<PAGE>
As filed with the Securities and Exchange Commission on September 9, 1999
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
Under The Securities Act of 1933
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RUDOLPH TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)
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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
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)
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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
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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: [_]
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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed
Proposed maximum
Amount maximum aggregate Amount of
Title of each class of to be offering price offering registration
securities to be registered registered per share price(1) fee
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<S> <C> <C> <C> <C>
Common Stock, $0.001 par
value.................... 5,520,000 $14.00 $77,280,000 $21,484
</TABLE>
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(1) Estimated solely for the purpose of calculating the registration fee.
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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 SEPTEMBER 9, 1999
[Logo]
4,800,000 Shares
Common Stock
We are offering 4,800,000 shares of our common stock. This is our initial
public offering and no public market currently exists for our shares. We have
applied to have our common stock quoted on The Nasdaq National Market under the
symbol "RTEC." We anticipate that the initial public offering price will be
between $12 and $14 per share.
--------------
Investing in our common stock involves risks.
See "Risk Factors" beginning on page 5.
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<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 expects to deliver the sharesof common stock to purchasers
on , 1999.
--------------
BancBoston Robertson Stephens
Bear, Stearns & Co. Inc.
CIBC World Markets
The date of this prospectus is , 1999.
<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. In this prospectus, "Rudolph
Technologies," "we," "us," and "our" refer to Rudolph Technologies, Inc., a
Delaware corporation.
Until , 1999, all dealers that buy, sell or trade our common stock,
whether or not participating in this offering, may be required to deliver a
prospectus. This requirement is in addition to the dealers' obligation to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotment or subscription.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary.................................................................. 1
Risk Factors............................................................. 6
Use of Proceeds.......................................................... 17
Dividend Policy.......................................................... 17
Capitalization........................................................... 18
Dilution................................................................. 20
Selected Financial Data.................................................. 21
Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 23
Business................................................................. 34
Management............................................................... 48
Certain Relationships and Related Transactions........................... 55
Principal Stockholders................................................... 59
Description of Capital Stock............................................. 61
Shares Eligible for Future Sale.......................................... 63
Underwriting............................................................. 64
Legal Matters............................................................ 66
Experts.................................................................. 66
Where You Can Find More Information...................................... 66
Index to Financial Statements............................................ F-1
</TABLE>
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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. Our proprietary
systems measure the thickness and other properties of thin films applied during
various steps in the manufacture of integrated circuits. We provide our
customers with a full-fab metrology solution by offering families of systems
that meet their transparent and opaque thin film measurement needs in various
applications across the semiconductor fabrication process.
Process control metrology is used by semiconductor device manufacturers to
analyze product and process quality at critical steps in the integrated circuit
manufacturing process in order to identify, diagnose and minimize fabrication
defects. The semiconductor device manufacturing industry is experiencing
several trends that are increasing the demand for process control metrology
systems and heightening the need for metrology technology that can deliver a
higher degree of accuracy and repeatability. These industry trends include:
. transition to copper as the material of choice for creating the
circuitry, or interconnect, to link the components of an integrated
circuit;
. development of thinner line widths and spaces, or feature sizes, on
integrated circuits;
. migration to larger 300 millimeter diameter wafers;
. introduction of new manufacturing process steps, including chemical
mechanical planarization;
. transition to new insulating layers, or dielectrics; and
. shortening of semiconductor device product life cycles.
Our objective is to be the premier worldwide provider of thin film
metrology systems to semiconductor device manufacturers. To extend our
technology leadership position, we intend to continue our commitment to
research and development. We also intend to capitalize on our technical
heritage in thin film measurement to expand our relationships with existing
customers and to continue to develop complementary metrology applications. In
addition, we plan to focus our resources on understanding the needs of leading
semiconductor device manufacturers in order to position ourselves as the system
of choice when manufacturers upgrade their fabrication techniques in response
to advances in semiconductor technology.
Since 1940, our technological leadership has earned us a reputation for
metrology excellence, and we believe that we have the largest installed base of
the traditional metrology tools known as ellipsometers in the world. We
maintain sales, service or applications offices throughout the world, including
in California, New Jersey, Texas, Germany, Holland, Ireland, Israel, Korea and
Taiwan. Our customers include most major semiconductor device manufacturers
worldwide, including Intel, AMD, Chartered Semiconductor, Fujitsu, Hyundai,
IBM, Lucent, Philips, Samsung, ST Microelectronics, Texas Instruments, TSMC,
Toshiba and UMC. For the past four years, we have received the top ranking
among our thin film metrology competitors in the annual VLSI Customer
Satisfaction Survey.
1
<PAGE>
The Reorganization
Prior to this offering we had two classes of common stock, Class A common
stock and Class B common stock, and two classes of preferred stock, Series A
preferred stock and Series B preferred stock. In addition, we owned our
predecessor through one of our subsidiaries. Immediately prior to the offering,
we will effect a 35.66-for-one split of our outstanding Class A common stock
and Class B common stock. Immediately following the stock split, all of our
Class A common stock and Class B common stock will be exchanged for shares of
one new class of common stock. In addition, we will merge our predecessor
company into our wholly-owned subsidiary which owned it prior to this offering.
Then we will merge that subsidiary into us.
We will use a substantial portion of the net proceeds of this offering to
repay all of our long term debt, including the indebtedness incurred in
connection with the acquisition of our predecessor, which amounts to
approximately $38.4 million including accrued interest. We will also use
approximately $7.0 million of the proceeds to redeem our outstanding shares of
Series A preferred stock and Series B preferred stock. See "Use of Proceeds"
and "Certain Relationships and Related Transactions."
Except where stated otherwise, all information in this prospectus (1)
reflects our authorization of 50,000,000 shares of a new, single class of
common stock and 5,000,000 shares of undesignated preferred stock, (2) reflects
a 35.66-for-one split of all classes of our outstanding common stock, (3)
reflects the exchange of each outstanding share of all classes of our common
stock for one share of the new single class of common stock, (4) reflects the
redemption for cash of each outstanding share of all series of our preferred
stock, (5) reflects the issuance of 2,039,460 shares of common stock upon the
exercise of warrants assuming an initial public offering price of $13.00, (6)
reflects the merger of two of our subsidiaries into us, and (7) assumes no
exercise of the underwriters' option to purchase additional shares. Our audited
financial statements included elsewhere in this prospectus are called
Consolidated Financial Statements because they were prepared prior to the
merger of our two subsidiaries into us.
The Offering
The calculation of the shares of common stock outstanding in the table
below is based on the number of shares outstanding as of July 31, 1999. The
number of shares of common stock to be outstanding after the offering excludes
(1) 693,951 shares of common stock underlying outstanding options granted under
our 1996 stock option plan, (2) 2,000,000 shares of common stock that have been
reserved for issuance under our 1999 stock plan and (3) 300,000 shares of
common stock that have been reserved for purchase by employees under our
employee stock purchase plan.
<TABLE>
<S> <C>
Common stock offered by Rudolph Technologies.... 4,800,000 shares
Common stock to be outstanding after the
offering...................................... 13,942,825 shares
Use of proceeds................................. Repayment of long term debt, including
loans made to finance the acquisition
of our predecessor company, redemption
of preferred stock, potential
acquisitions of technology or
businesses, working capital and
general corporate purposes
Proposed Nasdaq National Market symbol.......... RTEC
</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." All
share and per share information has been restated for all periods presented to
reflect a 35.66-for-one stock split. This split is contingent upon the closing
of this offering.
<TABLE>
<CAPTION>
Six Months
Year Ended December 31, Ended June 30,
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Combined
1996 1997 1998 1998 1999
-------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues................ $ 31,874 $35,339 $ 20,106 $11,872 $15,170
Cost of revenues (1).... 14,076 13,903 13,179 6,455 7,373
-------- --------- --------- --------- ---------
Gross profit............ 17,798 21,436 6,927 5,417 7,797
Operating expenses:
Research and
development.......... 4,162 5,750 5,096 2,688 2,097
In-process research
and development...... 3,821 -- -- -- --
Selling, general and
administrative....... 8,484 9,475 7,077 3,306 3,537
Write-down of
intangibles.......... 6,734 -- -- -- --
Amortization.......... 3,669 4,201 4,208 2,103 131
-------- --------- --------- --------- ---------
Total operating
expenses........... 26,870 19,426 16,381 8,097 5,765
-------- --------- --------- --------- ---------
Operating (loss)
income................. (9,072) 2,010 (9,454) (2,680) 2,032
Interest expense........ 2,068 3,717 4,210 2,135 2,148
Other income............ (182) (92) (199) (15) (29)
-------- --------- --------- --------- ---------
Loss before income
taxes.................. (10,958) (1,615) (13,465) (4,800) (87)
Provision (benefit) for
income taxes........... 143 (614) 613 (699) 93
-------- --------- --------- --------- ---------
Net loss................ (11,101) (1,001) (14,078) (4,101) (180)
Preferred stock
dividends.............. 239 468 507 247 269
-------- --------- --------- --------- ---------
Loss available to common
stockholders........... $(11,340) $ (1,469) $(14,585) $(4,348) $ (449)
======== ========= ========= ========= =========
Net loss per share
available to common
stockholders:
Basic................. $ (0.56) $ (3.24) $(1.66) $(0.07)
Diluted............... $ (0.56) $ (3.24) $(1.66) $(0.07)
Weighted average common
shares outstanding:
Basic................. 2,617,373 4,503,396 2,617,373 6,767,415
Diluted............... 2,617,373 4,503,396 2,617,373 6,767,415
Pro forma net loss per
share available to
common stockholders:
(2)
Basic................. $(2.23) $(0.93) $(0.05)
Diluted............... $(2.23) $(0.93) $(0.05)
Pro forma weighted
average common shares
outstanding: (2)
Basic................. 6,542,856 4,656,833 8,806,875
Diluted............... 6,542,856 4,656,833 8,806,875
Other Financial Data:
EBITA (3)............... $6,303 $(5,047) $(562) $2,192
EBITDA (3).............. 6,751 (4,269) (299) 2,466
Net cash used in
operating
activities........... (1,959) (6,872) (2,934) (550)
Net cash used in
investing
activities........... (586) (904) (508) (511)
Net cash provided by
financing
activities........... 1,200 8,000 3,400 1,043
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
December 31, June 30, 1999 June 30, 1999
---------------------------- ------------- -------------
Pro Forma
As
1996 1997 1998 Actual Adjusted(4)
-------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents........... $ 1,578 $ 189 $ 431 $ 412 $12,311
Working capital
(deficit)............. 4,262 3,134 (1,052) (279) 23,670
Total assets............ 27,013 28,513 21,121 22,924 34,823
Long-term debt, less
current portion....... 26,000 24,000 25,370 26,290 --
Accumulated deficit..... (15,192) (16,661) (31,246) (31,695) (32,182)
Total stockholders'
equity (deficit)...... (13,707) (15,327) (26,759) (27,053) 29,692
</TABLE>
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(1) Our cost of revenues for the year ended December 31, 1998 includes a $1.4
million expense for the write-down of inventory to net realizable value.
(2) The pro forma share and per share data have been prepared assuming the pro
forma issuance of 2,039,460 shares of common stock upon the exercise of
warrants. This exercise is assumed to have occurred at our inception.
(3) "EBITA" is defined as income before provision for income taxes, interest
expense and amortization of intangibles. "EBITDA" is defined as income
before provision for income taxes, interest expense, depreciation and
amortization. EBITA and EBITDA are presented as supplemental information
and should not be considered as alternatives to net income or cash flow
from operating activities as indicators of our operating performance or
liquidity. We believe that EBITA and EBITDA are standard measures commonly
reported and widely used by analysts, investors and other interested
parties in the semiconductor capital equipment industry. However, EBITA and
EBITDA as presented herein may not be comparable to similarly titled
measures reported by other companies.
(4) The Pro Forma As Adjusted amounts give effect to: (1) the exchange of all
outstanding shares of our Class A common stock and Class B common stock for
7,103,365 shares of common stock; (2) the issuance of 2,039,460 shares of
common stock upon the exercise of warrants; and (3) the sale of 4.8 million
shares of common stock offered by us at an assumed initial public offering
price of $13.00 per share and the application of the estimated net proceeds
as set forth under "Use of Proceeds." The Pro Forma As Adjusted amounts
also reflect an increase in accumulated deficit of $487,000 for an
extraordinary loss related to the write-off of deferred financing costs due
to our repayment out of the proceeds of the offering of a senior term loan,
a subordinated term loan, a junior subordinated note and a senior revolving
term loan.
The statement of operations data set forth above as of and for the years
ended December 31, 1997 and 1998 were derived from audited consolidated
financial statements included elsewhere in this prospectus. The combined 1996
statement of operations data represent a combination, without adjustment, of
the historical results of our predecessor company for the period from January
1, 1996 to June 13, 1996 and our historical results for the period from June
14, 1996 to December 31, 1996. The historical results for each of the periods
January 1, 1996 to June 13, 1996 and June 14, 1996 to December 31, 1996 were
also derived from audited financial statements included elsewhere in this
prospectus.
