compliant at the time of purchase, which
could result in costly litigation and divert our management's attention. We
have agreed to indemnify our customers in some circumstances against liability
arising from Year 2000-related defects in our systems. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Year
2000 Issue."
Risks Related to this Offering
We expect to use a substantial portion of the net proceeds of this offering to
repay indebtedness and, as a result, we may be unable to meet our future
capital and liquidity requirements
We expect to use a substantial portion of the net proceeds of this offering
to repay indebtedness we incurred in connection with the acquisition of our
predecessor company by our management and a group of investors in 1996, and to
redeem the preferred stock we issued in connection with that transaction. As a
result, only a limited portion of the net proceeds will be available to fund
our future operations. We expect that our principal sources of funds following
this offering will be cash generated from our operating activities. We are also
in discussions with several banks to establish a bank credit facility to
provide additional liquidity following this offering.
We believe that these funds will provide us with sufficient liquidity and
capital resources for us to meet our current and future financial obligations,
as well as to provide funds for our working capital, capital expenditures and
other needs, for the twelve months following this offering. Despite our
expectations, however, we may require additional equity or debt financing to
meet our working capital requirements or to fund our research and development
efforts. This financing may not be available when required or, may be available
only on terms unsatisfactory to us. Further, if we issue equity securities, the
ownership percentage of our stockholders will be reduced, and the new equity
securities may have rights senior to those of the common stock to be issued in
this offering.
Our stock price may be volatile and our stock may be thinly traded, which could
cause investors to lose a substantial part of their investments in our stock
The stock market in general, and the stock prices of technology companies
in particular, have recently experienced volatility which has often been
unrelated to the operating performance of any particular company or companies.
If market or industry-based fluctuations continue, our stock price could
decline regardless of our actual operating performance and investors could lose
a substantial part of their investments. In addition, prior to this offering,
our stock could not be bought or sold on a public market. If an active public
market for our stock does not develop, or if such a market is not sustained
after this offering, it may be difficult to resell our stock. The market price
of our common stock will likely fluctuate in response to a number of factors
including the following:
. our failure to meet the performance estimates of securities analysts;
. changes in financial estimates of our revenues and operating results
by securities analysts;
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. the timing of announcements by us or our competitors of significant
contracts or acquisitions; and
. general stock market conditions.
We could be subject to class action litigation due to stock price volatility,
which, if it occurs, will distract our management and could result in
substantial costs or large judgments against us
In the past, securities class action litigation has often been brought
against companies following periods of volatility in the market prices of their
securities. We may be the target of similar litigation in the future.
Securities litigation could result in substantial costs and divert our
management's attention and resources, which could cause serious harm to our
business, financial condition and results of operations.
Purchasers of our common stock will experience immediate and significant
dilution upon purchasing shares in this offering because the initial public
offering price of those shares will exceed their book value
Because the initial public offering price is substantially higher than the
book value per share of our common stock, purchasers of the common stock in
this offering will be subject to immediate dilution of $11.08 per share. See
"Dilution."
Future sales of our stock could depress its market price
Future sales of our stock on the public markets could depress its market
price. Upon completion of this offering, we expect that:
. the 4,800,000 shares of common stock, or 5,520,000 shares if the
underwriters' option to purchase additional shares is exercised in
full, sold in this offering will be freely tradable without restriction
under the Securities Act unless they are held by one of our
"affiliates;" and
. 9,142,825 shares of common stock held by our existing stockholders will
be eligible for sale into the public market, subject to compliance with
the resale volume limitations and other restrictions of Rule 144 under
the Securities Act, beginning 180 days after the date of this
prospectus.
In addition, beginning 180 days after the completion of this offering, the
holders of approximately 9,048,882 shares of our stock will have limited rights
to require us to register their shares under the Securities Act for public
resale at our expense.
The forward-looking statements contained in this prospectus are based on our
predictions of future performance, and as a result, purchasers of our common
stock should not place undue reliance on them
This prospectus contains forward-looking statements that involve risks and
uncertainties, including, without limitation, statements concerning conditions
in the semiconductor and semiconductor capital equipment industries and our
business, financial condition and operating results, including in particular
statements relating to our business and growth strategies and our product
development efforts. We use words like "believe," "expect," "anticipate,"
"intend," "future" and other similar expressions to identify forward-looking
statements. Purchasers of our common stock should not place undue reliance on
these forward-looking statements, which speak only as of their dates. These
forward-looking statements are based on our current expectations, and are
subject to a number of risks and uncertainties, including, without limitation,
those identified under "Risk Factors" and elsewhere in this prospectus. Our
actual operating results could differ materially from those predicted in these
forward-looking statements, and any other events anticipated in the forward-
looking statements may not actually occur.
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USE OF PROCEEDS
We expect to receive proceeds of approximately $57,232,000 from the sale of
the 4,800,000 shares of common stock at an assumed initial public offering
price of $13.00 per share, after deducting the underwriting discount and our
estimated offering expenses, or approximately $65,936,800 if the underwriters
exercise in full their option to purchase additional shares.
We expect to use approximately $38.4 million of the net proceeds to repay
several loans from the State Board of Administration of Florida, a related
party. That amount includes $9.9 million to repay a senior revolving loan which
bears interest at a rate of prime plus 1.5% and matures on December 31, 2002,
$11.1 million to repay a senior term loan which bears interest at the rate of
prime plus 1.75% and matures on December 31, 2002, $11.0 million to repay a
senior subordinated loan which bears interest at a rate of prime plus 4.0% and
matures on December 31, 2003 and $6.4 million to repay a junior subordinated
note which bears interest at a rate of 14.0% and matures on July 31, 2001. All
of these loans were made, and all of our preferred stock was issued, to finance
the acquisition of our predecessor company in 1996 or for working capital and
general corporate purposes. We also expect to use approximately $7.0 million of
the net proceeds to redeem all of our outstanding Series A preferred stock and
Series B preferred stock held by related parties, which accrue cumulative
dividends at 8% per annum, and to pay management fees due to related parties of
approximately $0.4 million. Although we may use a portion of the net proceeds
to acquire technology or businesses that are complimentary to our business, we
have no current plans in this regard. We expect to use the remaining net
proceeds of this offering for working capital and general corporate purposes,
including expenditures for research and development of new products.
DIVIDEND POLICY
We have never declared or paid cash dividends on our common stock. We do
not currently anticipate paying any cash dividends on our common stock in the
foreseeable future, and we intend to retain any future earnings for use in the
expansion of our business and for general corporate purposes. Additionally, our
current debt instruments limit the payment of dividends.
18
<PAGE>
CAPITALIZATION
The following table summarizes our capitalization as of September 30, 1999:
. on an actual basis;
. on a pro forma basis to give effect to the exchange of all outstanding
Class A common stock and Class B common stock for 7,103,365 shares of a
new single class of common stock and the issuance of 2,039,460 shares
of common stock upon the exercise of warrants, which we expect to occur
immediately prior to this offering; and
. on a pro forma as adjusted basis to give effect to the sale of 4.8
million shares of common stock offered by us at an assumed initial
public offering price of $13.00 per share and the application of the
estimated net proceeds as set forth under "Use of Proceeds," and an
increase in accumulated deficit of $449,000 to reflect the write-off of
deferred financing costs related to our repayment from the proceeds of
this offering of a senior term loan, a senior subordinated term loan, a
junior subordinated loan and a senior revolving term loan. In addition,
the Company will incur a charge of $999,000 related to the 107,852
stock options granted in July 1999.
<TABLE>
<CAPTION>
September 30, 1999
-------------------------------
Pro Pro Forma
Actual Forma As Adjusted
-------- -------- -----------
(in thousands)
<S> <C> <C> <C>
Cash........................................... $ 285 $ 285 $ 11,004
======== ======== ========
Obligations payable to stockholders, including
current portion:
Senior term loan............................. 11,125 11,125 --
Subordinated term loan....................... 11,000 11,000 --
Junior subordinated note increased $100 for
unamortized original issue discount........ 6,400 6,400 --
Senior revolving term loan................... 10,600 10,600 --
Series A preferred stock, $0.01 par value:
45,875 shares authorized and 45,875 shares
issued and outstanding, Actual and Pro Forma;
no shares authorized, issued and outstanding,
Pro Forma As Adjusted........................ 5,979 5,979 --
Series B preferred stock, $0.01 par value:
10,125 shares authorized and 8,125 shares
outstanding, Actual and Pro Forma; no shares
authorized, issued and outstanding, Pro Forma
As Adjusted.................................. 1,059 1,059 --
-------- -------- --------
46,163 46,163 --
-------- -------- --------
Stockholders' (deficit) equity:
Class A common stock, $0.01 par value:
6,874,976 shares designated and 4,802,291
shares outstanding, Actual; no shares
designated, issued and outstanding, Pro
Forma and Pro Forma As Adjusted............ 2 -- --
Class B common stock, $0.01 par value:
3,035,705 shares designated and 2,301,095
shares outstanding, Actual; no shares
designated, issued and outstanding, Pro
Forma and Pro Forma As Adjusted............ -- -- --
Preferred stock, par value $0.001 per share;
5,000,000 shares authorized; no shares
issued and outstanding, Actual, Pro Forma
and Pro Forma As Adjusted.................. -- -- --
Common stock, par value $0.001 per share;
50,000,000 shares authorized; no shares
issued and outstanding, Actual; 9,142,825
shares issued and outstanding Pro Forma;
13,942,825 shares issued and outstanding,
Pro Forma As Adjusted...................... 9 14
Additional paid-in capital..................... 4,267 4,260 61,487
Accumulated other comprehensive loss........... (283) (283) (283)
Unearned compensation.......................... (999) (999) --
Accumulated deficit............................ (29,862) (29,862) (31,310)
-------- -------- --------
Total stockholders' (deficit) equity....... (26,875) (26,875) 29,908
-------- -------- --------
Total capitalization.................... $ 19,288 $ 19,288 $ 29,908
======== ======== ========
</TABLE>
19
<PAGE>
This table excludes the following shares:
. 693,951 shares of our common stock issuable upon exercise of stock
options outstanding under our 1996 stock option plan and 4,979 shares of
common stock reserved for future issuance under this plan;
. 2,000,000 shares of common stock reserved for future issuance under our
1999 stock plan; and
. 300,000 shares of common stock reserved for future issuance under our
1999 employee stock purchase plan.
20
<PAGE>
DILUTION
Our pro forma net tangible book deficit as of September 30, 1999 was
approximately $30.4 million, or $3.33 per share of common stock. Pro forma net
tangible book value (deficit) per share represents the amount of our total
assets less intangible assets, deferred financing costs and total liabilities
divided by the pro forma number of shares of common stock outstanding as of
September 30, 1999. The pro forma number of shares of common stock outstanding
increases actual shares outstanding to reflect: (1) the exchange of all Class A
common stock and Class B common stock for 7,103,365 shares of a new single
class of common stock; and (2) the issuance of 2,039,460 shares of common stock
upon the exercise of warrants. Without taking into account any changes in pro
forma net tangible book value other than those described above, our sale of the
4,800,000 shares of common stock in this offering and the receipt and
application of the net proceeds therefrom, our as adjusted pro forma net
tangible book value as of September 30, 1999 would have been approximately
$26.8 million, or $1.92 per share of common stock. This represents an immediate
increase in pro forma net tangible book value of $5.25 per share to existing
stockholders and an immediate dilution in pro forma net tangible book value of
$11.08 per share to investors purchasing common stock in this offering.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................. $13.00
Pro forma net tangible book value (deficit) per share as of
September 30, 1999........................................... $(3.33)
Increase per share attributable to new investors............... 5.25
------
As adjusted pro forma net tangible book value per share after
this offering.................................................. 1.92
------
Dilution per share to new investors.............................. $11.08
======
</TABLE>
The following table summarizes, on a pro forma basis as of September 30,
1999, the difference between the number of shares of common stock purchased
from us, the total consideration paid and the average price per share paid by
existing stockholders and by new investors, assuming an initial public offering
price of $13.00 per share.
<TABLE>
<CAPTION>
Total Cash
Shares Purchased Consideration
------------------ ------------------ Average Price
Number Percent Amount Percent Per Share
---------- ------- ---------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders....... 9,142,825 65.6% $4,748,077 7.1% $ 0.52
New investors............... 4,800,000 34.4 62,400,000 92.9 $13.00
---------- ----- ---------- -----
Total...................... 13,942,825 100.0% 67,148,077 100.0%
========== ===== ========== =====
</TABLE>
The foregoing table assumes no exercise of the underwriters' option to
purchase additional shares and no issuance of shares of common stock underlying
outstanding options. We have outstanding options to purchase 693,951 shares of
common stock, at a weighted average exercise price of $0.66 per share. These
options become fully exercisable upon this offering. To the extent that these
options are exercised, new investors will experience dilution of $11.14 per
share.
21
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with our
Consolidated Financial Statements and the related Notes thereto appearing
elsewhere in this prospectus, and "Management's Discussion and Analysis of
Financial Condition and Results of Operations." The statement of operations
data set forth below as of and for the years ended December 31, 1997 and 1998,
and for the periods from January 1, 1996 to June 13, 1996 and June 14, 1996 to
December 31, 1996 were derived from audited consolidated financial statements
included elsewhere in this prospectus. The selected financial data as of
December 31, 1996 and for each of the years ended December 31, 1994 and 1995
were derived from audited financial statements not included herein. The results
of operations for the nine months ended September 30, 1998 and 1999 were
derived from our unaudited financial statements included elsewhere in this
prospectus, and, in our management's opinion, include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of such data. Our results of operations for the nine months ended
September 30, 1999 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1999.
The table below sets forth our selected financial data as well as that of
our predecessor company. Our results of operations and those of our predecessor
company are not directly comparable because we revalued the assets and
liabilities of our predecessor company in connection with its acquisition
pursuant to the provisions of APB No. 16, and because our results of operations
for the period from June 14, 1996 to December 31, 1996 include various non-
recurring expenses for acquired in-process research and development and the
write-down of intangibles. In addition, because our predecessor company was
taxed as an S-corporation and we are taxed as a C-corporation, the effective
tax rate reflected in our historical results of operations is significantly
higher than the tax rate reflected in the historical results of operations of
our predecessor company. Further, we changed our business strategy immediately
after the acquisition. Finally, the financial information of our predecessor
company excludes the effects of purchase accounting adjustments, including
increased interest expense and amortization.
<TABLE>
<CAPTION>
Predecessor Company Rudolph Technologies
----------------------------- -------------------------------------------------------
Period from Period from
Year Ended January 1 June 14 to Year Ended Nine Months Ended
December 31, to June 13, December 31, December 31, September 30,
---------------- ----------- ------------ -------------------- --------------------
1994 1995 1996 1996 1997 1998 1998 1999
------- ------- ----------- ------------ --------- --------- --------- ---------
(In thousands) (In thousands, except share and per share data)
Statement of Operations
Data:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $22,555 $29,436 $17,501 $ 14,373 $35,339 $ 20,106 $14,725 $25,220
Cost of revenues (1).... 10,042 13,655 7,497 6,579 13,903 13,179 8,667 12,115
------- ------- ------- --------- --------- --------- --------- ---------
Gross profit............ 12,513 15,781 10,004 7,794 21,436 6,927 6,058 13,105
Operating expenses:
Research and
development........... 1,542 2,888 1,817 2,345 5,750 5,096 3,842 3,596
In-process research and
development........... -- -- -- 3,821 -- -- -- --
Selling, general and
administrative........ 6,651 7,125 4,144 4,340 9,475 7,077 4,808 5,761
Write-down of
intangibles........... -- -- -- 6,734 -- -- -- --
Amortization........... 10 10 19 3,650 4,201 4,208 3,156 197
------- ------- ------- --------- --------- --------- --------- ---------
Total operating
expenses............... 8,203 10,023 5,980 20,890 19,426 16,381 11,806 9,554
------- ------- ------- --------- --------- --------- --------- ---------
Operating income
(loss)................. 4,310 5,758 4,024 (13,096) 2,010 (9,454) (5,748) 3,551
Interest expense........ 130 113 55 2,013 3,717 4,210 3,200 3,297
Other income............ (2) (38) (26) (156) (92) (199) (47) (37)
------- ------- ------- --------- --------- --------- --------- ---------
Income (loss) before
income taxes........... 4,182 5,683 3,995 (14,953) (1,615) (13,465) (8,901) 291
Provision (benefit) for
income taxes........... 234 274 143 -- (614) 613 (699) 121
------- ------- ------- --------- --------- --------- --------- ---------
Net income (loss)....... $ 3,948 $ 5,409 $ 3,852 (14,953) (1,001) (14,078) (8,202) 170
======= ======= =======
Preferred stock
dividends.............. 239 468 507 376 423
--------- --------- --------- --------- ---------
Loss available to common
stockholders........... $(15,192) $(1,469) $(14,585) $(8,578) $ (253)
========= ========= ========= ========= =========
Net loss per share
available to common
stockholders:
Basic.................. $(5.80) $(0.56) $(3.24) $(2.31) $(0.04)
Diluted................ $(5.80) $(0.56) $(3.24) $(2.31) $(0.04)
Weighted average common
shares outstanding:
Basic.................. 2,617,373 2,617,373 4,503,396 3,717,695 6,880,504
Diluted................ 2,617,373 2,617,373 4,503,396 3,717,695 6,880,504
Pro forma net loss per
share available to
common stockholders:
(2)
Basic.................. $(2.23) $(1.49) $(0.03)
Diluted................ $(2.23) $(1.49) $(0.03)
Pro forma weighted
average common shares
outstanding: (2)
Basic.................. 6,542,856 5,757,155 8,919,964
Diluted................ 6,542,856 5,757,155 8,919,964
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
Predecessor Company Rudolph Technologies
----------------------------- ----------------------------------------------------------
Period from Period from
Year Ended January 1 June 14 to Year Ended Nine Months Ended
December 31, to June 13, December 31, December 31, September 30,
---------------- ----------- ------------ -------------------- -----------------------
1994 1995 1996 1996 1997 1998 1998 1999
------- ------- ----------- ------------ --------- --------- -------- -------------
(In thousands) (In thousands, except share and per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Other Financial Data:
EBITA (3)............... $4,322 $5,806 $4,069 $1,265 $ 6,303 $(5,047) $(2,545) $ 3,785
EBITDA (3).............. 4,569 6,212 4,256 1,470 6,751 (4,269) (2,145) 4,202
Net cash provided by
(used in) operating
activities............ 768 7,016 1,592 1,160 (1,959) (6,872) (4,498) (1,282)
Net cash provided by
(used in) investing
activities............ (311) (975) (171) (107) (586) (904) (545) (590)
Net cash provided by
(used in) financing
activities............ (507) (4,234) (3,286) 525 1,200 8,000 5,400 1,718
<CAPTION>
December 31, September 30,
------------------------------ -------------
1996 1997 1998 1999
--------- --------- -------- -------------
Balance Sheet Data: (in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash and cash
equivalents............ $ 1,578 $ 189 $ 431 $ 285
Working capital
(deficit).............. 4,262 3,134 (1,052) (769)
Total assets............ 27,013 28,513 21,121 25,071
Long-term debt, less
current portion........ 26,000 24,000 25,370 25,550
Redeemable preferred
stock:
Class A................ 4,791 5,188 5,619 5,979
Class B................ 848 919 995 1,059
Accumulated deficit..... (14,953) (15,954) (30,032) (29,862)
Total stockholders'
deficit................ (13,707) (15,327) (26,759) (26,875)
</TABLE>
- -------
(1) Our cost of revenues for 1998 includes a $1.4 million expense for the
write-down of inventory to net realizable value.
(2) Our pro forma share and per share data has been prepared assuming the
issuance of 2,039,460 shares of common stock upon the exercise of warrants.
This exercise is assumed to have occurred at our inception.
(3) "EBITA" is defined as income before provision for income taxes, interest
expense and amortization. "EBITDA" is defined as income before provision
for income taxes, interest expense, depreciation and amortization. EBITA
and EBITDA are presented as supplemental information and should not be
considered as alternatives to net income or cash flow from operating
activities as indicators of our operating performance or liquidity. We
believe that EBITA and EBITDA are standard measures commonly reported and
widely used by analysts, investors and other interested parties in the
semiconductor capital equipment industry. However, EBITA and EBITDA as
presented herein may not be comparable to similarly titled measures
reported by other companies.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations should be read in conjunction with our Financial
Statements and the Notes thereto included elsewhere in this prospectus. Our
discussion contains forward-looking statements based upon current expectations
that involve risks and uncertainties, such as our plans, objectives and
intentions. Our actual results may differ materially from those predicted in
such forward-looking statements. See "Risk Factors--The forward-looking
statements contained in this prospectus are based on our predictions of future
performance, and as a result, purchasers of our common stock should not place
undue reliance on them."
Overview
We are a worldwide leader in the design, development, manufacture and
support of high-performance process control metrology systems used in
semiconductor device manufacturing. Our proprietary systems measure the
thickness and other properties of thin films applied during various steps in
the manufacture of integrated circuits, enabling semiconductor device
manufacturers to improve yields and reduce overall production costs. We provide
our customers with a flexible full-fab metrology solution by offering families
of systems that meet their transparent and opaque thin film measurement needs
in various applications across the fabrication process. Our two primary
families of metrology solutions offer leading-edge metrology technology,
flexible systems cost-effectively designed for specific manufacturing
applications and a common production-worthy automation platform, all backed by
worldwide support.
Our predecessor company was founded in 1940 as Rudolph Research
Corporation, and for the past fifty-nine years we have built a reputation for
metrology excellence. We began our association with the semiconductor industry
by selling research instruments in the 1950s and 1960s to pioneers in solid
state electronics, including Bell Laboratories. We believe we have the largest
installed base of ellipsometers in the world. Our customers include most of the
major semiconductor device manufacturers worldwide, including Intel, AMD,
Chartered Semiconductor, Fujitsu, Hyundai, IBM, Lucent, Philips, Samsung,
ST Microelectronics, Texas Instruments, TSMC, Toshiba and UMC.
In June 1996, our predecessor company was purchased in a leveraged
transaction by our management and a group of investors. The acquisition
resulted in our incurring a significant amount of debt. At the time of the
transaction, we changed our name to Rudolph Technologies and changed our
corporate strategy to focus exclusively on the production semiconductor
metrology business. Our strategy was to capitalize on our reputation for
accuracy and repeatability in the measurement of very thin films, primarily in
the diffusion phase of the semiconductor device manufacturing process, to gain
market share in other areas of the semiconductor device manufacturing process.
We addressed our market opportunity by increasing our investment in research
and development to expand our product offerings and increase our
infrastructure.
During 1996 and 1998, the semiconductor device industry began unforeseen
periods of reduced capital equipment purchases. The related industry-wide
downturns in the semiconductor capital equipment industry led to decreased
sales of our products as many customers delayed shipments or canceled orders
altogether. We incurred significant losses in 1998 not only because of the
downturn in our industry but also because we continued to invest in research
and development and in building our infrastructure.
We record revenue from product and parts sales at the time of shipment to
the customer, which principally occurs after the customer has tested or
approved the equipment. We record a provision for the estimated cost of
fulfilling warranty and installation obligations at the time we recognize the
related revenue. We recognize service revenue ratably over the period of the
contract. Service revenues have historically represented less than 10% of our
total revenues.
Historically, a significant portion of our revenues in each quarter and
year has been derived from sales to relatively few customers, and we expect
this trend to continue. In the combined year 1996, in 1997 and 1998 and in the
nine months ended September 30, 1999, sales to customers that individually
represented at least five
24
<PAGE>
percent of our revenues accounted for 18.0%, 7.7%, 43.2% and 52.5% of our
revenues. In the combined year 1996 and in 1997, no individual customer
accounted for more than 10% of our revenues. In 1998, sales to Intel and
Advanced Micro Devices accounted for 19.8% and 11.1% of our revenues. In the
nine months ended September 30, 1999, sales to Intel accounted for 34.2% of our
revenues.
In addition, a significant portion of our revenues in each quarter and year
has been derived from sales to particular distributors. These distributors
purchase our products for ultimate distribution to customers in particular
geographic regions. In the combined year ended December 31, 1996, sales to
Tokyo Electron Limited or TEL, our exclusive distributor in Japan, accounted
for 31.4% of our revenues. In 1997, sales to TEL accounted for 29.9% of our
revenues. In 1998, sales to TEL and distributor Metron Technology accounted for
17.6% and 15.3% of our revenues. In the nine months ended September 30, 1999,
sales to Metron Technology accounted for 8.7% of our revenues. On February 26,
1999 we notified Metron of our intent to terminate our distribution agreement
with them effective August 25, 1999. Currently, the only distributor we use is
TEL. We expect that sales to TEL will continue to account for a significant
portion of our revenues for at least the next five years.
We do not have purchase contracts with any of our customers or distributors
that obligate them to continue to purchase our products, and they could cease
purchasing products from us at any time. A delay in purchase or cancellation by
any of our large customers could cause quarterly revenues to vary
significantly. In addition, during a given quarter, a significant portion of
our revenue may be derived from the sale of a relatively small number of
systems. Our transparent film measurement systems range in price from
approximately $200,000 to $1.0 million per system and our opaque film
measurement systems range in price from approximately $900,000 to $1.6 million
per system. Accordingly, a small change in the number of systems we sell may
also cause significant changes in our operating results. Because fluctuations
in the timing of orders from our major customers or distributors or in the
number of our individual systems we sell could cause our revenues to fluctuate
significantly in any given quarter or year, we do not believe that period-to-
period comparisons of our financial results are necessarily meaningful, and
they should not be relied upon as an indication of our future performance.
A significant portion of our revenues has been derived from customers
outside of the United States, and we expect this trend to continue. In 1997,
approximately 66.0% of our revenues were derived from customers outside of the
United States, of which 57.9% were derived from customers in Asia and 8.0% were
derived from customers in Europe. In 1998, approximately 58.2% of our revenues
were derived from customers outside of the United States, of which 41.8% were
derived from customers in Asia and 16.4% were derived from customers in Europe.
In the nine months ended September 30, 1999, approximately 46.7% of our
revenues were derived from customers outside of the United States, of which
22.7% were derived from customers in Asia, 16.9% were derived from customers in
Europe, and 7.1% were derived from customers in other international markets.
Substantially all of our revenues to date have been denominated in United
States dollars.
The sales cycle for our systems typically ranges from six to 15 months, and
can be longer when our customers are evaluating new technology. Due to the
length of these cycles, we invest significantly in research and development and
sales and marketing in advance of generating revenues related to these
investments. Additionally, the rate and timing of customer orders may vary
significantly from month to month. Accordingly, if sales of our products do not
occur when we expect, and we are unable to adjust our estimates on a timely
basis, our expenses and inventory levels may increase relative to revenues and
total assets.
25
<PAGE>
Results of Operations
The following table sets forth our statements of operations data and those
of our predecessor company for the periods indicated. The results of operations
of our predecessor company are not directly comparable to ours because we
revalued the assets and liabilities of our predecessor company in connection
with its acquisition pursuant to the provisions of APB No. 16. In addition,
because our predecessor company was taxed as an S corporation and we are taxed
as a C corporation, the effective tax rate reflected in our historical results
of operations is significantly higher than the tax rate reflected in the
historical results of operations of our predecessor company. Further, we
changed our business strategy immediately after the acquisition.
The combined results of operations for 1996 represent a combination,
without adjustment, of the historical results of our predecessor company for
the period from January 1, 1996 to June 13, 1996 and our historical results for
the period from June 14, 1996 to December 31, 1996. We are presenting these
combined historical results for convenience only, to assist investors in
assessing our underlying business trends. These combined results exclude the
full year effect of purchase accounting adjustments, specifically increased
interest expense and amortization of intangibles. In addition, our results of
operations for the period from June 14, 1996 to December 31, 1996, which are a
component of the combined 1996 results, include non-recurring expenses for
acquired in-process research and development and the write-down of intangibles.
As a result, the combined 1996 results of operations are not fully comparable
to our historical results of operations for periods after 1996.
<TABLE>
<CAPTION>
Nine Months
Ended
Year Ended Dec. 31, September 30,
--------------------------- ----------------
Combined
1996 1997 1998 1998 1999
-------- ------- -------- ------- -------
(in thousands)
<S> <C> <C> <C> <C> <C>
Revenues....................... $ 31,874 $35,339 $ 20,106 $14,725 $25,220
Cost of revenues............... 14,076 13,903 13,179 8,667 12,115
-------- ------- -------- ------- -------
Gross profit................... 17,798 21,436 6,927 6,058 13,105
-------- ------- -------- ------- -------
Operating expenses:
Research and development...... 4,162 5,750 5,096 3,842 3,596
In-process research and
development................. 3,821 -- -- -- --
Selling, general and
administrative.............. 8,484 9,475 7,077 4,808 5,761
Write-down of intangibles..... 6,734 -- -- -- --
Amortization.................. 3,669 4,201 4,208 3,156 197
-------- ------- -------- ------- -------
Total operating expenses..... 26,870 19,426 16,381 11,806 9,554
-------- ------- -------- ------- -------
Operating income (loss)........ (9,072) 2,010 (9,454) (5,748) 3,551
Interest expense............... 2,068 3,717 4,210 3,200 3,297
Other income................... (182) (92) (199) (47) (37)
-------- ------- -------- ------- -------
Income (loss) before income
taxes........................ (10,958) (1,615) (13,465) (8,901) 291
Provision (benefit) for income
taxes........................ 143 (614) 613 (699) 121
-------- ------- -------- ------- -------
Net income (loss).............. (11,101) (1,001) (14,078) (8,202) 170
Preferred stock dividends...... 239 468 507 376 423
-------- ------- -------- ------- -------
Loss available to common
stockholders................. $(11,340) $(1,469) $(14,585) $(8,578) $ (253)
======== ======= ======== ======= =======
</TABLE>
26
<PAGE>
The following table sets forth, for the periods indicated, our statements
of operations data as percentages of our revenues. Our results of operations
are reported as one reportable business segment.
<TABLE>
<CAPTION>
Nine months
Ended
Year Ended December September
31, 30,
----------------------- -------------
Combined
1996 1997 1998 1998 1999
-------- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues............................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues.................... 44.2 39.3 65.5 58.9 48.0
----- ----- ----- ----- -----
Gross profit........................ 55.8 60.7 34.5 41.1 52.0
Operating expenses:
Research and development........... 13.1 16.3 25.3 26.1 14.3
In-process research and
development...................... 12.0 -- -- -- --
Selling, general and
administrative................... 26.6 26.8 35.2 32.6 22.8
Write-down of intangibles.......... 21.1 -- -- -- --
Amortization....................... 11.5 11.9 21.0 21.4 0.8
----- ----- ----- ----- -----
Total operating expenses.......... 84.3 55.0 81.5 80.1 37.9
----- ----- ----- ----- -----
Operating income (loss)............. (28.5) 5.7 (47.0) (39.0) 14.1
Interest expense.................... 6.5 10.5 20.9 21.7 13.0
Other expense (income).............. (0.6) (0.3) (1.0) (0.3) (0.1)
----- ----- ----- ----- -----
Income (loss) before income taxes... (34.4) (4.5) (67.0) (60.4) 1.2
Provision (benefit) for income
taxes............................. 0.4 (1.7) 3.0 (4.7) 0.5
----- ----- ----- ----- -----
Net income (loss)................... (34.8) (2.8) (70.0) (55.7) 0.7
Preferred stock dividends........... 0.8 1.3 2.5 2.6 1.7
----- ----- ----- ----- -----
Loss available to common
stockholders...................... (35.6)% (4.1)% (72.5)% (58.3)% (1.0)%
===== ===== ===== ===== =====
</TABLE>
Results of Operations for the Nine Months Ended September 30, 1998 and 1999
Revenues. Our revenues are derived from the sale of our metrology systems,
services and spare parts. Our revenues were $14.7 million and $25.2 million in
the nine months ended September 30, 1998 and 1999. This change represents an
increase of 71.3% and was primarily due to increases in unit volume shipments
to existing customers and expanded sales of new products. Revenues from
international customers represented 65.8% and 46.7% of our revenues in the nine
months ended September 30, 1998 and 1999. Revenues from international customers
decreased as a percentage of revenues from 1998 to 1999 as a result of
increased sales to a significant domestic customer in 1999 and reduced revenues
from Asian customers due to the Asian economic crisis. See "Risk Factors--
Because we derive a significant portion of our revenues from sales in Asia, our
sales and results of operations could be adversely affected by the instability
of Asian economies."
Cost of Revenues and Gross Profit. Cost of revenues consists of the labor,
material and overhead costs of manufacturing our systems, spare parts cost and
the cost associated with our worldwide service support infrastructure. Our
gross profit was $6.1 million and $13.1 million in the nine months ended
September 30, 1998 and 1999. This change represents an increase of 116.3%. Our
gross profit represented 41.1% and 52.0% of our revenues in the nine months
ended September 30, 1998 and 1999. The increase in gross profit margin from
1998 to 1999 resulted from increased revenues covering a larger portion of
fixed costs and increased margins on our new MetaPULSE and SpectraLASER product
lines. The increase in gross profit dollars was the result of higher unit
sales. In 1999, we initiated a supply chain improvement program designed to
reduce time to market, manufacturing inefficiencies and inventories. There can
be no assurances that such improvement programs will be effective or materially
increase our gross profit margins.
Research and Development. Research and development expenditures consist
primarily of salaries and related expenses of employees engaged in research,
design and development activities. They also include consulting fees, prototype
equipment expenses and the cost of related supplies. Our research and
development expenses were $3.8 million and $3.6 million in the nine months
ended September 30, 1998 and 1999. This
27
<PAGE>
change represents a decrease of 6.4%. Research and development expense
represented 26.1% and 14.3% of our revenues for the nine months ended September
30, 1998 and 1999. The decrease in dollars resulted from the timing of
purchases of new materials and supplies for engineering projects and a
reduction of outside software development consulting services. The decrease in
research and development as a percentage of revenues resulted from cost savings
in our research and development operations along with higher revenues in the
nine months ended September 30, 1999.
Selling, General and Administrative. Selling, general and administrative
expense is primarily comprised of salaries and related costs for sales,
marketing, and general and administrative personnel, as well as commissions,
royalties for licensed technology and other non-personnel related expenses. Our
selling, general and administrative expense was $4.8 million and $5.8 million
in the nine months ended September 30, 1998 and 1999. This change represents an
increase of 19.8%. Selling, general and administrative expense represented
32.6% and 22.8% of revenues for the nine months ended September 30, 1998 and
1999. The increase in dollars resulted from higher compensation expense related
to corporate incentive plans, costs associated with establishing a direct sales
force in Europe, and increased royalty costs associated with licensed
technology.
Amortization. Amortization expense is related to the core technology and
goodwill we acquired from our predecessor company in 1996. See Note 5 of Notes
to Financial Statements. Amortization expense was $3.2 million and $0.2 million
in the nine months ended September 30, 1998 and 1999. Amortization expense
decreased in 1999 because we completed our amortization of acquired technology
in 1998.
Income Taxes. We use the liability method of accounting for income taxes
prescribed by Statement of Financial Accounting Standards No. 109, Accounting
for Income Taxes. See Note 12 of Notes to Financial Statements. Our effective
federal and state tax rates differ from the statutory rates because of a
deferred tax valuation equal to the tax effect of temporary differences
adjusted for amounts currently refundable or payable. Since we generated a loss
in the nine months ended September 30, 1998, we recorded an income tax benefit
of $0.7 million for federal tax purposes to reflect the carryback for income
taxes paid in 1997. The provision for income taxes of $0.1 million in the nine
months ended September 30, 1999 is primarily the result of state tax
obligations resulting from the acquisition of our predecessor company in 1996
that cannot be applied against tax net operating losses.
Preferred Stock Dividends. We accrued cumulative dividends on our 8%
preferred stock of $376,000 and $423,000 in the nine months ended September 30,
1998 and 1999. The increase in accrued dividends resulted from the compounding
of dividends that accrued in prior periods. To date, we have not declared or
paid any dividends.
Anticipated Future Expenses. In the fourth quarter of 1999 we expect to
record an expense of approximately $449,000 for the write-off of unamortized
deferred financing costs we incurred in connection with the acquisition of our
predecessor company in 1996 and the financing we completed in November 1998. We
will recognize these expenses as a result of our repayment, from the proceeds
of this offering, of all the debt we incurred in connection with these
transactions.
In addition, upon completion of this offering all of our outstanding stock
options will become fully vested. As a result, in the fourth quarter of 1999 we
will incur a compensation expense of approximately $1 million, representing the
difference between the exercise price of options to purchase 107,852 shares of
common stock that we granted in July 1999, and the estimated fair value of the
underlying common stock on the date of grant.
Results of Operations for the Combined Year Ended December 31, 1996 and the
Years Ended December 31, 1997 and 1998
Revenues. Our revenues were $31.9 million, $35.3 million, and $20.1 million
in the combined year 1996 and in 1997 and 1998. These changes represent an
increase of 10.9% from 1996 to 1997 and a decrease of 43.1% from 1997 to 1998.
The increase in revenues from 1996 to 1997 was primarily due to the
introduction of
28
<PAGE>
our MetaPULSE and SpectraLASER families in the second half of 1997 and
increased sales of our 300 millimeter wafer measurement products in 1997. The
decrease in revenues from 1997 to 1998 was primarily due to lower sales volume
resulting from the downturn in the semiconductor device industry in 1998, which
resulted in reduced capital spending by semiconductor device manufacturers.
Revenues from customers outside of the United States represented 73.8%, 66.0%
and 58.2% of our revenues in the combined year 1996 and in 1997 and 1998.
Revenues from customers outside of the United States decreased as a percentage
of revenues from 1997 to 1998 as a result of reduced sales to existing
customers in Asia due to an economic downturn in a number of Asian countries.
We expect that revenues generated from customers outside of the United States
will continue to account for a significant percentage of our revenues. See
"Risk Factors--Because we derive a significant portion of our revenues from
sales in Asia, our sales and results of operations could be adversely affected
by the instability of Asian economies."
Cost of Revenues and Gross Profit. Our gross profit was $17.8 million,
$21.4 million and $6.9 million in the combined year 1996 and in 1997 and 1998.
These changes represent an increase of 20.4% from 1996 to 1997 and a decrease
of 67.7% from 1997 to 1998. Our gross profit represented 55.8%, 60.7%, and
34.5% of our revenues in the combined year 1996 and in 1997 and 1998. The
increase in gross profit margin from 1996 to 1997 resulted primarily from
improved manufacturing efficiencies on older product lines and lower customer
service costs. In 1998, manufacturing inefficiencies of our new product lines
and lower absorption of manufacturing overhead attributed to a 10% decrease in
profit margins. We also recorded an expense of $1.4 million for the writedown
of inventory consisting of excess parts for older product lines and parts which
design and engineering advancements had rendered obsolete. The inventory
writedown expense reduced our gross profit margin for 1998 by 7.0%. The
remaining decrease in gross profit margin from 1997 to 1998 was attributable to
the spreading of relatively fixed service costs over lower revenues and the
expansion of our service infrastructure, including the opening of a branch
office in Taiwan.
Research and Development. Our research and development expenditures were
$4.2 million, $5.8 million and $5.1 million in the combined year 1996 and in
1997 and 1998. These changes represent an increase of 38.2% from 1996 to 1997
and a decrease of 11.4% from 1997 to 1998. Research and development
expenditures represented 13.1%, 16.3% and 25.3% of revenues in the combined
year 1996 and in 1997 and 1998. The increases in dollars and percentage in 1997
resulted from increased headcount and prototype equipment cost related to new
product development. The increase in research and development expenditures as a
percentage of revenues in 1998 resulted from lower revenues and our decision to
maintain research and development spending during the downturn in our industry.
The decrease in dollars in 1998 resulted from the cost for prototype equipment
incurred in 1997 with no significant prototype equipment cost recurring in
1998. We anticipate that our research and development expenses will increase in
the future due to planned increases in personnel, consultants and material
costs.
In-Process Research and Development. The acquisition of our predecessor
company resulted in our recording a one-time expense of approximately $3.8
million in 1996 for the write-off of in-process research and development, or
IPRD. The IPRD we acquired related to an optical acoustic metrology technology
that our predecessor company had exclusively licensed in 1995 from the Brown
University Research Foundation. At the time of the acquisition, we determined
that the IPRD had not reached technological feasibility and that it did not
have an alternative future use. Accordingly, we concluded that our ability to
derive future benefit from the IPRD was highly uncertain.
After licensing the technology from Brown, our predecessor company was able
to advance the technology toward technological feasibility by proving, under
laboratory conditions, that the pulsing of ultra-fast lasers could generate
sound waves that could be used to measure multiple layers of metal or opaque
film. At the time of the acquisition we determined that approximately 25% of
the research and development effort required to commercialize the technology
still remained, as we still needed to overcome design and engineering
requirements before a commercial product could be developed. These design and
engineering requirements included developing a compact advanced cooling system
to eliminate laser overheating, laser beam compression systems to reduce the
size of the equipment and automation to handle the movement of materials.
29
<PAGE>
The technology which our predecessor company licensed from Brown ultimately
led to the introduction of our MetaPULSE systems in 1997. Our MetaPULSE systems
provides us with competitive advantages by enabling our customers to measure
multiple layers of metal and opaque thin films simultaneously. Our other
systems do not have this functionality. We began testing the MetaPULSE
prototype in November 1996, and we sold our first MetaPULSE system commercially
in May 1997. We incurred total research and development costs in developing the
MetaPULSE product, excluding the IPRD expense, of approximately $3.7 million.
In valuing the IPRD, we performed a discounted cash flow analysis of our
expected annual revenues from the MetaPULSE technology over a period of
approximately four years. We chose a four-year period based on the historic
revenue trends of our new product introductions. We used expected annual
revenues ranging from approximately $14 million to $23 million, and a risk
rated discount rate of 30.0%.
Selling, General and Administrative. Our selling, general and
administrative expense was $8.5 million, $9.5 million and $7.1 million in the
combined year 1996 and in 1997 and 1998. These changes represent an increase of
11.7% from 1996 to 1997 and a decrease of 25.3% from 1997 to 1998. Selling,
general and administrative expense represented 26.6%, 26.8%, and 35.2% of
revenues in the combined year 1996 and in 1997 and 1998. The increase in
dollars in 1997 resulted from the addition of sales and marketing cost in the
United States as we ended our relationship with our domestic sales
representative and established a direct sales force. The decrease in dollars in
1998 resulted from a reduction in commissions paid to foreign sales
representatives as a result of the semiconductor device industry slowdown and
the Asian economic crisis. This decrease was partially offset by an increase in
royalty costs associated with licensed technology included in one of our new
systems. In 1999, we expect to increase the dollar amount we spend on selling,
general and administrative expenses.
Write-Down of Intangibles. During 1996, after the acquisition of our
predecessor company, the semiconductor device industry began an unforeseen
period of reduced capital equipment purchases. The related industry-wide
downturn in the semiconductor capital equipment industry led to decreased sales
of our products as many customers delayed shipments or canceled orders
altogether. At the same time, we also initiated the development of next
generation systems. In light of these developments, we assessed the
recoverability of one of our intangible assets and a pro-rata share of the
goodwill we acquired from our predecessor company using undiscounted future
cash flows from operations. Based on this analysis, we determined an impairment
for these assets had occurred. We then used discounted expected future cash
flows to determine the net realizable value of these assets, and recorded a
$6.7 million expense to reduce the book value of these assets to their net
realizable value.
Amortization. Our expense for amortization was $3.7 million, $4.2 million
and $4.2 million in the combined year 1996 and in 1997 and 1998.
Interest Expense. Interest expense was $2.1 million, $3.7 million and $4.2
million in the combined year 1996 and in 1997 and 1998, and results from the
substantial debt incurred to finance the purchase of our predecessor company in
June 1996.
Other Income. Included in other income is interest income on cash balances,
miscellaneous nonrecurring income resulting from the disposal of capital
equipment and several other nonrecurring transactions. Other income was
$182,000, $92,000, and $199,000 in the combined year 1996 and in 1997 and 1998.
Provision (Benefit) for Income Taxes. Our provision (benefit) for income
taxes was a provision of $143,000 in combined 1996, a benefit of $614,000 in
1997 and a provision of $613,000 in 1998. The effective income tax rate for
1996 was reduced by our predecessor company's election to be taxed as a S
corporation, thereby resulting only in the incurrence of state taxes. During
1998 we utilized all of our tax loss carrybacks, while incurring significant
losses from operations. Combining these factors with an industry forecast of no
growth or a downturn within the industry during 1999, we determined that it is
more likely than not that all of the deferred tax assets will not be
recognized. Accordingly, we increased the deferred tax valuation allowance for
various temporary differences including a net operating loss carryforward. We
computed our effective tax
30
<PAGE>
rate for 1997 and 1998 based on prevailing federal and state rates adjusted for
increases in our deferred tax valuation accounts and for current taxes payable
or refundable during the carryback period.
Preferred Stock Dividends. We accrued cumulative dividends on our 8%
preferred stock of $0.2 million, $0.5 million, and $0.5 million in the combined
year 1996 and in 1997 and 1998. The increase from 1996 to 1997 resulted
primarily from the preferred stock being outstanding for only part of the year
in 1996 and for the entire year in 1997. To date no dividends have been
declared or paid.
31
<PAGE>
Quarterly Results of Operations
The following tables set forth our unaudited selected quarterly results of
operations data for the eight quarters in the period ended September 30, 1999,
and such data expressed as percentages of our revenues for the same periods.
This information has been prepared on the same basis as the audited
consolidated financial statements appearing elsewhere in this prospectus and,
in our management's opinion, contains all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the
unaudited quarterly results of operations set forth below. Results of
operations for any previous quarter are not necessarily indicative of the
results to be expected for the entire year or any future period.
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------------------------------------
Dec. 31, Mar. 31, June 30, Sep. 30, Dec. 31, Mar. 31, June 30, Sep. 30,
1997 1998 1998 1998 1998 1999 1999 1999
-------- -------- -------- -------- -------- -------- -------- --------
Statement of Operations: (in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues......................................... $7,472 $ 6,452 $ 5,420 $ 2,853 $ 5,381 $6,532 $8,638 $10,050
Cost of revenues................................. 3,858 3,300 3,155 2,212 4,512 3,229 4,144 4,742
------ ------- ------- ------- ------- ------ ------ -------
Gross Profit..................................... 3,614 3,152 2,265 641 869 3,303 4,494 5,308
Operating expenses:
Research and development........................ 1,372 1,225 1,463 1,154 1,254 1,043 1,054 1,499
Selling, general and administrative............. 2,261 1,640 1,666 1,502 2,269 1,604 1,933 2,224
Amortization.................................... 1,051 1,052 1,051 1,053 1,052 66 65 66
------ ------- ------- ------- ------- ------ ------ -------
Total operating expenses....................... 4,684 3,917 4,180 3,709 4,575 2,713 3,052 3,789
------ ------- ------- ------- ------- ------ ------ -------
Operating income (loss).......................... (1,070) (765) (1,915) (3,068) (3,706) 590 1,442 1,519
Interest expense................................. 951 994 1,141 1,065 1,010 1,038 1,110 1,149
Other income..................................... (31) (8) (7) (32) (152) (3) (26) (8)
------ ------- ------- ------- ------- ------ ------ -------
Income (loss) before income taxes............... (1,990) (1,751) (3,049) (4,101) (4,564) (445) 358 378
Provision (benefit) for income taxes............ (1,558) -- (699) -- 1,312 93 -- 28
------ ------- ------- ------- ------- ------ ------ -------
Net income (loss)............................... (432) (1,751) (2,350) (4,101) (5,876) (538) 358 350
Preferred stock dividends....................... 121 122 125 129 131 133 136 154
------ ------- ------- ------- ------- ------ ------ -------
Net income (loss) available to common
stockholders.................................. $ (553) $(1,873) $(2,475) $(4,230) $(6,007) $ (671) $ 222 $ 196
====== ======= ======= ======= ======= ====== ====== =======
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------------------------------------
Dec. 31, Mar. 31, June 30, Sep. 30, Dec. 31, Mar. 31, June 30, Sep. 30,
1997 1998 1998 1998 1998 1999 1999 1999
-------- -------- -------- -------- -------- -------- -------- --------
As a Percentage of Revenues:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues......................................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues................................. 51.6 51.1 58.2 77.5 83.9 49.4 48.0 47.2
----- ----- ----- ------ ------ ----- ----- -----
Gross Profit..................................... 48.4 48.9 41.8 22.5 16.1 50.6 52.0 52.8
Operating expenses:
Research and development........................ 18.4 19.0 27.0 40.5 23.3 16.0 12.2 14.9
Selling, general and administrative............. 30.3 25.4 30.7 52.6 42.2 24.6 22.4 22.1
Amortization.................................... 14.1 16.3 19.4 36.9 19.6 1.0 0.8 0.7
----- ----- ----- ------ ------ ----- ----- -----
Total operating expenses....................... 62.8 60.7 77.1 130.0 85.0 41.6 35.4 37.7
----- ----- ----- ------ ------ ----- ----- -----
Operating income (loss).......................... (14.4) (11.8) (35.3) (107.5) (68.9) 9.0 16.6 15.1
Interest expense................................. 12.7 15.4 21.1 37.3 18.8 15.9 12.9 11.4
Other income..................................... (0.4) (0.1) (0.1) (1.1) (2.8) (0.1) (0.3) (0.1)
----- ----- ----- ------ ------ ----- ----- -----
Income (loss) before income taxes............... (26.7) (27.1) (56.3) (143.7) (84.9) (6.8) 4.0 3.8
Provision (benefit) for income taxes............ (20.9) -- (12.9) -- 24.4 1.4 -- 0.3
----- ----- ----- ------ ------ ----- ----- -----
Net income (loss)............................... (5.8) (27.1) (43.4) (143.7) (109.3) (8.2) 4.0 3.5
Preferred stock dividends....................... 1.6 1.9 2.3 4.5 2.4 2.0 1.6 1.5
----- ----- ----- ------ ------ ----- ----- -----
Net income (loss) available to common
stockholders.................................. (7.4)% (29.0)% (45.7)% (148.2)% (111.7)% (10.2)% 2.4% 2.0%
===== ===== ===== ====== ====== ===== ===== =====
</TABLE>
Our operating results have historically been subject to significant
quarterly and annual fluctuations. We anticipate that factors affecting our
future operating results will include the timing of significant orders, the
timing of new product announcements and releases by us or our competitors,
patterns of capital spending by
32
<PAGE>
customers, market acceptance of new and enhanced versions of our products,
changes in pricing by us or in our industry or the markets served by our
customers. In addition, the timing and level of our research and development
expenditures could cause quarterly results to fluctuate. We derive a
substantial portion of our annual revenues from the sales of a relatively small
number of process control metrology systems. Our revenues and operating results
for a period may be affected by the timing of orders received or orders shipped
during a period. See "Risk Factors--Our largest customers account for a
significant portion of our revenues, and our business and operating results
could be harmed by the loss of one or more of these customers or by reductions
or delays in their purchases of our systems."
Our quarterly revenues and gross profit margins decreased quarter over
quarter for the fourth quarter of 1997 and the first, second and third quarters
of 1998 as a result of the recent downturn in the semiconductor device and
equipment industries. Our gross profit as a percentage of revenues decreased in
the fourth quarter of 1998 as a result of a $1.4 million charge for the
writedown of inventory consisting of excess parts for older product lines and
parts which design and engineering advances rendered obsolete.
Our research and development expenses were high in the second quarter of
1998 due to increased material costs for engineering projects. Amortization of
intangibles decreased in the first quarter of 1999 because we completed the
amortization of some of the technology we acquired from our predecessor company
in 1998.
Liquidity and Capital Resources
Since the purchase of our predecessor company in 1996, we have financed our
operations from internally generated funds, sales of equity, and both a
revolving credit facility and long term loans with a related party. Our
principal liquidity requirements are the financing of working capital,
inventories, capital expenditures and debt service.
Net cash generated by operating activities was $1.2 million for the period
from June 14, 1996 to December 31, 1996. Net cash used in operating activities
was $2.0 million, $6.9 million and $1.3 million for 1997, 1998 and for the nine
months ended September 30, 1999. The increase in cash used by operating
activities from 1997 to 1998 was due primarily to our funding of net losses and
a decrease in accounts receivable due to lower sales, a decrease in current
liabilities due to lower purchases, and a write-off of obsolete inventory. The
decrease from 1998 to September 30, 1999 was due primarily to a decrease in our
net losses as well as the cash impact of an increase in accounts receivable and
current liabilities due to increased sales volume.
Net cash used in investing activities was $0.1 million, $0.6 million, $0.9
million, and $0.6 million for the period from June 14, 1996 to December 31,
1996, for 1997 and 1998, and for the nine months ended September 30, 1999.
Capital expenditures for 1997 were primarily used to upgrade computer systems
and for leasehold improvements to relocate our sales and service facility in
California. Capital expenditures for 1998 and 1999 were primarily used to
establish our new manufacturing and customer training facility in New Jersey.
Capital expenditures for 1999 are not expected to exceed $1.0 million.
Net cash provided by financing activities was $0.5 million, $1.2 million,
$8.0 million and $1.7 million for the period June 14, 1996 to December 31,
1996, the years ended December 31, 1997 and 1998, and the nine months ended
September 30, 1999, and was principally provided by loans and an equity
investment by a related party.
In June 1996, our predecessor company was purchased in a leveraged
transaction. In order to finance the transaction, we issued a senior term note
and a senior subordinated note in the principal amounts of $16.0 million and
$11.0 million. We also issued $1.5 million of common stock and $5.4 million of
preferred stock. The senior term note bears interest at an annual rate of prime
plus 1.75%, with the principal required to be repaid on a quarterly basis from
1997 to 2002. The senior subordinated note bears interest at an annual rate of
prime plus 4.0%, with the principal to be repaid in its entirety in 2003. Our
preferred stock accrues dividends cumulatively at a rate of 8% per year. No
dividends on the preferred stock have been declared or paid.
33
<PAGE>
In conjunction with our issuance of the senior notes, we obtained a
revolving line of credit with The State Board of Administration of Florida in
an aggregate principal amount not to exceed $8.0 million. The revolving line of
credit bears interest at an annual rate of prime plus 1.5%, which was 9.75% at
September 30, 1999. The maximum amount of the revolving line of credit was
increased to $12.0 million in 1998. At September 30, 1999, available borrowings
under this revolving line of credit totaled $1.4 million.
In July 1998, we issued 4,115,021 shares of Class A common stock and Class
B common stock with proceeds of $3.0 million. The shares of common stock were
offered to our existing stockholders in a private transaction. The proceeds
from the issuance of the capital stock were used for general corporate
purposes.
In November 1998, we issued a junior subordinated note in the principal
amount of $7.0 million, of which we had been advanced a total of $6.4 million
as of September 30, 1999. The unpaid principal amount of the junior
subordinated note bears interest at an annual rate of 14%. The junior
subordinated note matures on July 31, 2001.
We may at any time prepay, without premium or penalty, all or any portion
of our outstanding debt. We intend to apply a substantial portion of the net
proceeds of this offering to the repayment in full of the principal and accrued
interest on our outstanding debt. See "Use of Proceeds."
We believe that the net proceeds from this offering, a working capital line
of credit which we expect to obtain before this offering and cash generated
from operations, if any, will be adequate to meet our anticipated cash needs
for working capital and capital expenditures for the twelve months following
this offering. Historically, we have received financial support from our
stockholders. Because of the operating losses we reported in 1998 and 1999, we
would not have been in compliance with the financial ratios we are required to
maintain under the terms of our outstanding debt had our lender not waived such
noncompliance through September 30, 1999. We anticipate that we will not be in
compliance with these ratios through the date of this offering. We are
currently attempting to secure a working capital line of credit which would
become available following this offering. We cannot assure you, however, that
we will able to secure such a credit facility on commercially reasonable terms,
or at all.
A significant shareholder has agreed to provide us with funding, if
necessary, to enable us to continue to liquidate our liabilities in the
ordinary course of business and to fulfill our obligations as they come due
through the earlier of (1) this offering and the concurrent repayment of all
outstanding debt or (2) December 31, 2000.
Our future capital requirements will depend on many factors, including the
timing and amount of our revenues and our investment commitments, which will
affect our ability to generate additional cash. Thereafter, if cash generated
from operations and financing activities is insufficient to satisfy our working
capital requirements, we may seek additional funding through bank borrowings,
sales of securities or other means. There can be no assurance that we will be
able to raise any such capital on terms acceptable to us or at all.
Year 2000 Issue
The "Year 2000 Issue" refers generally to the problems that some software
may have in determining the correct century of the year. Many existing
electronic systems, including computer systems, use only the last two digits to
refer to a year. Therefore, these systems may recognize a date using "00" as
1900 rather than the year 2000. If not corrected, these electronic systems
could fail or create erroneous results when addressing dates on and after
January 1, 2000.
In assessing the potential effect of the Year 2000 Issue on us, we
determined that we needed to evaluate four general areas:
. Supplier relationships;
. Internal infrastructure;
. Products sold to customers; and
. Other third-party relationships.
34
<PAGE>
Supplier Relationships. We identified our significant suppliers and
subcontractors and asked them to provide us with an assessment of their Year
2000 readiness. To date, we have received responses from a substantial majority
of our key suppliers, most of which indicated that they are in the process of
developing and implementing remediation plans. However, we have no means of
ensuring that suppliers and subcontractors will be Year 2000 ready. The
inability of suppliers or subcontractors to complete their Year 2000 resolution
process in a timely fashion could seriously harm our operating results.
Based on our inquiries and the public disclosures of our material customers
and suppliers such as Intel and Coherent, we have a high degree of confidence
in their Year 2000 readiness. A minority of our suppliers, none of which we
consider to be key suppliers, has not yet provided us with an assessment of
their Year 2000 readiness. If any of these suppliers is not able to provide us
with its products in a timely manner, then we will attempt to locate
alternative suppliers. Although we have identified alternative suppliers for
most components, we have not negotiated any terms with these suppliers. Our
temporary inability to come to terms with alternative suppliers could render us
unable to deliver our products and services for some period of time. We believe
that this eventuality represents our reasonably likely worst case scenario for
the Year 2000.
Internal Infrastructure. The Year 2000 Issue could also affect our internal
systems, including both our information technology and non-information
technology systems. We have completed an assessment of our material internal
information technology systems, including third-party software and hardware
technology. Based upon representations received from these third-party software
and hardware suppliers, and in some instances the implementation of Year 2000
software upgrades, we do not believe that our material internal information
technology systems will be affected by the Year 2000 Issue. We have also
initiated an assessment of our non-information technology internal systems,
such as our test equipment. We anticipate completion of this assessment in the
fourth quarter of 1999. Based on our preliminary assessment, we do not believe
that our non-information technology internal systems will be affected by the
Year 2000 Issue. However, we may experience serious unanticipated problems and
costs caused by undetected errors or defects in the technology used in our
internal information technology and non-information technology systems.
Products Sold to Customers. We have completed our inventory and assessment
of our products' Year 2000 readiness utilizing testing guidelines prepared by
Sematech, a consortium of suppliers to worldwide semiconductor manufacturers.
Our new products are designed to be Year 2000 ready, but some of our older
products will require upgrades for Year 2000 readiness. We have completed
upgrades for our product, and have made these upgrades available to our
customers. Notwithstanding such efforts, any failure of our products to
perform, including system malfunctions due to the onset of Year 2000, could
result in claims against us, which could distract our management and seriously
harm our business and operating results. Moreover, our customers could choose
to convert to other Year 2000 ready products in order to avoid such
malfunctions, which could also seriously harm our business and operating
results.
We do not currently have any information concerning the Year 2000
compliance status of our customers. Our current or future customers may incur
significant expenses to achieve Year 2000 compliance. If our customers are not
Year 2000 compliant, they may experience significant costs to remedy problems,
or they may face litigation costs. In either case, the Year 2000 Issue could
reduce or eliminate the budgets that current or potential customers could have
for purchases of our products and services. As a result, our business and
operating results could be seriously harmed.
Other Third-Party Relationships. We rely on outside vendors for utilities
and telecommunication services as well as climate control, building access and
other infrastructure services. We are not capable of independently evaluating
the Year 2000 compliance of the systems utilized to supply these services. We
cannot assure you that these suppliers will resolve any or all Year 2000-
related problems with these systems before the occurrence of a material
disruption to our business. Any failure of these third parties to resolve Year
2000-related problems with their systems in a timely manner could harm our
business and operating results.
We have not developed a contingency plan to address situations that may
result if we are unable to achieve Year 2000 readiness of our critical
operations, and we do not plan to do so in the future. Any investigations we
have undertaken with respect to the Year 2000 Issue have been funded from
available cash,
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and these costs have not been separately accounted for. To date, these costs
have not been significant, and we do not expect that our future expenditures
for Year 2000 remediation will be material.
Impact of Recent Accounting Pronouncements
During June 1998, as amended in July 1999 for Statement No. 137, the
Financial Accounting Standards Board issued Statement No. 133, "Accounting for
Derivative Investments and Hedging Activities," known as SFAS 133. Based on our
current operations, we have concluded that the future adoption of SFAS 133 will
have no impact on our operations or financial position.
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BUSINESS
Overview
We are a worldwide leader in the design, development, manufacture and
support of high-performance process control metrology systems used in
semiconductor device manufacturing. Our proprietary systems measure the
thickness and other properties of thin films applied during various steps in
the manufacture of integrated circuits, enabling semiconductor device
manufacturers to improve yields and reduce overall production costs. We provide
our customers with a full-fab metrology solution by offering families of
systems that meet their transparent and opaque thin film measurement needs in
various applications across the fabrication process. Our two primary families
of metrology solutions offer leading-edge metrology technology, flexible
systems cost-effectively designed for specific manufacturing applications and a
common production-worthy automation platform, all backed by worldwide support.
Our objective is to be the premier worldwide provider of thin film
metrology systems to semiconductor device manufacturers. To extend our
technology leadership position, we intend to continue to invest in research and
development. In addition, we plan to focus our resources, including our global
support network, on understanding the needs of leading semiconductor device
manufacturers in order to best position ourselves to be the system of choice
when device manufacturers and foundries upgrade their fabrication techniques in
response to advances in semiconductor technology. We also intend to leverage
our technical heritage and extensive thin film measurement expertise to expand
our customer relationships and to continue to develop complementary metrology
applications.
Since 1940, our technological leadership has earned us a reputation for
metrology excellence, and we believe that we have the largest installed base of
ellipsometers in the world. Our customers include most major semiconductor
device manufacturers worldwide, including Intel, AMD, Chartered Semiconductor,
Fujitsu, Hyundai, IBM, Lucent, Philips, Samsung, ST Microelectronics, Texas
Instruments, TSMC, Toshiba and UMC.
Industry Background
Growth of the Semiconductor Market
The semiconductor industry has experienced significant growth over the past
decade. Dataquest estimates that despite year-to-year fluctuations, worldwide
semiconductor sales will increase from approximately $136 billion in 1998 to
approximately $251 billion in 2002. This increase in demand is driven by growth
in traditional markets for semiconductors such as data processing, including
personal computers, and telecommunications, especially wireless communications.
The explosive growth of Internet usage and the proliferation of advanced
consumer electronic products have also increased demand, and have made
semiconductors virtually ubiquitous in most electronic products.
The Semiconductor Device Manufacturing Process
Semiconductor integrated circuits, commonly called ICs or chips, consist of
components, typically transistors, along with interconnect circuitry that
connects the components. ICs are manufactured on silicon bases called wafers,
which are processed through a series of machines where they are ground smooth
and chemically polished. They then become the starting material for
fabrication, the central process in manufacturing integrated circuits.
Fabrication involves several complex and repetitive processing steps,
including diffusion, photolithography, deposition, etching, chemical mechanical
planarization (CMP) and ion implantation, during which numerous copies of an
integrated circuit are formed on a single wafer. These processes are constantly
monitored and wafers are measured at each step to ensure that chips are
fabricated to exacting specifications in a cost-effective manner. The
fabrication process typically creates eight to 30 very thin patterned layers on
each wafer, which are then cut into individual chips or die.
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Initially, a wafer is pre-cleaned using high-purity, low-particle chemicals
and then heated and exposed to ultra-pure oxygen in diffusion furnaces under
carefully controlled conditions. This diffusion process forms a silicon dioxide
film of uniform thickness on the surface of the wafer. The wafer is then
subjected to deposition, a process in which very thin films of either
electrically insulating or electrically conductive material are deposited on
its surface. Insulating films, or dielectrics, are primarily transparent, while
conductive films are primarily opaque. The three principal methods of
deposition are chemical vapor deposition (CVD), physical vapor deposition (PVD)
and electrofill. Deposition of multiple layers of thin films creates
electrically active regions in the wafer and on its surface. Depending on the
specific design of an integrated circuit, film thickness will vary and
different numbers of layers and film types will be utilized to achieve a
targeted performance level.
The deposition of these film layers occurs in series with other processes
that create circuit patterns, remove portions of film layers, implant
electrically charged ions and perform other functions such as heat treatment,
measurement and inspection. Photolithography, for example, is used to create
circuit patterns on the face of the wafer. A light-sensitive film, called
photoresist, is applied to the wafer, which is exposed to intense light. The
wafer is then "developed" when the exposed photoresist is removed to expose
newly created circuit patterns.
The developed wafer may be exposed to a chemical solution or plasma so that
areas not covered by the hardened photoresist are etched away. This etching
process selectively removes material from the surface of the wafer to create
device structures. To meet the processing challenges posed by new materials
such as copper, manufacturers are increasingly using a new process step, CMP,
in place of etching. CMP removes uneven film material from the wafer, creating
an extremely flat surface for the patterning of subsequent film layers. The
wafer can also be subjected to an ion implantation process, in which
electrically charged ions are introduced into selected areas on the wafer to
alter the electrical characteristics of the resulting device.
This series of processes is repeated several times until the last layer of
structures on the wafer is completed. After completion of the last layer, a
passivation coating is applied to protect the circuit from damage and
contamination. Openings are etched in this film to allow access to the top
layer of metal by electrical probes and wire bonds. The functionality of each
chip on the wafer is then inspected and tested before shipment.
Rising Demand for Process Control Metrology Systems
Process control metrology is used by semiconductor device manufacturers to
analyze product and process quality at critical steps in the integrated circuit
manufacturing process in order to identify, diagnose and minimize fabrication
defects. Dataquest estimates that sales of process control metrology systems
and tools will increase at a compound annual growth rate of 22.3% from
approximately $1.7 billion in 1998 to approximately $3.8 billion in 2002. We
believe that thin film measurement metrology constitutes between 15% and 25% of
this market.
The semiconductor device manufacturing industry is experiencing several
trends that are increasing the demand for process control metrology systems and
heightening the need for metrology technology that can deliver a higher degree
of accuracy and repeatability:
Transition to Copper. Copper metal layers are increasingly replacing
aluminum as the interconnect of choice for advanced integrated circuits. While
copper has greater performance potential than aluminum, its use requires new
challenging processing methodologies.
Development of Smaller Feature Geometries. The development of smaller
feature geometries, 0.18 micron and below, enables device manufacturers to
produce greater numbers of integrated circuits, or die, per wafer. Yet as
geometry linewidths decrease, manufacturing yields become increasingly
sensitive to the magnitude of processing defects.
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Migration to 300 Millimeter Wafers. The migration to larger wafer sizes,
200 millimeter wafers today and moving to 300 millimeters, scales the rate at
which semiconductor device manufacturers can produce integrated circuits, also
known as throughput, by vastly increasing the number of die per wafer.
Nevertheless, processing larger wafers both expands the complexity of
manufacturing and increases the cost of manufacturing process mistakes.
Introduction of Chemical Mechanical Planarization. The introduction of new
manufacturing processes, such as CMP in place of etch, is increasing the
complexity of some processing steps, heightening the need for more accurate
measurement and process control.
Transition to New Dielectrics. Semiconductor device manufacturers are
utilizing new materials such as low-k and high-k dielectrics to improve device
performance. Both memory and logic device manufacturers are requiring new
metrology solutions to help control the electrical capacitance of these
advanced transparent films.
Shortening of Product Life Cycles. The product life cycles of semiconductor
devices continues to shorten, making the early achievement of high
manufacturing yields critical to device manufacturers' profitability. The
maximization of yields, or the number of good die per wafer, requires the use
of metrology across the fab to ensure that manufacturing processes are accurate
and can be repeated on a consistent basis without a disqualifying level of
defects, known as repeatability.
Traditional Process Control Metrology Systems and Their Limitations
Metal and Opaque Thin Film Metrology Systems. Traditional process control
metrology systems for measuring metal and other opaque thin films can generally
be divided into contact and non-contact techniques. Contact techniques include:
. four-point probes, which are instruments that measure the resistivity of
thin films by contacting the film with four closely spaced metal probes;
. sectioning technologies, which analyze samples made by cutting the wafer
for measurement; and
. profilometry, in which a stylus is scanned over the surface of a test
wafer.
Existing non-contact, non-destructive metal and opaque metrology techniques
include surface acoustic and x-ray technologies.
Traditional metrology systems utilizing these technologies have had limited
success meeting the accuracy and repeatability demands of new manufacturing
processes such as CMP and new materials such as copper. The efficacy of these
systems is further strained by the ever shrinking feature sizes and geometries
of integrated circuits. In addition, while semiconductors composed of multi-
layer film stacks are becoming increasingly common, existing metrology systems
are generally incapable of simultaneously measuring more than two layers in
these stacks.
Finally, the industry is moving away from using contact techniques, which
require the use of non-productive test wafers, toward using non-contact
techniques to measure product wafers. The transition to measuring product
wafers is being driven by manufacturers' inability to adequately control the
manufacturing process using test wafers alone as well as the costs associated
with the processing and destruction of test wafers.
Transparent Thin Film Metrology Systems. The most widely used technologies
to measure the thickness and properties of transparent thin films have been
reflection spectrometry and ellipsometry. Reflection spectrometers, or
reflectometers, use software algorithms to analyze the wavelength of light
reflected from the surface of a wafer after the light has passed through one or
more transparent films. Ellipsometers measure the change of polarization of
reflected light from the surface of a wafer.
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Both ellipsometry and reflection spectrometry suffer from accuracy and
efficiency problems analogous to those posed for metal and opaque metrology
systems. In the case of transparent thin films these problems are exacerbated
by the fact that recent generations of film deposition tools are depositing
several films at one time, requiring measurements of stacked multi-layer films.
However, in most applications reflectometers are more suitable for measuring
thicker films whereas ellipsometers are more suitable for measuring very thin
films. Thus, neither system alone generates sufficient data to simultaneously
determine the thicknesses and other properties of film stacks with the
precision and repeatability device manufacturers demand.
The Rudolph Full-Fab Solution
We are a worldwide leader in the design, development, manufacture and
support of high-performance process control metrology systems used in
semiconductor device manufacturing. Our proprietary systems non-destructively
measure the thickness and other properties of thin films applied during various
steps in the manufacture of integrated circuits, enabling semiconductor device
manufacturers to increase yields and lower overall production costs. We provide
our customers with a flexible full-fab metrology solution by offering families
of systems that meet their transparent and opaque thin film measurement needs
in various applications across the fabrication process. Our two primary
families of metrology solutions offer leading-edge metrology technology,
flexible systems cost-effectively designed for specific manufacturing
applications and a common production-worthy automation platform, all backed by
worldwide support.
We design our systems with the flexibility to allow our customers to mix
and match tools both within and across our product lines to provide cost-
effective solutions that meet their specific manufacturing applications. Our
primary transparent and opaque thin film measurement systems are all built on
our production-worthy Vanguard common automation platform, which has been in
production since the spring of 1997. The Vanguard platform, which provides a
common software system, user interface, and hardware base for our systems,
received the Editor's Choice Award for Best Product by Semiconductor
International in 1998. We also provide our customers with direct service and
application support worldwide, which is dedicated to ensuring tool uptime and
promoting additional applications for our solutions across the fab.
Metal and Opaque Thin Film Measurement Solutions. Our MetaPULSE family of
metrology systems incorporates our proprietary technology for optical acoustic
metrology, which allows customers to simultaneously measure the thickness and
other properties of up to six metal or other opaque film layers in a non-
contact manner on product wafers. By minimizing the need for test wafers,
MetaPULSE enables our customers to achieve significant cost savings. We believe
that we currently offer the only systems that can non-destructively measure up
to six metal film layers with the degree of accuracy semiconductor device
manufacturers demand.
Our MetaPULSE systems use ultra-fast lasers to generate sound waves that
pass down through a stack of metal or opaque films such as copper and aluminum,
sending back to the surface an echo which is detected and analyzed. These
systems precisely measure the films with Angstrom accuracy and sub-Angstrom
repeatability at high throughputs. This accuracy and repeatability is critical
to semiconductor device manufacturers' ability to achieve higher manufacturing
yields with the latest fabrication processes.
In addition to measuring thickness, MetaPULSE systems provide critical
information about the properties of a film stack, such as detection of missing
layers during deposition, which is not available from traditional single-layer
test wafer metrology. We therefore believe that MetaPULSE offers significant
cost and performance advantages to customers depositing multi-layer film
stacks. As the industry moves toward the widespread adoption of copper
metalization, we believe that MetaPULSE systems will become even more widely
used to control device process parameters.
Transparent Film Measurement Solutions. Our SpectraLASER line of
transparent film metrology systems provides precise and repeatable measurements
of an ever-increasing library of new thin films by incorporating our
proprietary and patented ellipsometer technology. Our patented technology,
which uses four
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lasers operating simultaneously at multiple angles and wavelengths, provides
our systems with an inherently stable design, significantly improving the
repeatability of the original manufacturing process. In addition, our use of
long life solid state lasers rather than the traditional white light sources of
competitive systems reduces maintenance costs and minimizes the cost and time
required to re-qualify a light source when it is replaced. SpectraLASER systems
can also incorporate reflectometry technology, which is often more suitable for
measuring thicker films. The addition of reflectometry technology to our
SpectraLASER systems allows simultaneous measurement using both technologies,
addressing a trend in the industry to use film stacks composed of an increasing
number of layers of different films without compromising throughput in the fab.
To complement our SpectraLASER family of transparent film metrology
systems, we have developed our Matrix Metrology family of systems, which we
plan to introduce in September 1999 at the Semicon Taiwan industry conference.
These systems incorporate advanced ellipsometry and reflectometry technologies.
Each model is specifically configured in its hardware and software architecture
to provide an optimized metrology solution for a specific semiconductor process
application, such as CMP, diffusion or etch. Our Matrix Metrology line, when
combined with our existing families of metrology systems, is designed to
provide customers with a flexible full-fab line of metrology solutions for
transparent and opaque thin films, all built on our award-winning Vanguard
automation platform.
Strategy
Our objective is to be the premier worldwide provider of advanced thin film
measurement metrology solutions for the semiconductor device manufacturing
industry. Key elements of this strategy include:
Extend Technology Leadership. We believe that our proprietary technology
and our extensive metrology expertise provide us with a technological advantage
over competing thin film metrology system manufacturers. We further believe
that technical innovation will continue to be one of the leading drivers for
market acceptance of new metrology systems in an industry characterized by
rapid product life cycles and continuous semiconductor performance gains.
Accordingly, we intend to continue to invest in research and development to
extend our technology leadership position. We currently have 17 holders of
Ph.D. degrees and 8 holders of M.S. degrees on our 49-member development staff,
representing over 50% of this staff. In addition, we maintain a close
relationship with Brown University, which we use to leverage our technology
development efforts. We may also acquire complementary technologies and form
new strategic alliances to further expand our technology expertise.
Focus on Understanding the Needs of Leading Semiconductor Device
Manufacturers. We intend to maintain our emphasis on the needs of leading
semiconductor device manufacturers. We focus our resources on understanding
selected customers through close technical relationships at the operating and
management levels. We believe this strategy provides us with a first-mover
advantage in developing and qualifying products at each technology inflection
point when our customers alter their fabrication techniques in response to
advances in semiconductor technology. Due to the high costs of technical
modifications and production line downtime, semiconductor device manufacturers
are reluctant to switch to competing vendors' technologies during the life of a
production line, which underscores the importance of being selected for next-
generation products. Further, the selection of our systems by recognized
industry leaders is an endorsement which enhances our ability to market our
metrology systems to a broader set of semiconductor device manufacturers.
Increase Sales to Existing Customers. We intend to continue to develop and
expand our extensive customer relationships in order to increase sales of new
systems. Tracing our technical heritage to 1940, we have developed a
longstanding reputation for technological leadership as a global producer of
highly accurate and reliable systems. We believe that we have the largest
installed base of ellipsometers in the world, and that our ellipsometry
metrology systems are used by most major semiconductor device manufacturers.
Our access to such a wide base of current customers and our brand-name
recognition provide an opportunity for increased sales of additional systems to
our customers without the extensive efforts that would otherwise be required
when approaching new customers.
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Seek Opportunities for Strategic Alliances and Joint Development
Arrangements. We expect to continue to strengthen our existing customer
relationships by seeking opportunities for strategic alliances and joint
development arrangements with our customers. Our customers include virtually
all of the leading semiconductor device manufacturers with their world-class
research and development organizations. We believe that we can significantly
leverage our resources in this area through alliances with these customers.
Further, we believe that pursuing joint development arrangements with these
leading manufacturers will provide us with critical insight into semiconductor
industry trends, and could lead to the development of new systems with broad
market appeal.
Develop Complementary Metrology Applications. We plan to leverage our
extensive thin film measurement expertise to develop complementary metrology
applications. The addition of complementary product offerings will enhance our
ability to provide a full-fab solution for a variety of metrology applications.
We have, for example, built upon our dominance in metrology used for the
diffusion process to develop our Matrix Metrology line of systems optimized for
the CMP, diffusion and etch processes. In addition, we have applied our
technology for the semiconductor device manufacturing process to develop
applications for the magnetic storage industry, such as measuring the thin
films applied during the manufacture of hard disk drive storage heads. The
modular architecture of the Vanguard platform is designed to enable
incorporation of new applications with our current systems in a rapid and cost-
effective manner, thereby decreasing downtime and increasing productivity of
our customers.
Capitalize on Our Global Customer Support Network. We presently maintain a
worldwide network of sales, service, and applications centers with a highly
trained technical and commercial support staff. We intend to continue to invest
in this worldwide customer support network. This network, combined with our
core team of product technical specialists in New Jersey, has led to our
receiving the top ranking among our thin film metrology competitors for the
past four years in the annual VLSI Customer Satisfaction Survey. We will
continue to provide our customers with dedicated, comprehensive support before,
during and after the sale of our systems.
Technology
We believe that our expertise in engineering, research and development
enables us to rapidly develop new technologies and products in response to
emerging industry trends. The breadth of our technology enables us to offer our
customers a combination of measurement technologies, which we believe is
critical for today's advanced thin film metrology applications.
Optical Acoustics. Optical acoustic metrology involves the use of ultra-
fast laser induced sonar for metal and opaque thin film measurement. This
technology sends ultrasonic waves into multi-layer opaque films, then analyzes
the resulting echoes to determine the thickness of each individual layer
simultaneously. The echo's amplitude and phase can be used to detect film
properties, missing layers and interlayer problems. Since different phenomena
affect amplitude and phase uniquely, a variety of interlayer problems can be
detected and measured.
The use of optical acoustics to measure multi-layer metal and opaque films
was pioneered by scientists at Brown University in collaboration with us. The
proprietary optical acoustic technology in our MetaPULSE systems measures the
thickness of single or multi-layer opaque films ranging from less than 20
Angstroms to greater than five microns. It provides these measurements at a
rate of 60 wafers per hour with one to two percent accuracy and 0.5%
repeatability. Our optical acoustic technology also enables our MetaPULSE
systems to measure film properties on product wafers at existing test sites by
using small measurement spots of only ten microns in combination with pattern
recognition software algorithms.
Ellipsometry. Ellipsometry is a non-contact, non-destructive optical
technique for transparent thin film measurement. When a surface or interface is
struck by polarized light, ellipsometers measure the change in the reflected
light's polarization. By measuring at multiple wavelengths, an ellipsometer can
determine multiple
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properties of transparent films. The combination of multiple angles of
incidence and multiple wavelength ellipsometry also allows accurate and
reliable measurement across a wide range of thicknesses and a wide variety of
films and film stacks.
Since 1977, when we introduced our AutoEL, the industry's first production-
oriented, microprocessor-based ellipsometer, we have been an industry leader in
ellipsometry technology. We hold patents on several ellipsometry technologies
developed by our engineers, including our proprietary technique which uses four
lasers for multiple angle of incidence, multiple wavelength ellipsometry.
Incorporating this proprietary technology, our SpectraLASER systems provide the
accuracy and analytical power of research-grade spectroscopic ellipsometers
together with the high throughput required for production applications.
Reflectometry. For applications requiring broader spectrum coverage, some
ellipsometry tools are also equipped with a reflectometer. Reflectometry uses
white light to determine the properties of transparent thin films by analyzing
the wavelength of light reflected from the surface of a wafer. This light is
analyzed with software algorithms to determine film thickness and, in some
cases, other material properties of the measured film. Reflectometry is often
more suitable for measuring thicker films, whereas ellipsometry is often more
suitable for measuring very thin films. Thus, neither system alone is capable
of accurate and reliable measurements over the full range of film thickness.