We are presenting the combined historical results for the year ended
December 31, 1996 for convenience only, to assist investors in assessing our
underlying business trends. These combined results exclude the full year effect
of purchase accounting adjustments, specifically increased interest expense and
amortization of intangibles. In addition, the predecessor company had a lower
effective tax rate than we do because it was taxed as an S-corporation while we
are taxed as a C-corporation. Further, our results of operations for the period
from June 14, 1996 to December 31, 1996, which are a component of the combined
1996 results, include various non-recurring expenses including in-process
research and development and the write-down of intangibles. As a result, the
combined 1996 results of operations are not fully comparable to our historical
results of operations for periods after 1996.
4
<PAGE>
Our results of operations for the six months ended June 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 six months ended June 30, 1999 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1999.
Our headquarters are located at One Rudolph Road, Flanders, New Jersey
07836 and our telephone number is (973) 691-1300.
5
<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 may from time to time lead to
substantial decreases in demand for our systems
Our operating results will be subject to significant variation due to the
cyclical nature of the semiconductor device industry. The semiconductor device
industry recently experienced a downturn which has seriously harmed our recent
operating results. Our business depends upon the capital expenditures of
semiconductor device manufacturers, which, in turn, depend upon the current and
anticipated market demand for semiconductors and products using semiconductors.
The semiconductor device industry is cyclical and has historically experienced
periodic downturns, which have often resulted in substantial decreases in the
semiconductor device industry's demand for capital equipment, including its
thin film metrology equipment. There is typically a six to twelve month lag
between a change in the economic condition of the semiconductor device industry
and the resulting change in the level of capital expenditures by semiconductor
device manufacturers. In most cases, the resulting decrease in capital
expenditures has been more pronounced than the precipitating downturn in
semiconductor device industry revenues. The semiconductor device industry
experienced downturns in 1998 and 1996, during which industry revenues declined
by an estimated 8.4% and 6.4% as reported by Dataquest. Our revenues decreased
from $35.3 million in 1997 to $20.1 million in 1998. Dataquest forecasts that
sales of semiconductor capital equipment will decrease by approximately 1.7% in
1999 as compared to 1998. Although there are indications that the semiconductor
device industry is recovering,
. the semiconductor device industry may not continue to improve;
. the semiconductor device industry may experience other, possibly more
severe and prolonged, downturns in the future; and
. any continued recovery of the semiconductor device industry may not
result in an increased demand by semiconductor device manufacturers for
capital equipment.
Any future downturn in the semiconductor device industry, or any failure of
that industry to fully recover from its recent downturn, will seriously harm
our business, financial condition and results of operations.
We have had significant net losses in the past, and we may have net losses in
the future
Prior to the second quarter of 1999, we had not reported net income since
our predecessor company was acquired by our management and a group of investors
in June 1996. We reported a net loss available to common stockholders for the
first half of 1999 of $0.4 million and for 1998 of $14.6 million. Because of a
recent downturn in the semiconductor device industry and a related downturn in
the semiconductor capital equipment industry, weak economic conditions in the
Asia Pacific region and other reasons, we expect to be only slightly
profitable, if profitable at all, at least through the fourth quarter of 1999,
and we cannot predict whether we will be able to achieve or sustain
profitability in any subsequent period.
6
<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:
. customer demand for our systems, which is influenced by economic
conditions in the semiconductor device industry, demand for products
that use semiconductors, market acceptance of our systems and those of
our customers and changes in our product offerings;
. seasonal variations in customer demand, including the tendency of
European sales to slow significantly in the third quarter of each year;
. the timing, cancellation or delay of customer orders and shipments;
. the effects of competitive pressures, such as the introduction or
announcement of new products by our competitors, on the prices of our
systems and the level of discounts we grant to our customers;
. our failure to meet the performance estimates of securities analysts;
. fluctuations in the availability and cost of components, subassemblies
and production capacity;
. expenses incurred in connection with litigation;
. product development costs, including increased research, development,
engineering and marketing expenses associated with our introduction of
new products and product enhancements; and
. the levels of our fixed expenses, including research and development
costs associated with product development, relative to our revenue
levels.
During any quarter, a significant portion of our revenue may be derived
from the sale of a relatively small number of systems. Our transparent film
measurement systems range in price from approximately $200,000 to $1.0 million
per system and our opaque film measurement systems range in price from
approximately $900,000 to $1.6 million per system. Accordingly, a small change
in the number of systems we sell may also cause significant changes in our
operating results. The market price of our common stock may also fluctuate
significantly for reasons unrelated to our performance.
Variations in the amount of time it takes for us to sell our systems may cause
fluctuations in our operating results, which could cause our stock price to
decline
Variations in the length of our sales cycles could cause our revenue, and
thus our business, financial condition and operating results, to fluctuate
widely from period to period. This variation could cause our stock price to
decline. Our customers generally take a long time to evaluate our film
metrology systems and many people are involved in the evaluation process. We
expend significant resources educating and providing information to our
prospective customers regarding the uses and benefits of our systems in the
semiconductor fabrication process. The length of time it takes for us to make a
sale depends upon many factors, including:
. the efforts of our sales force and our independent sales representatives
and distributors;
. the complexity of the customer's fabrication processes;
. the internal technical capabilities and sophistication of the customer;
. the customer's budgetary constraints; and
. the quality and sophistication of the customer's current metrology
equipment.
Because of the number of factors influencing the sales process, the period
between our initial contact with a customer and the time when we recognize
revenue from that customer, if ever, varies widely in length. Our
7
<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 business and operating results could be harmed by the loss of one or more
of these customers or by reductions or delays in their purchases of our systems
Historically, a significant portion of our revenues in each quarter and
year has been derived from sales to relatively few customers, and we expect
this trend to continue. If any of our key customers were to purchase
significantly fewer of our systems in the future, or if a large order were
delayed, our revenues would significantly decline. In 1998 and in the six
months ended June 30, 1999, sales to customers that individually represented at
least five percent of our revenues accounted for 43.2% and 44.3% of our
revenues. In 1998, sales to Intel and Advanced Micro Devices accounted for
19.8% and 11.1% of our revenues. In the six months ended June 30, 1999, sales
to Intel accounted for 37.3% of our revenues. There are only a limited number
of mostly large companies operating in the highly concentrated, capital
intensive semiconductor device manufacturing industry. Accordingly, we expect
that we will continue to depend on a small number of large customers for a
significant portion of our revenues for the foreseeable future. In addition, as
large semiconductor device manufacturers seek to establish closer relationships
with their suppliers, we expect that our customer base will become even more
concentrated.
If we are not successful in developing new and enhanced products for the
semiconductor device manufacturing industry, or if our new products do not gain
general market acceptance, our business and operating results will be seriously
harmed
We operate in an industry that is subject to evolving industry standards,
rapid technological changes, rapid changes in consumer demands and the rapid
introduction of new, higher performance systems with shorter product life
cycles. Approximately 70% of our revenues in the first half of 1999 were
derived from the sale of systems that we did not begin selling until the first
quarter of 1997 or later. To be competitive in our demanding market, we must
continually design, develop and introduce in a timely manner new film metrology
systems that meet the performance and price demands of semiconductor device
manufacturers. We must also continue to refine our current systems so that they
remain competitive.
Metrology product development is inherently risky because it is difficult
to foresee developments in semiconductor device manufacturing technology,
coordinate technical personnel and identify and eliminate metrology system
design flaws. We are developing our Matrix Metrology systems, which are thin
film metrology systems specifically designed for use in the CMP, etch,
diffusion and other portions of the semiconductor device manufacturing process
where we do not currently have significant market share. We may experience
difficulties or delays in our development efforts with respect to these or
other new systems, and we may not ultimately be successful in developing them.
Any significant delay in releasing new systems could adversely affect our
reputation, give a competitor a first-to-market advantage or cause a competitor
to achieve greater market share. In addition, any new systems introduced by us
may not achieve a significant degree of market acceptance or, once accepted,
may fail to sell well for any significant period. Conversely, competition from
our new Matrix Metrology systems could have a negative effect on our sales of
our other transparent thin film metrology systems, including our SpectraLASER
and FOCUS systems, and the prices we could charge for
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these systems. We may also divert sales and marketing resources from our
current systems in order to successfully launch and promote our new Matrix
Metrology systems. This diversion of resources could have a further negative
effect on sales of our current systems. Any of the foregoing events could cause
our business, financial condition and results of operations to suffer.
We expect to spend a significant amount of time and resources to develop
new systems and refine existing systems. In light of the long product
development cycles inherent in our industry, these expenditures will be made
well in advance of the prospect of deriving revenue from the sale of new
systems. Our ability to commercially introduce and successfully market new
systems is subject to a wide variety of challenges during this development
cycle, including start-up bugs, design defects and other matters that could
delay introduction of these systems. In addition, since our customers are not
obligated by long-term contracts to purchase our systems, our anticipated
product orders may not materialize, or orders that do materialize may be
cancelled. As a result, we may not be able to realize sufficient sales of our
systems in order to recoup research and development expenditures.
If our relationships with our large customers deteriorate, our product
development activities could be jeopardized
The success of our product development efforts depends on our ability to
anticipate market trends and the price, performance and functionality
requirements of semiconductor device manufacturers. In order to anticipate
these trends and ensure that critical development projects proceed in a
coordinated manner, we must continue to collaborate closely with our largest
customers. Our relationships with these and other customers provide us with
access to valuable information regarding trends in the semiconductor device
industry, which enables us to better plan our product development activities.
If any of our current relationships is impaired, or if we are unable to develop
similar collaborative relationships with customers in the future, we will be
hindered in our ability to produce commercially successful systems.
Our ability to reduce costs is limited by our ongoing need to invest in
research and development
Our industry is characterized by the need for continual investment in
research and development as well as customer service and support. As a result
of our need to maintain our spending levels in these areas, our operating
results could be materially harmed if our revenues fall below expectations. In
addition, because of our emphasis on research and development and technological
innovation, our operating costs may increase further in the future. We expect
our level of research and development expenses to increase in absolute dollar
terms for the foreseeable future.
Our business could be harmed if we are unable to protect our proprietary
technology
Our future success and competitive position depend in part upon our ability
to obtain and maintain proprietary technology for our principal product
families, and we rely, in part, on patent, trade secret and trademark law to
protect that technology. We own or have licensed a number of patents relating
to our transparent and opaque thin film metrology systems, and have filed
applications for additional patents. Any of our pending patent applications may
be rejected, and we may not in the future be able to develop additional
proprietary technology that is patentable. In addition, the patents we do own
or that have been issued or licensed to us may not provide us with competitive
advantages and may be challenged by third parties. Third parties may also
design around these patents. Any of the foregoing could harm our business,
financial condition and results of operations.
In addition to patent protection, we rely upon trade secret protection for
our confidential and proprietary information and technology. We routinely enter
into confidentiality agreements with our employees. However, in the event that
these agreements may be breached, we may not have adequate remedies. Our
confidential and proprietary information and technology might also be
independently developed by or become otherwise known to third parties.
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Our business could be harmed if we infringe the proprietary technology of
others
Our commercial success depends in part on our ability to avoid infringing
or misappropriating patents or other proprietary rights owned by third parties.
If we are found to infringe or misappropriate a third party's patent or other
proprietary rights, we could be required to pay damages to the third party,
alter our systems or processes, obtain a license from the third party or cease
activities utilizing the third party's proprietary rights, including making or
selling any of our systems that use the third party's proprietary rights. If we
are required to do any of the foregoing, we may not be able to do so on
commercially favorable terms or at all. Our inability to do any of the
foregoing on commercially favorable terms could seriously harm our business.
Protection of our intellectual property rights, or the efforts of third parties
to enforce their own intellectual property rights against us, has in the past
resulted and may in the future result in costly and time-consuming litigation
We may be required to initiate litigation in order to enforce any patents
issued to or licensed by us, or to determine the scope or validity of a third
party's patent or other proprietary rights. In addition, we may be subject to
lawsuits by third parties seeking to enforce their own intellectual property
rights. Any such litigation, regardless of outcome, could be expensive and time
consuming, and could subject us to significant liabilities or require us to re-
engineer our product or obtain expensive licenses from third parties.
For example, we are presently involved in a patent interference proceeding
with Therma-Wave, Inc. in the United States Patent Office. In this proceeding,
we are defending our patent rights with respect to some of the multiple angle,
multiple wavelength ellipsometry technology we use in our transparent thin film
measurement systems. Therma-Wave requested the proceeding be initiated in 1993
by filing a reissue application for one of its own patents, and the proceeding
was initiated in June 1998. If we lose the interference, a reissue patent will
be granted to Therma-Wave permitting Therma-Wave to assert patent rights
against the ellipsometers we use in our transparent thin film measurement
systems. In that event, we would either have to pay future royalties to Therma-
Wave or redesign our transparent thin film measurement systems. Either of these
events could harm our business, financial condition and results of operations.