Using state-of-the-art deep ultraviolet reflectometers along with our
proprietary ellipsometry tools, our SpectraLASER systems have the ability to
simultaneously measure the thickness and optical properties of films ranging in
thickness from 20 Angstroms to several microns. When introduced, our Matrix
Metrology systems will also incorporate next-generation reflectometry
technology to enhance their metrology performance in a broad range of
semiconductor device manufacturing applications.
Products
Our thin film measurement systems are non-contact, non-destructive
metrology systems capable of measuring thin film properties across the wafer
with a high degree of precision and repeatability. Our thin film measurement
solutions consist of five product families, three of which are built on our
Vanguard automation platform. In 1977 we introduced the industry's first
production-oriented, microprocessor-based ellipsometer, the AutoEL. As
semiconductor device manufacturing technology continued to advance rapidly, we
developed our second product family, the FOCUS ellipsometer. More recently, we
introduced two additional product families, the SpectraLASER family of
transparent thin film measurement systems and the MetaPULSE family of systems
for measuring metal and other opaque films. Finally, at the Semicon Taiwan
industry conference in September 1999, we plan to introduce our new line of
Matrix Metrology systems optimized for the CMP, diffusion and etch processes.
All of our SpectraLASER, MetaPULSE and Matrix Metrology systems will be
produced on our common Vanguard automation platform.
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The following table summarizes various features of our principal products:
<TABLE>
<CAPTION>
Year of
Product Line Introduction Principal Applications Price Range
- ------------------ ------------ ------------------------- ---------------------
<S> <C> <C> <C>
MetaPULSE Systems 1997 $900,000-$1.6 million
MetaPULSE 200
(five models) Deposition, CMP, CVD, PVD
MetaPULSE 300
(five models) Deposition, CMP, CVD, PVD
SpectraLASER
Systems 1997 $350,000-$900,000
SpectraLASER 200 CMP, Diffusion, CVD, PVD,
(four models) Lithography, Etch
SpectraLASER 300 CMP, Diffusion, CVD, PVD,
(four models) Lithography, Etch
Matrix Metrology
Systems 1999 $400,000-$1.0 million
Matrix Metrology
S200 CMP CMP
Matrix Metrology
S200 Etch Etch
Matrix Metrology
S200 Diffusion Diffusion
Matrix Metrology
S300 CMP CMP
Matrix Metrology
S300 Etch Etch
Matrix Metrology
S300 Diffusion Diffusion
FOCUS Series 1991 $200,000-$600,000
FOCUS FE III Diffusion, Etch, CMP, CVD
FOCUS FE VII Diffusion, Etch, CMP, CVD
CALIBER 300 Diffusion, Etch, CMP, CVD
AutoEL Series 1977 $20,000-$100,000
AutoEL III
Ellipsometer Diffusion, Thin Films
AutoEL IV
Ellipsometer Diffusion, Thin Films
</TABLE>
MetaPULSE
Our MetaPULSE product family uses non-destructive optical acoustic
technology to simultaneously measure up to six layers of metal or other opaque
thin films with a broad range of thicknesses. Because it requires only a ten
micron measurement spot, MetaPULSE is able to deliver reliable measurement on
existing test spots on product wafers, reducing the cost associated with using
test wafers. MetaPULSE can also detect many problems and film properties that
remain invisible to traditional single-layer metrology systems. To date, we
have sold or received orders for over 35 MetaPULSE systems worldwide, including
some that have been deployed in copper interconnect production applications.
MetaPULSE 200. Our MetaPULSE 200 system is the first production metal and
opaque thin film metrology system that simultaneously measures up to six layers
in a multi-layer metal film stack while providing early detection of problems
due to missing layers, poor adhesion and interlayer reaction and the roughness
of top and buried layers. It delivers the Angstrom accuracy and sub-Angstrom
repeatability demanded by semiconductor device manufacturers at high throughput
of up to 60 product wafers per hour.
MetaPULSE 300. Our MetaPULSE 300 incorporates all of the features of our
MetaPULSE 200 system and is configured to measure 300 millimeter product
wafers.
SpectraLASER
Our SpectraLASER family of transparent thin film measurement systems
incorporates our proprietary ellipsometry techniques, which uses multiple angle
of incidence, multiple wavelength ellipsometry to deliver the accuracy and
analytical power of research-grade spectroscopic ellipsometers with the high
throughput required for production applications. SpectraLASER's four-laser
array provides ellipsometry at wavelengths across the spectrum from deep blue
to near infrared, a broader range of wavelengths than most competitive systems.
These features give our SpectraLASER systems the analytical power to quickly
and easily characterize new processes, solve film metrology problems and
qualify new process tools. Our SpectraLASER systems combine these ellipsometry
technologies with a deep ultraviolet reflectometer, enabling them to measure a
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broader range of film thicknesses and enhancing their ability to handle current
and future generation lithography applications.
The laser light sources employed by our SpectraLASER systems allow them to
provide repeatable measurements for powerful transparent film process control.
Intense laser light allows fast, small-spot measurements on product wafers in
CMP, CVD, diffusion, lithography and etch applications. Unlike the white light
sources used in many competing products, which begin to degrade in weeks and
require lamp changes every few months, the solid state lasers in our
SpectraLASER systems deliver stable light output for two to three years. In
addition, because a laser light source is preconfigured to emit light at a
particular wavelength, users of our SpectraLASER systems need not undergo a
lengthy recalibration process each time they replace a light source.
SpectraLASER 200. Our SpectraLASER 200 simultaneously emits laser light at
multiple wavelengths and uses multiple angles of incidence for data
acquisition, measuring a spectrum of optical properties at each wavelength. The
SpectraLASER 200 accepts 100 millimeter and 200 millimeter wafers at throughput
of up to 100 wafers per hour.
SpectraLASER 300. Our SpectraLASER 300 incorporates all of the features of
our SpectraLASER 200 product, and accepts 200 millimeter and 300 millimeter
cassettes or 300 millimeter pod loaders at throughput of up to 80 wafers per
hour.
Matrix Metrology Systems
Our Matrix Metrology systems will further enhance our full-fab solution and
allow our customers to mix and match technologies to fit their production
needs. We plan to offer several specialized Matrix Metrology systems designed
for use in specific semiconductor device manufacturing applications. These
Matrix Metrology systems will include:
Matrix Metrology S200 CMP. Our Matrix Metrology S200 CMP system, designed
for use in the CMP phase of the semiconductor device manufacturing process,
will offer a high throughput 120 wafer-per-hour visible reflectometer and a 110
wafer-per-hour long life helium neon gas laser ellipsometer.
Matrix Metrology S200 Etch. Our Matrix Metrology S200 Etch system, designed
for use in the etch phase of the semiconductor device manufacturing process,
will have all of the features of the S200 CMP product, and will also provide
customers with a 780 nanometer ellipsometer.
Matrix Metrology S200 Diffusion. Our Matrix Metrology S200 Diffusion
system, designed for use in the diffusion phase of the semiconductor device
manufacturing process, will have all of the features of our S200 Etch and S200
CMP systems, along with a 458 nanometer ellipsometer and a deep ultraviolet
190-470 nanometer reflectometer.
Matrix Metrology S300 CMP, Etch and Diffusion. Our Matrix Metrology S300
CMP, Etch and Diffusion systems will incorporate all of the features of our
Matrix Metrology S200 CMP, Etch and Diffusion systems and will be configured to
measure 300 millimeter product wafers.
Vanguard Automation Platform
Our Vanguard automation platform provides a common hardware, software and
automation system for our MetaPULSE, SpectraLASER and Matrix Metrology
families. The modular nature of the Vanguard platform will enable our customers
to upgrade their MetaPULSE, SpectraLASER and Matrix Metrology systems and
integrate new applications into their existing systems in a rapid and cost-
effective manner. By using the same Vanguard platform, our customers can
minimize the amount of equipment configuration and employee training required
to modify their metrology systems in response to changing production demands.
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<PAGE>
FOCUS Series
In the early 1990s, semiconductor manufacturing technology advanced rapidly
with the proliferation of 200 millimeter wafers and line widths under one
micron. In response to this industry trend, we introduced the FOCUS
ellipsometer family. Based on our patented Focused Beam measurement technology,
our FOCUS series of ellipsometers offered increased repeatability and accuracy
as well as a greater degree of automation and cleanliness for our customers. We
believe that the ability to handle complex applications has made our FOCUS
ellipsometers an industry standard in film thickness metrology.
FOCUS FE III. Our FOCUS FE III system provides a low cost 100 to 200
millimeters automated ellipsometer using our dual wavelength Focused Beam
technology. It directly measures sample wafers with a small spot at multiple
angles of incidence.
FOCUS FE VII. Our FOCUS FE VII system is designed for high volume, sub-
micron device manufacturing requiring superior film thickness and index of
refraction measurements in diffusion, etch, CMP and CVD applications. Using the
same type of Focused Beam technology as the FOCUS FE III, our FOCUS FE VII can
provide accurate results for both film composition and film thickness.
CALIBER 300. Our Caliber 300 was one of the first commercial, production-
oriented ellipsometers to measure 300 millimeter wafers. Caliber 300 combines
our patented Focused Beam technology with an ultra-fast wafer handler.
AutoEL Series
In 1977, our predecessor company developed the industry's first production-
oriented, microprocessor-based ellipsometer, the AutoEL. Our AutoEL series of
ellipsometers offers customers a fully automated desktop solution with long-
term repeatability and thin film precision. Using our proprietary Ellipto MAP
software, the AutoEL family of ellipsometers can display maps of film
thickness, refractive index and absorption, as well as the optical constants of
bare substrates. Film thicknesses and refractive index data points measured and
calculated by the AutoEL can be automatically downloaded to a personal computer
where the data can be displayed immediately or stored on a disk for off-line
processing.
AutoEL III Ellipsometer. Our AutoEL III family of ellipsometers provides
low-cost tabletop automatic tools for routine measurements of thickness and
index. Its operating wavelength is 633 nanometers.
AutoEL IV Ellipsometer. Our AutoEL IV ellipsometers have the same
specifications as our AutoEL III and operate at wavelengths of 405 nanometers,
546 nanometers and 633 nanometers.
Customers and End Users
We sell our products worldwide to over 100 semiconductor device
manufacturers, including both independent semiconductor device manufacturers
and foundries throughout the world. We seek to establish and maintain close and
mutually beneficial relationships with our customers by consistently providing
them with superior service and support. In each of the years from 1996 through
1999, we received the number one ranking among our competitors in the annual
VLSI Customer Satisfaction Survey. Customers and end users from which we have
received a total of at least $1.0 million in revenues since January 1, 1997
include:
<TABLE>
<CAPTION>
Anam IBM Siemens+
<S> <C> <C>
Advanced Micro Devices Intel Texas Instruments
Applied Materials LSI Logic TSMC
Fujitsu* NEC* Toshiba*
Hitachi Nippon Steel Philips+ Winbond Electronics
</TABLE>
* We sell our products to these end users through our exclusive
distributor in Japan.
+ Historically, we sold our products to these end users through our
distributor in Europe. Currently, we sell our products directly to
customers in Europe.
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<PAGE>
We believe that our top customers and end users are among the fastest
growing manufacturers in the semiconductor device industry. In addition, we
have a diverse customer and end user base in terms of both geographic location
and type of semiconductor device manufactured. Our customers and end users are
located in 24 different countries.
As part of our strategy of developing complementary metrology applications
for our systems, we have built on our technology for the semiconductor device
manufacturing process to develop applications for the magnetic storage
industry. Our customers include Seagate Technology and other leading magnetic
storage device manufacturers.
We depend on a relatively small number of customers and end users for a
large percentage of our revenues. In the combined year 1996, in 1997 and 1998
and in the nine months ended September 30, 1999, sales to customers and end
users that individually represented at least five percent of our revenues
accounted for 18.0%, 7.7%, 43.2% and 52.5% of our revenues. In the combined
year 1996 and in 1997, no individual customer or end user accounted for more
than 10% of our revenues. In 1998, sales to Intel and Advanced Micro Devices
accounted for 19.8% and 11.1% of our revenues. In the nine months ended
September 30, 1999, sales to Intel accounted for 34.2% of our revenues. In
addition, a significant portion of our revenues in each quarter and year has
been derived from sales to particular distributors. These distributors purchase
our products for ultimate distribution to customers in particular geographic
regions. We do not have purchase contracts with any of our customers, end users
or distributors that obligate them to continue to purchase our products, and
these customers, end users and distributors could cease purchasing our products
at any time. See "Risk Factors--Our largest customers and end users account for
a significant portion of our revenues, and our business and operating results
could be harmed by the loss of one or more of these customers or end users or
by reductions or delays in their purchases of our systems" and "Risk Factors--
We rely on independent sales representatives and distributors for a significant
portion of our sales, and a disruption in our relationships with these
representatives or distributors could have a negative impact on our sales."
We schedule production of our systems based upon order backlog and informal
customer forecasts. We include in backlog only those orders to which a purchase
order number has been assigned by the customer and for which delivery has been
specified within 12 months. Because shipment dates may be changed and customers
may cancel or delay orders with little or no penalty, our backlog as of any
particular date may not be a reliable indicator of actual sales for any
succeeding period. At September 30, 1999 we had a backlog of approximately
$13.7 million compared with a backlog of approximately $6.95 million at
December 31, 1998.
Research and Development
The thin film transparent and opaque process control metrology market is
characterized by continuous technological development and product innovations.
We believe that the rapid and ongoing development of new products and
enhancements to existing products is critical to our success. Accordingly, we
devote a significant portion of our technical, management and financial
resources to research and development programs. At September 30, 1999, our
research and development staff was comprised of 49 persons, including 17
holders of Ph.D. degrees and 8 holders of M.S. degrees. The efforts of our
research and development engineers have consistently received significant
industry recognition. For example, our MetaPULSE product received Photonics
magazine's Circle of Excellence Product of the Year Award in 1999.
The core competencies of our research and development team include
metrology systems for high volume manufacturing, ellipsometry, ultra-fast
optics, picosecond acoustic and optical design, advanced metrology application
development and algorithm development. We have been granted or hold exclusive
licenses to eleven U.S. and foreign patents covering technology in the
transparent thin film measurement, altered material characterization and
picosecond ultrasonic areas. We also have 15 pending regular and provisional
applications in the U.S. and in other countries.
To leverage our internal research and development capabilities, we maintain
close relationships with leading research institutions in the metrology field
including Brown University. Our four year partnership with
47
<PAGE>
Brown University has resulted in the development of the optical acoustic
technology underlying our MetaPULSE product line. We have been granted
exclusive licenses from Brown University Research Foundation, subject to rights
returned by Brown and the United States government for their own non-commercial
uses for several patents relating to this technology. The terms of these
exclusive licenses are equal to the lives of the patents. We also have the
right to support patent activity with respect to new ultra-fast acoustic
technology developed by Brown scientists, and to acquire exclusive licenses to
this technology. Our royalty expenses owed to Brown for the nine months ended
September 30, 1999 were $680,000.
Our research and development expenditures in 1997, 1998 and the first three
quarters of 1999 were $5.8 million, $5.1 million and $3.6 million. We plan to
continue our strong commitment to new product development in the future, and we
expect that our level of research and development expenses will increase in
absolute dollar terms in future periods.
Sales, Customer Service and Application Support
Our strategy is to develop and expand our close relationships with leading
semiconductor device manufacturers worldwide in order to promote customer
satisfaction and the ongoing sale of our products. To this end, we maintain an
extensive network of direct sales, customer service and application support
offices in several locations throughout the world. We maintain sales, service
or applications offices in California, New Jersey, Texas, Germany, Holland,
Ireland, Israel, Korea, and Taiwan.
To leverage the capabilities of our direct sales, customer service and
application support team of 56 employees, we make use of leading independent
sales organizations in selected geographic regions. We believe that these
organizations significantly enhance our sales capabilities in the regions they
serve without requiring a significant capital outlay from us. For example, in
Japan we have maintained a close relationship with Tokyo Electron Limited, or
TEL, the largest semiconductor capital equipment manufacturer in Japan, for
more than ten years. TEL purchases our products directly for ultimate
distribution to customers throughout Japan, and maintains a dedicated sales,
service and applications organization of 18 professionals to support our
products. TEL has offices at several locations in close proximity to our
customers and other Japanese device manufacturers. We also work through sales
representatives that maintain support facilities near our customers in
Singapore and China, and we make some of our sales through independent
representatives in Taiwan and Korea.
We provide our customers with comprehensive support before, during and
after the delivery of our products. For example, in order to facilitate the
smooth integration of our tools into our customers' operations, we often assign
dedicated, site-specific field service and applications engineers to provide
long-term support at selected customer sites. We also provide comprehensive
service and applications training for customers at our new training facility in
Ledgewood, New Jersey and at customer locations. In addition, we maintain a
group of highly skilled applications scientists at strategically located
facilities throughout the world and at selected customer locations. Our
customer support operation also offers customers an array of fee-based support
services including preventive maintenance, on-call service and applications and
service training programs.
Our products are normally covered under warranty for a period of twelve
months. After the warranty period, customers may enter into support agreements
for continuing service and applications support.
Intellectual Property
Our success depends in part upon our ability to protect our intellectual
property. Despite our efforts to protect our proprietary rights, unauthorized
parties may attempt to copy aspects of our products or obtain and use
information that we regard as proprietary. We rely in part on patents to
protect our intellectual property. We have been granted or hold exclusive
licenses to eleven U.S. and foreign patents. The patents we own or exclusively
license have expiration dates ranging from 2005 to 2017. We also have 15
pending regular and
48
<PAGE>
provisional applications in the U.S. and other countries. Our patents and
applications principally cover various aspects of the transparent thin film
measurement and altered material characterization.
We have been granted exclusive licenses from Brown University Research
Foundation, subject to rights retained by Brown and the United States
government for their own non-commercial uses, for several patents relating to
the optical acoustic technology underlying our MetaPULSE product family. The
terms of these exclusive licenses are equal to the lives of the patents. We pay
royalties to Brown based upon a percentage of our revenues from the sale of
systems that incorporate technology covered by the Brown patents. We also have
the right to support patent activity with respect to new ultra-fast acoustic
technology developed by Brown scientists, and to acquire exclusive licenses to
this technology. Brown may terminate the licenses if we fail to pay royalties
to Brown or if we materially breach our license agreement with Brown.
Our pending patents may never be issued, and even if they are, these
patents, our existing patents and the patents we license may not provide
sufficiently broad protection to protect our proprietary rights, or they may
prove to be unenforceable. To protect our proprietary rights, we also rely on a
combination of copyrights, trademarks, trade secret laws, contractual
provisions and licenses. We also enter into confidentiality agreements with our
employees and some of our consultants and customers, and seek to control access
to and distribution of our proprietary information. We may be required to
initiate litigation in order to enforce any patents issued to or licensed by
us, or to determine the scope or validity of a third party's patent or other
proprietary rights.
We are now involved with a patent interference proceeding with Therma-Wave,
Inc. In addition, we may in the future be subject to lawsuits by third parties
seeking to enforce their own intellectual property rights. Such litigation,
regardless of outcome, could be expensive and time consuming, and could subject
us to significant liabilities or require us to reengineer our product or obtain
expensive licenses from third parties. See "Risk Factors--Protection of our
intellectual property rights, or the efforts of third parties to enforce their
own intellectual property rights against us, has in the past resulted and may
in the future result in costly and time-consuming litigation."
The laws of some foreign countries do not protect our proprietary rights to
as great an extent as do the laws of the United States, and many U.S. companies
have encountered substantial infringement problems in protecting their
proprietary rights against infringement in such countries, some of which are
countries in which we have sold and continue to sell products. There is a risk
that our means of protecting our proprietary rights may not be adequate. For
example, our competitors may independently develop similar technology or
duplicate our products. If we fail to adequately protect our intellectual
property, it would be easier for our competitors to sell competing products.
Manufacturing
Our manufacturing strategy is to produce high-quality thin film transparent
and opaque process control metrology systems in a cost-effective manner. In
order to decrease production costs, we are continuing to focus our internal
manufacturing activities on processes that add significant value or require
unique technology or specialized knowledge. Our core manufacturing competencies
include electrical, optical and mechanical assembly and testing as well as the
management of new product transitions. We expect to rely increasingly on
subcontractors and turnkey suppliers to fabricate components, build assemblies
and perform other non-core activities in a cost-effective manner.
Our principal manufacturing activities include assembly, final test and
calibration. These activities are conducted in our new state-of-the-art
manufacturing and service facility in Ledgewood, New Jersey. While we use
standard components and subassemblies wherever possible, most mechanical parts,
metal fabrications and critical components used in our products are engineered
and manufactured to our specifications. Some of these components and
subassemblies, including the lasers we use in some of our products, are
obtained from a limited group of suppliers, and occasionally from a single
source supplier. The partial or complete loss of one of these suppliers could
cause production delays and harm our operating results. See "Risk Factors--We
obtain
49
<PAGE>
some of the components and subassemblies included in our products from a single
source or a limited group of suppliers, and the partial or complete loss of one
of these suppliers could cause production delays and harm our operating
results."
We use our Vanguard modular system architecture to produce metrology
equipment for both transparent and opaque films. We have realized significant
economies of scale in the manufacturing, service inventory, service training
and customer repair areas by combining these activities using the common
Vanguard architecture.
Competition
The market for semiconductor capital equipment is highly competitive. We
face substantial competition from established companies in each of the markets
that we serve. We principally compete with KLA-Tencor, Philips Analytical
Instruments and Therma-Wave. We compete to a lesser extent with companies such
as Dai Nippon Screen, Nanometrics and Sopra. Each of our product lines also
competes with products that use different metrology techniques. Some of our
competitors have greater financial, engineering, manufacturing and marketing
resources, broader product offerings and service capabilities and larger
installed customer bases than we do. Significant competitive factors in the
market for metrology systems include system performance, ease of use,
reliability, cost of ownership, technical support and customer relationships.
We believe we compete favorably on the basis of these factors in each of the
markets we serve.
There has in the past been merger and acquisition activity among our
competitors and potential competitors. Acquisitions by our competitors and
potential competitors could enable them to expand their product offerings in
order to meet a broader range of customer needs. The greater resources,
including financial, marketing and support resources, of competitors engaged in
these acquisitions could also permit them to accelerate the development and
commercialization of new products and to further enlarge their installed
customer bases. Accordingly, business combinations and acquisitions involving
our competitors could have a detrimental impact on both our market share and
the pricing of our products, either of which could cause our business and
results of operations to suffer.
Employees
As of September 30, 1999, we had 178 employees, including 49 employees
engaged in research and development, 60 engaged in sales, marketing and
customer support, 52 engaged in manufacturing and 17 engaged in general and
administrative activities. Our employees are not represented by any collective
bargaining agreements, and we have never experienced a work stoppage. We
believe our employee relations are good.
Properties
We own our 20,000 square foot executive office building in Flanders, New
Jersey, and we lease our 31,000 square foot manufacturing facility in
Ledgewood, New Jersey pursuant to a lease agreement that expires in 2009. We
also lease space for our sales, service and applications offices in California,
Texas, Korea, Taiwan and various other locations throughout the world. We
believe that our existing facilities and capital equipment are adequate to meet
our current requirements, and that suitable additional or substitute space is
available on commercially reasonable terms if needed.
Legal Proceedings
We are presently involved in a patent interference proceeding with Therma-
Wave, Inc. in the United States Patent Office. In this proceeding, we are
defending our patent rights with respect to some of the multiple angle,
multiple wavelength ellipsometry technology we use in our transparent thin film
measurement systems. Therma-Wave requested that the proceeding be initiated in
1993 by filing a reissue application for one of its own patents, in which it
sought to broaden the original issued claims. The proceeding was initiated by
the Patent Office in June 1998.
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Preliminary motions and statements have been filed, and we are presently
awaiting a decision by the Patent Office on those motions. If we lose the
interference, a reissue patent will be granted to Therma-Wave permitting
Therma-Wave to assert patent rights against the ellipsometers we use in our
transparent thin film measurement systems. In that event, we could assert a
defense of intervening rights against Therma-Wave's reissued patent since we
relied on the restricted claims of Therma-Wave's original patent. If the
intervening rights defense and other defenses fail, we would either have to pay
royalties to Therma-Wave or redesign our SpectraLASER and other transparent
thin film measurement systems. Either of these events could harm our business,
financial condition and results of operations.
In addition, from time to time we are subject to legal proceedings and
claims in the ordinary course of business. Other than the Therma-Wave patent
interference proceeding discussed above, we are not now involved in any
material legal proceedings.
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MANAGEMENT
Directors, Executive Officers and Key Employees
Our directors, executive officers and key employees and their ages as of
June 30, 1999 are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Directors and Executive Officers:
Paul F. McLaughlin............... 53 Chief Executive Officer, President and Director
Robert M. Loiterman.............. 40 Vice President, Engineering
Steven R. Roth................... 39 Vice President, Finance and Administration and Chief
Financial Officer
David Belluck.................... 37 Director
Daniel H. Berry (1).............. 53 Director
Paul Craig (2)................... 42 Director
Stephen J. Fisher................ 36 Director
Carl E. Ring, Jr. (2)............ 61 Director
Richard F. Spanier............... 59 Chairman of the Board of Directors
Aubrey C. Tobey (1).............. 74 Director
Key Employees:
George J. Collins................ 51 Director of Marketing
Ajay Khanna...................... 40 Director of International Sales
Walter R. Knott.................. 47 Director of Manufacturing
John B. Sheridan................. 49 Director of Customer Support
Matthew J. Smith................. 38 Director of North American Sales
</TABLE>
- --------
(1)Member of the audit committee of the board of directors.
(2)Member of the compensation committe of the board of directors.
All references to "our" in the biographical information set forth below
include our predecessor company.
Biographical information for directors and executive officers:
Paul F. McLaughlin has served as our President, Chief Executive Officer
and as a director since June 1996. From 1994 to June 1996, Mr. McLaughlin
served as an associate at Riverside Partners, Inc., a private equity
investment firm. Mr. McLaughlin has over 15 years experience in the
semiconductor capital equipment business including 6 years as Vice President
at Perkin-Elmer Corporation, a pioneer in optical lithography. Mr. McLaughlin
holds a B.S. in Metallurgical Engineering from Rensselaer Polytechnic
Institute, an M.S. in Metallurgy and Materials Science from Lehigh University
and an M.B.A. from Harvard University, Graduate School of Business
Administration.
Robert M. Loiterman has served as our Vice President of Engineering since
June 1996. From June 1993 to June 1996, Mr. Loiterman served as our Director
of Engineering, from January 1990 to June 1993 he served as a Project Manager
and from January 1988 to January 1990 he served as a design engineer. Mr.
Loiterman holds a B.S. in Electrical Engineering from Rutgers University.
Steven R. Roth has served as our Vice President, Finance and
Administration and Chief Financial Officer since September 1996. From August
1991 to August 1996, Mr. Roth served as a Director of Corporate Finance for
Bell Communications Research, now called Telcordia, a research and development
company serving the telecommunications industry. Mr. Roth is a C.P.A. and
holds a B.S. in Accounting from Villanova University.
David Belluck has served as one of our directors since June 1996. Since
February 1989, Mr. Belluck has been a general partner of Riverside Partners,
Inc., a private equity investment firm. Mr. Belluck holds a B.A
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from Harvard University and an M.B.A. from Harvard University, Graduate School
of Business Administration. Mr. Belluck is currently a director of Atchison
Casting, Evergreen Electronics and Riverside Partners, Inc.
Daniel H. Berry has served as one of our directors since October 1998.
Since May 1999, Mr. Berry has served as President and Chief Operating Officer
of Ultratech Stepper, Inc., a lithography tool supplier. From August 1998 to
May 1999 he served as Executive Vice President and Chief Operating Officer of
Ultratech Stepper and from January 1994 to August 1999, he served as a Senior
Vice President of Sales and Marketing of that company. Mr. Berry holds a B.S.
in Electrical Engineering from the Polytechnic Institute of Brooklyn.
Paul Craig has served as one of our directors since June 1996. Since
February 1989, Mr. Craig has served as a general partner and the director of
Riverside Partners, Inc., a private equity investment firm. He is also a member
of the board of directors of Evergreen Electronics. Mr. Craig holds a B.A. from
Harvard University.
Stephen J. Fisher has served as one of our directors since June 1996. Since
July 1998, Mr. Fisher has served as a partner of Liberty Partners, L.P., a
private equity investment firm. From June 1994 to July 1998, Mr. Fisher served
as a Vice President of Liberty Capital Partners, Inc. Mr. Fisher holds a B.S.
and an M.B.A. from Washington University and a J.D. from Boston University
School of Law. Mr. Fisher is currently a director of Medical Logistics and
Gallaher Paper Company.
Carl E. Ring, Jr. has served as one of our directors since June 1996. He is
a founding partner of Liberty Partners, L.P. Mr. Ring holds a B.A. in
mathematics from George Washington University and an M.B.A. from Harvard
University, Graduate School of Business Administration. Mr. Ring is a director
of Monaco Coach Corporation and Gallaher Paper Company.
Richard F. Spanier has served as our Chairman of the Board of Directors
since September 1966. From September 1966 to June 1996, Mr. Spanier served as
our President and Chief Executive Officer. Mr. Spanier holds a B.S. in Physics,
an M.S. in Physical Chemistry and a Ph.D. in Chemical Physics from Stevens
Institute of Technology.
Aubrey C. Tobey has served as one of our directors since October 1998.
Since April 1987, Mr. Tobey has served as President of ACT International
Consulting, Inc., a company which provides marketing and management services
for high technology companies. Mr. Tobey holds a B.S. in Mechanical Engineering
from Tufts University and an M.S. in Mechanical Engineering from the University
of Connecticut.
Biographical information for key employees:
George J. Collins has served as our Director of Marketing since April 1996.
From April 1994 to April 1996, Mr. Collins served as Marketing Manager for
Topometrix Corporation. Mr. Collins holds a B.S. in Chemistry from Thiel
College, and a Ph.D. in Food Science and an M.B.A. from Rutgers University.
Ajay Khanna has served as our International Sales Director since August
1996. From June 1988 to July 1996, he served as our International Sales
Manager. Mr. Khanna holds a B.S. in Electrical Engineering from Clarkson
University and an M.B.A. from the University of Michigan.
Walter R. Knott has served as our Director of Manufacturing since 1997.
From 1996 to 1997, Mr. Knott served as Manager of Operations and Shared
Resources for Philips Electronics, a manufacturer of electron microscopes. From
1991 to 1996, he served as Vice President of Operations for Whatman
Incorporated, a manufacturer of filtration, purification, and chromatography
equipment and supplies. Mr. Knott holds a B.S. from Rutgers University and an
M.B.A. from Fairleigh Dickinson University.
John B. Sheridan has served as our Director of Customer Support since
November 1998. From 1996 to 1998, Mr. Sheridan served as the Director of
Customer Service for Plasma-Therm, Inc., a manufacturer of dry etch systems.
From 1988 to 1995, Mr. Sheridan served as president of Beta Squared, Inc., an
equipment engineering and technical services company and now a subsidiary of
Photronics, Inc. Mr. Sheridan holds a B.S. from the University of Phoenix.
53
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Matthew J. Smith has served as our Director of North American Sales since
July 1999. From April 1998 to July 1999, Mr. Smith served as the Director of
Sales for the Semiconductor Equipment Group of Leica, Inc., a manufacturer of
microscopes and other optical metrology equipment. From September 1994 to March
1998, Mr. Smith was the Director of Business Development at the Semiconductor
Equipment Group of Leica. Mr. Smith studied optical instrumentation and
photography at the Rochester Institute of Technology.
Under an agreement we entered into with Liberty Partners and Riverside
Partners in connection with the acquisition of our predecessor company, Messrs.
Fisher, Ring, Spanier and McLaughlin were designated to serve on our board of
directors by Liberty Partners, and Messrs. Belluck and Craig were designated to
serve on our board of directors by Riverside Partners. The directors designated
by Liberty are entitled to an aggregate of ten votes out of an aggregate of 14
votes to be voted by the board of directors. All other directors are each
entitled to one vote. The existing voting and designation arrangements shall
terminate at the offering. Prior to the offering, Liberty Partners, Riverside
Partners and Mr. McLaughlin intend to enter into an agreement under which each
party will agree to vote his or its shares in favor of one nominee of each
other party to serve on our board of directors.
Our certificate of incorporation and bylaws to be effective upon this
offering provide that our board of directors will be divided into three
classes. Each class will consist of two or three directors. The terms of office
of the class I, class II and class III directors will expire at our 2000, 2001,
and 2002 annual meetings of stockholders. Our initial class I directors will be
Messrs. Craig, Ring and McLaughlin, our initial class II directors will be
Messrs. Berry, Fisher and Spanier and our initial class III directors will be
Messrs. Belluck and Tobey. At each annual meeting of stockholders at which the
term of office of a particular class of directors first expires, the persons
elected to serve as directors of that class will be elected to serve until the
third annual meeting following election. Any additional directorships resulting
from an increase in the number of directors will be distributed among the three
classes of directors so that, as nearly as possible, each class will consist of
one-third of the directors. This classification of the board of directors may
have the effect of delaying or preventing changes in our control or management.
There are no family relationships among any of our directors or officers.
Compensation Committee Interlocks and Insider Participation
The members of the compensation committee of our board of directors are
Messrs. Craig and Ring. Neither of them has at any time been an officer or
employee of Rudolph Technologies. In addition, none of our executive officers
serves on the board of directors or compensation committee of any entity which
has one or more executive officers serving as a member of our board of
directors or compensation committee.
Director Compensation
Employee directors receive no compensation for their services as members of
the board of directors. Directors who are, or who are employed by, significant
stockholders receive cash compensation of $20,000 per year. Non-employee
directors who are not, and are not employed by, significant stockholders
receive cash compensation of $20,000 per year and are eligible to receive
annual stock option grants under our 1999 stock plan at the discretion of the
compensation committee of our board of directors. See "Management--Stock
Plans."
Committees of the Board of Directors
Our compensation committee currently consists of Messrs. Craig and Ring.
The compensation committee reviews and approves the compensation and benefits
for our executive officers and makes recommendations to the board of directors
regarding such matters. Our audit committee currently consists of Messrs. Berry
and Tobey. The audit committee makes recommendations to the board of directors
regarding the selection of independent auditors, reviews the results and scope
of the audit and other services provided by our independent auditors and
reviews and evaluates our audit and control functions.
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Executive Compensation
The following table sets forth the compensation that we paid to our
executive officers during 1998.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-term
Annual Compensation Compensation
--------------------------- ---------------------
Name and Principal Other Annual Securities Underlying All Other
Positions Salary Bonus Compensation Options Compensation
- ------------------ -------- ----- ------------ --------------------- ------------
<S> <C> <C> <C> <C> <C>
Paul F. McLaughlin....... $220,014 -- -- 382,098 --
President and Chief
Executive Officer
Robert M. Loiterman...... $148,514 -- -- 42,052 --
Vice President,
Engineering
Steven R. Roth........... $111,300 -- -- 28,035 --
Vice President, Finance
and Administration and
Chief Financial Officer
</TABLE>
Option Grants
The following table sets forth information relating to stock options
granted during 1998 to our executive officers. All of these options were
granted under our 1996 stock option plan at an exercise price equal to the fair
market value of our common stock at the time of the grant, as determined by our
board of directors, and have a term of ten years from the date of grant. Our
board of directors determined the fair market value of our common stock in good
faith at the time of each grant based on a number of factors affecting our
business and prospects. These factors included the price at which we sold our
stock to investors in recent sales, our operating results and the condition of
our industry.
<TABLE>
<CAPTION>
Option Grants in 1998
-------------------------------------------
Potential Realizable
Value at Assumed Annual
Rates of
Stock Price Appreciation
for Option Term (2)
-------------------------
% of Total
Number of Options
Securities Granted to
Underlying Employees in Exercise
Options Fiscal Or Base Expiration
Name Granted Year (1) Price Date 5% 10%
- ---- ---------- ------------ -------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Paul F. McLaughlin...... 382,098 61.9% $0.73 7/20/08 $ 175,195 $ 443,979
Robert M. Loiterman..... 42,052 6.8 0.73 7/20/08 19,280 48,860
Steven R. Roth.......... 28,035 4.5 0.73 7/20/08 12,854 32,574
</TABLE>
- --------
(1) Based on a total of 617,726 shares underlying options granted to employees
and directors during 1998.
(2) The potential realizable value is calculated assuming that the fair market
value of our common stock on the date of grant appreciates at the indicated
annual rate compounded annually for the entire ten-year term of the option,
and that the option is exercised and the shares issued are sold on the last
day of its term at the appreciated stock price.
55
<PAGE>
Option Exercises and Values
The following table sets forth information for our executive officers
relating to the number and value of securities underlying exercisable and
unexercisable options they held at December 31, 1998. All options were granted
under our 1996 stock option plan.
Year-End Option Exercises and Values
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options In-the-Money Options at
at December 31, 1998 December 31, 1998 (1)
------------------------- -------------------------
Shares
Acquired
on Value
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Paul F. McLaughlin...... -- -- 312,580 312,580 $18,943 $18,943
Robert M. Loiterman..... -- -- 34,400 34,400 2,085 2,085
Steven R. Roth.......... -- -- 22,933 22,933 1,390 1,390
</TABLE>
- --------
(1) Based on the fair market value of $0.73 per share of common stock as of
December 31, 1998 as determined by our board of directors, minus the
exercise price, multiplied by the number of shares underlying the option.
Stock Plans
1996 Non-Qualified Stock Option Plan
In 1996, we adopted the 1996 Non-Qualified Stock Option Plan. Under the
1996 plan, we may grant options to purchase up to 1,069,902 shares of Class B
common stock to employees and certain other individuals. The 1996 plan is
administered by a committee of our board of directors. This committee has the
power to determine the terms of the options granted. The options granted
pursuant to the 1996 plan generally expire ten years from the date of grant and
become exercisable after nine years or sooner upon the achievement of financial
targets over a period of six years. Upon this offering, the options that we
have granted will become fully vested. Options granted to date have exercise
prices equal to the fair value of the Class B common stock on the date of
grant. As of September 30, 1999, we had granted options to purchase 1,064,922
shares of our Class B common stock.
1999 Stock Plan
The board of directors adopted the 1999 plan in August 1999, and the
stockholders are expected to approve the 1999 plan prior to closing this
offering. The 1999 plan provides for the grant of incentive stock options
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended, to employees, and for the grant of nonstatutory stock options and
stock purchase rights to employees, directors and consultants. As of the date
of this offering, a total of 2,000,000 shares of common stock will be reserved
for issuance pursuant to the 1999 plan, none of which will have been issued.
The 1999 plan provides for annual increases in the number of shares available
for issuance thereunder, on the first day of each year, effective beginning
with 2001, equal to the lesser of 2% of the outstanding shares of common stock
on the first day of the year, 400,000 shares or a lesser amount as the board
may determine.
The board of directors or a committee of the board administers the 1999
plan. In the case of options intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Internal Revenue
Code, the committee will consist of two or more "outside directors" within the
meaning of Section 162(m) of the Internal Revenue Code. The administrator has
the power to determine the terms of the options or stock purchase rights
granted, including the exercise price, the number of shares subject to each
option or stock purchase right, the exercisability of the options and the form
of consideration payable upon exercise. The administrator determines the
exercise price of nonstatutory stock options granted under the 1999 plan, but
with respect to nonstatutory stock options intended to qualify as "performance-
based compensation" within the
56
<PAGE>
meaning of Section 162(m) of the Internal Revenue Code, the exercise price must
at least be equal to the fair market value of the common stock on the date of
grant.
The exercise price of all incentive stock options granted under the 1999
plan must be at least equal to the fair market value of the common stock on the
date of grant and the term of such options may not exceed ten years. With
respect to any participant who owns stock possessing more than 10% of the
voting power of all classes of our outstanding capital stock, the exercise
price of any incentive stock option granted must equal at least 110% of the
fair market value on the grant date and the term of such incentive stock option
must not exceed five years. The administrator determines the term of all other
options.
No optionee may be granted an option to purchase more than 500,000 shares
in any fiscal year. In connection with his or her initial service, an optionee
may be granted an option to purchase up to an additional 500,000 shares, which
shall not count against the yearly limit set forth in the previous sentence. An
optionee generally must exercise an option granted under the 1999 plan at the
time set forth in the optionee's option agreement after termination of the
optionee's status as our employee, director or consultant. Generally, in the
case of the optionee's termination by death or disability, the option will
remain exercisable for 12 months. In all other cases, the option will generally
remain exercisable for a period of three months. However, an option may never
be exercised later than the expiration of the option's term.
The administrator determines the exercise price of stock purchase rights
granted under the 1999 plan. In the case of stock purchase rights, unless the
administrator determines otherwise, the restricted stock purchase agreement
entered into in connection with the exercise of the stock purchase right shall
grant us a repurchase option that we may exercise upon the voluntary or
involuntary termination of the purchaser's service with us for any reason,
including death or disability. The purchase price for shares we repurchase
pursuant to restricted stock purchase agreements will generally be the original
price paid by the purchaser and may be paid by cancellation of any indebtedness
of the purchaser to us. The repurchase option will lapse at a rate that the
administrator determines.
The 1999 plan provides that in the event of our merger with or into another
corporation or a sale of substantially all of our assets, the successor
corporation will assume or substitute each option or stock purchase right. If
the outstanding options or stock purchase rights are not assumed or
substituted, the administrator shall provide notice to the optionee that he or
she has the right to exercise the option or stock purchase right as to all of
the shares subject to the option or stock purchase right, including shares
which would not otherwise be exercisable, for a period of 15 days from the date
of the notice. The option or stock purchase right will terminate upon the
expiration of the 15-day period.
Unless terminated sooner, the 1999 plan will terminate automatically in
2009. In addition, the board of directors has the authority to amend, suspend
or terminate the 1999 plan, provided that no such action may affect any share
of common stock previously issued and sold or any option previously granted
under the 1999 plan. An optionee generally may not transfer options and stock
purchase rights granted under the 1999 plan and only the optionee may exercise
an option and stock purchase right during his or her lifetime.
1999 Employee Stock Purchase Plan
Our 1999 employee stock purchase plan was adopted by our board of directors
in August 1999 and is expected to be approved by our stockholders prior to this
offering. A total of 300,000 shares of common stock has been reserved for
issuance under the stock purchase plan, none of which will have been issued as
of the date of this offering. The number of shares reserved for issuance under
the stock purchase plan will be subject to an annual increase on the first day
of each of our fiscal years, beginning in 2001, equal to the lesser of
(1) 300,000 shares of common stock, (2) 2% of our outstanding common stock on
the first day of the year, or (3) such other amount as may be determined by the
board of directors. The stock purchase plan will be administered by the board
of directors or by a committee appointed by the board.
The stock purchase plan, which is intended to qualify under Section 423 of
the Internal Revenue Code, will be implemented by a series of overlapping
offering periods of 24 months' duration. Each offering period includes four 6-
month purchase periods. The offering periods generally start on the first
trading day on or after
57
<PAGE>
May 1 and November 1 of each year, except for the first such offering period
which will commence on the first trading day on or after the effective date of
this offering and will end on the last trading day on or before October 31,
2001.
Employees are eligible to participate if they are customarily employed by
us or any participating subsidiary for at least 20 hours per week and more than
five months in any calendar year. However, any employee (1) who immediately
after grant owns stock possessing 5% or more of the total combined voting power
or value of all classes of our capital stock, or (2) whose rights to purchase
stock under all of our employee stock purchase plans accrues at a rate that
exceeds $25,000 worth of stock for each calendar year may not be granted an
option to purchase stock under the stock purchase plan. The stock purchase plan
permits participants to purchase common stock through payroll deductions of up
to 15% of the participant's eligible compensation which includes the
participant's base salary, wages, overtime pay, commissions, bonuses and other
compensation remuneration paid directly to the employee. The maximum number of
shares a participant may purchase during a six-month purchase period is 3,000
shares.
Amounts deducted and accumulated by the participant are used to purchase
shares of common stock at the end of each six-month purchase period. The price
of stock purchased under the stock purchase plan is 85% of the lower of the
fair market value of the common stock at the beginning of an offering period or
at the end of a purchase period. In the event the fair market value at the end
of a purchase period is less than the fair market value at the beginning of the
offering period, participants will be withdrawn from the current offering
period following their purchase of shares on the purchase date and will be
automatically re-enrolled in a new offering period. Participants may end their
participation at any time during an offering period, and they will be paid
their payroll deductions to date. Participation ends automatically upon
termination of employment with us.
A participant may not transfer rights granted under the stock purchase plan
other than by will, the laws of descent and distribution or as otherwise
provided under the stock purchase plan. The stock purchase plan provides that,
in the event of our merger with or into another corporation or a sale of all or
substantially all of our assets, a successor corporation may assume or
substitute for each outstanding option. If the successor corporation refuses to
assume or substitute for the outstanding options, the offering period then in
progress will be shortened, and a new exercise date will be set. The stock
purchase plan will terminate in 2009. However, the board of directors has the
authority to amend or terminate the stock purchase plan, except that, subject
to certain exceptions described in the stock purchase plan, no such action may
adversely affect any outstanding rights to purchase stock under the stock
purchase plan.
Employment Agreements and Change in Control Arrangements
In 1996, we entered into management agreements with Paul F. McLaughlin,
Robert M. Loiterman, and Steven R. Roth, pursuant to which each executive
receives an annual base salary ranging from $111,000 to $220,000, subject to
annual increases. In addition, each executive is eligible for an annual bonus
ranging from 20% to 30% of his base salary. The management agreements with Mr.
Loiterman and Mr. Roth provide for terms of one year with automatic renewals
for additional one-year terms unless we or the executive deliver a notice of
non-renewal to the other party. Mr. McLaughlin's management agreement provides
for an initial term of two years with automatic renewals for additional two
year terms. For our protection, the management agreements prohibit the
executives from competing with us in any way or soliciting our employees during
their terms of employment and for two years after termination of their
employment.
The management agreements provide that if we terminate an executive's
employment without cause or if the executive retires with good cause, we will
be required to pay that executive his base salary for one year. The agreements
with Mr. McLaughlin and Mr. Loiterman also provide that in the event of the
termination of their employment within three months from the date of a change
in control, they will each be entitled to receive their base salary for one
year. In this context, a change of control would occur if we were sold to an
independent third party and that independent third party acquired enough of our
stock to elect a majority of our board of directors, or that independent third
party acquired all, or substantially all, of our assets.
58
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Acquisition and Related Financing
We were incorporated on June 13, 1996 to acquire all of the stock of our
predecessor company. On June 14, 1996, we, through our wholly-owned subsidiary,
agreed to purchase all of the outstanding stock of our predecessor company from
its stockholders.
We paid approximately $36.3 million in cash for this stock, and incurred
approximately $1.6 million in fees and expenses in connection with the
acquisition. The purchase price was determined based on arms'-length
negotiations between our predecessor company and the investors who purchased
our predecessor company through us.We acquired our predecessor company using a
combination of equity and debt financing provided by the State Board of
Administration of Florida; Liberty Partners Holdings 11, L.L.C., an affiliate
of Liberty Partners; Riverside Rudolph, L.L.C., an affiliate of Riverside
Partners; Richard F. Spanier, a former stockholder of our predecessor company
and the chairman of our board of directors; Paul F. McLaughlin, our President
and Chief Executive Officer; Robert M. Loiterman, our Vice President,
Engineering; and others. The State Board is a significant equity owner of
Liberty Partners Holdings 11, L.L.C., and under an investment management
agreement, Liberty Partners has voting and dispositive power over the shares of
our preferred stock held by the State Board.
The following table sets forth the sources and uses of funds in connection
with the acquisition (in thousands):
<TABLE>
<S> <C>
Sources:
Senior Revolving Loan from the State Board...................... $ 4,500
Senior Term Loan from the State Board........................... 16,000
Senior Subordinated Loan from the State Board................... 11,000
Loan from Richard Spanier....................................... 600
Sale of Preferred Stock to the State Board, Spanier and Others.. 5,400
Sale of Common Stock and Warrants to Liberty Partners, Riverside
Partners, Spanier and Others.................................. 1,500
-------
Total........................................................... $39,000
=======
Uses:
Purchase Price.................................................. $36,285
Fees and Expenses............................................... 1,574
Cash for Working Capital........................................ 1,141
-------
Total........................................................... $39,000
=======
</TABLE>
In connection with the acquisition, Liberty Partners and Riverside Partners
agreed to provide management services to us for an aggregate fee of $200,000
per year. Our obligation to pay management fees to Liberty Partners and
Riverside Partners will cease upon this offering. In addition, under a
stockholders agreement we entered into in connection with the acquisition, from
the time of the acquisition until this offering, Liberty Partners was entitled
to designate four directors with a total of ten votes, and Riverside Partners
was entitled to designate two directors, to serve on our board of directors.
To finance the acquisition, we borrowed from the State Board (1) $4.5
million under a senior revolving loan, which bears interest at a rate of prime
plus 1.5% and matures on December 31, 2002; (2) $16.0 million under a senior
term loan which bears interest at a rate of prime plus 1.75% and matures on
December 31, 2002; and (3) $11.0 million under a senior subordinated loan which
bears interest at a rate of prime plus 4.0% and matures on December 31, 2003.
In addition, we, through our subsidiary, borrowed $600,000 from Richard Spanier
under a junior subordinated loan which bore interest at a rate of 14% and had a
maturity date of
59
<PAGE>
March 31, 2004. Approximately $28.3 million of these amounts were paid directly
to the stockholders of our predecessor company and $8.0 million was placed in
escrow to cover liabilities of our predecessor company. $6.3 million of the
escrow amount was subsequently released to the stockholders of our predecessor
company, $661,000 was paid to us and $1.0 million remains in escrow. We repaid
the junior subordinated loan from Mr. Spanier in full in 1997.
In connection with the acquisition, the State Board, Liberty Partners,
Riverside Partners, Messrs. Spanier, McLaughlin and Loiterman and others
purchased equity interests in us. The State Board purchased 44,195 shares of
Series A preferred stock for a purchase price of $4,419,529. Others, including
Messrs. McLaughlin and Loiterman, purchased in the aggregate 1,680 shares of
Series A preferred stock for an aggregate purchase price of $168,000. Mr.
Spanier purchased 8,125 shares of Series B preferred stock, which constitutes
all of the issued and outstanding Series B preferred stock, for a purchase
price of $812,471. Liberty Partners purchased 1,571,294 shares of Class A
common stock for a purchase price of $900,498. We also granted a warrant to
Liberty Partners to purchase shares of Class A common stock equal to 15% of our
outstanding common stock on a fully diluted basis, then 534,951 shares, at an
exercise price of $.0003 per share. Riverside Partners, Messrs. Spanier,
McLaughlin and Loiterman and others purchased a total of 1,046,079 shares of
our Class B common stock for an aggregate purchase price of $599,503. Messrs.
Spanier, McLaughlin and Loiterman purchased their stock at the same price paid
by other investors. No other stock was issued in connection with the
acquisition.
The preferred stock accrues cumulative dividends at a rate of 8% per annum
and is entitled to a liquidation preference over the common stock. The
preferred stock may be redeemed by us or by a vote of the majority of the
preferred stock upon the occurrence of a change in ownership, merger or sale of
assets. The preferred stock is not convertible into common stock. Holders of
the Series A preferred stock are entitled to vote on all matters together with
the holders of the common stock, except as provided by law and in connection
with the election of the Class A directors, as discussed below. The Series B
preferred stock is identical to the Series A preferred stock except that it
does not have any voting rights. From the time of the acquisition until this
offering, holders of the Class A common stock, voting separately as a class,
were entitled to elect two of the eight directors on our board of directors.
These directors were each entitled to four votes each on any matter on which
they voted, while each other director was entitled to one vote. The Class B
common stock is identical to the Class A common stock except that it does not
entitle the holders to vote as a class for the election of any directors.
In January 1997, Messrs. McLaughlin and Loiterman and Steven R. Roth, our
Vice President, Finance and Chief Financial Officer, each purchased from one of
our prior stockholders 53 shares of Series A preferred stock for $5,333 and
2,318 shares of Class B common stock for $1,333.
On July 20, 1998, some of our stockholders, including Liberty Partners,
Riverside Partners and Messrs. McLaughlin, Loiterman, and Roth, purchased
additional shares of our Class A common stock and Class B common stock. Liberty
Partners purchased an additional 3,230,997 shares of Class A common stock for a
purchase price of $2,355,508. Riverside Partners purchased 733,310 shares of
Class B common stock for a purchase price of $534,626. Messrs. McLaughlin,
Loiterman and Roth and others purchased an aggregate of 150,714 shares of our
Class B common stock for an aggregate purchase price of $109,866. Messrs.
McLaughlin, Loiterman and Roth purchased their stock at the same price paid by
other investors. These transactions caused an antidilution adjustment to the
warrant we granted to Liberty Partners in 1996, which resulted in an additional
945,740 shares of Class A common stock becoming subject to this warrant.
In a series of transactions occurring on or around November 1, 1998, we
issued to the State Board a junior subordinated note with a maximum principal
amount of $7.0 million, which bears interest at a rate of 14.0% and matures on
July 31, 2001. As of September 30, 1999 we had been advanced a total of $6.4
million under the junior subordinated note. We also increased the maximum
amount of our senior revolving loan from $8 million to $12 million. On
November 1, 1998, we also granted a warrant to Liberty Partners to purchase
592,012 shares of our Class A common stock at an exercise price of $0.73 per
share.
60
<PAGE>
The following table summarizes the ownership of our preferred and common
stock following the transactions described above:
<TABLE>
<CAPTION>
Percentage
Number of of
Shares of Preferred Series of Aggregate
Preferred Stock Preferred Purchase
Purchaser Stock Ownership Stock Price
- --------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C>
State Board 44,195 81.8% Series A $4,419,529
Richard F. Spanier 8,125 15.0 Series B 812,471
Paul F. McLaughlin 614 1.1 Series A 61,334
Robert M. Loiterman 213 0.4 Series A 21,333
Steven R. Roth 53 0.1 Series A 5,333
Others 800 1.6 Series A 80,000
--------- ----- ----------
Total 54,000 100.0% $5,400,000
========= ===== ==========
<CAPTION>
Number of Percentage
Shares of of Common Class of Aggregate
Common Stock Common Purchase
Purchaser Stock Ownership Stock Price
- --------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Liberty Partners 4,802,270 67.6% Class A $3,256,006
Riverside Partners 1,089,964 15.3 Class B 739,011
Richard F. Spanier 616,160 8.7 Class B 353,118
Paul F. McLaughlin 394,336 5.6 Class B 264,404
Robert M. Loiterman 62,846 0.9 Class B 42,281
Steven R. Roth 30,027 0.4 Class B 20,137
Other 107,762 1.5 Class B 73,120
--------- ----- ----------
Total 7,103,365 100.0% $4,748,077
========= ===== ==========
</TABLE>
Management and Director Fee Arrangements
In connection with the acquisition, Liberty Partners and Riverside Partners
agreed to provide management services to us for an aggregate management fee of
$200,000 per year. Our obligation to pay management fees to Liberty Partners
and Riverside Partners will cease upon this offering. We have accrued
approximately $350,000 in management fees since January 1998 and we will pay
them in arrears from the proceeds of this offering. Liberty Partners and
Riverside Partners advise us on the operations of our business and appoint
designees to serve as members of our board of directors. After this offering,
we will no longer be obligated to pay the management fees. However, we will pay
a yearly director's fee of $20,000 to each director who is appointed by either
Liberty Partners or Riverside Partners.
Registration Rights Agreement
Liberty Partners, Riverside Partners, Messrs. Spanier and McLaughlin and
some of our other stockholders have the right to require us to register their
shares under the Securities Act for public resale. We are also required to pay
the expenses incurred in connection with such registration.
Support Agreement
Liberty Partners Holdings 11, L.L.C. has agreed to provide us with funding,
if necessary, to enable us to continue to liquidate our liabilities in the
ordinary course of business and to fulfill our obligations as they come due
through the earlier of (1) this offering and the concurrent repayment of all
outstanding debt or (2) December 31, 2000.
61
<PAGE>
The Reorganization and the Offering
Immediately prior to the offering, we will effect a 35.66-for-one split of
our outstanding common stock and each share of Class A common stock and Class B
common stock will be exchanged for one share of a new single class of common
stock.
Liberty Partners intends to exercise its warrants immediately prior to and
contingent upon the offering by surrendering a portion of the warrants as
payment of the exercise price, as permitted by the terms of the warrants, in
which case it would receive 2,039,460 shares of common stock upon such
exercise. We will use a substantial portion of the net proceeds of this
offering to repay all of the indebtedness incurred in connection with the
acquisition of our predecessor company and the financing we conducted in
November 1998, including all of the senior term loan, the senior revolving
loan, the senior subordinated loan and the junior subordinated loan from the
State Board. We will also use a portion of the proceeds to redeem all of our
outstanding Series A preferred stock and Series B preferred stock.
62
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding beneficial ownership
of our common and preferred stock by:
. each person or entity known to us to own beneficially more than 5% of
our common stock or preferred stock;
. each of our directors;
. each of our executive officers; and
. all of our executive officers and directors as a group.
Except as otherwise noted, the address of each person on the table below is
c/o Rudolph Technologies, Inc., One Rudolph Road, Flanders, NJ 07836. Except as
indicated in the footnotes to this table and pursuant to applicable community
property laws, each stockholder named in the table has sole voting and
investment power with respect to the shares set forth opposite such
stockholder's name.
This table lists applicable percentage ownership based on 54,000 shares of
preferred stock and 7,103,365 shares of common stock outstanding on July 31,
1999, and 11,903,365 shares of common stock outstanding after completion of the
offering. Beneficial ownership is determined in accordance with the rules of
the SEC. In computing the number of shares beneficially owned by a person and
the percentage ownership of that person, shares of common stock and preferred
stock subject to options or warrants held by that person that are currently
exercisable or exercisable within 60 days of September 30, 1999 are deemed
outstanding. Such shares, however, are not deemed outstanding for the purpose
of computing the percentage ownership of any other person.
The shares of common stock shown below for directors and executive officers
include shares issuable upon the exercise of options to purchase our common
stock as follows:
. Mr. McLaughlin, 331,125 shares;
. Mr. Loiterman, 48,309 shares;
. Mr. Roth, 36,842 shares;
. Mr. Berry, 1,783 shares;
. Mr. Tobey, 1,783 shares; and
. all directors and executive officers as a group, 419,842 shares.
The shares of common stock shown below include shares issuable upon the
exercise of warrants to purchase our common stock as follows:
. Liberty Partners Holdings 11, L.L.C., 2,039,460 shares;
Mr. Fisher and Mr. Ring are deemed to be beneficial owners of these shares.
63
<PAGE>
<TABLE>
<CAPTION>
Shares of Preferred Stock Shares of Common Stock Shares of Common Stock
Beneficially Owned Beneficially Owned Beneficially Owned
Prior to the Offering Prior to the Offering After the Offering
------------------------------- -------------------------- --------------------------
Beneficial Owner Number Percentage (1) Number Percentage Number Percentage
- ---------------- ------------- ---------------- ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Liberty Partners
Holdings 11, L.L.C.
(2)................... 44,195 81.8% 6,841,730 74.8% 6,841,730 49.1%
c/o Liberty Capital
Partners, Inc.
1177 Avenue of the
Americas
New York, NY 10036
Riverside Rudolph,
L.L.C................. -- -- 1,089,964 15.3 1,089,964 9.2
One Exeter Plaza
Boston, MA 02116
Paul F. McLaughlin...... 614 1.1 725,461 9.8 725,461 5.9
Robert M. Loiterman..... 213 * 111,155 1.6 111,155 *
Steven R. Roth.......... 53 * 66,869 * 66,869 *
David Belluck........... -- -- -- * -- *
c/o Riverside Rudolph,
L.L.C.
One Exeter Plaza
Boston, MA 02116
Daniel H. Berry......... -- -- 1,783 * 1,783 *
Paul Craig (3).......... -- -- 1,089,964 15.3 1,089,964 9.2
c/o Riverside Rudolph,
L.L.C.
One Exeter Plaza
Boston, MA 02116
Stephen J. Fisher
(2)(4)................ 44,195 81.8 6,841,730 74.8 6,841,730 49.1
c/o Liberty Capital
Partners, Inc.
1177 Avenue of the
Americas
New York, NY 10036
Carl E. Ring, Jr.
(2)(4)................ 44,195 81.8 6,841,730 74.8 6,841,730 49.1
c/o Liberty Capital
Partners, Inc.
1177 Avenue of the
Americas
New York, NY 10036
Richard F. Spanier...... 8,125 15.0 616,160 8.7 616,160 5.2
Aubrey C. Tobey......... -- -- 1,783 * 1,783 *
All directors and
executive officers as
a group (ten persons)
(5)................... 53,200 98.5 9,454,906 98.9 9,454,906 65.8
</TABLE>
- --------
* Less than 1%. (Footnotes appear on the following page.)
(1) We intend to use approximately $7.0 million of the net proceeds of this
offering to redeem all of our outstanding preferred stock immediately
following this offering.
(2) The number of shares of preferred stock beneficially owned by Liberty
Partners Holdings 11, L.L.C. and Messrs. Fisher and Ring consists of
44,195 shares held by the State Board of Administration of Florida, over
which Liberty Partners Holdings 11, L.L.C. has voting and dispositive
power. Liberty Partners Holdings 11, L.L.C. and Messrs. Fisher and Ring
disclaim beneficial ownership of such shares except to the extent of their
pecuniary interests in such shares.
(3) The number of shares of common stock beneficially owned by Mr. Craig
consists of 1,089,964 shares of our common stock held by Riverside Rudolph,
L.L.C. Mr. Craig is the managing member of Riverside Rudolph, L.L.C.
Riverside Rudolph, L.L.C. was formed by the officers of Riverside Partners,
Inc. to hold their investments in us. Mr. Craig disclaims beneficial
ownership of all shares except to the extent of his pecuniary interest in
Riverside Rudolph, L.L.C.
64
<PAGE>
(4) The number of shares of common stock beneficially owned by Messrs. Fisher
and Ring consists of 6,841,730 shares of our common stock held by Liberty
Partners Holdings II, L.L.C. Mr. Fisher and Mr. Ring are limited partners
of Liberty Partners, L.P., which acts as the managing member of Liberty
Partners Holdings 11, L.L.C., and are partners of Liberty Investment
Partnership 11, which is a member of Liberty Partners Holding 11, L.L.C.
Mr. Fisher and Mr. Ring disclaim beneficial ownership of all shares except
to the extent of their pecuniary interest in Liberty Partners Holdings 11,
L.L.C.
(5) The number of shares of preferred stock beneficially owned by our directors
and executive officers as a group includes 44,195 shares of preferred stock
held by the State Board of Administration of Florida, over which Liberty
Partners Holdings 11, L.L.C. has voting and dispositive power. The number
of shares of common stock beneficially owned by our directors and executive
officers as a group includes 6,841,730 and 1,089,964 shares of our common
stock held by Liberty Partners Holdings 11, L.L.C. and Riverside Rudolph,
L.L.C.
65
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the completion of this offering, our authorized capital stock will
consist of 50,000,000 shares of a single class of common stock, par value
$0.001 per share, and 5,000,000 shares of undesignated preferred stock, par
value $0.001 per share. Set forth below is a description of the common stock
and the preferred stock that may be issued under our new certificate of
incorporation to become effective upon the consummation of the offering.
Common Stock
Voting Rights. Each outstanding share of common stock is entitled to one
vote on all matters submitted to a vote of our stockholders, including the
election of directors. There is no cumulative voting in the election of
directors.
Dividends, Distributions and Stock Splits. Holders of common stock are
entitled to receive dividends if, as and when such dividends are declared by
our board of directors out of assets legally available therefor after payment
of dividends required to be paid on shares of preferred stock, if any.
Liquidation. In the event of any dissolution, liquidation, or winding up of
our affairs, whether voluntary or involuntary, after payment of our debts and
other liabilities and making provision for the holders of preferred stock, if
any, our remaining assets will be distributed ratably among the holders of the
common stock.
All shares of common stock outstanding are fully paid and nonassessable,
and all the shares of common stock to be outstanding upon completion of this
offering will be fully paid and nonassessable.
Preferred Stock
Upon consummation of the offering, 5,000,000 shares of undesignated
preferred stock will be authorized, and no shares will be outstanding. Our
board of directors has the authority to issue preferred stock in one or more
series and to establish the rights and restrictions granted to or imposed on
any unissued shares of preferred stock and to fix the number of shares
constituting any series without any further vote or action by the stockholders.
Our board of directors has the authority, without approval of the stockholders,
to issue preferred stock that has voting and conversion rights superior to the
common stock, which could have the effect of delaying or preventing a change in
control. We currently have no plans to issue any shares of preferred stock.
Delaware Anti-Takeover Law and Charter and Bylaw Provisions
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law, an anti-takeover law. In general, the statute prohibits a
publicly-held Delaware corporation from engaging in a business combination with
an "interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. A "business
combination" includes a merger, asset sale or other transaction resulting in a
financial benefit to the stockholder. For purposes of Section 203, an
"interested stockholder" is defined to include any person that is:
. the owner of 15% or more of the outstanding voting stock of a
corporation;
. an affiliate or associate of a corporation and was the owner of 15% or
more of the voting stock outstanding of the corporation at any time
within three years immediately prior to the relevant date; and
. an affiliate or associate of the persons described above.
Stockholders may, by adopting an amendment to the corporation's certificate
of incorporation or bylaws, elect for the corporation not to be governed by
Section 203, effective 12 months after adoption. Neither our certificate of
incorporation nor our bylaws exempt us from the restrictions imposed under
Section 203 of the Delaware General Corporation Law. We anticipate that the
provisions of Section 203 of the Delaware General
66
<PAGE>
Corporation Law may encourage companies interested in acquiring us to negotiate
in advance with our board of directors because the stockholder approval
requirement would be avoided if a majority of the directors then in office
approve either the business combination or the transaction that results in the
stockholder becoming an interested stockholder.
Annual meetings of stockholders shall be held to elect our board of
directors and transact such other business as may be properly brought before
the meeting. Special meetings of stockholders may be called by our chairman or
the chief executive officer or by a majority of the board. Our certificate of
incorporation and bylaws provide that any action required or permitted to be
taken by our stockholders may be effected at a duly called annual or special
meeting of the stockholders.
Our certificate of incorporation may be amended with the approval of a
majority of the board and the holders of a majority of our outstanding voting
securities.
The number of directors shall be fixed by resolution of the board. The size
of the board is currently fixed at eight members. The directors shall be
elected at the annual meeting of the stockholders, except for filling
vacancies. Directors may be removed with the approval of the holders of a
majority of our voting power present and entitled to vote at a meeting of
stockholders. Vacancies and newly-created directorships resulting from any
increase in the number of directors may be filled by a majority of the
directors then in office, a sole remaining director, or the holders of a
majority of the voting power present and entitled to vote at a meeting of
stockholders.
The presence, in person or by proxy, of the holders of a majority of the
votes entitled to be cast by the stockholders entitled to vote generally shall
constitute a quorum for stockholder action at any meeting.
Limitation of Liability; Indemnification
Our certificate of incorporation contains certain provisions permitted
under the Delaware General Corporation Law relating to the liability of
directors. These provisions eliminate a director's personal liability for
monetary damages resulting from a breach of fiduciary duty, except in certain
circumstances involving certain wrongful acts, including:
. for any breach of the director's duty of loyalty to us or our
stockholders;
. for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. under Section 174 of the Delaware General Corporation Law; or
. for any transaction from which the director derives an improper personal
benefit.
These provisions do not limit or eliminate our rights or those of any
stockholder to seek non-monetary relief, such as an injunction or rescission,
in the event of a breach of a director's fiduciary duty. These provisions will
not alter a director's liability under federal securities laws. Our bylaws also
contain provisions indemnifying our directors and officers to the fullest
extent permitted by the Delaware General Corporation Law. We believe that these
provisions are necessary to attract and retain qualified individuals to serve
as directors and officers.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is American
Securities Transfer & Trust, Inc.
67
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, we will have 13,942,825 shares of common
stock outstanding, assuming no exercise of the underwriters' option to purchase
additional shares. Of this amount, the 4,800,000 shares of common stock offered
by this prospectus will be available for immediate sale in the public market as
of the date of this prospectus. Approximately 9,142,825 shares of common stock
will be available for sale in the public market following the expiration of
180-day lock-up agreements with the representatives of our underwriters,
subject in some cases to compliance with the volume and other limitations of
Rule 144.
<TABLE>
<CAPTION>
Days after the Date of Approximate Shares
this Prospectus Eligible for Future Sale Comment
---------------------- ------------------------ -------
<C> <C> <S>
Upon effectiveness 4,800,000 Freely tradable shares sold in offering
180 days after this 9,142,825 Lock-up released; shares salable under
offering Rule 144
</TABLE>
In general, under Rule 144 as currently in effect, a person who has
beneficially owned shares for at least one year is entitled to sell within any
three-month period commencing 90 days after the date of this prospectus a
number of shares that does not exceed the greater of (a) 1% of the then
outstanding shares of common stock (approximately 139,428 shares immediately
after the offering) or (b) the average weekly trading volume during the four
calendar weeks preceding the sale, subject to the filing of a Form 144 with
respect to the sale. A person who is not deemed to have been an affiliate of
ours at any time during the 90 days immediately preceding the sale and who has
beneficially owned his or her shares for at least two years is entitled to sell
these shares under Rule 144(k) without regard to the limitations described
above. Persons deemed to be affiliates must always sell under Rule 144, even
after the applicable holding periods have been satisfied.
We are unable to estimate the number of shares that will be sold under Rule
144, since this will depend on the market price for our common stock, the
personal circumstances of the sellers and other factors. Prior to the offering,
there has been no public market for the common stock, and there can be no
assurance that a significant public market for the common stock will develop or
be sustained after the offering. Any future sale of substantial amounts of
common stock in the open market may adversely affect the market price of the
common stock offered by this prospectus.
Our directors, executive officers, stockholders and optionholders have
agreed that they will not sell any common stock without the prior written
consent of BancBoston Robertson Stephens Inc. for a period of 180 days from the
date of this prospectus. We have also agreed not to issue any shares during the
lock-up period without the consent of BancBoston Robertson Stephens Inc.,
except that we may, without this consent, grant options and sell shares under
our stock incentive and purchase plans. These shares may not be resold into the
public market during the lock-up period.
Any of our employees or consultants who purchased his or her shares under a
written compensatory plan or contract is entitled to rely on the resale
provisions of Rule 701, which permits nonaffiliates to resell their Rule 701
shares without having to comply with the public information, holding period,
volume limitation or notice provisions of Rule 144 and permits affiliates to
resell their Rule 701 shares without having to comply with the Rule 144 holding
period restrictions, in each case commencing 90 days after the date of this
prospectus. As of September 30, 1999, we had outstanding options to purchase
693,951 shares of common stock under our stock plan. All of these options will
become fully exercisable upon consummation of this offering.
We intend to file a registration statement on Form S-8 under the Securities
Act shortly after the completion of the offering to register the shares of
common stock subject to outstanding stock options that may be issued under
these plans, which will permit the resale of these shares in the public market
without restriction after the lock-up period expires.
68
<PAGE>
UNDERWRITING
The underwriters named below, acting through their representatives,
BancBoston Robertson Stephens Inc., Bear, Stearns & Co. Inc. and CIBC World
Markets Corp., have severally agreed with us, subject to the terms and
conditions set forth in the underwriting agreement, to purchase from us the
number of shares of common stock set forth opposite their names below. The
underwriters are committed to purchase and pay for all such shares if they are
purchased.
<TABLE>
<CAPTION>
Number of
Underwriter Shares
----------- ---------
<S> <C>
BancBoston Robertson Stephens Inc. ...............................
Bear, Stearns & Co. Inc. .........................................
CIBC World Markets Corp. .........................................
---------
Total........................................................... 4,800,000
=========
</TABLE>
We have been advised by the representatives that the underwriters propose
to offer the shares of common stock to the public at the initial public
offering price set forth on the cover page of this prospectus and to make
certain dealers at such price less a concession of not in excess of $ per
share, of which $ may be reallowed to their dealers. After the initial public
offering, the public offering price, concession and reallowance to dealers may
be reduced by the representatives. No such reduction shall change the amount of
proceeds to be received by us as set forth on the cover page of this
prospectus. The common stock is offered by the underwriters as stated in this
prospectus, subject to receipt and acceptance by them and subject to their
right to reject any order in whole or in part.
The underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
Over-allotment Option. We have granted to the underwriters an option,
exercisable during the 30-day period after the date of this prospectus, to
purchase up to 720,000 additional shares of common stock at the same price per
share as we will receive for the 4,800,000 shares that the underwriters have
agreed to purchase. To the extent that the underwriters exercise this option,
each of the underwriters will have a firm commitment to purchase approximately
the same percentage of these additional shares that the number of shares of
common stock to be purchased by it shown in the above table represents as a
percentage of the 4,800,000 shares offered in this offering. If purchased, such
additional shares will be sold by the underwriters on the same terms as those
on which the 4,800,000 shares are being sold. We will be obligated, according
to the option, to sell shares to the extent the option is exercised. The
underwriters may exercise this option only to cover over-allotments made in
connection with the sale of the shares of common stock offered in this
offering. If this option is exercised in full, the total public offering price
of the 5,520,000 shares we sell to the underwriters, underwriting discounts and
commissions on such shares and total proceeds to us from the sale of these
shares will be $ , $ and $ , respectively.
The following table summarizes the compensation to be paid to the
underwriters by us:
<TABLE>
<CAPTION>
Total
-------------------
Without With
Per Over- Over-
Share allotment allotment
----- --------- ---------
<S> <C> <C> <C>
Underwriting discounts and commissions payable by
us................................................ $ $ $
</TABLE>
We estimate that expenses payable by us in connection with this offering,
other than the underwriting discounts and commissions referred to above, will
be approximately $800,000.
Indemnity. The underwriting agreement contains covenants of indemnity among
the underwriters and us against certain civil liabilities, including
liabilities under the Securities Act and liabilities arising from breaches of
representations and warranties contained in the underwriting agreement.
69
<PAGE>
Lock-up Agreements. Each of our directors, executive officers, stockholders
and optionholders has agreed with the representatives, for a period of 180 days
after the date of this prospectus, subject to certain exceptions, not to offer
to sell, contract to sell, or otherwise sell, dispose of, loan, pledge or grant
any rights with respect to any shares of common stock, any options or warrants
to purchase any shares of common stock, or any securities convertible into or
exchangeable for shares of common stock owned as of the date of this prospectus
or, with certain exceptions, thereafter acquired directly by such holders or
with respect to which they have or hereafter acquire the power or disposition,
without the prior written consent of BancBoston Robertson Stephens Inc.
However, BancBoston Robertson Stephens Inc. may, in its sole discretion and at
any time without notice, release all or any portion of the securities subject
to the lock-up agreements. There are no agreements between the representatives
and any of our stockholders providing consent by the representatives to the
sale of shares prior to the expiration of the period of 180 days after this
prospectus.
Future Sales. In addition, we have agreed that during the period of 180
days after this prospectus, we will not, subject to certain exceptions, without
the prior written consent of BancBoston Robertson Stephens Inc.:
. consent to the disposition of any shares held by stockholders prior to
the expiration of the period of 180 days after this prospectus; or
. issue, sell, contract to sell or otherwise dispose of any shares of
common stock, any options or warrants to purchase any shares of common
stock or any securities convertible into, exercisable for or
exchangeable for shares of common stock, other than (1) the sale of
shares in this offering, (2) the issuance of common stock upon the
exercise or conversion of outstanding options, warrants or convertible
securities, (3) our issuance of stock options under existing stock
option plans and (4) our issuance of common stock under our stock
purchase plan.
See "Shares Eligible for Future Sale."
Listing. We have applied to have our common stock quoted on The Nasdaq
National Market under the symbol RTEC.
No Prior Public Market. Prior to this offering, there has been no public
market for our common stock. Consequently, the initial public offering price
for the common stock offered hereby was determined through negotiations between
us and the representatives. Among the factors considered in such negotiations
were prevailing market conditions, certain of our financial information, market
valuations of other companies that we and the representatives believed to be
comparable to us, estimates of our business potential, the present state of our
development and other factors deemed relevant.
Stabilization. The representatives have advised us that, pursuant to
Regulation M under the Securities Act, certain persons participating in this
offering may engage in transactions, include stabilizing bids, syndicate
covering transactions or the imposition of penalty bids, that may have the
effect of stabilizing or maintaining the market price of the common stock at a
level above that which might otherwise prevail in the open market.
. A stabilizing bid is a bid for or the purchase of the common stock on
behalf of the underwriters for the purpose of fixing or maintaining the
price of the common stock.
. A syndicate covering transaction is the bid for or the purchase of the
common stock on behalf of the underwriters to reduce a short position
incurred by the underwriters in connection with this offering.
. A penalty bid is an arrangement permitting the representatives to
reclaim the selling concession otherwise accruing to an underwriter or
syndicate member in connection with this offering if the common stock
originally sold by such underwriter or syndicate member is purchased by
the representatives in a syndicate covering transaction and has
therefore not been effectively placed by such underwriter or syndicate
member.
The representatives have advised us that such transactions may be effected
on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
70
<PAGE>
Directed Share Program. At our request, the underwriters have reserved less
than 5% of the shares of common stock offered hereby for sale, at the initial
public offering price, to our directors, officers, employees, business
associates and related persons. The number of shares of common stock available
for sale to the general public will be reduced to the extent such individuals
purchase such reserved shares. Any reserved shares which are not so purchased
will be offered by the underwriters to the general public on the same basis as
the other shares offered hereby.
LEGAL MATTERS
Certain legal matters with respect to the validity of the common stock
offered hereby are being passed upon for us by Wilson Sonsini Goodrich &
Rosati, Palo Alto, California. Certain legal matters in connection with this
offering will be passed upon for the underwriters by Hale and Dorr LLP, Boston,
Massachusetts.
EXPERTS
The statements in this prospectus set forth under the captions "Risk
Factors--Protection of our intellectual property rights, or the efforts of
third parties to enforce their own intellectual property rights against us, has
in the past resulted and may in the future result in costly and time-consuming
litigation, " "Business--Intellectual Property," the second and third
paragraphs of "Business--Research and Development," and "Business--Legal
Proceedings," except for statements pertaining to our relationship with Brown
University Research Foundation, have been reviewed and approved by Antonelli,
Terry, Stout & Kraus, LLP, our patent counsel, as experts on such matters, and
we have included these statements in this prospectus in reliance upon such
review and approval.
The financial statements of the Company and its predecessor as of December
31, 1997 and 1998 and for the periods January 1, 1996 through June 13, 1996,
June 14, 1996 through December 31, 1996, and the years ended December 31, 1997
and 1998 included in this prospectus have been so included in reliance on the
reports of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the
Securities Act with respect to the shares to be sold in the offering. This
prospectus does not contain all the information contained in the registration
statement. For further information about us and the shares to be sold in the
offering, reference is made to the registration statement and the exhibits and
schedules filed with the registration statement. We have described all material
information for each contract, agreement or other document filed with the
registration statement in the prospectus. However, statements contained in this
prospectus as to the contents of any contract, agreement or other document
referred to are not necessarily complete. As a result, you should refer to the
copy of the contract, agreement or other document filed as an exhibit to the
registration statement for a complete description of the matter involved.
You may read and copy all or any portion of the registration statement or
any reports, statements or other information that we file at the SEC's public
reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. You can
request copies of these documents, upon payment of a duplicating fee, by
writing to the SEC. Please call the SEC at 1-800-SEC-0330 for further
information on the operation of the public reference rooms. Our SEC filings,
including the registration statement, are also available to you without charge
from the SEC Web site, which is located at http://www.sec.gov.