See "Business--Legal Proceedings." In addition, in a letter dated February 10,
1998, Therma-Wave asked us to review our technology for possible infringement
of several of Therma-Wave's patents. We denied any such infringement in a
letter to Therma-Wave dated March 10, 1998. In a letter dated March 13, 1998,
Therma-Wave requested further information regarding the basis for our belief
that our technology did not infringe Therma-Wave's patents. There has been no
further correspondence between us and Therma-Wave regarding Therma-Wave's
patent inquiries. Although we do not believe that we are infringing any of
Therma-Wave's patents, Therma-Wave could nevertheless initiate an infringement
action against us, which would be costly and distracting regardless of its
outcome.
In a letter dated December 3, 1998, Axic, Inc. asked us to review our
technology for possible infringement of one of Axic's patents. We denied any
such infringement in a letter to Axic dated December 22, 1998. There has been
no further correspondence between us and Axic regarding its patent infringement
claims.
Our efforts to protect our intellectual property may be less effective in some
foreign countries where intellectual property rights are not as well protected
as in the United States
The laws of some foreign countries do not protect our proprietary rights to
as great an extent as do the laws of the United States, and many U. S.
companies have encountered substantial problems in protecting their proprietary
rights against infringement in such countries, some of which are countries in
which we have sold and continue to sell systems. There is a risk that our means
of protecting our proprietary rights may not be adequate in these countries.
For example, our competitors in these countries may independently develop
similar technology or duplicate our systems. If we fail to adequately protect
our intellectual property in these countries, it would be easier for our
competitors to sell competing products in those countries.
We compete against many larger companies in the semiconductor capital equipment
industry
We operate in the highly competitive semiconductor capital equipment
industry and face competition from a number of companies, many of which have
greater financial, engineering, manufacturing, marketing and customer support
resources and broader product offerings than we do. Moreover, there has been
significant
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merger and acquisition activity among our competitors and potential
competitors, particularly during the recent downturn in the semiconductor
device and semiconductor capital equipment industries. These transactions by
our competitors and potential competitors may provide them with a competitive
advantage over us by enabling them to rapidly expand their product offerings
and service capabilities to meet a broader range of customer needs. Many of our
customers and potential customers in the semiconductor device manufacturing
industry are large companies that require global support and service for their
semiconductor capital equipment. While we believe that our global support and
service infrastructure is sufficient to meet the needs of our customers and
potential customers, our larger competitors have more extensive infrastructures
than we do, which could place us at a disadvantage when competing for the
business of global semiconductor device manufacturers.
Many of our competitors are investing heavily in the development of new
systems that will compete directly with ours. We expect our competitors in each
product area to continue to improve the design and performance of their
products and to introduce new products with competitive prices and performance
characteristics. Our systems may not be able to compete successfully with those
of our competitors.
Competitive conditions in our industry may cause us to reduce our prices
Due to intense competitive conditions in the thin film metrology industry,
we have from time to time selectively reduced prices on our systems in order to
protect our market share, and competitive pressures may necessitate further
price reductions. To the extent that any of our metrology systems are not
distinguished from those of our competitors by significant technological
advantages, we are likely to experience increased price competition or loss of
market share with respect to those systems.
Because of the high cost of switching equipment vendors in our markets, it is
sometimes difficult for us to win customers from our competitors even if our
systems are superior to theirs
We believe that once a semiconductor device manufacturer has selected one
vendor's capital equipment for a production line application, the manufacturer
generally relies upon that capital equipment and, to the extent possible,
subsequent generations of the same vendor's equipment, for the life of the
application. Once a vendor's equipment has been installed in a production line
application, a semiconductor device manufacturer must often make substantial
technical modifications and may experience production-line downtime in order to
switch to another vendor's equipment. Accordingly, unless our systems offer
performance or cost advantages that outweigh a customer's expense of switching
to our systems, it will be difficult for us to achieve significant sales to
that customer once it has selected another vendor's capital equipment for an
application.
We must attract and retain key personnel with knowledge of semiconductor device
manufacturing and metrology equipment to help support our future growth, and
competition for such personnel in our industry is high
Our success depends to a significant degree upon the continued
contributions of our key management, engineering, sales and marketing, customer
support, finance and manufacturing personnel. The loss of any of these key
personnel, who would be extremely difficult to replace, could harm our business
and operating results. During downturns in our industry, we have often
experienced significant employee attrition, and we may experience further
attrition in the event of a future downturn. Although we have employment and
noncompetition agreements with key members of our senior management team,
including Messrs. McLaughlin, Loiterman and Roth, these individuals or other
key employees may nevertheless leave our company. We do not have key person
life insurance on any of our executives. In addition, to support our future
growth, we will need to attract and retain additional qualified employees.
Competition for such personnel in our industry is intense, and we may not be
successful in attracting and retaining qualified employees.
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We obtain some of the components and subassemblies included in our systems from
a single source or a limited group of suppliers, and the partial or complete
loss of one of these suppliers could cause production delays and harm our
operating results.
Coherent, Inc. is our sole supplier of the lasers we use in some of our
systems, and we also obtain some of the other components and subassemblies
included in our systems from a single supplier or a limited group of suppliers.
Although our supply agreement with Coherent has expired, we are currently
negotiating a follow-on contract with Coherent. We do not have long-term
contracts with many of our suppliers. Our dependence on sole source suppliers
of components exposes us to several risks, including a potential inability to
obtain an adequate supply of components, price increases, late deliveries and
poor component quality. Disruption or termination of the supply of these
components could delay shipments of our systems, damage our customer
relationships and reduce our sales. From time to time in the past, we have
experienced temporary difficulties in receiving shipments from our suppliers.
The lead time required for shipments of some of our components can be as long
as four months. In addition, the lead time required to qualify new suppliers
for lasers could be as long as a year, and the lead time required to qualify
new suppliers of other components could be as long as nine months. If we are
unable to accurately predict our component needs, or if our component supply is
disrupted, we may miss market opportunities by not being able to meet the
demand for our systems. Further, a significant increase in the price of one or
more of these components or subassemblies included in our systems could
seriously harm our results of operations.
We manufacture all of our systems at a single facility, and any prolonged
disruption in the operations of that facility could have a material adverse
effect on our business
We produce all of our systems in our manufacturing facility located in
Ledgewood, New Jersey. Our manufacturing processes are highly complex and
require sophisticated and costly equipment and a specially designed facility.
As a result, any prolonged disruption in the operations of our manufacturing
facility, whether due to technical or labor difficulties, destruction of or
damage as a result of a fire or any other reason, could seriously harm our
business, financial condition and results of operations.
We rely upon independent sales representatives and distributors for a
significant portion of our sales, and a disruption in our relationships with
these representatives or distributors could have a negative impact on our sales
and operating results
Historically, a substantial portion of our sales have been made through
independent sales representatives and distributors. We expect that sales
through independent sales representatives and distributors will represent a
material portion of our sales for the foreseeable future. In particular, all of
our sales in Japan will continue to be made through an independent distributor
for the foreseeable future, and all our sales in Taiwan, China and Singapore
will continue to be made through independent sales representatives for the
foreseeable future. In 1998, sales to Tokyo Electron Limited, our exclusive
distributor in Japan, accounted for 17.6% of our revenues. In some locations,
including Japan, our independent sales representatives or distributors also
provide field service to our customers. The activities of these representatives
and distributors are not within our control. A reduction in the sales or
service efforts or financial viability of any of our independent sales
representatives and distributors, or a termination of our relationships with
them, could harm our sales, our financial results and our ability to support
our customers. Although we believe that we maintain good relations with our
independent sales representatives and distributors, such relationships may
nevertheless deteriorate in the future.
Because we derive a significant portion of our revenues from sales in Asia, our
sales and results of operations could be adversely affected by the instability
of Asian economies
Our sales to customers in Asian markets represented approximately 24.6% and
41.7% of our revenues in the first half of 1999 and in 1998. Countries in the
Asia Pacific region, including Japan, Korea and Taiwan, each of which accounted
for a significant portion of our business in that region, have experienced
currency, banking and equity market weaknesses over the last 18 months. These
weaknesses began to adversely affect our
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sales to semiconductor device and capital equipment manufacturers located in
these regions in the fourth quarter of 1997, and continued to adversely affect
our sales in 1998 and the first half of 1999. Although we have recently
received an increased level of orders from customers in the Asia Pacific
region, we expect that turbulence in the Asian markets could adversely affect
our sales in future periods.
We are subject to operational, financial and political risks due to our
significant level of international sales
International sales accounted for approximately 57.9% and 58.2% of our
revenues in the first half of 1999 and in 1998. We anticipate that
international sales will continue to account for a significant portion of our
revenue for the foreseeable future. Due to the significant level of our
international sales, we are subject to material risks which include:
.unexpected changes in regulatory requirements;
.tariffs and other market barriers;
.political and economic instability;
.potentially adverse tax consequences;
.outbreaks of hostilities;
.difficulties in accounts receivable collection;
.extended payment terms;
.difficulties in managing foreign sales representatives and distributors;
and
.difficulties in staffing and managing foreign branch operations.
In addition, the laws of countries in which our systems are or may be sold
may not afford our systems and intellectual property rights the same degree of
protection as the laws of the United States.
A substantial portion of our international sales are denominated in U.S.
dollars. As a result, changes in the values of foreign currencies relative to
the value of the U.S. dollar can render our systems more expensive. Such
conditions could negatively impact our international sales.
Our acquisition strategy could cause financial or operational problems
Our success depends on our ability to continually enhance and broaden our
product offerings in response to changing technologies, customer demands and
competitive pressures. To this end, we may choose to acquire new and
complementary businesses, products, or technologies instead of developing them
ourselves. We may, however, face competition for acquisition targets from
larger and more established companies with greater financial resources, making
it more difficult for us to complete acquisitions. We do not know if we will be
able to complete any acquisitions, or whether we will be able to successfully
integrate any acquired business, operate it profitably or retain its key
employees. Integrating any business, product or technology we acquire could be
expensive and time-consuming, could disrupt our ongoing business and could
distract our management. In addition, in order to finance any acquisitions, we
might need to raise additional funds through public or private equity or debt
financings. In that event, we could be forced to obtain financing on terms that
are not favorable to us and, in the case of equity financing, that result in
dilution to our stockholders. If we are unable to integrate any acquired
entities, products or technologies effectively, our business, financial
condition and operating results will suffer. In addition, any amortization of
goodwill or other assets or charges resulting from the costs of acquisitions
could harm our business and operating results.
If we deliver systems with defects, our credibility will be harmed and the
sales and market acceptance of our systems will decrease
Our systems are complex and sometimes have contained errors, defects and
bugs when introduced. If we deliver systems with errors, defects or bugs, our
credibility and the market acceptance and sales of our systems could be harmed.
Further, if our systems contain errors, defects or bugs, we may be required to
expend significant capital and resources to alleviate such problems. Defects
could also lead to product liability as a result of product liability lawsuits
against us or against our customers. We have agreed to indemnify our
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customers in some circumstances against liability arising from defects in our
systems. A successful product liability claim could seriously harm our
business, financial condition and results of operations.
A small group of major stockholders will continue to have significant influence
over our business after this offering, and could delay, deter or prevent a
change of control or other business combination
Upon completion of this offering, Liberty Partners, Riverside Partners and
Paul F. McLaughlin will hold approximately 59.7% of our outstanding stock, or
56.8% if the underwriters' option to purchase additional shares is exercised in
full. We anticipate that five of the eight directors on our board following
this offering will be representatives of these stockholders. In addition, prior
to this offering, these stockholders intend to enter into an agreement under
which each party will agree to vote its shares in favor of one nominee of each
other party to serve on our board of directors. The interests of these
stockholders may not always coincide with our interests or those of our other
stockholders. By virtue of their stock ownership and board representation,
these stockholders will continue to have a significant influence over all
matters submitted to our board and our stockholders, including the election of
our directors, and will be able to exercise significant control over our
business, policies and affairs. Through their concentration of voting power,
these stockholders, acting individually or together, could cause us to take
actions that we would not consider absent their influence, or could delay,
deter or prevent a change of control of our company or other business
combination that might otherwise be beneficial to our public stockholders.
Provisions of our charter documents and Delaware law could discourage potential
acquisition proposals and could delay, deter or prevent a change in control of
our company
Provisions of our certificate of incorporation and bylaws may inhibit
changes in control of our company not approved by our board of directors. These
provisions also limit the circumstances in which a premium can be paid for the
common stock, and in which a proxy contest for control of our board may be
initiated.
These provisions provide for:
. a prohibition on stockholder actions through written consent;
. a requirement that special meetings of stockholders be called only by
our chief executive officer or board of directors;
. advance notice requirements for stockholder proposals and director
nominations by stockholders;
. limitations on the ability of stockholders to amend, alter or repeal
our by-laws; and
. the authority of our board to issue, without stockholder approval,
preferred stock with such terms as the board may determine.
We will also be afforded the protections of Section 203 of the Delaware
General Corporation Law, which could have similar effects. See "Description of
Capital Stock."