71
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Rudolph Technologies, Inc. Consolidated Financial Statements
Report of PricewaterhouseCoopers LLP, Independent Accountants............. F-2
Consolidated Balance Sheets as of December 31, 1997 and 1998 and as of
September 30, 1999 (unaudited).......................................... F-3
Consolidated Statements of Operations for the period June 14, 1996 to
December 31, 1996 , the years ended December 31, 1997, and 1998 and the
(unaudited) nine months ended September 30, 1998
and 1999................................................................ F-4
Consolidated Stockholders' Equity (Deficit) for the period June 14, 1996
to
December 31, 1996 , the years ended December 31, 1997, and 1998 and the
(unaudited) nine months ended September 30, 1999........................ F-5
Consolidated Statements of Cash Flows for the period June 14, 1996 to
December 31, 1996 , the years ended December 31, 1997, and 1998 and the
(unaudited) nine months ended September 30, 1998 and 1999............... F-6
Notes to Consolidated Financial Statements................................ F-7
Rudolph Research Corporation Financial Statements
Report of PricewaterhouseCoopers LLP, Independent Accountants............. F-22
Statement of Operations for the period January 1, 1996 to June 13, 1996... F-23
Statement of Stockholders' Equity for the period January 1, 1996 to June
13, 1996................................................................ F-24
Statement of Cash Flows for the period January 1, 1996 to June 13, 1996... F-25
Notes to the Financial Statements......................................... F-26
</TABLE>
F-1
<PAGE>
The stock split described in Note 17 to the financial statements has not
been consummated at October 12, 1999. When it has been consummated, we expect
to be in a position to render the following report:
PricewaterhouseCoopers LLP
Florham Park, New Jersey
October 12, 1999
Report of Independent Accountants
To the Stockholders and Board of Directors
of Rudolph Technologies, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, stockholders' equity (deficit)
and cash flows present fairly, in all material respects, the financial position
of Rudolph Technologies, Inc. and subsidiaries at December 31, 1998 and 1997,
and the results of their operations and their cash flows for each of the two
years in the period ended December 31, 1998 and the period from June 14, 1996
to December 31, 1996, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards, which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
Florham Park, New Jersey
F-2
<PAGE>
RUDOLPH TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
December 31, September 30,
---------------- -------------
1997 1998 1999
------- ------- -------------
(unaudited)
<S> <C> <C> <C>
Assets
Current assets
Cash and cash equivalents..................... $ 189 $ 431 $ 285
Accounts receivable, less allowance of $500 in
1997 and $294 in 1998 and 1999.............. 5,593 4,412 7,948
Inventories................................... 10,302 9,418 9,725
Income tax receivables........................ 558 270 270
Prepaid expenses and other assets............. 114 210 283
------- ------- -------
Total current assets........................ 16,756 14,741 18,511
Property, plant and equipment, net............. 2,411 2,631 2,836
Intangibles.................................... 7,503 3,295 3,098
Deferred income taxes.......................... 1,263 -- --
Other assets................................... 580 454 626
------- ------- -------
Total assets................................ $28,513 $21,121 $25,071
======= ======= =======
Liabilities and stockholders' equity
Current liabilities
Short-term borrowings......................... $ 6,600 $ 9,600 $10,600
Current portion of long-term debt............. 2,000 2,500 2,875
Accounts payable.............................. 1,153 1,113 1,457
Accrued liabilities:
Commissions.................................. 1,435 564 253
Payroll and related expenses................. 1,072 463 918
Warranty..................................... 303 342 534
Other liabilities............................. 1,059 1,211 2,643
------- ------- -------
Total current liabilities................... 13,622 15,793 19,280
Long-term liabilities
Deferred compensation......................... 111 103 78
Long-term debt................................ 24,000 25,370 25,550
------- ------- -------
Total long-term liabilities................. 24,111 25,473 25,628
------- ------- -------
Commitments and contingencies (Note 6)
Redeemable preferred stock, $0.01 par value,
56,001 shares authorized:
Class A, 45,876 shares designated, 45,875.29
shares issued and outstanding
(at liquidation value)....................... 5,188 5,619 5,979
Class B, 10,125 shares designated, 8,124.71
shares issued and outstanding (at
liquidation value).......................... 919 995 1,059
Stockholders' deficit
Common stock, $0.0003 par value, 9,910,681
shares authorized:
Class A, 6,874,976 shares designated,
1,571,294 shares issued and outstanding at
December 31, 1997, and 4,802,291 shares
issued and outstanding at December 31, 1998
and
September 30, 1999.......................... 1 2 2
Class B, 3,035,705 shares designated,
1,046,079 shares issued and outstanding at
December 31, 1997, 1,930,103 shares issued
and outstanding at December 31, 1998 and
2,301,074 issued and outstanding at
September 30, 1999.......................... -- -- --
Additional paid-in-capital.................... 792 3,424 4,267
Accumulated other comprehensive loss.......... (166) (153) (283)
Unearned compensation......................... -- -- (999)
Accumulated deficit........................... (15,954) (30,032) (29,862)
------- ------- -------
Total stockholders' deficit.................. (15,327) (26,759) (26,875)
------- ------- -------
Total liabilities and stockholders' deficit.. $28,513 $21,121 $25,071
======= ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
RUDOLPH TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
June 14 to For the Years Ended For the Nine Months
December 31, December 31, Ended September 30,
------------ ---------------------- ----------------------
1996 1997 1998 1998 1999
------------ ---------- ---------- ---------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues................ $ 14,373 $ 35,339 $ 20,106 $ 14,725 $ 25,220
Cost of revenues........ 6,579 13,903 13,179 8,667 12,115
---------- ---------- ---------- ---------- ----------
Gross profit........... 7,794 21,436 6,927 6,058 13,105
---------- ---------- ---------- ---------- ----------
Operating expenses:
Research &
development.......... 2,345 5,750 5,096 3,842 3,596
In-process research &
development.......... 3,821 -- -- -- --
Selling, general &
administrative....... 4,340 9,475 7,077 4,808 5,761
Write-down of
intangibles.......... 6,734 -- -- -- --
Amortization........... 3,650 4,201 4,208 3,156 197
---------- ---------- ---------- ---------- ----------
Total operating
expenses............ 20,890 19,426 16,381 11,806 9,554
---------- ---------- ---------- ---------- ----------
Operating income
(loss)................ (13,096) 2,010 (9,454) (5,748) 3,551
Interest expense........ 2,013 3,717 4,210 3,200 3,297
Other income............ (156) (92) (199) (47) (37)
---------- ---------- ---------- ---------- ----------
Income (loss) before
income taxes......... (14,953) (1,615) (13,465) (8,901) 291
Provision (benefit) for
income taxes.......... -- (614) 613 (699) 121
---------- ---------- ---------- ---------- ----------
Net income (loss)...... (14,953) (1,001) (14,078) (8,202) 170
Preferred stock
dividends............. 239 468 507 376 423
---------- ---------- ---------- ---------- ----------
Loss available to common
stockholders.......... $ (15,192) $ (1,469) $ (14,585) $ (8,578) $ (253)
========== ========== ========== ========== ==========
Net loss per share
available to common
stockholders:
Basic.................. $ (5.80) $ (.56) $ (3.24) $ (2.31) $ (0.04)
Diluted................ $ (5.80) $ (.56) $ (3.24) $ (2.31) $ (0.04)
Weighted average number
of shares outstanding:
Basic.................. 2,617,373 2,617,373 4,503,396 3,717,695 6,880,504
Diluted................ 2,617,373 2,617,373 4,503,396 3,717,695 6,880,504
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
RUDOLPH TECHNOLOGIES, INC.
CONSOLIDATED STOCKHOLDERS' EQUITY (DEFICIT)
For the period from June 14, 1996 to December 31, 1996, the years ended
December 31, 1997 and 1998 and (unaudited) for the nine months ended September
30, 1999
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional Other
---------------- Paid-In Comprehensive Unearned Accumulated Comprehensive
Shares Amount Capital Loss Compensation Deficit Total Loss
--------- ------ ---------- ------------- ------------ ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of common
stock:
Class A............... 1,571,294 $ 1 $ 899 $ 900
Class B............... 1,046,079 -- 600 600
Net loss............... -- -- -- $(14,953) (14,953) (14,953)
Accretion of preferred
stock dividend....... -- -- (239) -- -- (239) --
Currency translation... -- -- -- $ (15) -- (15) (15)
--------- --- ------ ----- -------- -------- --------
Comprehensive loss..... $(14,968)
========
Balance at December 31,
1996.................. 2,617,373 1 1,260 (15) (14,953) (13,707)
Net loss............... -- -- -- -- (1,001) (1,001) (1,001)
Accretion of preferred
stock dividend....... -- -- (468) -- -- (468) --
Currency translation... -- -- -- (151) -- (151) (151)
--------- --- ------ ----- -------- -------- --------
Comprehensive loss..... $ (1,152)
========
Balance at December 31,
1997.................. 2,617,373 1 792 (166) (15,954) (15,327)
Issuance of common
stock:
Class A............... 3,230,997 1 2,355 -- -- 2,356
Class B............... 884,024 -- 644 -- -- 644
Issuance of warrants in
connection with debt
financing............ -- -- 140 -- -- 140
Net loss............... -- -- -- -- (14,078) (14,078) $(14,078)
Accretion of preferred
stock dividend....... -- -- (507) -- -- (507) --
Currency translation... -- -- -- 13 -- 13 13
--------- --- ------ ----- -------- -------- --------
Comprehensive loss..... $(14,065)
========
Balance at December 31,
1998.................. 6,732,394 2 3,424 (153) (30,032) (26,759)
Issuance of
compensatory employee
Class B stock
options.............. -- -- 1,018 -- $(1,018) -- --
Compensation expense in
connection with the
issuance of employee
Class B stock
options.............. -- -- -- -- 19 -- 19
Exercise of employee
class B common stock
options (unaudited).. 370,971 -- 248 -- -- -- 248
Net income
(unaudited).......... -- -- -- -- -- 170 170 $ 170
Accretion of preferred
stock dividend
(unaudited).......... -- -- (423) -- -- -- (423) --
Currency translation
(unaudited).......... -- -- -- (130) -- -- (130) (130)
--------- --- ------ ----- ------- -------- -------- --------
Comprehensive income... $ 40
========
Balance at September 30,
1999 (unaudited)...... 7,103,365 $ 2 $4,267 $(283) $ (999) $(29,862) $(26,875)
========= === ====== ===== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
RUDOLPH TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
For the Nine
June 14 to For the Years Ended Months Ended
December 31, December 31, September 30,
------------ --------------------- -----------------
1996 1997 1998 1998 1999
------------ --------- ---------- -------- -------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flow from operating
activities
Net income (loss)....... $ (14,953) $ (1,001) $ (14,078) $ (8,202) $ 170
Adjustment to reconcile
net loss to net cash
provided by (used in)
operating activities
Amortization and other
adjustments to
intangibles........... 14,205 4,201 4,208 3,156 197
Amortization of unearned
compensation.......... -- -- -- -- 19
Depreciation............ 205 448 778 391 417
Provision for doubtful
accounts.............. -- 353 71 (26) --
Gain on sale of
property.............. -- -- (147) -- --
Decrease (increase) in
assets:
Accounts receivable.... 1,999 (1,131) 1,199 2,428 (3,568)
Income tax receivable.. -- (558) 288 558 --
Inventories............ (147) (4,559) 889 (757) (306)
Prepaid expenses and
other................ 13 394 (14) (85) (380)
Deferred income taxes.. -- (1,263) 1,263 (699) --
Increase (decrease) in
liabilities:
Accounts payable....... (294) 122 (36) (462) 342
Accrued liabilities.... (410) 1,065 (1,447) (1,233) 341
Other liabilities...... 542 (30) 154 433 1,486
--------- --------- ---------- -------- -------
Net cash provided by
(used in) operating
activities............ 1,160 (1,959) (6,872) (4,498) (1,282)
--------- --------- ---------- -------- -------
Cash flows from
investing activities
Purchase of property,
plant and equipment... (107) (586) (986) (545) (625)
Proceeds from disposal
of property, plant and
equipment............. -- -- 82 -- 35
--------- --------- ---------- -------- -------
Net cash used in
investing activities.. (107) (586) (904) (545) (590)
--------- --------- ---------- -------- -------
Cash flows from
financing activities
Principal borrowings on
long-term debt........ 27,600 -- 4,000 -- 2,345
Principal payments on
long-term debt........ -- (1,600) (2,000) (250) (1,875)
Net borrowing under
lines of credit....... 3,800 2,800 3,000 2,650 1,000
Capital Contribution.... 6,900 -- 3,000 3,000 --
Exercise of employee
stock options......... -- -- -- -- 248
Distribution to
stockholders.......... (37,075) -- -- -- --
Payment of financing
cost.................. (700) -- -- -- --
--------- --------- ---------- -------- -------
Net cash provided by
financing activities.. 525 1,200 8,000 5,400 1,718
--------- --------- ---------- -------- -------
Effect of exchange rate
changes on cash....... -- (44) 18 5 8
--------- --------- ---------- -------- -------
Net (decrease) increase
in cash and cash
equivalents........... 1,578 (1,389) 242 362 (146)
Cash and cash
equivalents at
beginning of period... -- 1,578 189 189 431
--------- --------- ---------- -------- -------
Cash and cash
equivalents at end of
period................ $ 1,578 $ 189 $ 431 $ 551 $ 285
========= ========= ========== ======== =======
Supplemental disclosures
of cash flow
information
Cash paid during the
period for:
Interest................ $ 1,572 $ 3,939 $ 4,031 $ 3,113 $ 2,833
Income taxes............ -- $ 1,257 -- -- $ 93
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
RUDOLPH TECHNOLOGIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited with respect to the nine months ended September 30, 1998 and 1999)
(In thousands, except share and per share amounts)
1. Organization and Nature of Operations:
Rudolph Technologies, Inc. (the "Company") designs, develops, manufactures
and supports high-performance process control metrology systems used in
semiconductor device manufacturing. The Company operates in a single segment
and supports a wide variety of applications in the areas of diffusion, etch,
lithography, CVD, PVD, and CMP. The Company is the successor to Rudolph
Research Corporation ("predecessor company") which was aquired on June 14, 1996
(the "Acquisition"). The Acquistion was accounted for as a purchase and
accordingly, the purchase price was allocated to the fair value of the net
assets acquired.
2. Summary Significant Accounting Policies:
A. Revenue Recognition:
Revenues from finished product sales are recognized at the time of shipment
to the customer, which principally occurs after the customer has tested or
approved the finished product. Revenues from parts sales are recognized at the
time of shipment. Revenue from service contracts is recognized ratably over the
period of the contract. A provision for the estimated cost of fulfilling
warranty and installation obligations is recorded at the time the related
revenue is recognized.
Sales contracts with our distributors contain fixed prices, current payment
terms and are not subject to distributor's resale or any other contingencies.
Accordingly, sales of finished products to our distributors are recognized as
revenue at the time of shipment. Our distributors do not maintain inventory of
our products, other than a small quantity of spare parts for warranty and
maintenance purposes. Our distributors hold spare parts on a consignment basis.
B. Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period.
Significant estimates made by management include allowance for doubtful
accounts, inventory obsolesence, depreciation, amortization, taxes,
contingencies, and product warranty. Actual results could differ from those
estimates.
C. Cash and Cash Equivalents:
Cash and cash equivalents include cash and highly liquid debt instruments
with original maturities of three months or less when purchased.
D. Property, Plant and Equipment:
Property, plant and equipment are stated at cost. Depreciation of property
and equipment is computed using the straight-line method over the estimated
useful lives of the assets which are thirty years for buildings, seven years
for machinery and equipment and furnitures and fixtures, and three years for
computer equipment. Leasehold improvements are amortized using the straight-
line method over the lesser of the lease term or the estimated useful life of
the related asset. Repairs and maintenance costs are expensed as incurred and
major renewals and betterments are capitalized. Long-lived assets are reviewed
for impairment whenever events or changes in circumstances indicate that the
carry amount may not be recoverable. If the fair value is less than the
carrying amount of the asset, a loss is recognized for the difference. Asset
impairment is determined based upon undiscounted cash flows. The fair value of
an asset is computed based upon discounted cash flows.
E. Intangibles:
Intangibles, which resulted from the Acquistion, consist of Goodwill and
Purchased Technology which are amortized on a straight-line basis over useful
lives of 12 years and 2.5 to 12 years, respectively. Goodwill
F-7
<PAGE>
RUDOLPH TECHNOLOGIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited with respect to the nine months ended September 30, 1998 and 1999)
(In thousands, except share and per share amounts)
represents the excess of the purchase price over the fair value of the net
assets acquired. Intangibles are reviewed for impairment whenever events or
changes in circumstances indicate that the carry amount may not be recoverable.
If the fair value is less than the carrying amount of the asset, a loss is
recognized for the difference.
F. Deferred Financing Costs:
Included in other assets are deferred financing costs of $538, $431 and
$350 at December 31, 1997 and 1998 and (unaudited) at September 30, 1999,
respectively, consisting of costs to obtain the working capital line of credit
and long-term debt, which are being amortized on a basis which approximates the
interest method, over the life of the respective debt. Amortization expense
amounted to $53 for the period June 14, 1996 to December 31,1996, $107 for each
of the years ended December 31, 1997 and 1998 and $81 for each of the
(unaudited) nine month periods ended September 30, 1998 and 1999.
G. Concentration of Credit Risk:
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist primarily of accounts receivable and
cash. The Company performs ongoing credit evaluations of its customers and
generally does not require collateral for sales on credit. The Company
maintains reserves for potential credit losses. Substantially all of its cash
is held with one major financial institution.
H. Warranties:
The Company generally provides a warranty on its products for a period of
twelve to fifteen months against defects in material and workmanship. The
Company has established reserves of $303, $342, and $534 at December 31, 1997
and 1998, and (unaudited) September 30, 1999, respectively, for these
anticipated future warranty costs.
I. Inventories:
Inventories are stated at the lower of cost (first-in, first-out) or
market. Demonstration units, which are available for sale, are stated at their
manufacturing costs and reserves are recorded to state the demonstration units
at their net realizable value.
J. Income Taxes:
The Company accounts for income taxes using the asset and liability
approach for deferred taxes which requires the recognition of deferred tax
assets and liabilities for the expected future tax consequences of events that
have been recognized in the Company's financial statements or tax returns. A
valuation allowance is recorded to reduce a deferred tax asset to that portion
which more likely than not will be realized.
K. Translation of Foreign Currencies:
The Company has foreign operations in Korea and Taiwan, which use their
local currency as their functional currency. Assets and liabilities are
translated at exchange rates in effect at the balance sheet date, and income,
expense accounts and cash flow items at average exchange rates during the
period. Resulting translation adjustments are recorded directly as a separate
component of stockholder's deficit. Foreign exchange rate gains and losses
included in operating results are not material for all periods presented.
F-8
<PAGE>
RUDOLPH TECHNOLOGIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited with respect to the nine months ended September 30, 1998 and 1999)
(In thousands, except share and per share amounts)
L. Stock Based Compensation:
The Company accounts for its employee stock option plan in accordance with
provisions of the Accounting Principles Board's Opinion' (APB) No. 25,
"Accounting for Stock Issued to Employees." The Company provides additional
disclosure required by Financial Accounting Standard (SFAS) No. 123,
"Accounting for Stock-Based Compensation" (see Note 8).
M. Software Development Costs:
The Company accounts for software development costs in accordance with
Statement of Financial Accounting Standards No. 86. "Accounting for Costs of
Computer Software to Be Sold, Leased or Marketed" ("SFAS No. 86"). SFAS No. 86
requires that certain software product development costs ("Capitalized Costs"),
incurred after technological feasibility has been established, be capitalized
and amortized, commencing upon the general release of the software product to
the Company's customers, over the economic life of the software product. Annual
amortization of Capitalized Costs is computed using the greater of: (i) the
ratio of current gross revenues for the software product over the total of
current and anticipated future gross revenues for the software product or (ii)
the straight-line basis. Software product development costs incurred prior to
the product reaching technological feasibility are expensed as incurred and
included in research and development costs. Capitalized Costs incurred to date
have been immaterial and, accordingly, SFAS No. 86 had no significant impact on
the financial position or results of operations of the Company.
N. Fair Value of Financial Instruments:
The carrying amounts of the Company's financial instruments, including cash
and cash equivalents, accounts receivable, accounts payable and accrued
expenses approximates fair value due to their short maturities.
The fair values of the Company's debt, including current maturities, are
estimated using discounted cash flow analyses, based on the estimated current
incremental borrowing rates for similar types of securities. The carrying
amount of the Company's debt at December 31, 1997 and 1998 approximates fair
value.
O. Risks Inherent in the Business:
The Company sells its products to the semiconductor device industry and
believes that changes in any of the following areas could have a material
adverse effect on the Company's financial position, results of operations or
cash flows: advances and trends in new technologies and industry standards;
competitive pressures in the form of new products or price reductions on
current products; changes in product mix; changes in the overall demand for
products and services offered by the Company; changes in customer
relationships; litigation or claims against the Company based on intellectual
property, patent, product, regulatory or other factors; risks associated with
changes in domestic and international economic and/or political conditions or
regulations; dependency on suppliers and availability of necessary product
components; risks associated with year 2000 compliance; and the Company's
ability to attract and retain employees necessary to support its growth.
P. Consolidation:
The consolidated financial statements reflect the consolidated balance
sheet, results of operations and cash flows of the Company and its
subsidiaries. All intercompany accounts and transactions have been eliminated.
F-9
<PAGE>
RUDOLPH TECHNOLOGIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited with respect to the nine months ended September 30, 1998 and 1999)
(In thousands, except share and per share amounts)
Q. Recent Accounting Pronouncements:
During June 1998, as amended in July 1999 for Statement No. 137, the
Financial Accounting Standards Board issued Statement No. 133 "Accounting for
Derivative Investments and Hedging Activities" ("SFAS 133"). Based on the
Company's current operations, management has concluded that the future adoption
of SFAS 133 will have no impact on the Company's operations or financial
position.
R. Interim Financial Data (unaudited):
The unaudited financial data as of September 30, 1999 and for the nine
months ended September 30, 1998 and 1999 has been prepared by management and
includes all adjustments, consisting of normal recurring adjustments,
considered necessary for a fair presentation of the financial position, results
of operations and cash flows of the Company. The results of operations for the
nine months ended September 30, 1999 are not necessarily indicative of the
operating results to be expected for the year ending December 31, 1999.
3. Property, Plant And Equipment:
Property, plant and equipment is comprised of the following:
<TABLE>
<CAPTION>
December 31, September 30,
-------------- -------------
1997 1998 1999
------ ------ -------------
(unaudited)
<S> <C> <C> <C>
Land and building................................. $1,707 $1,609 $ 1,609
Machinery and equipment........................... 298 754 783
Furniture and fixtures............................ 237 250 263
Computer equipment................................ 609 592 703
Leasehold improvements............................ 194 312 781
------ ------ -------
3,045 3,517 4,139
Accumulated Depreciation.......................... (634) (886) (1,303)
------ ------ -------
Net Property, Plant and Equipment................. $2,411 $2,631 $ 2,836
====== ====== =======
</TABLE>
Depreciation expense amounted to $205, $448, $778, $391 and $417 for the
period June 14, 1996 to December 31, 1996, the years ended December 31, 1997
and 1998, and the (unaudited) nine months ended September 30, 1998 and 1999,
respectively.
4. Inventories:
Inventories are comprised of the following:
<TABLE>
<CAPTION>
December 31, September 30,
-------------- -------------
1997 1998 1999
------- ------ -------------
(unaudited)
<S> <C> <C> <C>
Materials......................................... $ 5,139 $3,664 $4,239
Work-in-process................................... 3,729 3,722 4,100
Finished goods.................................... 1,434 2,032 1,386
------- ------ ------
Total Inventories............................... $10,302 $9,418 $9,725
======= ====== ======
</TABLE>
The Company has established reserves of $540, $413 and $584 at December 31,
1997 and 1998, and (unaudited) at September 30, 1999, respectively, for slow
moving and obsolete inventory.
F-10
<PAGE>
RUDOLPH TECHNOLOGIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited with respect to the nine months ended September 30, 1998 and 1999)
(In thousands, except share and per share amounts)
In the fourth quarter of 1998, the Company recorded a charge of $1,407 for
the writedown of inventory for excess parts, for older product lines and for
parts which design and engineering advancements rendered obsolete.
5. Intangibles:
Intangibles are comprised of the following:
<TABLE>
<CAPTION>
December 31, September 30,
----------------- -------------
1997 1998 1999
------- -------- -------------
(unaudited)
<S> <C> <C> <C>
Purchased Technology.......................... $22,731 $ 22,731 $ 22,731
Goodwill...................................... 3,178 3,178 3,178
------- -------- --------
25,909 25,909 25,909
Accumulated Amortization...................... (18,406) (22,614) (22,811)
------- -------- --------
Total Intangibles........................... $ 7,503 $ 3,295 $ 3,098
======= ======== ========
</TABLE>
In June 1996, as part of the Acquisition, $3,821 of the purchase price was
assigned to acquired in-process research and development which was expensed at
the date of acquisition. As of the acquisition date, it was determined that the
acquired in-process research and development had not reached technological
feasibility and did not have an alternative future use. The acquired in-process
research and development related to a new laser-based acoustic technology that
the predecessor company had licensed exclusively from a third party. After
licensing the technology, the predecessor company established that by pulsing
ultra-fast lasers under laboratory conditions, sound waves could be generated
to measure materials; however, as of the acquisition date, approximately 25% of
the research and development effort remained as the Company needed to meet
substantial design and engineering requirements before a commercial product
could be developed. The major research and development efforts undertaken by
the Company included designing advanced cooling systems to eliminate laser
overheating, developing laser beam compression systems to reduce the size of
the equipment and designing robotics for material handling. The technology
licensed ultimately led to the introduction of the Company's MetaPULSE product
in 1997. The Company began testing the MetaPULSE prototype in November 1996 and
the first product was sold commercially in May 1997. In valuing the acquired
in-process research and development, the Company used discounted cash flows
over approximately a four-year period. Four years was used based on historic
trends of new product introductions. Expected annual revenues ranged from
approximately $14 million to $23 million and the risk rated discount rate used
was 30%.
During 1996, the semiconductor industry experienced an unforeseen period of
reduced capital spending. This industry-wide downturn in the semiconductor
equipment business led to decreased sales of the Company's products with many
customers delaying and canceling orders. In the fourth quarter of 1996, the
Company also initiated the development of the next generation of its products.
As a result, the Company assessed the recoverability of its intangible assets
and a pro rata share of the goodwill using expected undiscounted future cash
flows from operations. Based on this analysis, an impairment was determined.
The Company then used discounted expected future cash flows to determine the
net realizable value of these assets and recorded a $6,734 charge during the
fourth quarter of 1996.
In June 1997, goodwill was increased by $323 to reflect the impact of
additional tax liabilities not recorded at the acquisition date.
F-11
<PAGE>
RUDOLPH TECHNOLOGIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited with respect to the nine months ended September 30, 1998 and 1999)
(In thousands, except share and per share amounts)
Amortization of Intangibles expense amounted to $3,650, $4,201, $4,208,
$3,156 and $197 for the period June 14, 1996 to December 31, 1996, the years
ended December 31, 1997 and 1998, and the (unaudited) nine months ended
September 30, 1998 and 1999, respectively.
6. Commitments and Contingencies:
The Company rents space for its manufacturing and service operations and
sales offices. Total rent expense for these facilities amounted to $110, $242,
$302, $223 and $361 for the period June 14, 1996 to December 31, 1996, the
years ended December 31, 1997 and 1998, and the (unaudited) nine months ended
September 30, 1998 and 1999, respectively.
The Company also leases certain equipment pursuant to operating leases,
which expire through 2001. Rent expense related to these leases amounted to $7,
$40, $76, $39 and $41 for the period June 14, 1996 to December 31, 1996, the
years ended December 31, 1997 and 1998, and the (unaudited) nine months ended
September 30, 1998 and 1999, respectively.
Total future minimum lease payments under noncancelable operating leases as
of December 31, 1998 amounted to $489, $477, $470, $364 and $345 for the years
1999 to 2003, respectively.
Under various licensing agreements, the Company is obligated to pay
royalties based on net sales of products sold that use certain licensed
technologies. There are no minimum annual royalty payments. Royalty expense,
which is included in selling, general and administrative expense, amounted to
$0, $30, $398, $275 and $680 for the period June 14, 1996 to December 31, 1996,
the years ended December 31, 1997 and 1998, and the (unaudited) nine months
ended September 30, 1998 and 1999, respectively.
The Company is presently involved in a patent interference proceeding with
Therma-Wave, Inc. in the United States Patent Office. In this proceeding, the
Company is defending its patent rights with respect to some of the multiple
angle, multiple wavelength ellipsometry technology it uses in its transparent
thin film measurement systems. Therma-Wave requested that the proceeding be
initiated in 1993 by filing a reissue application for one of its own patents,
in which it sought to broaden the original issued claims. The proceeding was
initiated by the Patent Office in June 1998.
Preliminary motions and statements have been filed, and the Company is
presently awaiting a decision by the Patent Office on those motions. If the
Company loses the interference, a reissue patent will be granted to Therma-Wave
permitting Therma-Wave to assert patent rights against the ellipsometers the
Company uses in its transparent thin film measurement systems. In that event,
the Company could assert a defense of intervening rights against Therma-Wave's
reissued patent since the Company relied on the restricted claims of Therma-
Wave's original patent. If the intervening rights defense and other defenses
fail, the Company would either have to pay royalties to Therma-Wave or redesign
its SpectraLASER and other transparent thin film measurement systems. Mangement
is unable to estimate the ultimate resolution of this matter. However, should
the Company be required to pay royalties or redesign its products, it could
have a material adverse effect on the Company's business, financial condition
and results of operations.
In addition, from time to time the Company is subject to legal proceedings
and claims in the ordinary course of business. Other than the Therma-Wave, Inc.
patent interference proceeding discussed above, we are not involved in any
material legal proceedings.
F-12
<PAGE>
RUDOLPH TECHNOLOGIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited with respect to the nine months ended September 30, 1998 and 1999)
(In thousands, except share and per share amounts)
7. Long-Term Debt:
The Company has long-term debt agreements with a related party.
Long-Term Debt is comprised of the following:
<TABLE>
<CAPTION>
December 31, September 30,
----------------- -------------
1997 1998 1999
------- -------- -------------
(unaudited)
<S> <C> <C> <C>
Senior term loan, due 1997 to 2002, interest
rate of prime plus 1.75%.................... $15,000 $ 13,000 $ 11,125
Subordinated term loan, due in 2003, interest
rate of prime plus 4%....................... 11,000 11,000 11,000
Junior Subordinated Note, due in 2001, with
interest at 14% and an effective interest
rate of 16.57%, net of unamortized discount
of $100..................................... -- 3,870 6,300
Senior revolving term loan, balance due 2002,
interest rate of prime plus 1.5%............ 6,600 9,600 10,600
------- -------- --------
32,600 37,470 39,025
Less current maturities....................... (8,600) (12,100) (13,475)
------- -------- --------
Total Long-Term Debt........................ $24,000 $ 25,370 $ 25,550
------- -------- --------
</TABLE>
As of December 31, 1998 and September 30, 1999, the Company had additional
aggregate borrowings available under the junior subordinated note and senior
revolving loan of $5,400 and (unaudited) $2,000, respectively.
The senior term loan, senior revolving term loan and the subordinated term
loan agreements contain covenants which were modified in 1997, and among other
matters (i) limit the Company's ability to pay dividends on the Company's
capital stock, incur indebtedness, merge, consolidate and acquire or sell
assets, and (ii) require the Company to satisfy certain financial ratios
related to earnings, fixed charges and interest coverage. Because of the
operating losses reported by the Company, the Company would not have been in
compliance with the financial ratios above had the lender not granted waivers
of such technical defaults extending through September 30, 1999. It is
anticipated that the Company will not be in compliance with these financial
ratios over the next twelve months (See Note 13).
In October 1996, the Company requested a deferral of the subordinated term
loan interest payments through March 31, 1997. In March 1997, all deferred
interest on the loan was paid. In February 1998, the Company requested a
deferral of interest payments on the senior and subordinated term loans and to
reschedule the principal payments of the Senior term loan to later dates in
1998. In July 1998, the deferred interest payments on the loans were paid. The
principal payments were paid through December 1998. The loan agreements provide
for an increase in the interest rate of an additional 2.0% until all
outstanding interest is paid.
The junior subordinated notes issued to finance working capital needs of
the Company are subordinate in priority to the senior term loans and will
mature on July 31, 2001. The holder of the junior subordinated notes was also
issued warrants to purchase 592,012 shares of Class A common stock at a
purchase price of $0.73 per share. These warrants expire on November 1, 2008.
The fair value of the warrants are being amortized over the life of the debt.
The long-term debt is collateralized by essentially all the assets of the
Company. The revolving term loan is classified as current. In addition, the
provisions of the long-term debt contain certain clauses that allow for the
prepayment of principal without penalty.
F-13
<PAGE>
RUDOLPH TECHNOLOGIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited with respect to the nine months ended September 30, 1998 and 1999)
(In thousands, except share and per share amounts)
The scheduled repayment of the Senior term loan is as follows:
<TABLE>
<CAPTION>
Senior
Term Loan
---------
<S> <C>
1999............................................................... $ 2,500
2000............................................................... 3,000
2001............................................................... 3,500
2002............................................................... 4,000
-------
$13,000
=======
</TABLE>
8. Stock Options:
In 1996, the Company adopted the 1996 Stock Option Plan ("the Option
Plan"). Under the Option Plan, the Company was authorized to grant options to
purchase up to 1,069,902 shares of Class B common stock to employees at prices
not less than the fair value of the Class B common stock on the date of grant.
These options generally expire ten years from the date of grant and become
exercisable after nine years or sooner upon the achievement of certain
financial targets over a period of six years. In the event of an initial public
offering, the options will become fully vested. Options granted to date have
exercise prices equal to the fair value of the common stock on the date of
grant. As of December 31, 1998 and (unaudited) September 30, 1999, there were
109,380 and 4,979 shares of common stock reserved for future grants under the
Option Plan, respectively.
Certain options issued under the Option Plan entitle the holders to
purchase shares of Class B common stock at a per share price of $0.56, which
was less than the estimated fair value of the common stock on the date of
grant. As a result, the Company is recognizing compensation expense on a pro
rata basis over the options vesting period of 9 years, for the difference
between the estimated fair value of the common stock on the date the option was
granted and the exercise price. The Company recognized compensation expense of
$19 for the nine months ended September 30, 1999 in connection with these
options. Unamortized compensation expenses as of the balance sheet date are
included in unearned compensation within the stockholders' deficit. The options
contain vesting provisions which provide for immediate vesting upon certain
events, including an initial public offering. In the event the options vest
immediately, the Company will recognize an expense for the unamortized unearned
compensation.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation," (SFAS 123) requires the disclosure of pro forma net loss
had the Company adopted the fair value method. Under SFAS 123, the fair value
of stock-based awards to employees is calculated through the use of option
pricing models. For the period ended June 14, 1996 to December 31, 1996, the
years ended December 31, 1997 and 1998, and (unaudited) for the nine months
ended September 30, 1999, the fair value of each option grant was estimated on
the date of the grant using the Black-Scholes option-pricing model using a
dividend yield of 0%, volatility of 66%, expected life of an option of 9 years
and a risk-free interest rate of 4.85% for all periods. For purposes of pro
forma disclosures, the estimated fair value of the options is amortized to
expense over the option's vesting period. Had compensation costs been
determined based upon the fair value at the grant date for awards under the
Option Plan, consistent with the methodology prescribed under SFAS No. 123, the
Company's pro forma net loss attributable to common stockholders under SFAS No.
123 would have been $15,207, $1,510, and $14,786 for the period June 14, 1996
to December 31, 1996, and the years ended December 31, 1997 and 1998,
respectively. The pro forma basic and diluted net loss per share would have
been $5.81, $0.58 and $3.28, for the period June 14, 1996 to December 31, 1996
and the years ended December 31, 1997 and 1998 respectively.
F-14
<PAGE>
RUDOLPH TECHNOLOGIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited with respect to the nine months ended September 30, 1998 and 1999)
(In thousands, except share and per share amounts)
The following tables summarize the stock option activity for the period
June 14, 1996 to December 31, 1996 and the years ended December 31, 1997 and
1998, the (unaudited) nine months ended September 30, 1999 and the stock option
information as of December 31, 1998 and September 30, 1999:
<TABLE>
<CAPTION>
Options Outstanding
---------------------------------------
Weighted Average
Number of Exercise Price Number
Shares per Share Exercisable
--------- ---------------- -----------
<S> <C> <C> <C>
Balance at June 14, 1996.............. 328,638 $0.57 --
Granted............................... 17,832 0.57 --
Canceled.............................. -- -- --
-------- ----- --------
Balance at December 31, 1996.......... 346,470 $0.57 36,448
Granted............................... 35,663 0.73 --
Canceled.............................. -- -- --
-------- ----- --------
Balance at December 31, 1997.......... 382,133 0.59 283,524
Granted............................... 617,726 0.73 --
Canceled.............................. (39,338) 0.73 --
-------- ----- --------
Balance at December 31, 1998.......... 960,521 $0.67 475,607
Granted (unaudited)................... 107,852 0.56 --
Exercised (unaudited)................. (370,971) 0.67 (370,971)
Canceled (unaudited).................. (3,451) 0.67 --
-------- ----- --------
Balance at September 30, 1999
(unaudited)......................... 693,951 $0.66 104,636
======== ===== ========
</TABLE>
Stock option information as of December 31, 1998:
<TABLE>
<CAPTION>
Options Vested and
Options Outstanding Exercisable
--------------------------------------------- -------------------------------
Weighted Avg.
Weighted Avg. Exercise
Exercise Options Remaining Price per Number
Price Outstanding Contract Life Share Exercisable
-------- ----------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
$0.57 346,470 7.5 $0.57 173,253
0.73 614,051 9.5 0.73 302,354
----------- ------- --- ----- -------
$0.57-$0.73 960,521 8.8 $0.67 475,607
=========== ======= === ===== =======
</TABLE>
Stock option information as of September 30, 1999 (unaudited):
<TABLE>
<CAPTION>
Options Vested and
Options Outstanding Exercisable
--------------------------------------------- -------------------------------
Weighted Avg.
Weighted Avg. Exercise
Exercise Options Remaining Price per Number
Price Outstanding Contract Life Share Exercisable
----------- ----------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
$0.57 202,675 6.7 $0.57 29,422
0.73 386,875 8.7 0.73 75,214
0.56 104,401 9.8 0.56 --
----------- ------- --- ----- -------
$0.57-$0.73 693,951 8.3 $0.68 104,636
=========== ======= === ===== =======
</TABLE>
F-15
<PAGE>
RUDOLPH TECHNOLOGIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited with respect to the nine months ended September 30, 1998 and 1999)
(In thousands, except share and per share amounts)
9. Redeemable Preferred Stock:
On June 14, 1996, the Company issued and sold 45,875.29 shares of Series A
voting preferred stock (referred to as Series A preferred stock), $0.01 par
value at $100 per share and 8,124.71 shares of Series B non-voting preferred
stock, (referred to as Series B preferred stock), $0.01 par value at $100 per
share. Series A preferred stockholders vote on a share-for-share basis with
Series A voting common shareholders. Holders of preferred stock are entitled to
receive cumulative dividends at an annual rate of 8% on the liquidation value
of each such share. The preferred stock contains a redemption feature which
allows the holders of the preferred stock to require redemption of all of the
preferred stock if certain ownership percentages are not met. The preferred
stock can be redeemed at the Company's option at any time at a price per share
of $100 plus accrued and unpaid dividends.
10. Equity Securities:
On June 14, 1996, the Company issued and sold 1,571,294 shares of Class A
voting common stock, $0.0003 par value at $0.57 per share and 1,046,079 shares
of Class B non-voting common stock, $0.0003 par value at $0.57 per share. The
Company also issued to the holder of the Class A voting common stock a warrant
to purchase 534,951 shares of Class A common stock of the Company at a purchase
price of $0.0003 per share. The warrants expire on June 14, 2006.
During 1998 the Company issued additional Class A voting common stock and
Class B non-voting common stock in connection with certain capital
contributions. The Company also issued to the holder of the Class A voting
common stock warrants to purchase 945,740 shares of Class A common stock of the
Company at a purchase price of $0.0003 per share based upon the holder's
antidilution rights. The warrants expire on June 14, 2006.
11. Employee Benefit Plans:
The Company has a 401(k) savings plan to provide retirement and incidental
benefits for its employees. As allowed under Section 401(k) of the Internal
Revenue Code, the Plan provides tax-deferred salary deductions for eligible
employees. Employees may contribute from 1% to 15% of their annual compensation
to the Plan, limited to a maximum annual amount as set periodically by the
Internal Revenue Service. The Plan provides a 50% match of all employee
contributions up to 6 percent of the employee's salary. Company matching
contributions to the Plan totaled $71, $133, $158 and $130 for the period June
14, 1996 to December 31, 1996, the years ended December 31, 1997 and 1998, and
the (unaudited) nine months ended September 30, 1999, respectively.
In addition, the Company has a profit sharing program, wherein a percentage
of pre-tax profits, at the discretion of the Board of Directors, is provided to
all employees who have completed a stipulated employment period. The Company
did not make contributions to this program for the period June 14, 1996 to
December 31, 1996, the years ended December 31, 1997 and 1998, and the
(unaudited) nine months ended September 30, 1999.
F-16
<PAGE>
RUDOLPH TECHNOLOGIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited with respect to the nine months ended September 30, 1998 and 1999)
(In thousands, except share and per share amounts)
12. Income Taxes:
The components of income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
June 14 to Year ended
December 31, December 31,
------------ ----------------
1996 1997 1998
------------ ------- -------
<S> <C> <C> <C>
Current:
Federal....................................... $ 352 $ 557 $ (842)
State......................................... -- 141 (161)
----- ------- -------
352 698 (1,003)
Deferred:
Federal ...................................... (352) (1,245) 1,549
State ........................................ -- (67) 67
----- ------- -------
(352) (1,312) 1,616
----- ------- -------
Total Income Tax Expense (Benefit)......... $ -- $ (614) $ 613
===== ======= =======
</TABLE>
Deferred tax assets are comprised of the following:
<TABLE>
<CAPTION>
December 31,
----------------
1997 1998
------ --------
<S> <C> <C>
Amortization of intangibles................................... $5,755 $ 7,185
Deferred Interest............................................. 695 2,042
Inventory obsolescence reserve................................ 122 199
Fixed assets.................................................. 70 25
Warranty...................................................... 103 126
Accounts receivable........................................... 120 109
Other......................................................... 262 138
Net operating loss carryforwards.............................. -- 1,426
Less valuation allowance...................................... (5,864) (11,250)
------ --------
Net deferred tax asset........................................ $1,263 $ --
====== ========
</TABLE>
At December 31, 1998, the net deferred tax asset has been reduced to zero
with a valuation allowance as a result of recurring losses and with the
uncertainty regarding the Company's ability to generate sufficient taxable
income. Management believes that it is more likely than not that the deferred
tax asset will not be realized. The Company has available at December 31, 1998
approximately 3,842 of unused net operating loss carryforwards and carrybacks
that may be applied against future taxable income and that expire in the year
2018. In the event of certain ownership changes, the Company's ability to
utilize the tax benefit from net operating loss carryforwards may be limited.
F-17
<PAGE>
RUDOLPH TECHNOLOGIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited with respect to the nine months ended September 30, 1998 and 1999)
(In thousands, except share and per share amounts)
The provision (benefit) for income taxes differs from the amount of income
tax determined by applying the applicable U.S. income tax rate to income taxes
as follows:
<TABLE>
<CAPTION>
June 14 to Year ended
December 31, December 31,
------------ ----------------
1996 1997 1998
------------ ------- -------
<S> <C> <C> <C>
Federal income tax provision (benefit) at
statutory rate $(5,084) $ (549) $(4,578)
State taxes................................... -- 141 (161)
Change in valuation allowance................. 6,359 (1,295) 5,386
Other......................................... (1,275) 1,089 (34)
------- ------- -------
Provision (benefit) for income taxes.......... $ -- $ (614) $ 613
======= ======= =======
Effective tax rate............................ 0% 38% (5%)
======= ======= =======
</TABLE>
Earnings subject to foreign taxation and foreign taxes paid were not
material.
The Company's effective tax rate for the nine months ended September 30,
1999 has been computed based on statutory federal and state tax rates reduced
by a deferred tax valuation allowance, net of certain state tax obligations,
that cannot be applied against tax loss carryforwards.
13. Related Party Transactions:
The Company has received a written commitment from a significant
stockholder who has agreed, if necessary, to provide the Company with the
funding to enable it to liquidate liabilities in the ordinary course of
business and to fulfill obligations as they come due through the earlier of (1)
the completion of an initial public offering of common stock and the concurrent
repayment of all outstanding debt or (2) December 31, 2000. Management believes
that the stockholder has the ability to fulfill this commitment.
The Company receives management, consulting and financial services from
related parties for an annual fee. Such services include, but are not limited
to, advice and assistance concerning any and all aspects of the operation,
planning and financing of the Company. Management fee expense amounted to $120,
$200, $200 and $150 for the period June 14, 1996 to December 31,1996, the years
ended December 31, 1997 and 1998 and the (unaudited) nine months ended
September 30, 1999, respectively. In addition, the Company has long-term loan
agreements with a related party that is a major stockholder of Rudolph
Technologies, Inc. (see Note 7).
14. Comprehensive Income:
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income" (SFAS 130). The statement established standards for the
reporting and display of comprehensive income and its components. The
disclosures required by SFAS 130 have been included with the statements of
stockholders equity (deficit) or below. The difference between net loss and
comprehensive loss for the Company is due to currency translation adjustments.
The effects of income taxes on comprehensive income was not material.
For the (unaudited) nine months ended September 30, 1998 comprehensive loss
amounted to approximately $8,263.
F-18
<PAGE>
RUDOLPH TECHNOLOGIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited with respect to the nine months ended September 30, 1998 and 1999)
(In thousands, except share and per share amounts)
15. Geographic Reporting and Customer Concentration:
<TABLE>
<CAPTION>
Nine months
June 14 to Year ended ended
December 31, December 31, September 30,
------------ ---------------- -------------
1996 1997 1998 1999
------------ ------- ------- -------------
(unaudited)
<S> <C> <C> <C> <C>
Revenues from third parties:
United States................... $ 3,538 $12,031 $ 8,388 $13,435
Asia............................ 8,596 20,468 8,380 5,730
Europe.......................... 2,180 2,833 3,289 4,277
Other........................... 59 7 49 1,778
------- ------- ------- -------
Total........................... $14,373 $35,339 $20,106 $25,220
======= ======= ======= =======
Customers comprising 10% or more
of the Company's total revenue
for the period indicated:
Intel........................... 0.8% 3.4% 19.8% 34.2%
Tokyo Electron Limited.......... 23.9% 29.9% 17.6% 7.4%
Metron Technology............... 13.5% 5.3% 15.3% 8.7%
AMD............................. 0.0% 0.0% 11.1% 9.1%
</TABLE>
16. Earnings Per Share:
The Company has adopted Statement of Financial Accounting Standards No.
128, Earnings per Share ("FAS 128"), which requires the presentation of basic
earnings per share ("Basic EPS") and diluted earnings per share ("Diluted
EPS"). Basic EPS is computed by dividing income available to common
stockholders by the weighted average number of Class A and Class B common
shares outstanding during the period. Diluted EPS gives effect to all potential
dilutive common shares outstanding during the period. The computation of
Diluted EPS does not assume conversion, exercise or contingent exercise of
securities that would have an anti-dilutive effect on earnings.
F-19
<PAGE>
RUDOLPH TECHNOLOGIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited with respect to the nine months ended September 30, 1998 and 1999)
(In thousands, except share and per share amounts)
The computations of Basic EPS and Diluted EPS for the period June 14, 1996
to December 31,1996, the years ended December 31, 1997 and 1998, and the
(unaudited) nine months ended September 30, 1998 and 1999 are as follows:
<TABLE>
<CAPTION>
Per-
Income Shares Share
(Numerator) (Denominator) Amount
----------- ------------ ------
<S> <C> <C> <C>
For the period June 14, 1996 to December 31,
1996
Net loss.................................... $(14,953)
Preferred Stock Dividends................... (239)
--------
Basic EPS:
Income available to common stockholders... (15,192) 2,617,373 $(5.80)
Effect of dilutive stock options.......... -- -- --
-------- --------- ------
Diluted EPS:
Income available to common stockholders
plus assumed conversions................ $(15,192) 2,617,373 $(5.80)
======== ========= ======
For the year ended December 31, 1997
Net loss.................................... $ (1,001)
Preferred Stock Dividends................... (468)
--------
Basic EPS:
Income available to common stockholders... (1,469) 2,617,373 $(0.56)
Effect of dilutive stock options.......... -- -- --
-------- --------- ------
Diluted EPS:
Income available to common stockholders
plus assumed conversions................ $ (1,469) 2,617,373 $(0.56)
======== ========= ======
For the year ended December 31, 1998
Net loss.................................... $(14,078)
Preferred Stock Dividends................... (507)
--------
Basic EPS:
Income available to common stockholders... (14,585) 4,503,396 $(3.24)
Effect of dilutive stock options.......... -- -- --
-------- --------- ------
Diluted EPS:
Income available to common stockholders
plus assumed conversions................ $(14,585) 4,503,396 $(3.24)
======== ========= ======
For the nine months ended September 30, 1998
(unaudited)
Net loss.................................... $ (8,202)
Preferred Stock Dividends................... (376)
--------
Basic EPS:
Income available to common stockholders... (8,578) 3,717,695 $(2.31)
Effect of dilutive stock options.......... -- -- --
-------- --------- ------
Diluted EPS:
Income available to common stockholders
plus assumed conversions................ $ (8,578) 3,717,695 $(2.31)
======== ========= ======
For the nine months ended September 30, 1999
(unaudited)
Net income.................................. $ 170
Preferred Stock Dividends................... (423)
--------
Basic EPS:
Income available to common stockholders... (253) 6,880,504 $(0.04)
Effect of dilutive stock options.......... -- -- --
-------- --------- ------
Diluted EPS:
Income available to common stockholders
plus assumed conversions................ $ (253) 6,880,504 $(0.04)
======== ========= ======
</TABLE>
F-20
<PAGE>
RUDOLPH TECHNOLOGIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited with respect to the nine months ended September 30, 1998 and 1999)
(In thousands, except share and per share amounts)
For the period ending June 14, 1996 to December 31, 1996, the years ended
December 31, 1997 and 1998 and the (unaudited) nine months ended September 30,
1998 and 1999, the Company had outstanding options and warrants to purchase an
aggregate 881,421, 917,084, 3,033,208, 2,480,354 and 2,766,654 shares of Class
A and Class B common stock, respectively, which are not included in the
calculation of earnings per share for such periods, due to the anti-dilutive
nature of these instruments.
17. Subsequent Events:
On August 30, 1999, the Company's board of directors approved the
amendments of the certificate of incorporation to increase the authorized
shares of common stock and preferred stock to 50 million shares and 5 million
shares, respectively, and to effect a 35.66-for-1 stock split applicable to all
issued and outstanding shares of its common stock. The effectiveness of the
amendments is contingent upon the closing of the Company's proposed initial
public offering of its common stock. The Company may issue preferred stock with
rights and provisions determined by the board. All share, stock option and
stock warrant information included in these financial statements and related
footnotes have been restated for all periods to reflect this stock split for
all periods presented.
The Company established an Employee Stock Purchase Plan (the "ESPP")
effective August 31, 1999. Under the terms of the ESPP, eligible employees may
have up to 15% of eligible compensation deducted from their pay and applied to
the purchase of shares of Common Stock. The price the employee must pay for
each share of stock will be 85% of the lower of the fair market value of the
Common Stock at the beginning or at the end of the purchase term of six months.
The number of shares available for issuance under the ESPP totals 300,000.
The Company established the 1999 Stock Plan ("the 99 Plan") effective
August 31, 1999. The 99 Plan provides for the grant of 2,000,000 stock options
and stock purchase rights to employees, directors and consultants at an
exercise price equal to or greater than the fair market value of the common
stock on the date of grant. The options will expire ten years from the date of
grant.
F-21
<PAGE>
Report of Independent Accountants
To the Stockholder and Board of Directors
of Rudolph Technologies, Inc.
In our opinion, the accompanying statement of operations, stockholders'
equity and cash flows present fairly, in all material respects, the results of
operations and cash flows of Rudolph Research Corporation, the predecessor
entity of Rudolph Technologies, Inc., ("Rudolph") for the period January 1,
1996 to June 13, 1996, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of management of
Rudolph; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these statements in
accordance with generally accepted auditing standards, which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
Florham Park, New Jersey
September 7, 1999
F-22
<PAGE>
RUDOLPH RESEARCH CORPORATION
STATEMENT OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
January 1,
1996 to
June 13,
1996
----------
<S> <C>
Revenues............................................................. $17,501
Cost of revenues..................................................... 7,497
-------
Gross profit........................................................ 10,004
-------
Operating expenses:
Research and development........................................... 1,817
Selling, general & administrative.................................. 4,144
Amortization of intangibles........................................ 19
-------
Total operating expenses............................................. 5,980
-------
Operating income..................................................... 4,024
Interest expense on long term debt................................... 55
Other income......................................................... (26)
-------
Income before income taxes.......................................... 3,995
Provision for income taxes........................................... 143
-------
Net income.......................................................... $ 3,852
=======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-23
<PAGE>
RUDOLPH RESEARCH CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
For the period from January 1, 1996 to June 13, 1996
(in thousands, except share amounts)
<TABLE>
<CAPTION>
Treasury
Common Stock Stock
------------- ------------- Retained
Shares Amount Shares Amount Earnings Total
------ ------ ------ ------ -------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996...... 2,205 $20 78 $(83) $10,409 $10,346
Net income...................... 3,852 3,852
Stockholder distributions....... (4,263) (4,263)
----- --- --- ---- ------- -------
Balance at June 13, 1996........ 2,205 $20 78 $(83) $ 9,998 $ 9,935
===== === === ==== ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements
F-24
<PAGE>
RUDOLPH RESEARCH CORPORATION
STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
January 1
to
June 13,
1996
---------
<S> <C>
Cash Flow from Operating Activities
Net Income............................................................ $3,852
Adjustment to Reconcile Net Income to Net Cash
Provided by (Used in) Operating Activities:
Amortization........................................................ 19
Depreciation........................................................ 187
Accounts Receivable................................................. (2,250)
Inventories......................................................... (672)
Prepaid Expenses and Other.......................................... (16)
Accounts Payable.................................................... (198)
Accrued Liabilities................................................. 677
Other Changes in Operating Assets and Liabilities................... (7)
------
Net Cash Provided by Operating Activities............................. 1,592
------
Cash Flows from Investing Activities:
Purchase of Property, Plant and Equipment........................... (171)
------
Net Cash Used in Investing Activities................................. (171)
------
Cash Flows from Financing Activities:
Principal Payments on Long-Term Debt................................ (23)
Net Borrowing Under Lines of Credit................................. 1,000
Stockholder Distributions........................................... (4,263)
------
Net Cash Provided by Financing Activities............................. (3,286)
------
Net Decrease in Cash and Cash Equivalents............................. (1,865)
Cash and Cash Equivalents at Beginning of Period...................... 1,865
------
Cash and Cash Equivalents at End of Period............................ --
------
Supplemental Disclosures of Cash Flow Information
Interest Paid....................................................... $ 55
------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-25
<PAGE>
RUDOLPH RESEARCH CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
(in thousands, except share amounts)
1. Nature of Operations:
Rudolph Research Corporation (the "Predecessor Company"), manufactured,
sold, and serviced optical research and control instruments both domestically
and overseas. In June of 1996, the predecessor company was sold to a group of
investors led by Liberty Partners and Riverside Partners. The Rudolph Research
name was changed to Rudolph Technologies, Inc.
2. Summary Significant Accounting Policies:
A. Revenue Recognition:
Revenues from product and parts sales are recognized at the time of
shipment. Revenue from service contracts is recognized ratably over the period
of the contract. A provision for the estimated cost of fulfilling warranty and
installation obligations is recorded at the time the related revenue is
recognized.
B. Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period.
Significant estimates made by management include allowance for doubtful
accounts, inventory obsolescence, depreciation, amortization, taxes,
contingencies, and product warranty. Actual results could differ from those
estimates.
C. Concentration of Credit Risk:
Financial instruments, which potentially subject the Predecessor Company to
concentrations of credit risk, consist primarily of accounts receivable and
cash. The Predecessor Company performs ongoing credit evaluations of its
customers and generally does not require collateral for sales on credit. The
Predecessor Company maintains reserves for potential credit losses.
Substantially all of its cash is held with one major financial institution.
D. Income Taxes:
The Predecessor Company is an S Corporation under the Internal Revenue
Code. In lieu of corporate income taxes, the shareholders of an S Corporation
are taxed on their proportionate share of the Predecessor Company's taxable
income. Therefore, no provision or liability for federal income taxes has been
included in the financial results. State taxes are provided for in the
financial statements.
The tax affects of temporary differences are immaterial. If the Predecessor
Company had been a C Corporation the provision for income tax would have been
$1,678 (unaudited).
E. Risks Inherent in the Business:
The Company sells its products to the semiconductor device industry and
believes that changes in any of the following areas could have a material
adverse effect on the Company's financial position, results of operations or
cash flows: advances and trends in new technologies and industry standards;
competitive pressures in the form of new products or price reductions on
current products; changes in product mix; changes in the overall demand for
products and services offered by the Company; changes in customer
relationships; litigation or claims against the Company based on intellectual
property, patent, product, regulatory or other factors; risks associated with
changes in domestic and international economic and/or political conditions or
regulations; dependancy on supplier availability of necessary product
components; risks associated with year 2000 compliance; and the Company's
ability to attract and retain employees necessary to support its growth.
F-26
<PAGE>
RUDOLPH RESEARCH CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
(in thousands, except share amounts)
3. Commitments and Contingencies
The Predecessor Company rents space for its manufacturing and service
operations and sales offices. Total rent expense for these facilities amounted
to $118 for the period January 1, 1996 to June 13, 1996.
The Predecessor Company also leases certain equipment pursuant to operating
leases. Rent expense related to these leases amounted to $24 for the period
January 1, 1996 to June 13, 1996.
The Predecessor Company's obligations under its leases and licensing
agreement were acquired by Rudolph Technologies, Inc. upon its acquisition of
Rudolph Research, Inc. in June 1996.
4. Employee Benefit Plans:
Rudolph Research Corporation has a 401(k) savings plan to provide
retirement and incidental benefits for its employees. As allowed under Section
401(k) of the Internal Revenue Code, the Plan provides tax-deferred salary
deductions for eligible employees. Employees may contribute from 1% to 15% of
their annual compensation to the Plan, limited to a maximum annual amount as
set periodically by the Internal Revenue Service. The Plan provides a 50
percent match of all employee contributions up to 6 percent of the employee's
salary. The Predecessor Company's matching contributions to the Plan totaled
$72, for the period January 1, 1996 to June 13, 1996.
In addition, the Predecessor Company has a profit sharing program, wherein
a percentage of pretax profits, at the discretion of the Board of Directors, is
provided to all employees who have completed a stipulated employment period.
The Predecessor Company did not make contributions to this program for the
period January 1, 1996 to June 13, 1996.
F-27
<PAGE>
[LOGO OF RUDOLPH TECHNOLOGIES APPEARS HERE]
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell securities, and we are not soliciting offers to buy these +
+securities, in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
[ALTERNATE COVER PAGE FOR INTERNATIONAL PROSPECTUS]
SUBJECT TO COMPLETION, DATED OCTOBER 21, 1999
[LOGO OF RUDOLPH TECHNOLOGIES APPEARS HERE]
4,800,000 Shares
Common Stock
This is our initial public offering and no public market currently exists for
our shares. We have applied to have our common stock quoted on The Nasdaq
National Market under the symbol "RTEC." We anticipate that the initial public
offering price will be between $12 and $14 per share.
--------------
Investing in our common stock involves risks.
See "Risk Factors" beginning on page 6.
--------------
<TABLE>
<CAPTION>
Per
Share Total
----- -----
<S> <C> <C>
Public offering price........................................... $ $
Underwriting discounts and commissions.......................... $ $
Proceeds to Rudolph Technologies, Inc. ......................... $ $
</TABLE>
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved these securities, or determined if this prospectus
is truthful or complete. Any representation to the contrary is a criminal
offense.
We have granted the underwriters a 30-day option to purchase up to an
additional 720,000 shares of common stock to cover over-allotments. BancBoston
Robertson Stephens Inc. expects to deliver the shares of common stock to
purchasers on , 1999.
--------------
Robertson Stephens International
Bear, Stearns International Limited
CIBC World Markets
The date of this prospectus is , 1999.
<PAGE>
[ALTERNATE UNDERWRITING SECTION FOR INTERNATIONAL PROSPECTUS]
UNDERWRITING
The underwriters named below, acting through their representatives,
BancBoston Robertson Stephens Inc., Bear, Stearns & Co. Inc. and CIBC World
Markets Corp., have severally agreed with us, subject to the terms and
conditions set forth in the underwriting agreement, to purchase from us the
number of shares of common stock set forth opposite their names below. The
underwriters are committed to purchase and pay for all such shares if they are
purchased.
<TABLE>
<CAPTION>
Number of
Underwriter Shares
----------- ---------
<S> <C>
BancBoston Robertson Stephens Inc. ................................
Bear, Stearns & Co. Inc. ..........................................
CIBC World Markets Corp. ..........................................
<CAPTION>
International Underwriter
-------------------------
<S> <C>
BancBoston Robertson Stephens International Ltd....................
Bear, Stearns International Limited................................
CIBC World Markets Inc. ...........................................
---------
Total............................................................ 4,800,000
=========
</TABLE>
We have been advised by the representatives that the underwriters propose
to offer the shares of common stock to the public at the initial public
offering price set forth on the cover page of this prospectus and to make
certain dealers at such price less a concession of not in excess of $ per
share, of which $ may be reallowed to their dealers. After the initial public
offering, the public offering price, concession and reallowance to dealers may
be reduced by the representatives. No such reduction shall change the amount of
proceeds to be received by us as set forth on the cover page of this
prospectus. The common stock is offered by the underwriters as stated in this
prospectus, subject to receipt and acceptance by them and subject to their
right to reject any order in whole or in part.
The underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
Over-allotment Option. We have granted to the underwriters an option,
exercisable during the 30-day period after the date of this prospectus, to
purchase up to 720,000 additional shares of common stock at the same price per
share as we will receive for the 4,800,000 shares that the underwriters have
agreed to purchase. To the extent that the underwriters exercise this option,
each of the underwriters will have a firm commitment to purchase approximately
the same percentage of these additional shares that the number of shares of
common stock to be purchased by it shown in the above table represents as a
percentage of the 4,800,000 shares offered in this offering. If purchased, such
additional shares will be sold by the underwriters on the same terms as those
on which the 4,800,000 shares are being sold. We will be obligated, according
to the option, to sell shares to the extent the option is exercised. The
underwriters may exercise this option only to cover over-allotments made in
connection with the sale of the shares of common stock offered in this
offering. If this option is exercised in full, the total public offering price
of the 5,520,000 shares we sell to the underwriters, underwriting discounts and
commissions on such shares and total proceeds to us from the sale of these
shares will be $ , $ and $ , respectively.
The following table summarizes the compensation to be paid to the
underwriters by us:
<TABLE>
<CAPTION>
Total
-------------------
Without With
Per Over- Over-
Share allotment allotment
----- --------- ---------
<S> <C> <C> <C>
Underwriting discounts and commissions payable by
us................................................ $ $ $
</TABLE>
We estimate that expenses payable by us in connection with this offering,
other than the underwriting discounts and commissions referred to above, will
be approximately $800,000.
Indemnity. The underwriting agreement contains covenants of indemnity among
the underwriters and us against certain civil liabilities, including
liabilities under the Securities Act and liabilities arising from breaches of
representations and warranties contained in the underwriting agreement.
69
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the registrant in connection
with the sale of common stock being registered. All amounts are estimates
except the SEC registration fee, the NASD filing fee and the Nasdaq National
Market listing fee.
<TABLE>
<CAPTION>
Amount to
be Paid
---------
<S> <C>
SEC registration fee.................................................. $ 21,484
NASD filing fee ...................................................... 8,228
Nasdaq National Market listing fee.................................... 87,000
Printing and engraving expenses....................................... *
Legal fees and expenses............................................... *
Accounting fees and expenses.......................................... *
Blue Sky qualification fees and expenses.............................. 11,800
Transfer agent and registrar fees..................................... *
Miscellaneous fees.................................................... *
--------
Total................................................................. $800,000
========
</TABLE>
*To be supplied by amendment.
Item 14. Indemnification of Directors and Officers
Article Nine of the registrant's Certificate of Incorporation (Exhibit 3.1
hereto) and Article V of the registrant's Bylaws (Exhibit 3.3 hereto) provide
for mandatory indemnification of its directors and officers, and permissible
indemnification of employees and other agents, to the maximum extent permitted
by the Delaware General Corporation Law. In addition, the registrant has
entered into Indemnification Agreements (Exhibit 10.4 hereto) with its officers
and directors. Reference is also made to Section 7 of the Underwriting
Agreement contained in Exhibit 1.1 hereto, which provides for the
indemnification of officers and directors of the registrant against certain
liabilities.
Item 15. Recent Sales of Unregistered Securities
During the three year period ended September 30, 1999, the registrant
issued and sold the following securities:
<TABLE>
<CAPTION>
Date of Number of Purchase
Purchaser Purchase Shares Class of Shares Price
- --------- -------- --------- ------------------------ ----------
<S> <C> <C> <C> <C>
Liberty Partners
Holdings 11, L.L.C. 7/20/98 3,230,961 Class A Common Stock $2,355,508
Riverside Rudolph,
L.L.C. 7/20/98 733,346 Class B Common Stock $ 534,626
Dale Moorman 7/20/98 71,790 Class B Common Stock $ 52,340
Paul McLaughlin 7/20/98 50,357 Class B Common Stock $ 37,169
1/17/97 53 Series A Preferred Stock $ 5,333
1/17/97 2,318 Class B Common Stock $ 1,333
Robert Loiterman 7/20/98 16,833 Class B Common Stock $ 12,621
1/17/97 53 Series A Preferred Stock $ 5,333
1/17/97 2,318 Class B Common Stock $ 1,333
Steven Roth 7/20/98 2,461 Class B Common Stock $ 2,142
1/17/97 53 Series A Preferred Stock $ 5,333
1/17/97 2,318 Class B Common Stock $ 1,333
</TABLE>
On November 1, 1998, we granted a warrant to Liberty Partners Holdings 11,
L.L.C. to purchase 592,012 shares of our common stock at an exercise price of
$0.73 per share.
In a series of transactions occurring or around November 1, 1998, we issued
to the State Board of Administration of Florida a $7 million junior
subordinated note which bears interest at a rate of 14% and matures on July 31,
2001. As of September 30, 1999 we had been advanced a total of $6.4 million
under the junior subordinated note.
II-1
<PAGE>
Since our incorporation, we have issued, and there remain outstanding,
options to purchase an aggregate of 693,951 shares of Class B common stock with
exercise prices ranging from $0.56 to $0.73 per share. Since our incorporation,
options to purchase 370,971 shares of Class B common stock have been exercised.
The issuances of the securities described above were deemed to be exempt
from registration under the Securities Act in reliance on Section 4(2) of such
Act as transactions by an issuer not involving any public offering and, in the
case of the issuance of shares pursuant to options, in reliance on Section 4(2)
of the Act or Rule 701 promulgated thereunder as transactions pursuant to
contemporary benefit plans and contracts relating to compensation. All of the
securities were acquired by the recipient for investment and not with a view
toward the resale or distribution thereof. The recipient was a director and
officer of ours and/or a sophisticated investor, the offer and sales were made
without any public solicitation and the stock certificates bear restrictive
legends. No underwriter was involved in the transactions and no commissions
were paid. The recipient had adequate access, through his relationships with
the registrant, to information about the registrant.
Item 16 . Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1(a)** Certificate of Incorporation of Registrant.
3.1(b)** Form of Restated Certificate of Incorporation of Registrant to be
effective prior to this offering
3.1(c)** Form of Restated Certificate of Incorporation of Registrant to be
effective following this offering
3.2(a)** Bylaws of Registrant
3.2(b)** Form of Restated Bylaws of Registrant to be effective following this
Offering
5.1** Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation
10.1**+ License Agreement, dated June 28, 1995, between the Registrant and
Brown University Research Foundation
10.2** Distributor Agreement, dated May 15, 1987, between the Registrant
and Tokyo Electron Limited
10.3** Form of Indemnification Agreement
10.4** Form of 1999 Stock Plan
10.5** Form of 1999 Employee Stock Purchase Plan
10.6** Management Agreement, dated June 14, 1996, between the Registrant
and Paul F. McLaughlin
10.7** Management Agreement, dated June 14, 1996, between the Registrant
and Robert Loiterman
10.8** Management Agreement, dated May 5, 1997 between the Registrant and
Steven R. Roth
10.9** Registration Agreement, dated June 14, 1996 by and among the
Registrant, Liberty Partners Holdings II, L.L.C., Riverside Rudolph,
L.L.C., Dri Richard F. Spanier, Paul F. McLaughlin, and Dale Moorman
21.1** List of subsidiaries
23.1** Consent of Wilson Sonsini Goodrich & Rosati, Professional
Corporation (included in Exhibit 5.1)
23.2** Consent of PricewaterhouseCoopers LLP, Independent Accountants
23.3** Consent of Antonelli, Terry, Stout & Kraus, LLP
24.1** Power of Attorney
27.1** Financial Data Schedule
27.2** Financial Data Schedule
27.3** Financial Data Schedule
27.4** Financial Data Schedule
27.5** Financial Data Schedule
</TABLE>
- --------
*To be filed by amendment.
**Previously filed.
+Confidential treatment requested as to certain portions, which portions are
omitted and filed separately with the Securities and Exchange Commission.
(b) Financial Statement Schedule
<TABLE>
<S> <C>
S-1 Report of Independent Accountants....................................... S-1
S-2 Schedule II. Valuation and qualifying accounts.......................... S-2
</TABLE>
II-2
<PAGE>
Item 17 . Undertakings
The undersigned Registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act, and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered
hereunder, the Registrant will, unless in the opinion of its counsel the matter
has had been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has had duly caused this Pre-Effective Amendment No. 4 to Registration
Statement on Form S-1 to be signed on its behalf by the undersigned, thereunto
duly authorized, in Flanders, New Jersey on this 21st day of October, 1999.
Rudolph Technologies, Inc.
Paul F. McLaughlin*
By: __________________________________
Paul F. McLaughlin
Chief Executive Officer and
President
Pursuant to the requirements of the Securities Act of 1933, this Pre-
Effective Amendment No. 4 to the Registration Statement has had been signed by
the following persons in the capacities and on the dates indicated:
Signature Title Date
Paul F. McLaughlin* Chief Executive Officer, October 21, 1999
____________________________ President and Director
Paul F. McLaughlin (Principal Executive
Officer)
/s/ Steven R. Roth Vice President & Chief October 21, 1999
____________________________ Financial Officer
Steven R. Roth (Principal Financial and
Accounting Officer)
David Belluck* Director October 21, 1999
____________________________
David Belluck
Daniel H. Berry* Director October 21, 1999
____________________________
Daniel H. Berry
Paul Craig* Director October 21, 1999
____________________________
Paul Craig
Stephen J. Fisher* Director October 21, 1999
____________________________
Stephen J. Fisher
Carl E. Ring, Jr.* Director October 21, 1999
____________________________
Carl E. Ring, Jr.
Richard F. Spanier* Director October 21, 1999
____________________________
Richard F. Spanier
Aubrey C. Tobey* Director October 21, 1999
____________________________
Aubrey C. Tobey
*By: /s/ Steven R. Roth
_____________________
Steven R. Roth
Attorney-in-fact
II-4
<PAGE>
The stock split discussed in Note 17 to the financial statements has not
been consummated at October 12, 1999. When it has been consummated, we expect
to be in a position to render the following report:
PricewaterhouseCoopers LLP
Florham Park, New Jersey
October 12, 1999
Report of Independent Accountants
In connection with our audits of the consolidated financial statements of
Rudolph Technologies, Inc. at December 31, 1998 and 1997 and for each of the
two years in the period ended December 31, 1998 and the period from June 14,
1996 to December 31, 1996, which financial statements are included in the
Prospectus, we have also audited the financial statement schedule listed in
Item 16 herein.
In our opinion, this financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly,
in all material respects, the information required to be included therein.
Florham Park, New Jersey
S-1
<PAGE>
RUDOLPH TECHNOLOGIES, INC.
Schedule II--Valuation and Qualifying Accounts
Dollars in Thousands
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- ------------ ------------------------- ---------- ----------
Balance at Charged to Charged to Balance at
Beginning of Costs & Other Accounts End of
Description Period Expenses (net) Deductions Period
- ----------- ------------ ---------- -------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year 1998
Allowance for doubtful
accounts.............. $ 500 $ 71 -- $ 277(a) $ 294
Deferred tax asset
valuation allowance... 5,864 5,386 -- -- 11,250
Inventory valuation..... 540 1,407 -- 1,534 413
Year 1997
Allowance for doubtful
accounts.............. $ 147 $ 353 -- -- $ 500
Deferred tax asset
valuation allowance... 7,159 -- -- $1,295 5,864
Inventory valuation..... 540 -- -- -- 540
Period from June 14,
1996 through December
31, 1996
Allowance for doubtful
accounts.............. $ 147 -- -- -- $ 147
Deferred tax asset
valuation allowance... -- $7,159 -- -- 7,159
Inventory valuation..... 253 287 -- -- 540
</TABLE>
- --------
(a)Amounts written off as uncollectible
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1(a)** Certificate of Incorporation of Registrant.
3.1(b)** Form of Restated Certificate of Incorporation of Registrant to be
effective prior to this offering
3.1(c)** Form of Restated Certificate of Incorporation of Registrant to be
effective following this offering.
3.2(a)** Bylaws of Registrant
3.2(b)** Form of Restated Bylaws of Registrant to be effective following this
Offering
5.1** Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation
10.1**+ License Agreement, dated June 28, 1995, between the Registrant and
Brown University Research
Foundation
10.2** Distributor Agreement, dated May 15, 1987, between the Registrant
and Tokyo Electron Limited
10.3** Form of Indemnification Agreement
10.4** Form of 1999 Stock Plan
10.5** Form of 1999 Employee Stock Purchase Plan
10.6** Management Agreement, dated June 14, 1996, between the Registrant
and Paul F. McLaughlin
10.7** Management Agreement, dated June 14, 1996, between the Registrant
and Robert Loiterman
10.8** Management Agreement, dated May 5, 1997, between the Registrant and
Steven R. Roth
10.9** Registration Agreement, dated June 14, 1996 by and among the
Registrant, Liberty Partners
Holdings 11, L.L.C., Riverside Rudolph, L.L.C., Dr. Richard F.
Spaniek, Paul F. McLaughlin and Dale Moorman.
21.1** List of subsidiaries
23.1** Consent of Wilson Sonsini Goodrich & Rosati, Professional
Corporation (included in Exhibit 5.1)
23.2** Consent of PricewaterhouseCoopers LLP, Independent Accountants
23.3** Consent of Antonelli, Terry, Stout & Kraus, LLP
24.1** Power of Attorney
27.1** Financial Data Schedule
27.2** Financial Data Schedule
27.3** Financial Data Schedule
27.4** Financial Data Schedule
27.5** Financial Data Schedule
</TABLE>
- --------
*To be filed by amendment.
**Previously filed.
+Confidential treatment requested as to certain portions, which portions are
omitted and filed separately with the Securities and Exchange Commission.
<PAGE>
APPENDIX -- DESCRIPTION OF GRAPHICAL AND PICTORAL MATERIAL
Inside Front Cover of Prospectus
--------------------------------
Upper left corner: OUR LOGO
Title: "Metrology Leader Across the Fab"
Below the title is a photograph of Our MetaPULSE 200 product.
Caption: "MetaPULSE 200"
Inside Gatefold of Prospectus
-----------------------------
Upper left corner: OUR LOGO
Left side of gatefold
- ---------------------
Title: "Silicon devices on wafer"
Below the title is a picture of a silicon wafer and an enlarged section of the
wafer, representing an integrated circuit. Three sections of text are placed
under the picture, each enclosed by a box, with arrows pointing to various
sections of the integrated circuit.
Section 1 of text:
"SpectraLASER metrology controls diffusion, lithograph and etch processes"
Section 2 of text:
"S200 with Matrix Metrology controls: . Diffusion . Etch . CVD/PVD"
Section 3 of text:
"MetaPULSE controls implant"
Right Side of gatefold
- ----------------------
Title: "Metal (Al or Cu) wiring connects"
Below the title is a photograph of a three-layer enlarged cross section of an
integrated circuit.
Caption: "SEM Photomicrograph cross-section showing three levels of
interconnect wiring."
A section of text that is enclosed by a box has an arrow pointing to the
photograph: "S200 CMP controls chemical mechanical planarization"
<PAGE>
To the right of the first photograph is a photograph of one layer of a cross
section of an integrated circuit.
Caption: "TEM Photomicrograph of one layer in the metal interconnect structure
showing the five component layers that form each wiring level."
A section of text that is enclosed by a box has an arrow pointing to the
photograph: "MetaPULSE controls CVD/PVD metal deposition"
Inside Back Cover of Prospectus
-------------------------------
Upper left corner: OUR LOGO
Title: "Metrology Leader Across the Fab"
"Essential measurements for chip manufacturing"
Below the title are five photographs of our products that appear on the inside
back cover as follows:
Photograph 1:
Our S200 Matrix Metrology product
Caption: "S200 Matrix Metrology"
Photograph 2:
Our MetaPULSE 300 mm product
Caption: "MetaPULSE 300 mm"
Photograph 3:
Our Focus 200 SMIF product
Caption: "Focus 200 mm SMIF"
Photograph 4:
Our SpectraLASER 300mm product
Caption: "SpectraLASER 300mm"
Photograph 5:
Our SpectraLASER 200mm product
Caption: "SpectraLASER 200mm"
<PAGE>
EXHIBIT 1.1
Underwriting Agreement
, 1999
BancBoston Robertson Stephens Inc.
Bear, Stearns & Co. Inc.
CIBC World Markets
As Representatives of the several Underwriters
c/o BancBoston Robertson Stephens Inc.
555 California Street, Suite 2600
San Francisco, CA 94104
Ladies and Gentlemen:
Introductory. Rudolph Technologies, Inc., a Delaware corporation (the
"Company), proposes to issue and sell to the several underwriters named in
Schedule A (the "Underwriters") an aggregate of 4,800,000 shares (the "Firm
- ----------
Shares") of its Common Stock, par value $0.001 per share (the "Common Shares").
In addition, the Company has granted to the Underwriters an option to purchase
up to an additional 720,000 Common Shares (the "Option Shares") as provided in
Section 2. The Firm Shares and, if and to the extent such option is exercised,
the Option Shares are collectively called the "Shares". BancBoston Robertson
Stephens Inc., Bear, Stearns & Co. Inc. and CIBC World Markets have agreed to
act as representatives of the several Underwriters (in such capacity, the
"Representatives") in connection with the offering and sale of the Shares.
The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-1 (File No.
333-86821), which contains a form of prospectus to be used in connection with
the public offering and sale of the Shares. Such registration statement, as
amended, including the financial statements, exhibits and schedules thereto, in
the form in which it was declared effective by the Commission under the
Securities Act of 1933 and the rules and regulations promulgated thereunder
(collectively, the "Securities Act"), including any information deemed to be a
part thereof at the time of effectiveness pursuant to Rule 430A or Rule 434
under the Securities Act, is called the "Registration Statement". Any
registration statement filed by the Company pursuant to Rule 462(b) under the
Securities Act is called the "Rule 462(b) Registration Statement", and from and
after the date and time of filing of the Rule 462(b) Registration Statement the
term "Registration Statement" shall include the Rule 462(b) Registration
Statement. Such prospectus, in the form first used by the Underwriters to
confirm sales of the Shares, is called the "Prospectus"; provided, however, if
the Company has, with the consent of BancBoston Robertson Stephens Inc., elected
to rely upon
<PAGE>
Rule 434 under the Securities Act, the term "Prospectus" shall mean
the Company's prospectus subject to completion (each, a "preliminary
prospectus") dated [___]/1/ (such preliminary prospectus is called the "Rule 434
preliminary prospectus"), together with the applicable term sheet (the "Term
Sheet") prepared and filed by the Company with the Commission under Rules 434
and 424(b) under the Securities Act and all references in this Agreement to the
date of the Prospectus shall mean the date of the Term Sheet. All references in
this Agreement to the Registration Statement, the Rule 462(b) Registration
Statement, a preliminary prospectus, the Prospectus or the Term Sheet, or any
amendments or supplements to any of the foregoing, shall include any copy
thereof filed with the Commission pursuant to its Electronic Data Gathering,
Analysis and Retrieval System ("EDGAR").
The Company hereby confirms its agreements with the Underwriters as
follows:
Section 1. Representations and Warranties of the Company.
The Company hereby represents, warrants and covenants to each Underwriter
as follows:
(a) Compliance with Registration Requirements. The Registration Statement
and any Rule 462(b) Registration Statement have been declared effective by the
Commission under the Securities Act. The Company has complied to the
Commission's satisfaction with all requests of the Commission for additional or
supplemental information. No stop order suspending the effectiveness of the
Registration Statement or any Rule 462(b) Registration Statement is in effect
and no proceedings for such purpose have been instituted or are pending or, to
the best knowledge of the Company, are contemplated or threatened by the
Commission.
Each preliminary prospectus and the Prospectus when filed complied in all
material respects with the Securities Act and, if filed by electronic
transmission pursuant to EDGAR (except as may be permitted by Regulation S-T
under the Securities Act), was identical to the copy thereof delivered to the
Underwriters for use in connection with the offer and sale of the Shares. Each
of the Registration Statement, any Rule 462(b) Registration Statement and any
post-effective amendment thereto, at the time it became effective and at all
subsequent times, complied and will comply in all material respects with the
Securities Act and did not and will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading. The Prospectus, as
amended or supplemented, as of its date and at all subsequent times, did not and
will not contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading. The
representations and warranties set forth in the two immediately preceding
sentences do not apply to statements in or omissions from the Registration
Statement, any Rule 462(b) Registration Statement, or any post-effective
amendment thereto, or the Prospectus, or any amendments or supplements thereto,
made in reliance upon and in conformity with information relating to any
Underwriter furnished to the Company in writing by the Representatives expressly
for use therein. There are no contracts or other documents required to
- -----------------
/1/ Date of the Company's most recent preliminary prospectus that was
circulated to prospective offerees.