If we are forced to devote substantial resources to Year 2000 remediation
efforts, if we incur significant liability due to Year 2000 problems in our
products, or if Year 2000 problems among our suppliers or customers cause
delays in our shipping or receipt of systems, our business and operating
results could be harmed
We have implemented a multi-phase Year 2000 project consisting of
assessment, remediation and testing following remediation. Despite our efforts,
however, we may not have identified all of the potential risks. Our failure to
identify and remediate all material Year 2000 risks could adversely affect our
business, financial condition and results of operations. The Year 2000 risks
facing us include:
. the entities on whom we rely for important goods and services may not
be successful in addressing all of their software and systems problems
in order to operate without disruption in the year 2000 and beyond;
. our customers or potential customers may be affected by Year 2000
issues that may, among other things:
. cause a reduction, delay or cancellation of customer orders;
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. cause a delay in payments for products shipped; and
. cause customers to expend significant resources on Year 2000
compliance matters rather than investing in our systems; and
. we have not developed a contingency plan related to a failure of our or
a third-party's Year 2000 remediation efforts, and we may not be
adequately prepared for such an event.
We have made efforts to identify any Year 2000 compliance problems in our
existing systems, and to make available to our customers who have purchased
such systems software revisions or plug-ins correcting any Year 2000 problems.
Nevertheless, these customers may assert claims against us alleging that our
systems should have been Year 2000 compliant at the time of purchase, which
could result in costly litigation and divert our management's attention. We
have agreed to indemnify our customers in some circumstances against liability
arising from Year 2000-related defects in our systems. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Year
2000 Issue."
Risks Related to this Offering
We expect to use a substantial portion of the net proceeds of this offering to
repay indebtedness and, as a result, we may be unable to meet our future
capital and liquidity requirements
We expect to use a substantial portion of the net proceeds of this offering
to repay indebtedness we incurred in connection with the acquisition of our
predecessor company by our management and a group of investors in 1996, and to
redeem the preferred stock we issued in connection with that transaction. As a
result, only a limited portion of the net proceeds will be available to fund
our future operations. We expect that our principal sources of funds following
this offering will be cash generated from our operating activities and, if
necessary, borrowings under a bank credit facility which we intend to obtain
prior to this offering. We believe that these funds will provide us with
sufficient liquidity and capital resources for us to meet our current and
future financial obligations, as well as to provide funds for our working
capital, capital expenditures and other needs, for the twelve months following
this offering. Despite our expectations, however, we may require additional
equity or debt financing to meet our working capital requirements or to fund
our research and development efforts. This financing may not be available when
required or, may be available only on terms unsatisfactory to us. Further, if
we issue equity securities, the ownership percentage of our stockholders will
be reduced, and the new equity securities may have rights senior to those of
the common stock to be issued in this offering.
Our stock price may be volatile and our stock may be thinly traded, which could
cause investors to lose all or part of their investments in our stock
The stock market in general, and the stock prices of technology companies
in particular, have recently experienced volatility which has often been
unrelated to the operating performance of any particular company or companies.
If market or industry-based fluctuations continue, our stock price could
decline regardless of our actual operating performance and investors could lose
all or part of their investments. In addition, prior to this offering, our
stock could not be bought or sold on a public market. If an active public
market for our stock does not develop, or if such a market is not sustained
after this offering, it may be difficult to resell our stock.
We could be subject to class action litigation due to stock price volatility,
which, if it occurs, will distract our management and could result in
substantial costs or large judgments against us
In the past, securities class action litigation has often been brought
against companies following periods of volatility in the market prices of their
securities. We may be the target of similar litigation in the future.
Securities litigation could result in substantial costs and divert our
management's attention and resources, which could cause serious harm to our
business, financial condition and results of operations.
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Purchasers of our common stock will experience immediate and significant
dilution upon purchasing shares in this offering because the initial public
offering price of those shares will exceed their book value
Because the initial public offering price is substantially higher than the
book value per share of our common stock, purchasers of the common stock in
this offering will be subject to immediate dilution of $11.10 per share. See
"Dilution."
Future sales of our stock could depress its market price
Future sales of our stock on the public markets could depress its market
price. Upon completion of this offering, we expect that:
. the 4,800,000 shares of common stock, or 5,520,000 shares if the
underwriters' option to purchase additional shares is exercised in
full, sold in this offering will be freely tradable without restriction
under the Securities Act unless they are held by one of our
"affiliates;" and
. 9,142,825 shares of common stock held by our existing stockholders will
be eligible for sale into the public market, subject to compliance with
the resale volume limitations and other restrictions of Rule 144 under
the Securities Act, beginning 180 days after the date of this
prospectus.
In addition, beginning 180 days after the completion of this offering, the
holders of approximately 9,048,882 shares of our stock will have limited rights
to require us to register their shares under the Securities Act for public
resale at our expense.
The forward-looking statements contained in this prospectus are based on our
predictions of future performance, and as a result, purchasers of our common
stock should not place undue reliance on them
This prospectus contains forward-looking statements that involve risks and
uncertainties, including, without limitation, statements concerning conditions
in the semiconductor and semiconductor capital equipment industries and our
business, financial condition and operating results, including in particular
statements relating to our business and growth strategies and our product
development efforts. We use words like "believe," "expect," "anticipate,"
"intend," "future" and other similar expressions to identify forward-looking
statements. Purchasers of our common stock should not place undue reliance on
these forward-looking statements, which speak only as of their dates. These
forward-looking statements are based on our current expectations, and are
subject to a number of risks and uncertainties, including, without limitation,
those identified under "Risk Factors" and elsewhere in this prospectus. Our
actual operating results could differ materially from those predicted in these
forward-looking statements, and any other events anticipated in the forward-
looking statements may not actually occur.
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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, which accrue cumulative dividends at 8% per annum and
are held by related parties. Although we may use a portion of the net proceeds
to acquire technology or businesses that are complimentary to our business, we
have no current plans in this regard. We expect to use the remaining net
proceeds of this offering for working capital and general corporate purposes,
including expenditures for research and development of new products.
DIVIDEND POLICY
We have never declared or paid cash dividends on our common stock. We do
not currently anticipate paying any cash dividends on our common stock in the
foreseeable future, and we intend to retain any future earnings for use in the
expansion of our business and for general corporate purposes. Additionally, our
current debt instruments limit the payment of dividends.
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CAPITALIZATION
The following table summarizes our capitalization as of June 30, 1999
. on an actual basis;
. on a pro forma basis to give effect to the exchange of all outstanding
Class A common stock and Class B common stock for 7,103,365 shares of a
new single class of common stock and the issuance of 2,039,460 shares
of common stock upon the exercise of warrants, which we expect to occur
immediately prior to this offering; and
. on a pro forma as adjusted basis to give effect to the sale of 4.8
million shares of common stock offered by us at an assumed initial
public offering price of $13.00 per share and the application of the
estimated net proceeds as set forth under "Use of Proceeds," and an
increase in accumulated deficit of $487,000 to reflect the write-off of
deferred financing costs related to our repayment from the proceeds of
this offering of a senior term loan, a senior subordinated term loan, a
junior subordinated loan and a senior revolving term loan.
<TABLE>
<CAPTION>
June 30, 1999
-------------------------------
Pro Pro Forma
Actual Forma As Adjusted
-------- -------- -----------
(in thousands)
<S> <C> <C> <C>
Cash.......................................... $ 412 $ 412 $ 12,311
======== ======== ========
Current portion of obligations payable to
stockholders................................ $ 2,750 $ 2,750 --
Obligations payable to stockholders, less
current portion:
Senior term loan............................ 9,000 9,000 --
Subordinated term loan...................... 11,000 11,000 --
Junior subordinated note increased $110 for
unamortized original issue discount....... 6,400 6,400 --
Senior revolving term loan.................. 9,300 9,300 --
Series A preferred stock, $0.01 par value:
45,875 shares authorized and 45,875 shares
issued and outstanding, Actual and Pro
Forma; no shares authorized, issued and
outstanding, Pro Forma As Adjusted.......... 5,848 5,848 --
Series B preferred stock, $0.01 par value:
10,125 shares authorized and 8,125 shares
outstanding, Actual and Pro Forma; no shares
authorized, issued and outstanding, Pro
Forma As Adjusted........................... 1,035 1,035 --
-------- -------- --------
45,333 45,333 --
-------- -------- --------
Stockholders' (deficit) equity:
Class A common stock, $0.01 par value:
6,874,976 shares designated and 4,802,291
shares outstanding, Actual; no shares
designated, issued and outstanding, Pro
Forma and Pro Forma As Adjusted........... 2 -- --
Class B common stock, $0.01 par value:
3,035,705 shares designated and 2,301,095
shares outstanding, Actual; no shares
designated, issued and outstanding, Pro
Forma and Pro Forma As Adjusted........... -- -- --
Preferred stock, par value $0.001 per share;
5,000,000 shares authorized; no shares
issued and outstanding, Actual, Pro Forma
and Pro Forma As Adjusted................. -- -- --
Common stock, par value $0.001 per share;
50,000,000 shares authorized; no shares
issued and outstanding, Actual; 9,142,825
shares issued and outstanding Pro Forma;
13,942,825 shares issued and outstanding,
Pro Forma As Adjusted..................... 9 14
Additional paid-in capital.................... 4,886 4,879 62,106
Accumulated other comprehensive loss.......... (246) (246) (246)
Accumulated deficit........................... (31,695) (31,695) (32,182)
-------- -------- --------
Total stockholders' (deficit) equity...... (27,053) (27,053) 29,692
-------- -------- --------
Total capitalization................... $ 18,280 $ 18,280 $ 29,692
======== ======== ========
</TABLE>
18
<PAGE>
This table excludes the following shares:
. 589,550 shares of our common stock issuable upon exercise of stock
options outstanding under our 1996 stock option plan and 109,380 shares
of common stock reserved for future issuance under this plan;
. 2,000,000 shares of common stock reserved for future issuance under our
1999 stock plan.
. 300,000 shares of common stock reserved for future issuance under our
1999 employee stock purchase plan.
19
<PAGE>
DILUTION
Our pro forma net tangible book deficit as of June 30, 1999 was
approximately $30.7 million, or $3.36 per share of common stock. Pro forma net
tangible book value (deficit) per share represents the amount of our total
assets less intangible assets, deferred financing costs and total liabilities
divided by the pro forma number of shares of common stock outstanding as of
June 30, 1999. The pro forma number of shares of common stock outstanding
increases actual shares outstanding to reflect: (1) the exchange of all Class A
common stock and Class B common stock for 7,103,365 shares of a new single
class of common stock; and (2) the issuance of 2,039,460 shares of common stock
upon the exercise of warrants. Without taking into account any changes in pro
forma net tangible book value other than those described above, our sale of the
4,800,000 shares of common stock in this offering and the receipt and
application of the net proceeds therefrom, our as adjusted pro forma net
tangible book value as of June 30, 1999 would have been approximately $26.5
million, or $1.90 per share of common stock. This represents an immediate
increase in pro forma net tangible book value of $5.26 per share to existing
stockholders and an immediate dilution in pro forma net tangible book value of
$11.10 per share to investors purchasing common stock in this offering.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................. $13.00
Pro forma net tangible book value (deficit) per share as of
June 30, 1999................................................ $(3.36)
Increase per share attributable to new investors............... 5.26
------
As adjusted pro forma net tangible book value per share after
this offering.................................................. 1.90
------
Dilution per share to new investors.............................. $11.10
======
</TABLE>
The following table summarizes, on a pro forma basis as of June 30, 1999,
the difference between the number of shares of common stock purchased from us,
the total consideration paid and the average price per share paid by existing
stockholders and by new investors, assuming an initial public offering price of
$13.00 per share.
<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, including options to purchase 104,401 shares of common stock
granted in July 1999, net of options to purchase 3,481 shares of common stock
that were cancelled and reissued, at a weighted average exercise price of $0.66
per share. To the extent that these options are exercised, new investors will
experience further dilution.
20
<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 six months ended June 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 six months ended June 30, 1999 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1999.
The table below sets forth our selected financial data as well as that of
our predecessor company. Our results of operations and those of our predecessor
company are not directly comparable because we revalued the assets and
liabilities of our predecessor company in connection with its acquisition
pursuant to the provisions of APB No. 16, and because our results of operations
for the period from June 14, 1996 to December 31, 1996 include various non-
recurring expenses for acquired in-process research and development and the
write-down of intangibles. In addition, because our predecessor company was
taxed as an S-corporation and we are taxed as a C-corporation, the effective
tax rate reflected in our historical results of operations is significantly
higher than the tax rate reflected in the historical results of operations of
our predecessor company. Further, we changed our business strategy immediately
after the acquisition. Finally, the financial information of our predecessor
company excludes the effects of purchase accounting adjustments, including
increased interest expense and amortization.