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<PAGE>
be described in the Prospectus or to be filed as exhibits to the Registration
Statement which have not been described or filed as required.
(b) Offering Materials Furnished to Underwriters. The Company has
delivered to each of the Representatives one complete conformed copy of the
Registration Statement and of each consent and certificate of experts filed as a
part thereof, and conformed copies of the Registration Statement (without
exhibits) and preliminary prospectuses and the Prospectus, as amended or
supplemented, in such quantities and at such places as the Representatives have
reasonably requested for each of the Underwriters.
(c) Distribution of Offering Material By the Company. The Company has not
distributed and will not distribute, prior to the later of the Second Closing
Date (as defined below) and the completion of the Underwriters' distribution of
the Shares, any offering material in connection with the offering and sale of
the Shares other than a preliminary prospectus, the Prospectus or the
Registration Statement.
(d) The Underwriting Agreement. This Agreement has been duly authorized,
executed and delivered by, and is a valid and binding agreement of, the Company,
enforceable in accordance with its terms, except as rights to indemnification
hereunder may be limited by applicable law and except as the enforcement hereof
may be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting the rights and remedies of creditors or by
general equitable principles.
(e) Authorization of the Shares. The Shares to be purchased by the
Underwriters from the Company have been duly authorized for issuance and sale
pursuant to this Agreement and, when issued and delivered by the Company
pursuant to this Agreement, will be validly issued, fully paid and
nonassessable.
(f) No Applicable Registration or Other Similar Rights. There are no
persons with registration or other similar rights to have any equity or debt
securities registered for sale under the Registration Statement or included in
the offering contemplated by this Agreement, except for such rights as have been
duly waived.
(g) No Material Adverse Change. Subsequent to the respective dates as of
which information is given in the Prospectus: (i) there has been no material
adverse change, or any development that could reasonably be expected to result
in a material adverse change, in the condition, financial or otherwise, or in
the earnings, business, operations or prospects, whether or not arising from
transactions in the ordinary course of business, of the Company and its
subsidiaries, considered as one entity (any such change or effect, where the
context so requires, is called a "Material Adverse Change" or a "Material
Adverse Effect"); (ii) the Company and its subsidiaries, considered as one
entity, have not incurred any material liability or obligation, indirect, direct
or contingent, not in the ordinary course of business nor entered into any
material transaction or agreement not in the ordinary course of business; and
(iii) there has been no dividend or distribution of any kind declared, paid or
made by the Company or, except for dividends paid to the Company or other
subsidiaries, any of its subsidiaries on any class of capital stock or
repurchase or redemption by the Company or any of its subsidiaries of any class
of capital stock.
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<PAGE>
(h) Independent Accountants. PricewaterhouseCoopers LLP, who have
expressed their opinion with respect to the financial statements (which term as
used in this Agreement includes the related notes thereto) [and supporting
schedules] filed with the Commission as a part of the Registration Statement and
included in the Prospectus, are independent public or certified public
accountants as required by the Securities Act.
(i) Preparation of the Financial Statements. The financial statements
filed with the Commission as a part of the Registration Statement and included
in the Prospectus present fairly the consolidated financial position of the
Company and its subsidiaries as of and at the dates indicated and the results of
their operations and cash flows for the periods specified. [The supporting
schedules included in the Registration Statement present fairly the information
required to be stated therein.] Such financial statements [and supporting
schedules] have been prepared in conformity with generally accepted accounting
principles as applied in the United States applied on a consistent basis
throughout the periods involved, except as may be expressly stated in the
related notes thereto. No other financial statements or supporting schedules are
required to be included in the Registration Statement. The financial data set
forth in the Prospectus under the captions "Prospectus Summary--Summary Selected
Financial Data", "Selected Financial Data" and "Capitalization" fairly present
the information set forth therein on a basis consistent with that of the audited
financial statements contained in the Registration Statement. The pro forma
financial statements of the Company and its subsidiaries and the related notes
thereto included under the caption "Prospectus Summary--Summary Selected
Financial Data" and elsewhere in the Prospectus and in the Registration
Statement present fairly the information contained therein, have been prepared
in accordance with the Commission's rules and guidelines with respect to pro
forma financial statements and have been properly presented on the bases
described therein, and the assumptions used in the preparation thereof are
reasonable and the adjustments used therein are appropriate to give effect to
the transactions and circumstances referred to therein. No other pro forma
financial information is required to be included in the Registration Statement
pursuant to Regulation S-X
(j) Company's Accounting System. The Company and each of its subsidiaries
maintain a system of accounting controls sufficient to provide reasonable
assurances that (i) transactions are executed in accordance with management's
general or specific authorization; (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles as applied in the United States and to maintain
accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(k) Subsidiaries of the Company. The Company has no subsidiaries.
(l) Incorporation and Good Standing of the Company The Company has been
duly organized and is validly existing as a corporation in good standing under
the laws of the jurisdiction in which it is organized with full corporate power
and authority to own its properties and conduct its business as described in the
prospectus, and is duly qualified to do business as a foreign corporation and is
in good standing under the laws of each jurisdiction which requires such
qualification.
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<PAGE>
(m) Capitalization and Other Capital Stock Matters. The authorized,
issued and outstanding capital stock of the Company is as set forth in the
Prospectus under the caption "Capitalization" (other than for subsequent
issuances, if any, pursuant to employee benefit plans described in the
Prospectus or upon exercise of outstanding options [or warrants] described in
the Prospectus). The Common Shares (including the Shares) conform in all
material respects to the description thereof contained in the Prospectus. All of
the issued and outstanding Common Shares have been duly authorized and validly
issued, are fully paid and nonassessable and have been issued in compliance with
federal and state securities laws. None of the outstanding Common Shares were
issued in violation of any preemptive rights, rights of first refusal or other
similar rights to subscribe for or purchase securities of the Company. There are
no authorized or outstanding options, warrants, preemptive rights, rights of
first refusal or other rights to purchase, or equity or debt securities
convertible into or exchangeable or exercisable for, any capital stock of the
Company or any of its subsidiaries other than those accurately described in the
Prospectus. The description of the Company's stock option, stock bonus and other
stock plans or arrangements, and the options or other rights granted thereunder,
set forth in the Prospectus accurately and fairly presents the information
required to be shown with respect to such plans, arrangements, options and
rights.
(n) Nasdaq Listing. The Shares have been approved for listing on the
Nasdaq National Market, subject only to official notice of issuance.
(o) No Consents, Approvals or Authorizations Required. No consent,
approval, authorization, filing with or order of any court or governmental
agency or regulatory body is required in connection with the transactions
contemplated herein, except such as have been obtained or made under the
Securities Act and such as may be required (i) under the blue sky laws of any
jurisdiction in connection with the purchase and distribution of the Shares by
the Underwriters in the manner contemplated here and in the Prospectus, (ii) by
the National Association of Securities Dealers, LLC and (iii) by the federal and
provincial laws of Canada.
(p) Non-Contravention of Existing Instruments Agreements. Neither the
issue and sale of the Shares nor the consummation of any other of the
transactions herein contemplated nor the fulfillment of the terms hereof will
conflict with, result in a breach or violation or imposition of any lien, charge
or encumbrance upon any property or assets of the Company or any of its
subsidiaries pursuant to, (i) the charter or by-laws of the Company or any of
its subsidiaries, (ii) the terms of any indenture, contract, lease, mortgage,
deed of trust, note agreement, loan agreement or other agreement, obligation,
condition, covenant or instrument to which the Company or any of its
subsidiaries is a party or bound or to which its or their property is subject or
(iii) any statute, law, rule, regulation, judgment, order or decree applicable
to the Company or any of its subsidiaries of any court, regulatory body,
administrative agency, governmental body, arbitrator or other authority having
jurisdiction over the Company or any of its subsidiaries or any of its or their
properties.
(q) No Defaults or Violations. Neither the Company nor any subsidiary is
in violation or default of (i) any provision of its charter or by-laws, (ii) the
terms of any indenture, contract, lease, mortgage, deed of trust, note
agreement, loan agreement or other agreement, obligation, condition, covenant or
instrument to which it is a party or bound or to which its property is subject
or (iii) any statute, law, rule, regulation, judgment, order or decree of any
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<PAGE>
court, regulatory body, administrative agency, governmental body, arbitrator or
other authority having jurisdiction over the Company or such subsidiary or any
of its properties, as applicable, except any such violation or default which
would not, singly or in the aggregate, result in a Material Adverse Change
except as otherwise disclosed in the Prospectus.
(r) No Actions, Suits or Proceedings. Except as otherwise disclosed in
the Prospectus, no action, suit or proceeding by or before any court or
governmental agency, authority or body or any arbitrator involving the Company
or any of its subsidiaries or its or their property is pending or, to the best
knowledge of the Company, threatened that (i) could reasonably be expected to
have a Material Adverse Effect on the performance of this Agreement or the
consummation of any of the transactions contemplated hereby or (ii) could
reasonably be expected to result in a Material Adverse Effect.
(s) All Necessary Permits, Etc. Except as otherwise disclosed in the
Prospectus, the Company and each subsidiary possess such valid and current
certificates, authorizations or permits issued by the appropriate state, federal
or foreign regulatory agencies or bodies necessary to conduct their respective
businesses, and neither the Company nor any subsidiary has received any notice
of proceedings relating to the revocation or modification of, or non-compliance
with, any such certificate, authorization or permit which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, could
result in a Material Adverse Change.
(t) Title to Properties. Except as otherwise disclosed in the Prospectus,
the Company and each of its subsidiaries has good and marketable title to all
the properties and assets reflected as owned in the financial statements
referred to in Section 1(a)(i) above, in each case free and clear of any
security interests, mortgages, liens, encumbrances, equities, claims and other
defects, except such as do not materially and adversely affect the value of such
property and do not materially interfere with the use made or proposed to be
made of such property by the Company or such subsidiary. The real property,
improvements, equipment and personal property held under lease by the Company or
any subsidiary are held under valid and enforceable leases, with such exceptions
as are not material and do not materially interfere with the use made or
proposed to be made of such real property, improvements, equipment or personal
property by the Company or such subsidiary.
(u) Tax Law Compliance. The Company and its subsidiaries have filed all
necessary federal, state and foreign income and franchise tax returns and have
paid all taxes required to be paid by any of them and, if due and payable, any
related or similar assessment, fine or penalty levied against any of them. The
Company has made adequate charges, accruals and reserves in the applicable
financial statements referred to in Section 1(a)(i) above in respect of all
federal, state and foreign income and franchise taxes for all periods as to
which the tax liability of the Company or any of its subsidiaries has not been
finally determined. The Company is not aware of any tax deficiency that has
been or might be asserted or threatened against the Company that could result in
a Material Adverse Change.
(v) Intellectual Property Rights. Except as otherwise disclosed in the
Prospectus, each of the Company and its subsidiaries owns or possesses adequate
rights to use all patents, patent rights or licenses, inventions, collaborative
research agreements, trade secrets, know-how, trademarks, service marks, trade
names and copyrights which are necessary to conduct its
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<PAGE>
businesses as described in the Registration Statement and Prospectus; the
expiration of any patents, patent rights, trade secrets, trademarks, service
marks, trade names or copyrights would not result in a Material Adverse Change
that is not otherwise disclosed in the Prospectus; the Company has not received
any notice of, and has no knowledge of, any infringement of or conflict with
asserted rights of the Company by others with respect to any patent, patent
rights, inventions, trade secrets, know-how, trademarks, service marks, trade
names or copyrights; and the Company has not received any notice of, and has no
knowledge of, any infringement of or conflict with asserted rights of others
with respect to any patent, patent rights, inventions, trade secrets, know-how,
trademarks, service marks, trade names or copyrights which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, might
have a Material Adverse Change. There is no claim being made against the Company
regarding patents, patent rights or licenses, inventions, collaborative
research, trade secrets, know-how, trademarks, service marks, trade names or
copyrights. The Company and its subsidiaries do not in the conduct of their
business as now or proposed to be conducted as described in the Prospectus
infringe or conflict with any right or patent of any third party, or any
discovery, invention, product or process which is the subject of a patent
application filed by any third party, known to the Company or any of its
subsidiaries, which such infringement or conflict is reasonably likely to result
in a Material Adverse Change.
(w) Year 2000 Preparedness. There are no issues related to the Company's,
or any of its subsidiaries', preparedness for the Year 2000 that (i) are of a
character required to be described or referred to in the Registration Statement
or Prospectus by the Securities Act or the rules and regulations of the
Commission thereunder which have not been accurately described in the
Registration Statement or Prospectus or (ii) might reasonably be expected to
result in any Material Adverse Change or that might materially affect their
properties, assets or rights. All internal computer systems and each Constituent
Component (as defined below) of those systems and all computer-related products
and each Constituent Component (as defined below) of those products of the
Company and each of its subsidiaries fully comply with Year 2000 Qualification
Requirements. "Year 2000 Qualifications Requirements" means that the internal
computer systems and each Constituent Component (as defined below) of those
systems and all computer-related products and each Constituent Component (as
defined below) of those products of the Company and each of its Subsidiaries (i)
have been reviewed to confirm that they store, process (including sorting and
performing mathematical operations, calculations and computations), input and
output data containing date and information correctly regardless of whether the
date contains dates and times before, on or after January 1, 2000, (ii) have
been designated to ensure date and time entry recognition and calculations, and
date data interface values that reflect the century, (iii) accurately manage and
manipulate data involving dates and times, including single century formulas and
multi-century formulas, and will not cause an abnormal ending scenario within
the application or generate incorrect values or invalid results involving such
dates, (iv) accurately process any date rollover, and (v) accept and respond to
two-digit year date input in a manner that resolves any ambiguities as to the
century. "Constituent Component" means all software (including operating
systems, programs, packages and utilities), firmware, hardware, networking
components, and peripherals provided as part of the configuration. The Company
has inquired of material vendors as to their preparedness for the Year 2000 and
has disclosed in the Registration Statement or Prospectus any issues that might
reasonably be expected to result in any Material Adverse Change.
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<PAGE>
(x) No Transfer Taxes or Other Fees. There are no transfer taxes or other
similar fees or charges under Federal law or the laws of any state, or any
political subdivision thereof, required to be paid in connection with the
execution and delivery of this Agreement or the issuance and sale by the Company
of the shares.
(y) Company Not an "Investment Company". The Company has been advised of
the rules and requirements under the Investment Company Act of 1940, as amended
(the "Investment Company Act"). The Company is not, and after receipt of payment
for the Shares will not be, an "investment company" or an entity "controlled" by
an "investment company" within the meaning of the Investment Company Act and
will conduct its business in a manner so that it will not become subject to the
Investment Company Act.
(z) Insurance. Except as otherwise disclosed in the Prospectus, each of
the Company and its subsidiaries are insured by recognized, financially sound
and reputable institutions with policies in such amounts and with such
deductibles and covering such risks as are generally deemed adequate and
customary for their businesses including, but not limited to, policies covering
real and personal property owned or leased by the Company and its subsidiaries
against theft, damage, destruction, acts of vandalism and earthquakes, general
liability and Directors and Officers liability. The Company has no reason to
believe that it or any subsidiary will not be able (i) to renew its existing
insurance coverage as and when such policies expire or (ii) to obtain comparable
coverage from similar institutions as may be necessary or appropriate to conduct
its business as now conducted and at a cost that would not result in a Material
Adverse Change. Neither of the Company nor any subsidiary has been denied any
insurance coverage which it has sought or for which it has applied.
(aa) Labor Matters. To the best of Company's knowledge, no labor
disturbance by the employees of the Company or any of its subsidiaries exists or
is imminent; and the Company is not aware of any existing or imminent labor
disturbance by the employees of any of its principal suppliers, subassemblers,
value added resellers, subcontractors, original equipment manufacturers,
authorized dealers or international distributors that might be expected to
result in a Material Adverse Change.
(bb) No Price Stabilization or Manipulation. The Company has not taken and
will not take, directly or indirectly, any action designed to or that might be
reasonably expected to cause or result in stabilization or manipulation of the
price of the Common Stock to facilitate the sale or resale of the Shares.
(cc) Lock-Up Agreements. Each officer, director, stockholder and
optionholder of the company has agreed to sign an agreement substantially in the
form attached hereto as Exhibit A (the "Lock-up Agreements"). The Company has
---------
provided to counsel for the Underwriters a complete and accurate list of all
securityholders of the Company and the number and type of securities held by
each securityholder. The Company has provided to counsel for the Underwriters
true, accurate and complete copies of all of the Lock-up Agreements presently in
effect or effected hereby. The Company hereby represents and warrants that it
will not release any of its officers, directors, stockholders or optionholders
from any Lock-up Agreements currently existing or hereafter effected without the
prior written consent of BancBoston Robertson Stephens Inc.
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<PAGE>
(dd) Related Party Transactions. There are no business relationships or
related-party transactions involving the Company or any subsidiary or any other
person required to be described in the Prospectus which have not been described
as required.
Any certificate signed by an officer of the Company and delivered to
the Representatives or to counsel for the Underwriters shall be deemed to be a
representation and warranty by the Company to each Underwriter as to the matters
set forth therein.
(ee) No Unlawful Contributions or Other Payments. Neither the Company nor
any of its subsidiaries nor, to the best of the Company's knowledge, any
employee or agent of the Company or any subsidiary, has made any contribution or
other payment to any official of, or candidate for, any federal, state or
foreign office in violation of any law or of the character required to be
disclosed in the Prospectus.
(ff) Environmental Laws. Except as otherwise disclosed in the Prospectus,
(i) the Company is in compliance with all rules, laws and regulations relating
to the use, treatment, storage and disposal of toxic substances and protection
of health or the environment ("Environmental Laws") which are applicable to its
business, except where the failure to comply would not result in a Material
Adverse Change, (ii) the Company has received no notice from any governmental
authority or third party of an asserted claim under Environmental Laws, which
claim is required to be disclosed in the Registration Statement and the
Prospectus, (iii) the Company will not be required to make future material
capital expenditures to comply with Environmental Laws and (iv) no property
which is owned, leased or occupied by the Company has been designated as a
Superfund site pursuant to the Comprehensive Response, Compensation, and
Liability Act of 1980, as amended (42 U.S.C. (S) 9601, et seq.), or otherwise
-- ---
designated as a contaminated site under applicable state or local law.
(gg) Periodic Review of Costs of Environmental Compliance. In the ordinary
course of its business, the Company conducts a periodic review of the effect of
Environmental Laws on the business, operations and properties of the Company and
its subsidiaries, in the course of which it identifies and evaluates associated
costs and liabilities (including, without limitation, any capital or operating
expenditures required for clean-up, closure of properties or compliance with
Environmental Laws or any permit, license or approval, any related constraints
on operating activities and any potential liabilities to third parties). On the
basis of such review and the amount of its established reserves, the Company has
reasonably concluded that such associated costs and liabilities would not,
individually or in the aggregate, result in a Material Adverse Change.
(hh) ERISA Compliance. Except as otherwise disclosed in the Prospectus,
the Company and its subsidiaries and any "employee benefit plan" (as defined
under the Employee Retirement Income Security Act of 1974, as amended, and the
regulations and published interpretations thereunder (collectively, "ERISA"))
established or maintained by the Company, its subsidiaries or their "ERISA
Affiliates" (as defined below) are in compliance in all material respects with
ERISA. "ERISA Affiliate" means, with respect to the Company or a subsidiary, any
member of any group of organizations described in Sections 414(b),(c),(m) or (o)
of the Internal Revenue Code of 1986, as amended, and the regulations and
published interpretations thereunder (the "Code") of which the Company or such
subsidiary is a member. No "reportable
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event" (as defined under ERISA) has occurred or is reasonably expected to occur
with respect to any "employee benefit plan" established or maintained by the
Company, its subsidiaries or any of their ERISA Affiliates. No "employee benefit
plan" established or maintained by the Company, its subsidiaries or any of their
ERISA Affiliates, if such "employee benefit plan" were terminated, would have
any "amount of unfounded benefit liabilities" (as defined under ERISA). Neither
the Company, its subsidiaries nor any of their ERISA Affiliates has incurred or
reasonably expects to incur any liability under (i) Title IV of ERISA with
respect to termination of, or withdrawal from, any "employee benefit plan" or
(ii) Sections 412, 4971, 4975 or 4980B of the Code. Each "employee benefit plan"
established or maintained by the Company, its subsidiaries or any of their ERISA
Affiliates that is intended to be qualified under Section 401(a) of the Code is
so qualified and nothing has occurred, whether by action or failure to act,
which would cause the loss of such qualification.
Section 2. Purchase, Sale and Delivery of the Shares.
(a) The Firm Shares. The Company agrees to issue and sell to the several
Underwriters the Firm Shares upon the terms herein set forth. On the basis of
the representations, warranties and agreements herein contained, and upon the
terms but subject to the conditions herein set forth, the Underwriters agree,
severally and not jointly, to purchase from the Company the respective number of
Firm Shares set forth opposite their names on Schedule A. The purchase price
----------
per Firm Share to be paid by the several Underwriters to the Company shall be
$[___] per share.
(b) The First Closing Date. Delivery of the Firm Shares to be purchased
by the Underwriters and payment therefor shall be made by the Company and the
Representatives at 9:00 a.m. San Francisco time, at the offices of Wilson
Sonsini Goodrich & Rosati, P.C. (or at such other place as may be agreed upon
among the Representatives and the Company), (i) on the third (3rd) full business
day following the first day that Shares are traded, (ii) if this Agreement is
executed and delivered after 1:30 P.M., San Francisco time, the fourth (4th)
full business day following the day that this Agreement is executed and
delivered or (iii) at such other time and date not later that seven (7) full
business days following the first day that Shares are traded as the
Representatives and the Company may determine (or at such time and date to which
payment and delivery shall have been postponed pursuant to Section 8 hereof),
such time and date of payment and delivery being herein called the "Closing
Date;" provided, however, that if the Company has not made available to the
Representatives copies of the Prospectus within the time provided in Section
4(d) hereof, the BancBoston Robertson Stephens Inc. may, in its sole discretion,
postpone the Closing Date until no later that two (2) full business days
following delivery of copies of the Prospectus to the Representatives.
(c) The Option Shares; the Second Closing Date. In addition, on the basis
of the representations, warranties and agreements herein contained, and upon the
terms but subject to the conditions herein set forth, the Company hereby grants
an option to the several Underwriters to purchase, severally and not jointly, up
to an aggregate of 720,000 Option Shares from the Company at the purchase price
per share to be paid by the Underwriters for the Firm Shares. The option granted
hereunder is for use by the Underwriters solely in covering any over-allotments
in connection with the sale and distribution of the Firm Shares. The option
granted hereunder may be exercised at any time upon notice by the
Representatives to the Company,
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which notice may be given at any time within 30 days from the date of this
Agreement. The time and date of delivery of the Option Shares, if subsequent to
the First Closing Date, is called the "Second Closing Date" and shall be
determined by BancBoston Robertson Stephens Inc. and shall not be earlier than
three nor later than five full business days after delivery of such notice of
exercise. If any Option Shares are to be purchased, each Underwriter agrees,
severally and not jointly, to purchase the number of Option Shares (subject to
such adjustments to eliminate fractional shares as the Representatives may
determine) that bears the same proportion to the total number of Option Shares
to be purchased as the number of Firm Shares set forth on Schedule A opposite
----------
the name of such Underwriter bears to the total number of Firm Shares.
BancBoston Robertson Stephens Inc. may cancel the option at any time prior to
its expiration by giving written notice of such cancellation to the Company.
(d) Public Offering of the Shares. The Representatives hereby advise the
Company that the Underwriters intend to offer for sale to the public, as
described in the Prospectus, their respective portions of the Shares as soon
after this Agreement has been executed and the Registration Statement has been
declared effective as BancBoston Robertson Stephens Inc., in its sole judgment,
has determined is advisable and practicable.
(e) Payment for the Shares. Payment for the Shares shall be made at the
First Closing Date (and, if applicable, at the Second Closing Date) by wire
transfer in immediately available-funds to the order of the Company.
It is understood that the Representatives have been authorized, for
their own account and the accounts of the several Underwriters, to accept
delivery of and receipt for, and make payment of the purchase price for, the
Firm Shares and any Option Shares the Underwriters have agreed to purchase.
BancBoston Robertson Stephens Inc., individually and not as a Representative of
the Underwriters, may (but shall not be obligated to) make payment for any
Shares to be purchased by any Underwriter whose funds shall not have been
received by the Representatives by the First Closing Date or the Second Closing
Date, as the case may be, for the account of such Underwriter, but any such
payment shall not relieve such Underwriter from any of its obligations under
this Agreement.
(f) Delivery of the Shares. The Company shall deliver, or cause to be
delivered, a credit representing the Firm Shares to an account or accounts at
The Depository Trust Company, as designated by the Representatives for the
accounts of the Representatives and the several Underwriters at the First
Closing Date, against the irrevocable release of a wire transfer of immediately
available funds for the amount of the purchase price therefor. The Company
shall also deliver, or cause to be delivered a credit representing the Option
Shares the Underwriters have agreed to purchase at the First Closing Date (or
the Second Closing Date, as the case may be), to an account or accounts at The
Depository Trust Company as designated by the Representatives for the accounts
of the Representatives and the several Underwriters, against the irrevocable
release of a wire transfer of immediately available funds for the amount of the
purchase price therefor. Time shall be of the essence, and delivery at the time
and place specified in this Agreement is a further condition to the obligations
of the Underwriters.
(g) Delivery of Prospectus to the Underwriters. Not later than 12:00 noon
on the second business day following the date the Shares are released by the
Underwriters for sale to the
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public, the Company shall deliver or cause to be delivered copies of the
Prospectus in such quantities and at such places as the Representatives shall
request.
Section 3. Covenants of the Company.
The Company further covenants and agrees with each Underwriter as follows:
(a) Registration Statement Matters. The Company will (i) use its best
efforts to cause a registration statement on Form 8-A (the "Form 8-A
Registration Statement") as required by the Securities Exchange Act of 1934 (the
"Exchange Act") to become effective simultaneously with the Registration
Statement, (ii) use its best efforts to cause the Registration Statement to
become effective or, if the procedure in Rule 430A of the Securities Act is
followed, to prepare and timely file with the Commission under Rule 424(b) under
the Securities Act a Prospectus in a form approved by the Representatives
containing information previously omitted at the time of effectiveness of the
Registration Statement in reliance on Rule 430A of the Securities Act and (iii)
not file any amendment to the Registration Statement or supplement to the
Prospectus of which the Representatives shall not previously have been advised
and furnished with a copy or to which the Representatives shall have reasonably
objected in writing or which is not in compliance with the Securities Act. If
the Company elects to rely on Rule 462(b) under the Securities Act, the Company
shall file a Rule 462(b) Registration Statement with the Commission in
compliance with Rule 462(b) under the Securities Act prior to the time
confirmations are sent or given, as specified by Rule 462(b)(2) under the
Securities Act, and shall pay the applicable fees in accordance with Rule 111
under the Securities Act.
(b) Securities Act Compliance. The Company will advise the
Representatives promptly (i) when the Registration Statement or any post-
effective amendment thereto shall have become effective, (ii) of receipt of any
comments from the Commission, (iii) of any request of the Commission for
amendment of the Registration Statement or for supplement to the Prospectus or
for any additional information and (iv) of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement or the use
of the Prospectus or of the institution of any proceedings for that purpose. The
Company will use its best efforts to prevent the issuance of any such stop order
preventing or suspending the use of the Prospectus and to obtain as soon as
possible the lifting thereof, if issued.
(c) Blue Sky Compliance. The Company will cooperate with the
Representatives and counsel for the Underwriters in endeavoring to qualify the
Shares for sale under the securities laws of such jurisdictions (both national
and foreign) as the Representatives may reasonably have designated in writing
and will make such applications, file such documents, and furnish such
information as may be reasonably required for that purpose, provided the Company
shall not be required to qualify as a foreign corporation or to file a general
consent to service of process in any jurisdiction where it is not now so
qualified or required to file such a consent. The Company will, from time to
time, prepare and file such statements, reports and other documents, as are or
may be required to continue such qualifications in effect for so long a period
as the Representatives may reasonably request for distribution of the Shares.
(d) Amendments and Supplements to the Prospectus and Other Securities Act
Matters. The Company will comply with the Securities Act and the Exchange Act,
and the rules
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and regulations of the Commission thereunder, so as to permit the completion of
the distribution of the Shares as contemplated in this Agreement and the
Prospectus. If during the period in which a prospectus is required by law to be
delivered by an Underwriter or dealer, any event shall occur as a result of
which, in the judgment of the Company or in the reasonable opinion of the
Representatives or counsel for the Underwriters, it becomes necessary to amend
or supplement the Prospectus in order to make the statements therein, in the
light of the circumstances existing at the time the Prospectus is delivered to a
purchaser, not misleading, or, if it is necessary at any time to amend or
supplement the Prospectus to comply with any law, the Company promptly will
prepare and file with the Commission, and furnish at its own expense to the
Underwriters and to dealers, an appropriate amendment to the Registration
Statement or supplement to the Prospectus so that the Prospectus as so amended
or supplemented will not, in the light of the circumstances when it is so
delivered, be misleading, or so that the Prospectus will comply with the law.
(e) Copies of any Amendments and Supplements to the Prospectus. The
Company agrees to furnish the Representatives, without charge, during the period
beginning on the date hereof and ending on the later of the First Closing Date
or such date, as in the opinion of counsel for the Underwriters, the Prospectus
is no longer required by law to be delivered in connection with sales by an
Underwriter or dealer (the "Prospectus Delivery Period"), as many copies of the
Prospectus and any amendments and supplements thereto (including any documents
incorporated or deemed incorporated by reference therein) as the Representatives
may request.
(f) Insurance. The Company shall (i) obtain Directors and Officers
liability insurance in the minimum amount of $10 million which shall apply to
the offering contemplated hereby and (ii) shall cause each of the
Representatives to be added as an additional insured to such policy in respect
of the offering contemplated hereby.
(g) Notice of Subsequent Events. If at any time during the ninety (90)
day period after the Registration Statement becomes effective, any rumor,
publication or event relating to or affecting the Company shall occur as a
result of which in your opinion the market price of the Company Shares has been
or is likely to be materially affected (regardless of whether such rumor,
publication or event necessitates a supplement to or amendment of the
Prospectus), the Company will, after written notice from you advising the
Company to the effect set forth above, forthwith prepare, consult with you
concerning the substance of and disseminate a press release or other public
statement, reasonably satisfactory to you, responding to or commenting on such
rumor, publication or event.
(h) Use of Proceeds. The Company shall apply the net proceeds from the
sale of the Shares sold by it in the manner described under the caption "Use of
Proceeds" in the Prospectus.
(i) Transfer Agent. The Company shall engage and maintain, at its
expense, a registrar and transfer agent for the Company Shares.
(j) Earnings Statement. As soon as practicable, the Company will make
generally available to its security holders and to the Representatives an
earnings statement (which need not be audited) covering the twelve-month period
ending December 31, 2000, that satisfies the provisions of Section 11(a) of the
Securities Act.
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<PAGE>
(k) Periodic Reporting Obligations. During the Prospectus Delivery Period
the Company shall file, on a timely basis, with the Commission and the Nasdaq
National Market all reports and documents required to be filed under the
Exchange Act.
(l) Agreement Not to Offer or Sell Additional Securities. The Company will
not, without the prior written consent of BancBoston Robertson Stephens Inc.,
for a period of 180 days following the date of the Prospectus, offer, sell or
contract to sell, or otherwise dispose of or enter into any transaction which is
designed to, or could be expected to, result in the disposition (whether by
actual disposition or effective economic disposition due to cash settlement or
otherwise by the Company or any affiliate of the Company or any person in
privity with the Company or any affiliate of the Company) directly or
indirectly, or announce the offering of, any other Common Shares or any
securities convertible into, or exchangeable for, Common Shares; provided,
however, that the Company may (i) issue and sell Common Shares pursuant to any
director or employee stock option plan, stock ownership plan or dividend
reinvestment plan of the Company in effect at the date of the Prospectus and
described in the Prospectus so long as none of those shares may be transferred
on during the period of 180 days from the date that the Registration Statement
is declared effective (the "Lock-Up Period") and the Company shall enter stop
transfer instructions with its transfer agent and registrar against the transfer
of any such Common Shares and (ii) the Company may issue Common Shares issuable
upon the conversion of securities or the exercise of warrants outstanding at the
date of the Prospectus and described in the Prospectus.
(m) Future Reports to the Representatives. During the period of five
years hereafter the Company will furnish to the Representatives (i) as soon as
practicable after the end of each fiscal year, copies of the Annual Report of
the Company containing the balance sheet of the Company as of the close of such
fiscal year and statements of income, stockholders' equity and cash flows for
the year then ended and the opinion thereon of the Company's independent public
or certified public accountants; (ii) as soon as practicable after the filing
thereof, copies of each proxy statement, Annual Report on Form 10-K, Quarterly
Report on Form 10-Q, Current Report on Form 8-K or other report filed by the
Company with the Commission, the National Association of Securities Dealers, LLC
or any securities exchange; and (iii) as soon as available, copies of any report
or communication of the Company mailed generally to holders of its capital
stock.
Section 4. Conditions of the Obligations of the Underwriters. The
obligations of the several Underwriters to purchase and pay for the Shares as
provided herein on the First Closing Date and, with respect to the Option
Shares, the Second Closing Date, shall be subject to the accuracy of the
representations and warranties on the part of the Company set forth in Section 1
hereof as of the date hereof and as of the First Closing Date as though then
made and, with respect to the Option Shares, as of the Second Closing Date as
though then made, to the timely performance by the Company of its covenants and
other obligations hereunder, and to each of the following additional conditions:
(a) Compliance with Registration Requirements; No Stop Order; No Objection
from the National Association of Securities Dealers, LLC The Registration
Statement shall have become effective prior to the execution of this Agreement,
or at such later date as shall be consented to in writing by you; and no stop
order suspending the effectiveness thereof shall have
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been issued and no proceedings for that purpose shall have been initiated or, to
the knowledge of the Company or any Underwriter, threatened by the Commission,
and any request of the Commission for additional information (to be included in
the Registration Statement or the Prospectus or otherwise) shall have been
complied with to the satisfaction of Underwriters' Counsel; and the National
Association of Securities Dealers, LLC shall have raised no objection to the
fairness and reasonableness of the underwriting terms and arrangements.
(b) Corporate Proceedings. All corporate proceedings and other legal
matters in connection with this Agreement, the form of Registration Statement
and the Prospectus, and the registration, authorization, issue, sale and
delivery of the Shares, shall have been reasonably satisfactory to Underwriters'
Counsel, and such counsel shall have been furnished with such papers and
information as they may reasonably have requested to enable them to pass upon
the matters referred to in this Section.
(c) No Material Adverse Change. Subsequent to the execution and delivery
of this Agreement and prior to the First Closing Date, or the Second Closing
Date, as the case may be, there shall not have been any Material Adverse Change
in the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company and its subsidiaries considered as one
enterprise from that set forth in the Registration Statement or Prospectus,
which, in your sole judgment, is material and adverse and that makes it, in your
sole judgment, impracticable or inadvisable to proceed with the public offering
of the Shares as contemplated by the Prospectus.
(d) Opinion of Counsel for the Company. You shall have received on the
First Closing Date, or the Second Closing Date, as the case may be, an opinion
of Wilson Sonsini Goodrich & Rosati, P.C., counsel for the Company,
substantially in the form of Exhibit B attached hereto, dated the First Closing
---------
Date, or the Second Closing Date, addressed to the Underwriters and with
reproduced copies or signed counterparts thereof for each of the Underwriters.
Counsel rendering the opinion contained in Exhibit B may rely as to
---------
questions of law not involving the laws of the United States or the State of
California and Delaware upon opinions of local counsel, and as to questions of
fact upon representations or certificates of officers of the Company and of
government officials, in which case their opinion is to state that they are so
relying and that they have no knowledge of any material misstatement or
inaccuracy in any such opinion, representation or certificate. Copies of any
opinion, representation or certificate so relied upon shall be delivered to you,
as Representatives of the Underwriters, and to Underwriters' Counsel.
(e) You shall have received on the First Closing Date, or the Second
Closing Date, as the case may be, an opinion of Antonelli, Terry, Stout & Kraus,
LLP, patent counsel for the Company, substantially in the form of Exhibit C
---------
attached hereto.
(f) Opinion of Counsel for the Underwriters. You shall have received on
the First Closing Date or the Second Closing Date, as the case may be, an
opinion of Hale and Dorr LLP, substantially in the form of Exhibit D hereto. The
---------
Company shall have furnished to such counsel such documents as they may have
requested for the purpose of enabling them to pass upon such
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<PAGE>
matters.
(g) Accountants' Comfort Letter. You shall have received on the First
Closing Date and on the Second Closing Date, as the case may be, a letter from
PricewaterhouseCoopers LLP addressed to the Underwriters, dated the First
Closing Date or the Second Closing Date, as the case may be, confirming that
they are independent certified public accountants with respect to the Company
within the meaning of the Act and the applicable published Rules and Regulations
and based upon the procedures described in such letter delivered to you
concurrently with the execution of this Agreement (herein called the "Original
Letter"), but carried out to a date not more than four (4) business days prior
to the First Closing Date or the Second Closing Date, as the case may be, (i)
confirming, to the extent true, that the statements and conclusions set forth in
the Original Letter are accurate as of the First Closing Date or the Second
Closing Date, as the case may be, and (ii) setting forth any revisions and
additions to the statements and conclusions set forth in the Original Letter
which are necessary to reflect any changes in the facts described in the
Original Letter since the date of such letter, or to reflect the availability of
more recent financial statements, data or information. The letter shall not
disclose any change in the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its subsidiaries
considered as one enterprise from that set forth in the Registration Statement
or Prospectus, which, in your sole judgment, is material and adverse and that
makes it, in your sole judgment, impracticable or inadvisable to proceed with
the public offering of the Shares as contemplated by the Prospectus. The
Original Letter from PricewaterhouseCoopers LLP shall be addressed to or for the
use of the Underwriters in form and substance satisfactory to the Underwriters
and shall (i) represent, to the extent true, that they are independent certified
public accountants with respect to the Company within the meaning of the Act and
the applicable published Rules and Regulations, (ii) set forth their opinion
with respect to their examination of the consolidated balance sheet of the
Company as of December 31, 1998, and related consolidated statements of
operations, shareholders' equity, and cash flows for the twelve (12) months
ended December 31, 1998, (iii) state that PricewaterhouseCoopers LLP has
performed the procedures set out in Statement on Auditing Standards No. 71 ("SAS
71") for a review of interim financial information and providing the report of
PricewaterhouseCoopers LLP as described in SAS 71 on the financial statements
for each of the quarters in the three-quarter period ended September 30, 1999
(the "Quarterly Financial Statements"), (iv) state that PricewaterhouseCoopers
LLP has performed the procedures set out in Statement on Auditing Standards No.
86 ("SAS 86") with respect to the statements in the Prospectus set forth under
the caption "Management's Discussion and Analysis of Financial Condition and
Results of Operations," (v) state that in the course of such review, nothing
came to their attention that leads them to believe that any material
modifications need to be made to any of the Quarterly Financial Statements in
order for them to be in compliance with generally accepted accounting principles
consistently applied across the periods presented, and address other matters
agreed upon by PricewaterhouseCoopers LLP and you. In addition, you shall have
received from PricewaterhouseCoopers LLP a letter addressed to the Company and
made available to you for the use of the Underwriters stating that their review
of the Company's system of internal accounting controls, to the extent they
deemed necessary in establishing the scope of their examination of the Company's
consolidated financial statements as of December 31, 1998, did not disclose any
weaknesses in internal controls that they considered to be material weaknesses.
(h) Officers' Certificate. You shall have received on the First Closing
Date and the
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Second Closing Date, as the case may be, a certificate of the Company, dated the
First Closing Date or the Second Closing Date, as the case may be, signed by the
Chief Executive Officer and Chief Financial Officer of the Company, to the
effect that, and you shall be satisfied that:
(i) The representations and warranties of the Company in this Agreement
are true and correct, as if made on and as of the First Closing Date or the
Second Closing Date, as the case may be, and the Company has complied with
all the agreements and satisfied all the conditions on its part to be
performed or satisfied at or prior to the First Closing Date or the Second
Closing Date, as the case may be;
(ii) No stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
instituted or are pending or threatened under the Act;
(iii) When the Registration Statement became effective and at all times
subsequent thereto up to the delivery of such certificate, the Registration
Statement and the Prospectus, and any amendments or supplements thereto
contained all material information required to be included therein by the
Securities Act and the applicable rules and regulations of the Commission
thereunder and in all material respects conformed to the requirements of
the Securities Act and the applicable rules and regulations of the
Commission thereunder, the Registration Statement and the Prospectus, and
any amendments or supplements thereto, did not and does not include any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading; and, since the effective date of the Registration
Statement, there has occurred no event required to be set forth in an
amended or supplemented Prospectus which has not been so set forth; and
(iv) Subsequent to the respective dates as of which information is given
in the Registration Statement and Prospectus, there has not been (a) any
material adverse change in the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company and its
subsidiaries considered as one enterprise, (b) any transaction that is
material to the Company and its subsidiaries considered as one enterprise,
except transactions entered into in the ordinary course of business, (c)
any obligation, direct or contingent, that is material to the Company and
its subsidiaries considered as one enterprise, incurred by the Company or
its subsidiaries, except obligations incurred in the ordinary course of
business, (d) any change in the capital stock or outstanding indebtedness
of the Company or any of its subsidiaries that is material to the Company
and its subsidiaries considered as one enterprise, (e) any dividend or
distribution of any kind declared, paid or made on the capital stock of the
Company or any of its subsidiaries, or (f) any loss or damage (whether or
not insured) to the property of the Company or any of its subsidiaries
which has been sustained or will have been sustained which has a material
adverse effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its
subsidiaries considered as one enterprise.
(i) Lock-up Agreement from Certain Stockholders of the Company. The
Company shall have obtained and delivered to you an agreement substantially in
the form of Exhibit A
---------
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<PAGE>
attached hereto from each officer and director of the Company and each
beneficial owner of one or more percent of the outstanding issued share capital
of the Company.
(j) Nasdaq Listing. The Shares shall have been approved for listing on
the Nasdaq National Market, subject only to official notice of issuance.
(k) Compliance with Prospectus Delivery Requirements. The Company shall
have complied with the provisions of Sections 2(g) and 3(e) hereof with respect
to the furnishing of Prospectuses.
(l) Additional Documents. On or before each of the First Closing Date and
the Second Closing Date, as the case may be, the Representatives and counsel for
the Underwriters shall have received such information, documents and opinions as
they may reasonably require for the purposes of enabling them to pass upon the
issuance and sale of the Shares as contemplated herein, or in order to evidence
the accuracy of any of the representations and warranties, or the satisfaction
of any of the conditions or agreements, herein contained.
If any condition specified in this Section 4 is not satisfied when and as
required to be satisfied, this Agreement may be terminated by the
Representatives by notice to the Company at any time on or prior to the First
Closing Date and, with respect to the Option Shares, at any time prior to the
Second Closing Date, which termination shall be without liability on the part of
any party to any other party, except that Section 5 (Payment of Expenses),
Section 6 (Reimbursement of Underwriters' Expenses), Section 7 (Indemnification
and Contribution) and Section 10 (Representations and Indemnities to Survive
Delivery) shall at all times be effective and shall survive such termination.
Section 5. Payment of Expenses. The Company agrees to pay all costs, fees
and expenses incurred in connection with the performance of its obligations
hereunder and in connection with the transactions contemplated hereby, including
without limitation (i) all expenses incident to the issuance and delivery of the
Common Shares (including all printing and engraving costs), (ii) all fees and
expenses of the registrar and transfer agent of the Common Stock, (iii) all
necessary issue, transfer and other stamp taxes in connection with the issuance
and sale of the Shares to the Underwriters, (iv) all fees and expenses of the
Company's counsel, independent public or certified public accountants and other
advisors, (v) all costs and expenses incurred in connection with the
preparation, printing, filing, shipping and distribution of the Registration
Statement (including financial statements, exhibits, schedules, consents and
certificates of experts), each preliminary prospectus and the Prospectus, and
all amendments and supplements thereto, and this Agreement, (vi) all filing
fees, attorneys' fees and expenses incurred by the Company or the Underwriters
in connection with qualifying or registering (or obtaining exemptions from the
qualification or registration of) all or any part of the Shares for offer and
sale under the state securities or blue sky laws or the provincial securities
laws of Canada or any other country, and, if requested by the Representatives,
preparing and printing a "Blue Sky Survey", an "International Blue Sky Survey"
or other memorandum, and any supplements thereto, advising the Underwriters of
such qualifications, registrations and exemptions, (vii) the filing fees
incident to, and the reasonable fees and expenses of counsel for the
Underwriters in connection with, the National Association of Securities Dealers,
LLC review and approval of the Underwriters' participation in the offering and
distribution of the Common
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Shares, (viii) the fees and expenses associated with listing the Shares on the
Nasdaq National Market, (ix) all costs and expenses incident to the preparation
and undertaking of "road show" preparations to be made to prospective investors,
and (x) all other fees, costs and expenses referred to in [Item 13] [Item 14] of
Part II of the Registration Statement. Except as provided in this Section 5,
Section 6, and Section 7 hereof, the Underwriters shall pay their own expenses,
including the fees and disbursements of their counsel.
Section 6. Reimbursement of Underwriters' Expenses. If this Agreement is
terminated by the Representatives pursuant to Section 4, Section 7, Section 8 or
Section 9 or if the sale to the Underwriters of the Shares on the First Closing
Date is not consummated because of any refusal, inability or failure on the part
of the Company to perform any agreement herein or to comply with any provision
hereof, the Company agrees to reimburse the Representatives and the other
Underwriters (or such Underwriters as have terminated this Agreement with
respect to themselves), severally, upon demand for all out-of-pocket expenses
that shall have been reasonably incurred by the Representatives and the
Underwriters in connection with the proposed purchase and the offering and sale
of the Shares, including but not limited to fees and disbursements of counsel,
printing expenses, travel expenses, postage, facsimile and telephone charges.
Section 7. Indemnification and Contribution.
(a) Indemnification of the Underwriters.
The Company hereby agrees to indemnify and hold harmless each Underwriter,
its officers and employees, and each person, if any, who controls any
Underwriter within the meaning of the Securities Act and the Exchange Act
against any loss, claim, damage, liability or expense, as incurred, to which
such Underwriter or such controlling person may become subject, under the
Securities Act, the Exchange Act or other federal or state statutory law or
regulation, or at common law or otherwise (including in settlement of any
litigation, if such settlement is effected with the written consent of the
Company, which consent shall not be unreasonably withheld), insofar as such
loss, claim, damage, liability or expense (or actions in respect thereof as
contemplated below) arises out of or is based (i) upon any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement, or any amendment thereto, including any information deemed to be a
part thereof pursuant to Rule 430A or Rule 434 under the Securities Act, or the
omission or alleged omission therefrom of a material fact required to be stated
therein or necessary to make the statements therein not misleading; or (ii) upon
any untrue statement or alleged untrue statement of a material fact contained in
any preliminary prospectus or the Prospectus (or any amendment or supplement
thereto), or the omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; or (iii) in whole or
in part upon any inaccuracy in the representations and warranties of the Company
contained herein; or (iv) in whole or in part upon any failure of the Company to
perform its obligations hereunder or under law; or (v) any act or failure to act
or any alleged act or failure to act by any Underwriter in connection with, or
relating in any manner to, the Shares or the offering contemplated hereby, and
which is included as part of or referred to in any loss, claim, damage,
liability or action arising out of or based upon any matter covered by clause
(i), (ii), (iii) or (iv) above, provided that the Company shall not be liable
under this clause (v) to the extent that a court of competent
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jurisdiction shall have determined by a final judgment that such loss, claim,
damage, liability or action resulted directly from any such acts or failures to
act undertaken or omitted to be taken by such Underwriter through its bad faith
or willful misconduct; and to reimburse each Underwriter and each such
controlling person for any and all expenses (including the fees and
disbursements of counsel chosen by BancBoston Robertson Stephens Inc.) as such
expenses are reasonably incurred by such Underwriter or such controlling person
in connection with investigating, defending, settling, compromising or paying
any such loss, claim, damage, liability, expense or action; provided, however,
that the foregoing indemnity agreement shall not apply to any loss, claim,
damage, liability or expense to the extent, but only to the extent, arising out
of or based upon any untrue statement or alleged untrue statement or omission or
alleged omission made in reliance upon and in conformity with written
information furnished to the Company by one or more of the Representatives
expressly for use in the Registration Statement, any preliminary prospectus or
the Prospectus (or any amendment or supplement thereto); and provided, further,
that with respect to any preliminary prospectus, the foregoing indemnity
agreement shall not inure to the benefit of any Underwriter from whom the person
asserting any loss, claim, damage, liability or expense purchased Shares, or any
person controlling such Underwriter, if copies of the Prospectus were timely
delivered to the Underwriter pursuant to Section 2 and a copy of the Prospectus
(as then amended or supplemented if the Company shall have furnished any
amendments or supplements thereto) was not sent or given by or on behalf of such
Underwriter to such person, if required by law so to have been delivered, at or
prior to the written confirmation of the sale of the Shares to such person, and
if the Prospectus (as so amended or supplemented) would have cured the defect
giving rise to such loss, claim, damage, liability or expense. The indemnity
agreement set forth in this Section 7(a) shall be in addition to any liabilities
that the Company may otherwise have.
(b) Indemnification of the Company, its Directors and Officers. Each
Underwriter agrees, severally and not jointly, to indemnify and hold harmless
the Company, each of its directors, each of its officers who signed the
Registration Statement and each person, if any, who controls the Company within
the meaning of the Securities Act or the Exchange Act, against any loss, claim,
damage, liability or expense, as incurred, to which the Company, or any such
director, officer or controlling person may become subject, under the Securities
Act, the Exchange Act, or other federal or state statutory law or regulation, or
at common law or otherwise (including in settlement of any litigation, if such
settlement is effected with the written consent of such Underwriter), insofar as
such loss, claim, damage, liability or expense (or actions in respect thereof as
contemplated below) arises out of or is based upon any untrue or alleged untrue
statement of a material fact contained in the Registration Statement, any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto), or arises out of or is based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in the Registration Statement, any preliminary
prospectus, the Prospectus (or any amendment or supplement thereto), in reliance
upon and in conformity with written information furnished to the Company by the
Representatives expressly for use therein; and to reimburse the Company, or any
such director, officer or controlling person for any legal and other expense
reasonably incurred by the Company, or any such director, officer or controlling
person in connection with investigating, defending, settling, compromising or
paying any such loss, claim, damage, liability, expense or action. The indemnity
agreement set forth in this
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Section 7(b) shall be in addition to any liabilities that each Underwriter may
otherwise have.
(c) Information Provided by the Underwriters. The Company hereby
acknowledges that the only information that the Underwriters have furnished to
the Company expressly for use in the Registration Statement, any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto) are the
statements set forth in the table in the first paragraph and the second and
third paragraphs under the caption "Underwriting" in the Prospectus; and the
Underwriters confirm that such statements are correct.
(d) Notifications and Other Indemnification Procedures. Promptly after
receipt by an indemnified party under this Section 7 of notice of the
commencement of any action, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party under this Section 7, notify
the indemnifying party in writing of the commencement thereof, but the omission
so to notify the indemnifying party will not relieve it from any liability which
it may have to any indemnified party for contribution or otherwise than under
the indemnity agreement contained in this Section 7 or to the extent it is not
prejudiced as a proximate result of such failure. In case any such action is
brought against any indemnified party and such indemnified party seeks or
intends to seek indemnity from an indemnifying party, the indemnifying party
will be entitled to participate in, and, to the extent that it shall elect,
jointly with all other indemnifying parties similarly notified, by written
notice delivered to the indemnified party promptly after receiving the aforesaid
notice from such indemnified party, to assume the defense thereof with counsel
reasonably satisfactory to such indemnified party; provided, however, if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that a conflict may arise between the positions of the indemnifying party and
the indemnified party in conducting the defense of any such action or that there
may be legal defenses available to it and/or other indemnified parties which are
different from or additional to those available to the indemnifying party, the
indemnified party or parties shall have the right to select separate counsel to
assume such legal defenses and to otherwise participate in the defense of such
action on behalf of such indemnified party or parties. Upon receipt of notice
from the indemnifying party to such indemnified party of such indemnifying
party's election so to assume the defense of such action and approval by the
indemnified party of counsel, the indemnifying party will not be liable to such
indemnified party under this Section 7 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof unless (i) the indemnified party shall have employed separate counsel in
accordance with the proviso to the next preceding sentence (it being understood,
however, that the indemnifying party shall not be liable for the expenses of
more than one separate counsel (together with local counsel), approved by the
indemnifying party (BancBoston Robertson Stephens Inc. in the case of Section
7(b) and Section 8), representing the indemnified parties who are parties to
such action), (ii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time after notice of commencement of the action, or (iii) the
indemnifying party has authorized the employment of counsel for the indemnified
party at the expense of the indemnifying party, in each of which cases the fees
and expenses of counsel shall be at the expense of the indemnifying party.
(e) Settlements. The indemnifying party under this Section 7 shall not be
liable for any settlement of any proceeding effected without its written
consent, which consent shall not be
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unreasonably withheld, but if settled with such consent or if there be a final
judgment for the plaintiff, the indemnifying party agrees to indemnify the
indemnified party against any loss, claim, damage, liability or expense by
reason of such settlement or judgment. Notwithstanding the foregoing sentence,
if at any time an indemnified party shall have requested an indemnifying party
to reimburse the indemnified party for fees and expenses of counsel as
contemplated by Section 7(d) hereof, the indemnifying party agrees that it shall
be liable for any settlement of any proceeding effected without its written
consent if (i) such settlement is entered into more than 30 days after receipt
by such indemnifying party of the aforesaid request and (ii) such indemnifying
party shall not have reimbursed the indemnified party in accordance with such
request prior to the date of such settlement. No indemnifying party shall,
without the prior written consent of the indemnified party, effect any
settlement, compromise or consent to the entry of judgment in any pending or
threatened action, suit or proceeding in respect of which any indemnified party
is or could have been a party and indemnity was or could have been sought
hereunder by such indemnified party, unless such settlement, compromise or
consent includes (i) an unconditional release of such indemnified party from all
liability on claims that are the subject matter of such action, suit or
proceeding and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act by or on behalf of any indemnified party.
(f) Contribution. If the indemnification provided for in this Section 7
is unavailable to or insufficient to hold harmless an indemnified party under
Section 7(a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) then each
indemnifying party shall contribute to the aggregate amount paid or payable by
such indemnified party in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the Underwriters
on the other from the offering of the Shares. If, however, the allocation
provided by the immediately preceding sentence is not permitted by applicable
law then each indemnifying party shall contribute to such amount paid or payable
by such indemnified party in such proportion as is appropriate to reflect not
only such relative benefits but also the relative fault of the Company on the
one hand and the Underwriters on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities, (or
actions or proceedings in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and the Underwriter on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company bears to the total underwriting discounts and
commissions received by the Underwriters, in each case as set forth in the table
on the cover page of the Prospectus. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company on the one hand or the
Underwriters on the other and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and Underwriters agree that it would not be just and equitable
if contributions pursuant to this Section 7(f) were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 7(f). The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) referred
to above in this Section 7(f) shall
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<PAGE>
be deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this subsection (f), (i) no
Underwriter shall be required to contribute any amount in excess of the
underwriting discounts and commissions applicable to the Shares purchased by
such Underwriter and (ii) no person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this Section 7(f) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(g) Timing of Any Payments of Indemnification. Any losses, claims,
damages, liabilities or expenses for which an indemnified party is entitled to
indemnification or contribution under this Section 7 shall be paid by the
indemnifying party to the indemnified party as such losses, claims, damages,
liabilities or expenses are incurred, but in all cases, no later than thirty
(30) days of invoice to the indemnifying party.
(h) Survival. The indemnity and contribution agreements contained in this
Section 7 and the representation and warranties of the Company set forth in this
Agreement shall remain operative and in full force and effect, regardless of (i)
any investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter, the Company, its directors or officers or any
persons controlling the Company, (ii) acceptance of any Shares and payment
therefor hereunder, and (iii) any termination of this Agreement. A successor to
any Underwriter, or to the Company, its directors or officers, or any person
controlling the Company, shall be entitled to the benefits of the indemnity,
contribution and reimbursement agreements contained in this Section 7.
(i) Acknowledgements of Parties. The parties to this Agreement hereby
acknowledge that they are sophisticated business persons who were represented by
counsel during the negotiations regarding the provisions hereof including,
without limitation, the provisions of this Section 7, and are fully informed
regarding said provisions. They further acknowledge that the provisions of this
Section 7 fairly allocate the risks in light of the ability of the parties to
investigate the Company and its business in order to assure that adequate
disclosure is made in the Registration Statement and Prospectus as required by
the Securities Act and the Exchange Act.
Section 8. Default of One or More of the Several Underwriters. If, on the
First Closing Date or the Second Closing Date, as the case may be, any one or
more of the several Underwriters shall fail or refuse to purchase Shares that it
or they have agreed to purchase hereunder on such date, and the aggregate number
of Common Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase does not exceed 10% of the aggregate number of the
Shares to be purchased on such date, the other Underwriters shall be obligated,
severally, in the proportions that the number of Firm Common Shares set forth
opposite their respective names on Schedule A bears to the aggregate number of
----------
Firm Shares set forth opposite the names of all such non-defaulting
Underwriters, or in such other proportions as may be specified by the
Representatives with the consent of the non-defaulting Underwriters, to purchase
the Shares which such defaulting Underwriter or Underwriters agreed but failed
or refused to purchase on such date. If, on the First Closing Date or the Second
Closing Date, as the
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<PAGE>
case may be, any one or more of the Underwriters shall fail or refuse to
purchase Shares and the aggregate number of Shares with respect to which such
default occurs exceeds 10% of the aggregate number of Shares to be purchased on
such date, and arrangements satisfactory to the Representatives and the Company
for the purchase of such Shares are not made within 48 hours after such default,
this Agreement shall terminate without liability of any party to any other party
except that the provisions of Section 4, and Section 7 shall at all times be
effective and shall survive such termination. In any such case either the
Representatives or the Company shall have the right to postpone the First
Closing Date or the Second Closing Date, as the case may be, but in no event for
longer than seven days in order that the required changes, if any, to the
Registration Statement and the Prospectus or any other documents or arrangements
may be effected.
As used in this Agreement, the term "Underwriter" shall be deemed to
include any person substituted for a defaulting Underwriter under this Section
8. Any action taken under this Section 8 shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
Section 9. Termination of this Agreement. Prior to the First Closing
Date, this Agreement may be terminated by the Representatives by notice given to
the Company if at any time (i) trading or quotation in any of the Company's
securities shall have been suspended or limited by the Commission or by the
Nasdaq Stock Market, or trading in securities generally on either the Nasdaq
Stock Market or the New York Stock Exchange shall have been suspended or
limited, or minimum or maximum prices shall have been generally established on
any of such stock exchanges by the Commission or the National Association of
Securities Dealers, LLC; (ii) a general banking moratorium shall have been
declared by any of federal, New York, Delaware or California authorities; (iii)
there shall have occurred any outbreak or escalation of national or
international hostilities or any crisis or calamity, or any change in the United
States or international financial markets, or any substantial change or
development involving a prospective change in United States' or international
political, financial or economic conditions, as in the judgment of the
Representatives is material and adverse and makes it impracticable or
inadvisable to market the Common Shares in the manner and on the terms described
in the Prospectus or to enforce contracts for the sale of securities; (iv) in
the judgment of the Representatives there shall have occurred any Material
Adverse Change; or (v) the Company shall have sustained a loss by strike, fire,
flood, earthquake, accident or other calamity of such character as in the
judgment of the Representatives may interfere materially with the conduct of the
business and operations of the Company regardless of whether or not such loss
shall have been insured. Any termination pursuant to this Section 9 shall be
without liability on the part of (a) the Company to any Underwriter, except that
the Company shall be obligated to reimburse the expenses of the Representatives
and the Underwriters pursuant to Sections 5 and 6 hereof, (b) any Underwriter to
the Company, or (c) of any party hereto to any other party except that the
provisions of Section 7 shall at all times be effective and shall survive such
termination.
Section 10. Representations and Indemnities to Survive Delivery. The
respective indemnities, agreements, representations, warranties and other
statements of the Company, of its officers and of the several Underwriters set
forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation made by or on behalf of any Underwriter
or the Company or any of its or their partners, officers or directors or any
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<PAGE>
controlling person, as the case may be, and will survive delivery of and payment
for the Shares sold hereunder and any termination of this Agreement.
Section 11. Notices. All communications hereunder shall be in writing and
shall be mailed, hand delivered or telecopied and confirmed to the parties
hereto as follows:
If to the Representatives:
BancBoston Robertson Stephens Inc.
555 California Street
San Francisco, California 94104
Facsimile: (415) 676-2696
Attention: General Counsel
If to the Company:
Rudolph Technologies, Inc.
One Rudolph Road
Flanders, NJ 07836
Facsimile: (973) 691-5480
Attention: President
Any party hereto may change the address for receipt of communications by giving
written notice to the others.
Section 12. Successors. This Agreement will inure to the benefit of and
be binding upon the parties hereto, including any substitute Underwriters
pursuant to Section 9 hereof, and to the benefit of the employees, officers and
directors and controlling persons referred to in Section 7, and to their
respective successors, and no other person will have any right or obligation
hereunder. The term "successors" shall not include any purchaser of the Shares
as such from any of the Underwriters merely by reason of such purchase.
Section 13. Partial Unenforceability. The invalidity or unenforceability
of any Section, paragraph or provision of this Agreement shall not affect the
validity or enforceability of any other Section, paragraph or provision hereof.
If any Section, paragraph or provision of this Agreement is for any reason
determined to be invalid or unenforceable, there shall be deemed to be made such
minor changes (and only such minor changes) as are necessary to make it valid
and enforceable.
Section 14. Governing Law Provisions.
(a) Governing Law. This agreement shall be governed by and construed in
accordance with the internal laws of the state of New York applicable to
agreements made and to be performed in such state.
(b) Consent to Jurisdiction. Any legal suit, action or proceeding arising
out of or based upon this Agreement or the transactions contemplated hereby
("Related Proceedings") may be instituted in the federal courts of the United
States of America located in the City and
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<PAGE>
County of San Francisco or the courts of the State of California in each case
located in the City and County of San Francisco (collectively, the "Specified
Courts"), and each party irrevocably submits to the exclusive jurisdiction
(except for proceedings instituted in regard to the enforcement of a judgment of
any such court (a "Related Judgment"), as to which such jurisdiction is non-
exclusive) of such courts in any such suit, action or proceeding. Service of any
process, summons, notice or document by mail to such party's address set forth
above shall be effective service of process for any suit, action or other
proceeding brought in any such court. The parties irrevocably and
unconditionally waive any objection to the laying of venue of any suit, action
or other proceeding in the Specified Courts and irrevocably and unconditionally
waive and agree not to plead or claim in any such court that any such suit,
action or other proceeding brought in any such court has been brought in an
inconvenient forum. Each party not located in the United States irrevocably
appoints CT Corporation System, which currently maintains a San Francisco office
at 49 Stevenson Street, San Francisco, California 94105, United States of
America, as its agent to receive service of process or other legal summons for
purposes of any such suit, action or proceeding that may be instituted in any
state or federal court in the City and County of San Francisco.
Section 15. General Provisions. This Agreement constitutes the entire
agreement of the parties to this Agreement and supersedes all prior written or
oral and all contemporaneous oral agreements, understandings and negotiations
with respect to the subject matter hereof. This Agreement may be executed in
two or more counterparts, each one of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement may not be amended or modified unless in writing by all of the
parties hereto, and no condition herein (express or implied) may be waived
unless waived in writing by each party whom the condition is meant to benefit.
The Table of Contents and the Section headings herein are for the convenience of
the parties only and shall not affect the construction or interpretation of this
Agreement.
[The remainder of this page has been intentionally left blank.]
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<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to the Company the enclosed copies hereof, whereupon this
instrument, along with all counterparts hereof, shall become a binding agreement
in accordance with its terms.
Very truly yours,
RUDOLPH TECHNOLOGIES, INC.
By: ___________________________
[Title]
The foregoing Underwriting Agreement is hereby confirmed and accepted by
the Representatives as of the date first above written.
BANCBOSTON ROBERTSON STEPHENS INC.
BEARS, STEARNS & CO. INC.
CIBC WORLD MARKETS
On their behalf and on behalf of each of the several underwriters named in
Schedule A hereto.
- ----------
By BANCBOSTON ROBERTSON STEPHENS INC.
By: _________________________
Authorized Signatory
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<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Number of Firm
Common Shares To be
Underwriters Purchased
<S> <C>
BANCBOSTON ROBERTSON STEPHENS, INC. [AND BANCBOSTON
ROBERTSON STEPHENS INTERNATIONAL LIMITED].............
[__________]
BEAR, STEARNS & CO. INC................................ [__________]
CIBC WORLD MARKETS..................................... [__________]
Total........................................... [__________]
</TABLE>
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<PAGE>
Exhibit A
Lock-Up Agreement and Waiver
BancBoston Robertson Stephens Inc.
Bear, Sterns & Co. Inc.
CIBC World Markets
As Representatives of the Several Underwriters
c/o BancBoston Robertson Stephens Inc.
555 California Street, Suite 2600
San Francisco, California 94104
RE: Rudolph Technologies, Inc. (the "Company")
Ladies & Gentlemen:
The undersigned is an owner of record or beneficially of certain shares of
Common Stock of the Company ("Common Stock") or securities convertible into or
exchangeable or exercisable for Common Stock. The Company proposes to carry out
a public offering of Common Stock (the "Offering") for which you will act as the
representatives (the "Representatives") of the underwriters. The undersigned
recognizes that the Offering will be of benefit to the undersigned and will
benefit the Company by, among other things, raising additional capital for its
operations. The undersigned acknowledges that you and the other underwriters
are relying on the representations and agreements of the undersigned contained
in this letter in carrying out the Offering and in entering into underwriting
arrangements with the Company with respect to the Offering.
In consideration of the foregoing, the undersigned hereby agrees that the
undersigned will not offer to sell, contract to sell, or otherwise sell, dispose
of, loan, pledge or grant any rights with respect to (collectively, a
"Disposition") any shares of Common Stock, any options or warrants to purchase
any shares of Common Stock or any securities convertible into or exchangeable
for shares of Common Stock (collectively, "Securities") now owned or hereafter
acquired directly by such person or with respect to which such person has or
hereafter acquires the power of disposition, otherwise than (i) as a bona fide
gift or gifts, provided the donee or donees thereof agree in writing to be bound
by this restriction, (ii) as a distribution to partners, shareholders or
majority-owned subsidiaries of such person, provided that the distributees
thereof agree in writing to be bound by the terms of this restriction, (iii)
with respect to dispositions of Common Shares acquired on the open market, or
(iv) with the prior written consent of BancBoston Robertson Stephens Inc., for a
period commencing on the date hereof and continuing to a date 180 days after the
Registration Statement is declared effective by the Securities and Exchange
Commission, which period shall terminate no later than July 1, 2000 (the "Lock-
up Period"). The foregoing restriction has been expressly agreed to preclude
the holder of the Securities from engaging in any hedging or other transaction
which is designed to or reasonably expected to lead to or result in a
Disposition of Securities during the Lock-up Period, even if such Securities
would be disposed of by someone other than such holder. Such prohibited hedging
or other transactions would include, without limitation, any short sale
A-1
<PAGE>
(whether or not against the box) or any purchase, sale or grant of any right
(including, without limitation, any put or call option) with respect to any
Securities or with respect to any security (other than a broad-based market
basket or index) that included, relates to or derives any significant part of
its value from Securities. The undersigned agrees and consents to the entry of
stop transfer instructions with the Company's transfer agent and registrar
against the transfer of shares of Common Stock or Securities held by the
undersigned except in compliance with the foregoing restrictions. The
undersigned also hereby waives all registration rights with respect to the
Offering to which the undersigned may be entitled under any agreement, along
with any notice requirements related to such rights.
This agreement is irrevocable and will be binding on the undersigned and
the respective successors, heirs, personal representatives, and assigns of the
undersigned.
Dated:________________________________________
_________________________________________
Printed Name of Holder
By:______________________________________
Signature
_________________________________________
Printed Name of Person Signing (and
indicate capacity of person signing if
signing as custodian, trustee, or on
behalf of an entity)
A-2
<PAGE>
Exhibit B
Matters to be Covered in the Opinion of Company Counsel
(i) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation;
(ii) The Company has the corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectus;
(iii) The Company is duly qualified to do business as a foreign corporation and
is in good standing in each jurisdiction, if any, in which the ownership or
leasing of its properties or the conduct of its business requires such
qualification, except where the failure to be so qualified or be in good
standing would not have a Material Adverse Effect. To such counsel's knowledge,
the Company does not own or control, directly or indirectly, any corporation,
association or other entity;
(iv) The authorized, issued and outstanding capital stock of the Company is as
set forth in the Prospectus under the caption "Capitalization" as of the dates
stated therein, the issued and outstanding shares of capital stock of the
Company have been duly and validly issued and are fully paid and nonassessable,
and, to such counsel's knowledge, will not have been issued in violation of or
subject to any preemptive right, co-sale right, registration right, right of
first refusal or other similar right;
(v) The Firm Shares or the Option Shares, as the case may be, to be issued by
the Company pursuant to the terms of this Agreement have been duly authorized
and, upon issuance and delivery against payment therefor in accordance with the
terms hereof, will be duly and validly issued and fully paid and nonassessable,
and will not have been issued in violation of or subject to any preemptive
right, co-sale right, registration right, right of first refusal or other
similar right.
(vi) The Company has the corporate power and authority to enter into this
Agreement and to issue, sell and deliver to the Underwriters the Shares to be
issued and sold by it hereunder;
(vii) This Agreement has been duly authorized by all necessary corporate action
on the part of the Company and has been duly executed and delivered by the
Company and, assuming due authorization, execution and delivery by you, is a
valid and binding agreement of the Company, enforceable in accordance with its
terms, except as rights to indemnification hereunder may be limited by
applicable law and except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to or affecting
creditors' rights generally or by general equitable principles;
(viii) The Registration Statement has become effective under the Act and, to
such counsel's knowledge, no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that purpose have
been instituted or are pending or threatened under the Securities Act;
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<PAGE>
(ix) The 8-A Registration Statement complied as to form in all material
respects with the requirements of the Exchange Act; the 8-A Registration
Statement has become effective under the Exchange Act; and the Firm Shares or
the Option Shares have been validly registered under the Securities Act and the
Rules and Regulations of the Exchange Act and the applicable rules and
regulations of the Commission thereunder;
(x) The Registration Statement and the Prospectus, and each amendment or
supplement thereto (other than the financial statements (including supporting
schedules) and financial data derived therefrom as to which such counsel need
express no opinion), as of the effective date of the Registration Statement,
complied as to form in all material respects with the requirements of the Act
and the applicable Rules and Regulations;
(xi) The information in the Prospectus under the caption "Description of
Capital Stock," to the extent that it constitutes matters of law or legal
conclusions, has been reviewed by such counsel and is a fair summary of such
matters and conclusions; and the forms of certificates evidencing the Common
Stock and filed as exhibits to the Registration Statement comply with Delaware
law;
(xii) The description in the Registration Statement and the Prospectus of the
charter and bylaws of the Company and of statutes are accurate and fairly
present the information required to be presented by the Securities Act;
(xiii) To such counsel's knowledge, there are no agreements, contracts, leases
or documents to which the Company is a party of a character required to be
described or referred to in the Registration Statement or Prospectus or to be
filed as an exhibit to the Registration Statement which are not described or
referred to therein or filed as required;
(xiv) The performance of this Agreement and the consummation of the
transactions herein contemplated (other than performance of the Company's
indemnification obligations hereunder, concerning which no opinion need be
expressed) will not (a) result in any violation of the Company's charter or
bylaws or (b) to such counsel's knowledge, result in a material breach or
violation of any of the terms and provisions of, or constitute a default under,
any bond, debenture, note or other evidence of indebtedness, or any lease,
contract, indenture, mortgage, deed of trust, loan agreement, joint venture or
other agreement or instrument known to such counsel to which the Company is a
party or by which its properties are bound, or any applicable statute, rule or
regulation known to such counsel or, to such counsel's knowledge, any order,
writ or decree of any court, government or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries, or over any of their
properties or operations;
(xv) No consent, approval, authorization or order of or qualification with any
court, government or governmental agency or body having jurisdiction over the
Company or any of its subsidiaries, or over any of their properties or
operations is necessary in connection with the consummation by the Company of
the transactions herein contemplated, except (i) such as have been obtained
under the Securities Act, (ii) such as may be required under state or other
securities or Blue Sky laws in connection with the purchase and the distribution
of the Shares by the Underwriters, (iii) such as may be required by the National
Association of Securities Dealers, LLC and (iv) such as may be required under
the federal or provincial laws of Canada;
B-2
<PAGE>
(xvi) To such counsel's knowledge, there are no legal or governmental
proceedings pending or threatened against the Company or any of its subsidiaries
of a character required to be disclosed in the Registration Statement or the
Prospectus by the Securities Act, other than those described therein;
(xvii) To such counsel's knowledge, neither the Company nor any of its
subsidiaries is presently (a) in material violation of its respective charter or
bylaws, or (b) in material breach of any applicable statute, rule or regulation
known to such counsel or, to such counsel's knowledge, any order, writ or decree
of any court or governmental agency or body having jurisdiction over the Company
or any of its subsidiaries, or over any of their properties or operations; and
(xviii) To such counsel's knowledge, except as set forth in the Registration
Statement and Prospectus, no holders of Company Shares or other securities of
the Company have registration rights with respect to securities of the Company
and, except as set forth in the Registration Statement and Prospectus, all
holders of securities of the Company having rights known to such counsel to
registration of such shares of Company Shares or other securities, because of
the filing of the Registration Statement by the Company have, with respect to
the offering contemplated thereby, waived such rights or such rights have
expired by reason of lapse of time following notification of the Company's
intent to file the Registration Statement or have included securities in the
Registration Statement pursuant to the exercise of and in full satisfaction of
such rights.
(xix) The Company is not and, after giving effect to the offering and the sale
of the Shares and the application of the proceeds thereof as described in the
Prospectus, will not be, an "investment company" as such term is defined in the
Investment Company Act of 1940, as amended.
In addition, such counsel shall state that such counsel has participated in
conferences with officials and other representatives of the Company, the
Representatives, Underwriters' Counsel and the independent certified public
accountants of the Company, at which such conferences the contents of the
Registration Statement and Prospectus and related matters were discussed, and
although they have not verified the accuracy or completeness of the statements
contained in the Registration Statement or the Prospectus, nothing has come to
the attention of such counsel which leads them to believe that, at the time the
Registration Statement became effective and at all times subsequent thereto up
to and on the First Closing Date or Second Closing Date, as the case may be, the
Registration Statement and any amendment or supplement thereto (other than the
financial statements including supporting schedules and other financial and
statistical information derived therefrom, as to which such counsel need express
no comment) contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, or at the First Closing Date or the Second
Closing Date, as the case may be, the Registration Statement, the Prospectus and
any amendment or supplement thereto (except as aforesaid) contained any untrue
statement of a material fact or omitted to state a material fact necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.
B-3
<PAGE>
Exhibit C
Matters to be Covered in the Opinion of
Patent Counsel for the Company
Such counsel are familiar with the technology used by the Company in its
business and the manner of its use thereof and have read the Registration
Statement and the Prospectus, including particularly the portions of the
Registration Statement and the Prospectus referring to patents, trade secrets,
trademarks, service marks or other proprietary information or materials and:
(i) The Company is listed in the records of the United States Patent and
Trademark Office as the holder of record of the patents listed on a
schedule to such opinion (the "Patents") and each of the applications
listed on a schedule to such opinion (the "Applications"). To the
knowledge of such counsel, there are no claims of third parties to any
ownership interest or lien with respect to any of the Patents or
Applications. Such counsel is not aware of any material defect in form in
the preparation or filing of the Applications on behalf of the Company. To
the knowledge of such counsel, the Applications are being pursued by the
Company. To the knowledge of such counsel, the Company owns as its sole
property the Patents and pending Applications;
(ii) The Company is listed in the records of the appropriate foreign
offices as the sole holder of record of the foreign patents listed on a
schedule to such opinion (the "Foreign Patents") and each of the
applications listed on a schedule to such opinion (the "Foreign
Applications"). Such counsel knows of no claims of third parties to any
ownership interest or lien with respect to the Foreign Patents or Foreign
Applications. Such counsel is not aware of any material defect of form in
the preparation or filing of the Foreign Applications on behalf of the
Company. To the knowledge of such counsel, the Foreign Applications are
being pursued by the Company. To the knowledge of such counsel, the
Company owns as its sole property the Foreign Patents and pending Foreign
Applications;
(iii) Such counsel knows of no reason why the Patents or Foreign Patents
are not valid as issued. Such counsel has no knowledge of any reason why
any patent to be issued as a result of any Application or Foreign
Application would not be valid or would not afford the Company useful
patent protection with respect thereto;
(iv) As to the statements under the captions "Risk Factors -- Protection
of our intellectual property rights, or the efforts of third parties to
enforce their own intellectual property rights against us, has in the past
resulted and may in the future result in costly and time-consuming
litigation," "Business -- Intellectual Property," "Business -- Research and
Development," and "Business -- Legal Proceedings," nothing has come to the
attention of such counsel which caused them to believe that the above-
mentioned sections of the Registration Statement, at the time the
Registration Statement became effective and at all times subsequent thereto
up to and on the Closing Date and on any later date on which Option Stock
are to be purchased the Registration Statement and any
C-1
<PAGE>
amendment or supplement thereto made available and reviewed by such counsel
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, or at the Closing Date or any later date
on which the Option Stock are to be purchased, as the case may be, the
above-mentioned sections of the Registration Statement, Prospectus and any
amendment or supplement thereto made available and reviewed by such counsel
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading; and
(v) Such counsel knows of no material action, suit, claim or proceeding
relating to patents, patent rights or licenses, trademarks or trademark
rights, copyrights, collaborative research, licenses or royalty
arrangements or agreements or trade secrets, know-how or proprietary
techniques, including processes and substances, owned by or affecting the
business or operations of the Company which are pending or threatened
against the Company or any of its officers or directors.
C-2
<PAGE>
Exhibit D
Matters to be Covered in the Opinion of Underwriters' Counsel
(i) The Shares to be issued by the Company have been duly authorized and,
upon issuance and delivery and payment therefor in accordance with the terms of
the Underwriting Agreement, will be validly issued, fully paid and non-
assessable.
(ii) The Registration Statement complied as to form in all material respects
with the requirements of the Act; the Registration Statement has become
effective under the Act and, to such counsel's knowledge, no stop order
proceedings with respect thereto have been instituted or threatened or are
pending under the Act.
(iii) The 8-A Registration Statement complied as to form in all material
respects with the requirements of the Exchange Act; the 8-A Registration
Statement has become effective under the Exchange Act; and the Firm Shares or
the Option Shares have been validly registered under the Securities Act and the
Rules and Regulations of the Exchange Act and the applicable rules and
regulations of the Commission thereunder;
(iv) The Underwriting Agreement has been duly authorized, executed and
delivered by the Company.
Such counsel shall state that such counsel has reviewed the opinions
addressed to the Representatives from Wilson Sonsini Goodrich & Rosati, P.C. and
Antonelli, Terry, Stout & Kraus, LLP, each dated the date hereof, and furnished
to you in accordance with the provisions of the Underwriting Agreement. Such
opinions appear on their face to be appropriately responsive to the requirements
of the Underwriting Agreement.
In addition, such counsel shall state that such counsel has participated in
conferences with officials and other representatives of the Company, the
Representatives, Underwriters' Counsel and the independent certified public
accountants of the Company, at which such conferences the contents of the
Registration Statement and Prospectus and related matters were discussed, and
although they have not verified the accuracy or completeness of the statements
contained in the Registration Statement or the Prospectus, nothing has come to
the attention of such counsel which leads them to believe that, at the time the
Registration Statement became effective and at all times subsequent thereto up
to and on the First Closing Date or Second Closing Date, as the case may be, the
Registration Statement and any amendment or supplement thereto (other than the
financial statements including supporting schedules and other financial and
statistical information derived therefrom, as to which such counsel need express
no comment) contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, or at the First Closing Date or the Second
Closing Date, as the case may be, the Registration Statement, the Prospectus and
any amendment or supplement thereto (except as aforesaid) contained any untrue
statement of a material fact or omitted to state a material fact necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.
D-1