<TABLE>
<CAPTION>
Predecessor Company Rudolph Technologies
----------------------------- -------------------------------------------------------
Period from Period from
Year Ended January 1 June 14 to Year Ended Six Months Ended
December 31, to June 13, December 31, December 31, June 30,
---------------- ----------- ------------ -------------------- --------------------
1994 1995 1996 1996 1997 1998 1998 1999
------- ------- ----------- ------------ --------- --------- --------- ---------
(In thousands) (In thousands, except share and per share data)
Statement of Operations
Data:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $22,555 $29,436 $17,501 $ 14,373 $35,339 $ 20,106 $11,872 $15,170
Cost of revenues (1).... 10,042 13,655 7,497 6,579 13,903 13,179 6,455 7,373
------- ------- ------- --------- --------- --------- --------- ---------
Gross profit............ 12,513 15,781 10,004 7,794 21,436 6,927 5,417 7,797
Operating expenses:
Research and
development........... 1,542 2,888 1,817 2,345 5,750 5,096 2,688 2,097
In-process research and
development........... -- -- -- 3,821 -- -- -- --
Selling, general and
administrative........ 6,651 7,125 4,144 4,340 9,475 7,077 3,306 3,537
Write-down of
intangibles........... -- -- -- 6,734 -- -- -- --
Amortization........... 10 10 19 3,650 4,201 4,208 2,103 131
------- ------- ------- --------- --------- --------- --------- ---------
Total operating
expenses............... 8,203 10,023 5,980 20,890 19,426 16,381 8,097 5,765
------- ------- ------- --------- --------- --------- --------- ---------
Operating income
(loss)................. 4,310 5,758 4,024 (13,096) 2,010 (9,454) (2,680) 2,032
Interest expense........ 130 113 55 2,013 3,717 4,210 2,135 2,148
Other income............ (2) (38) (26) (156) (92) (199) (15) (29)
------- ------- ------- --------- --------- --------- --------- ---------
Income (loss) before
income taxes........... 4,182 5,683 3,995 (14,953) (1,615) (13,465) (4,800) (87)
Provision (benefit) for
income taxes........... 234 274 143 -- (614) 613 (699) 93
------- ------- ------- --------- --------- --------- --------- ---------
Net income (loss)....... $ 3,948 $ 5,409 $ 3,852 (14,953) (1,001) (14,078) (4,101) (180)
======= ======= =======
Preferred stock
dividends.............. 239 468 507 247 269
--------- --------- --------- --------- ---------
Loss available to common
stockholders........... $(15,192) $(1,469) $(14,585) $(4,348) $ (449)
========= ========= ========= ========= =========
Net loss per share
available to common
stockholders:
Basic.................. $(5.80) $(0.56) $(3.24) $(1.66) $(0.07)
Diluted................ $(5.80) $(0.56) $(3.24) $(1.66) $(0.07)
Weighted average common
shares outstanding:
Basic.................. 2,617,373 2,617,373 4,503,396 2,617,373 6,767,415
Diluted................ 2,617,373 2,617,373 4,503,396 2,617,373 6,767,415
Pro forma net loss per
share available to
common stockholders:
(2)
Basic.................. $(2.23) $(0.93) $(0.05)
Diluted................ $(2.23) $(0.93) $(0.05)
Pro forma weighted
average common shares
outstanding: (2)
Basic.................. 6,542,856 4,656,833 8,806,875
Diluted................ 6,542,856 4,656,833 8,806,875
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
Predecessor Company Rudolph Technologies
----------------------------- -------------------------------------------------------
Period from Period from
Year Ended January 1 June 14 to Year Ended Six Months Ended
December 31, to June 13, December 31, December 31, June 30,
---------------- ----------- ------------ -------------------- --------------------
1994 1995 1996 1996 1997 1998 1998 1999
------- ------- ----------- ------------ --------- --------- --------- ---------
(In thousands) (In thousands, except share and per share data)
<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) $ (562) $2,192
EBITDA (3).............. 4,569 6,212 4,256 1,470 6,751 (4,269) (299) 2,466
Net cash provided by
(used in) operating
activities............ 768 7,016 1,592 1,160 (1,959) (6,872) (2,934) (550)
Net cash provided by
(used in) investing
activities............ (311) (975) (171) (107) (586) (904) (508) (511)
Net cash provided by
(used in) financing
activities............ (507) (4,234) (3,286) 525 1,200 8,000 3,400 1,043
<CAPTION>
December 31, June 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 $ 412
Working capital
(deficit).............. 4,262 3,134 (1,052) (279)
Total assets............ 27,013 28,513 21,121 22,924
Long-term debt, less
current portion........ 26,000 24,000 25,370 26,290
Accumulated deficit..... (15,192) (16,661) (31,246) (31,695)
Total stockholders'
deficit................ (13,707) (15,327) (26,759) (27,053)
</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.
22
<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 occurs after the customer has tested and approved the
equipment. We record a provision for the estimated cost of fulfilling warranty
and installation obligations at the time we recognize the related revenue. We
recognize service revenue ratably over the period of the contract.
Historically, a significant portion of our revenues in each quarter and
year has been derived from sales to relatively few customers, and we expect
this trend to continue. In the combined year 1996, in 1997 and 1998 and in the
six months ended June 30, 1999, sales to customers that individually
represented at least five percent
23
<PAGE>
of our revenues accounted for 18.0%, 7.7%, 43.2% and 44.3% of our revenues. In
the combined year 1996 and in 1997, no individual customer accounted for more
than 10% of our revenues. In 1998, sales to Intel and Advanced Micro Devices
accounted for 19.8% and 11.1% of our revenues. In the six months ended June 30,
1999, sales to Intel accounted for 37.3% of our revenues.
In addition, a significant portion of our revenues in each quarter and year
has been derived from sales to particular distributors. These distributors
purchase our products for ultimate distribution to customers in particular
geographic regions. In the combined year ended December 31, 1996, sales to
Tokyo Electron Limited or TEL, our exclusive distributor in Japan, accounted
for 31.4% of our revenues. In 1997, sales to TEL accounted for 29.9% of our
revenues. In 1998, sales to TEL and distributor Metron Technology accounted for
17.6% and 15.3% of our revenues. In the six months ended June 30, 1999, sales
to Metron Technology accounted for 14.0% of our revenues. Currently, the only
distributor we use is TEL. We expect that sales to TEL will continue to account
for a significant portion of our revenues for the foreseeable future.
We do not have purchase contracts with any of our customers or distributors
that obligate them to continue to purchase our products, and they could cease
purchasing products from us at any time. A delay in purchase or cancellation by
any of our large customers could cause quarterly revenues to vary
significantly. In addition, during a given quarter, a significant portion of
our revenue may be derived from the sale of a relatively small number of
systems. Our transparent film measurement systems range in price from
approximately $200,000 to $1.0 million per system and our opaque film
measurement systems range in price from approximately $900,000 to $1.6 million
per system. Accordingly, a small change in the number of systems we sell may
also cause significant changes in our operating results. Because fluctuations
in the timing of orders from our major customers or distributors or in the
number of our individual systems we sell could cause our revenues to fluctuate
significantly in any given quarter or year, we do not believe that period-to-
period comparisons of our financial results are necessarily meaningful, and
they should not be relied upon as an indication of our future performance.
A significant portion of our revenues has been derived from customers
outside of the United States, and we expect this trend to continue. In 1997,
approximately 66.0% of our revenues were derived from customers outside of the
United States, of which 57.9% were derived from customers in Asia and 8.0% were
derived from customers in Europe. In 1998, approximately 58.2% of our revenues
were derived from customers outside of the United States, of which 41.8% were
derived from customers in Asia and 16.4% were derived from customers in Europe.
In the six months ended June 30, 1999, approximately 57.9% of our revenues were
derived from customers outside of the United States, of which 24.6% were
derived from customers in Asia, 21.5% were derived from customers in Europe,
and 11.8% were derived from customers in other international markets.
Substantially all of our revenues to date have been denominated in United
States dollars.
The sales cycle for our systems typically ranges from six to 15 months, and
can be longer when our customers are evaluating new technology. Due to the
length of these cycles, we invest significantly in research and development and
sales and marketing in advance of generating revenues related to these
investments. Additionally, the rate and timing of customer orders may vary
significantly from month to month. Accordingly, if sales of our products do not
occur when we expect, and we are unable to adjust our estimates on a timely
basis, our expenses and inventory levels may increase relative to revenues and
total assets.
24
<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>
Six Months
Ended
Year Ended Dec. 31, June 30,
--------------------------- ----------------
Combined
1996 1997 1998 1998 1999
-------- ------- -------- ------- -------
(in thousands)
<S> <C> <C> <C> <C> <C>
Revenues....................... $ 31,874 $35,339 $ 20,106 $11,872 $15,170
Cost of revenues............... 14,076 13,903 13,179 6,455 7,373
-------- ------- -------- ------- -------
Gross profit................... 17,798 21,436 6,927 5,417 7,797
-------- ------- -------- ------- -------
Operating expenses:
Research and development...... 4,162 5,750 5,096 2,688 2,097
In-process research and
development................. 3,821 -- -- -- --
Selling, general and
administrative.............. 8,484 9,475 7,077 3,306 3,537
Write-down of intangibles..... 6,734 -- -- -- --
Amortization.................. 3,669 4,201 4,208 2,103 131
-------- ------- -------- ------- -------
Total operating expenses..... 26,870 19,426 16,381 8,097 5,765
-------- ------- -------- ------- -------
Operating income (loss)........ (9,072) 2,010 (9,454) (2,680) 2,032
Interest expense............... 2,068 3,717 4,210 2,135 2,148
Other income................... (182) (92) (199) (15) (29)
-------- ------- -------- ------- -------
Loss before income taxes....... (10,958) (1,615) (13,465) (4,800) (87)
Provision (benefit) for income
taxes........................ 143 (614) 613 (699) 93
-------- ------- -------- ------- -------
Net loss....................... (11,101) (1,001) (14,078) (4,101) (180)
Preferred stock dividends...... 239 468 507 247 269
-------- ------- -------- ------- -------
Loss available to common
stockholders................. $(11,340) $(1,469) $(14,585) $(4,348) $ (449)
-------- ------- -------- ------- -------
</TABLE>
25
<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 a one reportable business segment.
<TABLE>
<CAPTION>
Six months
Year Ended December Ended
31, June 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 54.4 48.6
----- ----- ----- ----- -----
Gross profit........................ 55.8 60.7 34.5 45.6 51.4
Operating expenses:
Research and development........... 13.1 16.3 25.3 22.6 13.8
In-process research and
development...................... 12.0 -- -- -- --
Selling, general and
administrative................... 26.6 26.8 35.2 27.8 23.3
Write-down of intangibles.......... 21.1 -- -- -- --
Amortization....................... 11.5 11.9 21.0 17.8 0.9
----- ----- ----- ----- -----
Total operating expenses.......... 84.3 55.0 81.5 68.2 38.0
----- ----- ----- ----- -----
Operating income (loss)............. (28.5) 5.7 (47.0) (22.6) 13.4
Interest expense.................... 6.5 10.5 20.9 18.0 14.2
Other expense (income).............. (0.6) (0.3) (1.0) (0.1) (0.2)
----- ----- ----- ----- -----
Income (loss) before income taxes... (34.4) (4.5) (67.0) (40.5) (0.6)
Provision (benefit) for income
taxes............................. 0.4 (1.7) 3.0 (5.9) 0.6
----- ----- ----- ----- -----
Net loss............................ (34.8) (2.8) (70.0) (34.6) (1.2)
Preferred stock dividends........... 0.8 1.3 2.5 2.1 1.8
----- ----- ----- ----- -----
Income (loss) available to common
stockholders...................... (35.6)% (4.1)% (72.5)% (36.7)% (3.0)%
===== ===== ===== ===== =====
</TABLE>
Results of Operations for the Six Months Ended June 30, 1998 and 1999
Revenues. Our revenues are derived from the sale of our metrology systems,
services and spare parts. Our revenues were $11.9 million and $15.2 million in
the six months ended June 30, 1998 and 1999. This change represents an increase
of 27.8% and was primarily due to increases in unit volume shipments to
existing customers and expanded sales of new products. Revenues from
international customers represented 62.6% and 57.9% of our revenues in the six
months ended June 30, 1998 and 1999. Revenues from international customers
decreased as a percentage of revenues from 1998 to 1999 as a result of
increased sales to a significant domestic customer in 1999 and reduced revenues
from Asian customers in 1998 due to the Asian economic crisis. See "Risk
Factors--Because we derive a significant portion of our revenues from sales in
Asia, our sales and results of operations could be adversely affected by the
instability of Asian economies."
Cost of Revenues and Gross Profit. Cost of revenues consists of the labor,
material and overhead costs of manufacturing our systems, spare parts cost and
the cost associated with our worldwide service support infrastructure. Our
gross profit was $5.4 million and $7.8 million in the six months ended June 30,
1998 and 1999. This change represents an increase of 43.9%. Our gross profit
represented 45.6% and 51.4% of our revenues in the six months ended June 30,
1998 and 1999. The increase in gross profit margin from 1998 to 1999 resulted
from increased revenues covering a larger portion of fixed costs and changes in
product mix to higher margin products. The increase in gross profit dollars was
the result of higher unit sales. In 1999, we initiated a supply chain
improvement program designed to reduce time to market, manufacturing
inefficiencies and inventories. There can be no assurances that such
improvement programs will be effective or materially increase our gross profit
margins.
Research and Development. Research and development expenditures consist
primarily of salaries and related expenses of employees engaged in research,
design and development activities. They also include consulting fees, prototype
equipment expenses and the cost of related supplies. Our research and
development expenses were $2.7 million and $2.1 million in the six months ended
June 30, 1998 and 1999. This change
26
<PAGE>
represents a decrease of 22.0%. Research and development expense represented
22.6% and 13.8% of our revenues for the six months ended June 30, 1998 and
1999. The decrease in dollars resulted from the timing of purchases of new
materials and supplies for engineering projects and a reduction of outside
software development consulting services. The decrease in research and
development as a percentage of revenues resulted from cost savings in our
research and development operations along with higher revenues in the six
months ended June 30, 1999.
Selling, General and Administrative. Selling, general and administrative
expense is primarily comprised of salaries and related costs for sales,
marketing, and general and administrative personnel, as well as commissions,
royalties for licensed technology and other non-personnel related expenses. Our
selling, general and administrative expense was $3.3 million and $3.5 million
in the six months ended June 30, 1998 and 1999. This change represents an
increase of 7.0%. Selling, general and administrative expense represented 27.8%
and 23.3% of revenues for the six months ended June 30, 1998 and 1999. The
increase in dollars resulted from higher general business costs.
Amortization. Amortization expense is related to the core technology and
goodwill we acquired from our predecessor company in 1996. See Note 5 of Notes
to Financial Statements. Amortization expense was $2.1 million and $0.1 million
in the six months ended June 30, 1998 and 1999. Amortization expense decreased
in 1999 because we completed our amortization of acquired technology in 1998.
Loss on Early Extinguishment of Debt. In the fourth quarter of 1999 we
expect to record an expense of approximately $450,000 for the write-off of
unamortized deferred financing costs we incurred in connection with the
acquisition of our predecessor company in 1996 and the financing we completed
in November 1998. We will recognize these expenses as a result of our
repayment, from the proceeds of this offering, of all the debt we incurred in
connection with these transactions.
Income Taxes. We use the liability method of accounting for income taxes
prescribed by Statement of Financial Accounting Standards No. 109, Accounting
for Income Taxes. See Note 12 of Notes to Financial Statements. Our effective
federal and state tax rates differ from the statutory rates because of a
deferred tax valuation equal to the tax effect of temporary differences
adjusted for amounts currently refundable or payable. Since we generated a loss
in the six months ended June 30, 1998, we recorded an income tax benefit of
$0.7 million for federal tax purposes to reflect the carryback for income taxes
paid in 1997. The provision for income taxes of $0.1 million in the six months
ended June 30, 1999 is the result of state tax obligations resulting from the
acquisition of our predecessor company in 1996 that cannot be applied against
tax loss carryforwards.
Preferred Stock Dividends. We accrued cumulative dividends on our 8%
preferred stock of $247,000 and $269,000 in the six months ended June 30, 1998
and 1999. The increase in accrued dividends resulted from the compounding of
dividends that accrued in prior periods. To date, we have not declared or paid
any dividends.
Results of Operations for the Combined Year Ended December 31, 1996 and the
Years Ended December 31, 1997 and 1998
Revenues. Our revenues were $31.9 million, $35.3 million, and $20.1 million
in the combined year 1996 and in 1997 and 1998. These changes represent an
increase of 10.9% from 1996 to 1997 and a decrease of 43.1% from 1997 to 1998.
The increase in revenues from 1996 to 1997 was primarily due to the
introduction of our MetaPULSE and SpectraLASER families in the second half of
1997 and increased sales of our 300 millimeter wafer measurement products in
1997. The decrease in revenues from 1997 to 1998 was primarily due to lower
sales volume resulting from the downturn in the semiconductor device industry
in 1998, which resulted in reduced capital spending by semiconductor device
manufacturers. Revenues from customers outside of the United States represented
73.8%, 66.0% and 58.2% of our revenues in the combined year 1996 and in 1997
and 1998. Revenues from customers outside of the United States decreased as a
percentage of revenues
27
<PAGE>
from 1997 to 1998 as a result of reduced sales to existing customers in Asia
due to an economic downturn in a number of Asian countries. We expect that
revenues generated from customers outside of the United States will continue to
account for a significant percentage of our revenues. See "Risk Factors--
Because we derive a significant portion of our revenues from sales in Asia, our
sales and results of operations could be adversely affected by the instability
of Asian economies."
Cost of Revenues and Gross Profit. Our gross profit was $17.8 million,
$21.4 million and $6.9 million in the combined year 1996 and in 1997 and 1998.
These changes represent an increase of 20.4% from 1996 to 1997 and a decrease
of 67.7% from 1997 to 1998. Our gross profit represented 55.8%, 60.7%, and
34.5% of our revenues in the combined year 1996 and in 1997 and 1998. The
increase in gross profit margin from 1996 to 1997 resulted primarily from
improved manufacturing efficiencies and lower customer service costs. In 1998,
we recorded an expense of $1.4 million for the writedown of inventory
consisting of excess parts for older product lines and parts which design and
engineering advancements had rendered obsolete. The inventory writedown expense
reduced our gross profit margin for 1998 by 7.0% compared to our gross profit
margin in 1997. The decrease in gross profit margin from 1997 to 1998 was also
attributable in part to the spreading of relatively fixed manufacturing and
service costs over lower revenues and the expansion of our service
infrastructure, including the opening of a branch office in Taiwan.
Research and Development. Our research and development expenditures were
$4.2 million, $5.8 million and $5.1 million in the combined year 1996 and in
1997 and 1998. These changes represent an increase of 38.2% from 1996 to 1997
and a decrease of 11.4% from 1997 to 1998. Research and development
expenditures represented 13.1%, 16.3% and 25.3% of revenues in the combined
year 1996 and in 1997 and 1998. The increases in dollars and percentage in 1997
resulted from increased headcount and prototype equipment cost related to new
product development. The increase in research and development expenditures as a
percentage of revenues in 1998 resulted from lower revenues and our decision to
maintain research and development spending during the downturn in our industry.
The decrease in dollars in 1998 resulted from the cost for prototype equipment
incurred in 1997 with no significant prototype equipment cost recurring in
1998. We anticipate that our research and development expenses will increase in
the future due to planned increases in personnel, consultants and material
costs.
In-Process Research and Development. The acquisition of our predecessor
company resulted in our recording a one-time expense of approximately $3.8
million in 1996 for the write-off of in-process research and development, or
IPRD. The IPRD we acquired related to an optical acoustic metrology technology
that our predecessor company had exclusively licensed in 1995 from the Brown
University Research Foundation. At the time of the acquisition, we determined
that the IPRD had not reached technological feasibility and that it did not
have an alternative future use. Accordingly, we concluded that our ability to
derive future benefit from the IPRD was highly uncertain.
After licensing the technology from Brown, our predecessor company was able
to advance the technology toward technological feasibility by proving, under
laboratory conditions, that the pulsing of ultra-fast lasers could generate
sound waves that could be used to measure multiple layers of metal or opaque
film. At the time of the acquisition we determined that approximately 25% of
the research and development effort required to commercialize the technology
still remained, as we still needed to overcome design and engineering
requirements before a commercial product could be developed. These design and
engineering requirements included developing a compact advanced cooling system
to eliminate laser overheating, laser beam compression systems to reduce the
size of the equipment and automation to handle the movement of materials.
The technology which our predecessor company licensed from Brown ultimately
led to the introduction of our MetaPULSE systems in 1997. Our MetaPULSE systems
provides us with competitive advantages by enabling our customers to measure
multiple layers of metal and opaque thin films simultaneously. Our other
systems do not have this functionality. We began testing the MetaPULSE
prototype in November 1996, and we sold our first MetaPULSE system commercially
in May 1997. We incurred total research and development costs in developing the
MetaPULSE product, excluding the IPRD expense, of approximately $3.7 million.
28
<PAGE>
In valuing the IPRD, we performed a discounted cash flow analysis of our
expected annual revenues from the MetaPULSE technology over a period of
approximately four years. We chose a four-year period based on the historic
revenue trends of our new product introductions. We used expected annual
revenues ranging from approximately $14 million to $23 million, and a risk
rated discount rate of 30.0%.
Selling, General and Administrative. Our selling, general and
administrative expense was $8.5 million, $9.5 million and $7.1 million in the
combined year 1996 and in 1997 and 1998. These changes represent an increase of
11.7% from 1996 to 1997 and a decrease of 25.3% from 1997 to 1998. Selling,
general and administrative expense represented 26.6%, 26.8%, and 35.2% of
revenues in the combined year 1996 and in 1997 and 1998. The increase in
dollars in 1997 resulted from the addition of sales and marketing cost in the
United States as we ended our relationship with our domestic sales
representative and established a direct sales force. The decrease in dollars in
1998 resulted from a reduction in commissions paid to foreign sales
representatives as a result of the semiconductor device industry slowdown and
the Asian economic crisis. This decrease was partially offset by an increase in
royalty costs associated with licensed technology included in one of our new
systems. In 1999, we expect to increase the dollar amount we spend on selling,
general and administrative expenses.
Write-Down of Intangibles. During 1996, after the acquisition of our
predecessor company, the semiconductor device industry began an unforeseen
period of reduced capital equipment purchases. The related industry-wide
downturn in the semiconductor capital equipment industry led to decreased sales
of our products as many customers delayed shipments or canceled orders
altogether. At the same time, we also initiated the development of next
generation systems. In light of these developments, we assessed the
recoverability of one of our intangible assets and a pro-rata share of the
goodwill we acquired from our predecessor company using undiscounted future
cash flows from operations. Based on this analysis, we determined an impairment
for these assets had occurred. We then used discounted expected future cash
flows to determine the net realizable value of these assets, and recorded a
$6.7 million expense to reduce the book value of these assets to their net
realizable value.
Amortization. Our expense for amortization was $3.7 million, $4.2 million
and $4.2 million in the combined year 1996 and in 1997 and 1998.
Interest Expense. Interest expense was $2.1 million, $3.7 million and $4.2
million in the combined year 1996 and in 1997 and 1998, and results from the
substantial debt incurred to finance the purchase of our predecessor company in
June 1996.
Other Income. Included in other income is interest income on cash balances,
miscellaneous nonrecurring income resulting from the disposal of capital
equipment and several other nonrecurring transactions. Other income was
$182,000, $92,000, and $199,000 in the combined year 1996 and in 1997 and 1998.
Provision (Benefit) for Income Taxes. Our provision (benefit) for income
taxes was a provision of $143,000 in combined 1996, a benefit of $614,000 in
1997 and a provision of $613,000 in 1998. The effective income tax rate for
1996 was reduced by our predecessor company's election to be taxed as a S
corporation, thereby resulting only in the incurrence of state taxes. In
addition, we recorded a partial deferred tax valuation allowance for various
temporary differences including a net operating loss carryforward. We computed
our effective tax rate for 1997 and 1998 based on prevailing federal and state
rates adjusted for increases in our deferred tax valuation accounts and for
current taxes payable or refundable during the carryback period.
Preferred Stock Dividends. We accrued cumulative dividends on our 8%
preferred stock of $0.2 million, $0.5 million, and $0.5 million in the combined
year 1996 and in 1997 and 1998. The increase from 1996 to 1997 resulted
primarily from the preferred stock being outstanding for only part of the year
in 1996 and for the entire year in 1997. To date no dividends have been
declared or paid.
29
<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 June 30, 1999, and
such data expressed as percentages of our revenues for the same periods. This
information has been prepared on the same basis as the audited consolidated
financial statements appearing elsewhere in this prospectus and, in our
management's opinion, contains all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the unaudited
quarterly results of operations set forth below. Results of operations for any
previous quarter are not necessarily indicative of the results to be expected
for the entire year or any future period.
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------------------------------------
<CAPTION>
Sep. 30, Dec. 31, Mar. 31, June 30, Sep. 30, Dec. 31, Mar. 31,
1997 1997 1998 1998 1998 1998 1999
-------- -------- -------- -------- -------- -------- --------
Statement of Operations: (in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues......................................... $ 9,664 $7,472 $ 6,452 $ 5,420 $ 2,853 $ 5,381 $6,532
Cost of revenues................................. 3,575 3,858 3,300 3,155 2,212 4,512 3,229
------- ------ ------- ------- ------- ------- ------
Gross Profit..................................... 6,089 3,614 3,152 2,265 641 869 3,303
Operating expenses:
Research and development........................ 2,199 1,372 1,225 1,463 1,154 1,254 1,043
Selling, general and administrative............. 2,569 2,261 1,640 1,666 1,502 2,269 1,604
Amortization.................................... 1,052 1,051 1,052 1,051 1,053 1,052 66
------- ------ ------- ------- ------- ------- ------
Total operating expenses....................... 5,820 4,684 3,917 4,180 3,709 4,575 2,713
------- ------ ------- ------- ------- ------- ------
Operating income (loss).......................... 269 (1,070) (765) (1,915) (3,068) (3,706) 590
Interest expense................................. 904 951 994 1,141 1,065 1,010 1,038
Other income..................................... (9) (31) (8) (7) (32) (152) (3)
------- ------ ------- ------- ------- ------- ------
Income (loss) before income taxes............... (626) (1,990) (1,751) (3,049) (4,101) (4,564) (445)
Provision (benefit) for income taxes............ 298 (1,558) -- (699) -- 1,312 93
------- ------ ------- ------- ------- ------- ------
Net income (loss)............................... (924) (432) (1,751) (2,350) (4,101) (5,876) (538)
Preferred stock dividends....................... 119 121 122 125 129 131 133
------- ------ ------- ------- ------- ------- ------
Net income (loss) available to common
stockholders.................................. $(1,043) $ (553) $(1,873) $(2,475) $(4,230) $(6,007) $ (671)
======= ====== ======= ======= ======= ======= ======
<CAPTION>
Three Months Ended
--------------------------------------------------------------------------
Sep. 30, Dec. 31, Mar. 31, June 30, Sep. 30, Dec. 31, Mar. 31,
1997 1997 1998 1998 1998 1998 1999
-------- -------- -------- -------- -------- -------- --------
As a Percentage of Revenues:
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues......................................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues................................. 37.0 51.6 51.1 58.2 77.5 83.9 49.4
------- ------ ------- ------- ------- ------- ------
Gross Profit..................................... 63.0 48.4 48.9 41.8 22.5 16.1 50.6
Operating expenses:
Research and development........................ 22.8 18.4 19.0 27.0 40.5 23.3 16.0
Selling, general and administrative............. 26.6 30.3 25.4 30.7 52.6 42.2 24.6
Amortization.................................... 10.8 14.1 16.3 19.4 36.9 19.6 1.0
------- ------ ------- ------- ------- ------- ------
Total operating expenses....................... 60.2 62.8 60.7 77.1 130.0 85.0 41.6
------- ------ ------- ------- ------- ------- ------
Operating income (loss).......................... 2.8 (14.4) (11.8) (35.3) (107.5) (68.9) 9.0
Interest expense................................. 9.4 12.7 15.4 21.1 37.3 18.8 15.9
Other income..................................... (0.1) (0.4) (0.1) (0.1) (1.1) (2.8) (0.1)
------- ------ ------- ------- ------- ------- ------
Income (loss) before income taxes............... (6.5) (26.7) (27.1) (56.3) (143.7) (84.9) (6.8)
Provision (benefit) for income taxes............ 3.1 (20.9) -- (12.9) -- 24.4 1.4
------- ------ ------- ------- ------- ------- ------
Net income (loss)............................... (9.6) (5.8) (27.1) (43.4) (143.7) (109.3) (8.2)
Preferred stock dividends....................... 1.2 1.6 1.9 2.3 4.5 2.4 2.0
------- ------ ------- ------- ------- ------- ------
Net income (loss) available to common
stockholders.................................. (10.8)% (7.4)% (29.0)% (45.7)% (148.2)% (111.7)% (10.2)%
- --------------------------------------------------
======= ====== ======= ======= ======= ======= ======
June 30,
1999
--------
Statement of Operations:
<S> <C>
Revenues......................................... $8,638
Cost of revenues................................. 4,144
--------
Gross Profit..................................... 4,494
Operating expenses:
Research and development........................ 1,054
Selling, general and administrative............. 1,933
Amortization.................................... 65
--------
Total operating expenses....................... 3,052
--------
Operating income (loss).......................... 1,442
Interest expense................................. 1,110
Other income..................................... (26)
--------
Income (loss) before income taxes............... 358
Provision (benefit) for income taxes............ --
--------
Net income (loss)............................... 358
Preferred stock dividends....................... 136
--------
Net income (loss) available to common
stockholders.................................. $ 222
========
<CAPTION>
June 30,
1999
--------
As a Percentage of Revenues:
<S> <C>
Revenues......................................... 100.0%
Cost of revenues................................. 48.0
--------
Gross Profit..................................... 52.0
Operating expenses:
Research and development........................ 12.2
Selling, general and administrative............. 22.4
Amortization.................................... 0.8
--------
Total operating expenses....................... 35.4
--------
Operating income (loss).......................... 16.6
Interest expense................................. 12.9
Other income..................................... (0.3)
--------
Income (loss) before income taxes............... 4.0
Provision (benefit) for income taxes............ --
--------
Net income (loss)............................... 4.0
Preferred stock dividends....................... 1.6
--------
Net income (loss) available to common
stockholders.................................. 2.4%
- --------------------------------------------------
========
</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
30
<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 third and fourth quarters of 1997 and the first, second and
third quarters of 1998 as a result of the recent downturn in the semiconductor
device and equipment industries. Our gross profit as a percentage of revenues
decreased in the fourth quarter of 1998 as a result of a $1.4 million charge
for the writedown of inventory consisting of excess parts for older product
lines and parts which design and engineering advances rendered obsolete.
Our research and development expenses were high in the third quarter of
1997 due to increased prototype development costs and in the second quarter of
1998 due to increased material costs for engineering projects. Amortization of
intangibles decreased in the first quarter of 1999 because we completed the
amortization of some of the technology we acquired from our predecessor company
in 1998.
Liquidity and Capital Resources
Since the purchase of our predecessor company in 1996, we have financed our
operations from internally generated funds, sales of equity, and both a
revolving credit facility and long term loans with a related party. Our
principal liquidity requirements are the financing of working capital,
inventories, capital expenditures and debt service.
Net cash generated by operating activities was $1.2 million for the period
from June 14, 1996 to December 31, 1996. Net cash used in operating activities
was $2.0 million, $6.9 million and $0.6 million for 1997, 1998 and for the six
months ended June 30, 1999. The increase in cash used by operating activities
from 1997 to 1998 was due primarily to our funding of net losses and
fluctuations in accounts receivable, inventory and current liabilities. The
decrease from 1998 to June 30, 1999 was due primarily to a decrease in our net
losses as well as the cash impact of fluctuations in accounts receivable,
inventory and current liabilities.
Net cash used in investing activities was $0.1 million, $0.6 million, $0.9
million, and $0.5 million for the period from June 14, 1996 to December 31,
1996, for 1997 and 1998, and for the six months ended June 30, 1999. Capital
expenditures for 1997 were primarily used to upgrade computer systems and for
leasehold improvements to our sales and service facility in California. Capital
expenditures for 1998 and 1999 were primarily used to establish our new
manufacturing and customer training facility in New Jersey. Capital
expenditures for 1999 are not expected to exceed $1.0 million.
Net cash provided by financing activities was $0.5 million, $1.2 million,
$8.0 million and $1.0 million for the period June 14, 1996 to December 31,
1996, the years ended December 31, 1997 and 1998, and the six months ended June
30, 1999, and was principally provided by loans and an equity investment by a
related party.
In June 1996, our predecessor company was purchased in a leveraged
transaction. In order to finance the transaction, we issued a senior term note
and a senior subordinated note in the principal amounts of $16.0 million and
$11.0 million. We also issued $1.5 million of common stock and $5.4 million of
preferred stock. The senior term note bears interest at an annual rate of prime
plus 1.75%, with the principal required to be repaid on a quarterly basis from
1997 to 2002. The senior subordinated note bears interest at an annual rate of
prime plus 4.0%, with the principal to be repaid in its entirety in 2003. Our
preferred stock accrues dividends cumulatively at a rate of 8% per year. No
dividends on the preferred stock have been declared or paid.
In conjunction with our issuance of the senior notes, we obtained a
revolving line of credit with the same related party in an aggregate principal
amount not to exceed $8.0 million. The maximum amount of the revolving line of
credit was increased to $12.0 million in 1998. At June 30, 1999, available
borrowings under this revolving line of credit totaled $2.7 million.
31
<PAGE>
In July 1998, we issued 4,115,021 shares of Class A common stock and Class
B common stock with proceeds of $3.0 million. The shares of common stock were
offered to our existing stockholders in a private transaction. The proceeds
from the issuance of the capital stock were used for general corporate
purposes.
In November 1998, we issued a junior subordinated note in the principal
amount of $7.0 million, of which we had been advanced a total of $6.4 million
as of June 30, 1999. The unpaid principal amount of the junior subordinated
note bears interest at an annual rate of 14%. The junior subordinated note
matures on July 31, 2001.
We may at any time prepay, without premium or penalty, all or any portion
of our outstanding debt. We intend to apply a substantial portion of the net
proceeds of this offering to the repayment in full of the principal and accrued
interest on our outstanding debt. See "Use of Proceeds."
We believe that the net proceeds from this offering, a working capital line
of credit which we expect to obtain before this offering and cash generated
from operations, if any, will be adequate to meet our anticipated cash needs
for working capital and capital expenditures for the twelve months following
this offering. Historically, we have received financial support from our
stockholders. Because of the operating losses we reported in 1998 and 1999, we
would not have been in compliance with the financial ratios we are required to
maintain under the terms of our outstanding debt had our lender not waived such
noncompliance through June 30, 1999. We anticipate that we will not be in
compliance with these ratios through the date of this offering.
Our future capital requirements will depend on many factors, including the
timing and amount of our revenues and our investment commitments, which will
affect our ability to generate additional cash. Thereafter, if cash generated
from operations and financing activities is insufficient to satisfy our working
capital requirements, we may seek additional funding through bank borrowings,
sales of securities or other means. There can be no assurance that we will be
able to raise any such capital on terms acceptable to us or at all.
Year 2000 Issue
The "Year 2000 Issue" refers generally to the problems that some software
may have in determining the correct century of the year. Many existing
electronic systems, including computer systems, use only the last two digits to
refer to a year. Therefore, these systems may recognize a date using "00" as
1900 rather than the year 2000. If not corrected, these electronic systems
could fail or create erroneous results when addressing dates on and after
January 1, 2000.
In assessing the potential effect of the Year 2000 Issue on us, we
determined that we needed to evaluate four general areas:
.Supplier relationships;
.Internal infrastructure;
.Products sold to customers; and
.Other third-party relationships.
Supplier Relationships. We identified our significant suppliers and
subcontractors and asked them to provide us with an assessment of their Year
2000 readiness. To date, we have received responses from a substantial majority
of our key suppliers, most of which indicated that they are in the process of
developing and implementing remediation plans. However, we have no means of
ensuring that suppliers and subcontractors will be Year 2000 ready. The
inability of suppliers or subcontractors to complete their Year 2000 resolution
process in a timely fashion could seriously harm our operating results. We are
unable to determine the effect of non-compliance by suppliers or
subcontractors.
32
<PAGE>
Internal Infrastructure. The Year 2000 Issue could also affect our internal
systems, including both our information technology and non-information
technology systems. We have completed an assessment of our material internal
information technology systems, including third-party software and hardware
technology. Based upon representations received from these third-party software
and hardware suppliers, and in some instances the implementation of Year 2000
software upgrades, we do not believe that our material internal information
technology systems will be affected by the Year 2000 Issue. We have also
initiated an assessment of our non-information technology internal systems,
such as our test equipment. Based on our preliminary assessment, we do not
believe that our non-information technology internal systems will be affected
by the Year 2000 Issue. However, we may experience serious unanticipated
problems and costs caused by undetected errors or defects in the technology
used in our internal information technology and non-information technology
systems.
Products Sold to Customers. We have completed our inventory and assessment
of our products' Year 2000 readiness utilizing testing guidelines prepared by
Sematech, a consortium of suppliers to worldwide semiconductor manufacturers.
Our new products are designed to be Year 2000 ready, but some of our older
products will require upgrades for Year 2000 readiness. We have completed
upgrades for our product, and have made these upgrades available to our
customers. Notwithstanding such efforts, any failure of our products to
perform, including system malfunctions due to the onset of Year 2000, could
result in claims against us, which could distract our management and seriously
harm our business and operating results. Moreover, our customers could choose
to convert to other Year 2000 ready products in order to avoid such
malfunctions, which could also seriously harm our business and operating
results.
We do not currently have any information concerning the Year 2000
compliance status of our customers. Our current or future customers may incur
significant expenses to achieve Year 2000 compliance. If our customers are not
Year 2000 compliant, they may experience significant costs to remedy problems,
or they may face litigation costs. In either case, the Year 2000 Issue could
reduce or eliminate the budgets that current or potential customers could have
for purchases of our products and services. As a result, our business and
operating results could be seriously harmed.
Other Third-Party Relationships. We rely on outside vendors for utilities
and telecommunication services as well as climate control, building access and
other infrastructure services. We are not capable of independently evaluating
the Year 2000 compliance of the systems utilized to supply these services. We
cannot assure you that these suppliers will resolve any or all Year 2000-
related problems with these systems before the occurrence of a material
disruption to our business. Any failure of these third parties to resolve Year
2000-related problems with their systems in a timely manner could harm our
business and operating results.
We have not developed a contingency plan to address situations that may
result if we are unable to achieve Year 2000 readiness of our critical
operations, and we do not plan to do so in the future. Any investigations we
have undertaken with respect to the Year 2000 Issue have been funded from
available cash, and these costs have not been separately accounted for. To
date, these costs have not been significant, and we do not expect that our
future expenditures for Year 2000 remediation will be material.
Impact of Recent Accounting Pronouncements
During June 1998, as amended in July 1999 for Statement No. 137, the
Financial Accounting Standards Board issued Statement No. 133, "Accounting for
Derivative Investments and Hedging Activities," known as SFAS 133. Based on our
current operations, we have concluded that the future adoption of SFAS 133 will
have no impact on our operations or financial position.
33
<PAGE>
BUSINESS
Overview
We are a worldwide leader in the design, development, manufacture and
support of high-performance process control metrology systems used in
semiconductor device manufacturing. Our proprietary systems measure the
thickness and other properties of thin films applied during various steps in
the manufacture of integrated circuits, enabling semiconductor device
manufacturers to improve yields and reduce overall production costs. We provide
our customers with a full-fab metrology solution by offering families of
systems that meet their transparent and opaque thin film measurement needs in
various applications across the fabrication process. Our two primary families
of metrology solutions offer leading-edge metrology technology, flexible
systems cost-effectively designed for specific manufacturing applications and a
common production-worthy automation platform, all backed by worldwide support.
Our objective is to be the premier worldwide provider of thin film
metrology systems to semiconductor device manufacturers. To extend our
technology leadership position, we intend to continue to invest in research and
development. In addition, we plan to focus our resources, including our global
support network, on understanding the needs of leading semiconductor device
manufacturers in order to best position ourselves to be the system of choice
when device manufacturers and foundries upgrade their fabrication techniques in
response to advances in semiconductor technology. We also intend to leverage
our technical heritage and extensive thin film measurement expertise to expand
our customer relationships and to continue to develop complementary metrology
applications.
Since 1940, our technological leadership has earned us a reputation for
metrology excellence, and we believe that we have the largest installed base of
ellipsometers in the world. Our customers include most major semiconductor
device manufacturers worldwide, including Intel, AMD, Chartered Semiconductor,
Fujitsu, Hyundai, IBM, Lucent, Philips, Samsung, ST Microelectronics, Texas
Instruments, TSMC, Toshiba and UMC.
Industry Background
Growth of the Semiconductor Market
The semiconductor industry has experienced significant growth over the past
decade. Industry analysts estimate that despite year-to-year fluctuations,
worldwide semiconductor sales will increase from approximately $124 billion in
1998 to approximately $229 billion in 2002. This increase in demand is driven
by growth in traditional markets for semiconductors such as data processing,
including personal computers, and telecommunications, especially wireless
communications. The explosive growth of Internet usage and the proliferation of
advanced consumer electronic products have also increased demand, and have made
semiconductors virtually ubiquitous in most electronic products.
The Semiconductor Device Manufacturing Process
Semiconductor integrated circuits, commonly called ICs or chips, consist of
components, typically transistors, along with interconnect circuitry that
connects the components. ICs are manufactured on silicon bases called wafers,
which are processed through a series of machines where they are ground smooth
and chemically polished. They then become the starting material for
fabrication, the central process in manufacturing integrated circuits.
Fabrication involves several complex and repetitive processing steps,
including diffusion, photolithography, deposition, etching, chemical mechanical
planarization (CMP) and ion implantation, during which numerous copies of an
integrated circuit are formed on a single wafer. These processes are constantly
monitored and wafers are measured at each step to ensure that chips are
fabricated to exacting specifications in a cost-effective manner. The
fabrication process typically creates eight to 30 very thin patterned layers on
each wafer, which are then cut into individual chips or die.
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[Diagram of the fabrication process]
Initially, a wafer is pre-cleaned using high-purity, low-particle chemicals
and then heated and exposed to ultra-pure oxygen in diffusion furnaces under
carefully controlled conditions. This diffusion process forms a silicon dioxide
film of uniform thickness on the surface of the wafer. The wafer is then
subjected to deposition, a process in which very thin films of either
electrically insulating or electrically conductive material are deposited on
its surface. Insulating films, or dielectrics, are primarily transparent, while
conductive films are primarily opaque. The three principal methods of
deposition are chemical vapor deposition (CVD), physical vapor deposition (PVD)
and electrofill. Deposition of multiple layers of thin films creates
electrically active regions in the wafer and on its surface. Depending on the
specific design of an integrated circuit, film thickness will vary and
different numbers of layers and film types will be utilized to achieve a
targeted performance level.
The deposition of these film layers occurs in series with other processes
that create circuit patterns, remove portions of film layers, implant
electrically charged ions and perform other functions such as heat treatment,
measurement and inspection. Photolithography, for example, is used to create
circuit patterns on the face of the wafer. A light-sensitive film, called
photoresist, is applied to the wafer, which is exposed to intense light. The
wafer is then "developed" when the exposed photoresist is removed to expose
newly created circuit patterns.
The developed wafer may be exposed to a chemical solution or plasma so that
areas not covered by the hardened photoresist are etched away. This etching
process selectively removes material from the surface of the wafer to create
device structures. To meet the processing challenges posed by new materials
such as copper, manufacturers are increasingly using a new process step, CMP,
in place of etching. CMP removes uneven film material from the wafer, creating
an extremely flat surface for the patterning of subsequent film layers. The
wafer can also be subjected to an ion implantation process, in which
electrically charged ions are introduced into selected areas on the wafer to
alter the electrical characteristics of the resulting device.
This series of processes is repeated several times until the last layer of
structures on the wafer is completed. After completion of the last layer, a
passivation coating is applied to protect the circuit from damage and
contamination. Openings are etched in this film to allow access to the top
layer of metal by electrical probes and wire bonds. The functionality of each
chip on the wafer is then inspected and tested before shipment.
Rising Demand for Process Control Metrology Systems
Process control metrology is used by semiconductor device manufacturers to
analyze product and process quality at critical steps in the integrated circuit
manufacturing process in order to identify, diagnose and minimize fabrication
defects. Dataquest estimates that sales of process control metrology systems
and tools will increase at a compound annual growth rate of 22.9% from
approximately $1.8 billion in 1998 to approximately $4.1 billion in 2002. We
believe that thin film measurement metrology constitutes between 15% and 25% of
this market.
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The semiconductor device manufacturing industry is experiencing several
trends that are increasing the demand for process control metrology systems and
heightening the need for metrology technology that can deliver a higher degree
of accuracy and repeatability:
Transition to Copper. Copper metal layers are increasingly replacing
aluminum as the interconnect of choice for advanced integrated circuits. While
copper has greater performance potential than aluminum, its use requires new
challenging processing methodologies.
Development of Smaller Feature Geometries. The development of smaller
feature geometries, 0.18 micron and below, enables device manufacturers to
produce greater numbers of integrated circuits, or die, per wafer. Yet as
geometry linewidths decrease, manufacturing yields become increasingly
sensitive to the magnitude of processing defects.
Migration to 300 Millimeter Wafers. The migration to larger wafer sizes,
200 millimeter wafers today and moving to 300 millimeters, scales the rate at
which semiconductor device manufacturers can produce integrated circuits, also
known as throughput, by vastly increasing the number of die per wafer.
Nevertheless, processing larger wafers both expands the complexity of
manufacturing and increases the cost of manufacturing process mistakes.
Introduction of Chemical Mechanical Planarization. The introduction of new
manufacturing processes, such as CMP in place of etch, is increasing the
complexity of some processing steps, heightening the need for more accurate
measurement and process control.
Transition to New Dielectrics. Semiconductor device manufacturers are
utilizing new materials such as low-k and high-k dielectrics to improve device
performance. Both memory and logic device manufacturers are requiring new
metrology solutions to help control the electrical capacitance of these
advanced transparent films.
Shortening of Product Life Cycles. The product life cycles of semiconductor
devices continues to shorten, making the early achievement of high
manufacturing yields critical to device manufacturers' profitability. The
maximization of yields, or the number of good die per wafer, requires the use
of metrology across the fab to ensure that manufacturing processes are accurate
and can be repeated on a consistent basis without a disqualifying level of
defects, known as repeatability.
Traditional Process Control Metrology Systems and Their Limitations
Metal and Opaque Thin Film Metrology Systems. Traditional process control
metrology systems for measuring metal and other opaque thin films can generally
be divided into contact and non-contact techniques. Contact techniques include:
. four-point probes, which are instruments that measure the resistivity of
thin films by contacting the film with four closely spaced metal probes;
. sectioning technologies, which analyze samples made by cutting the wafer
for measurement; and
.profilometry, in which a stylus is scanned over the surface of a test
wafer.
Existing non-contact, non-destructive metal and opaque metrology techniques
include surface acoustic and x-ray technologies.
Traditional metrology systems utilizing these technologies have had limited
success meeting the accuracy and repeatability demands of new manufacturing
processes such as CMP and new materials such as copper. The efficacy of these
systems is further strained by the ever shrinking feature sizes and geometries
of integrated circuits. In addition, while semiconductors composed of multi-
layer film stacks are becoming increasingly common, existing metrology systems
are generally incapable of simultaneously measuring more than two layers in
these stacks.
Finally, the industry is moving away from using contact techniques, which
require the use of non-productive test wafers, toward using non-contact
techniques to measure product wafers. The transition to
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measuring product wafers is being driven by manufacturers' inability to
adequately control the manufacturing process using test wafers alone as well as
the costs associated with the processing and destruction of test wafers.
Transparent Thin Film Metrology Systems. The most widely used technologies
to measure the thickness and properties of transparent thin films have been
reflection spectrometry and ellipsometry. Reflection spectrometers, or
reflectometers, use software algorithms to analyze the wavelength of light
reflected from the surface of a wafer after the light has passed through one or
more transparent films. Ellipsometers measure the change of polarization of
reflected light from the surface of a wafer.
Both ellipsometry and reflection spectrometry suffer from accuracy and
efficiency problems analogous to those posed for metal and opaque metrology
systems. In the case of transparent thin films these problems are exacerbated
by the fact that recent generations of film deposition tools are depositing
several films at one time, requiring measurements of stacked multi-layer films.
However, in most applications reflectometers are more suitable for measuring
thicker films whereas ellipsometers are more suitable for measuring very thin
films. Thus, neither system alone generates sufficient data to simultaneously
determine the thicknesses and other properties of film stacks with the
precision and repeatability device manufacturers demand.
The Rudolph Full-Fab Solution
We are a worldwide leader in the design, development, manufacture and
support of high-performance process control metrology systems used in
semiconductor device manufacturing. Our proprietary systems non-destructively
measure the thickness and other properties of thin films applied during various
steps in the manufacture of integrated circuits, enabling semiconductor device
manufacturers to increase yields and lower overall production costs. We provide
our customers with a flexible full-fab metrology solution by offering families
of systems that meet their transparent and opaque thin film measurement needs
in various applications across the fabrication process. Our two primary
families of metrology solutions offer leading-edge metrology technology,
flexible systems cost-effectively designed for specific manufacturing
applications and a common production-worthy automation platform, all backed by
worldwide support.
We design our systems with the flexibility to allow our customers to mix
and match tools both within and across our product lines to provide cost-
effective solutions that meet their specific manufacturing applications. Our
primary transparent and opaque thin film measurement systems are all built on
our production-worthy Vanguard common automation platform, which has been in
production since the spring of 1997. The Vanguard platform, which provides a
common software system, user interface, and hardware base for our systems,
received the Editor's Choice Award for Best Product by Semiconductor
International in 1998. We also provide our customers with direct service and
application support worldwide, which is dedicated to ensuring tool uptime and
promoting additional applications for our solutions across the fab.
Metal and Opaque Thin Film Measurement Solutions. Our MetaPULSE family of
metrology systems incorporates our proprietary technology for optical acoustic
metrology, which allows customers to simultaneously measure the thickness and
other properties of up to six metal or other opaque film layers in a non-
contact manner on product wafers. By minimizing the need for test wafers,
MetaPULSE enables our customers to achieve significant cost savings. We believe
that we currently offer the only systems that can non-destructively measure up
to six metal film layers with the degree of accuracy semiconductor device
manufacturers demand.
Our MetaPULSE systems use ultra-fast lasers to generate sound waves that
pass down through a stack of metal or opaque films such as copper and aluminum,
sending back to the surface an echo which is detected and analyzed. These
systems precisely measure the films with Angstrom accuracy and sub-Angstrom
repeatability at high throughputs. This accuracy and repeatability is critical
to semiconductor device manufacturers' ability to achieve higher manufacturing
yields with the latest fabrication processes.
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In addition to measuring thickness, MetaPULSE systems provide critical
information about the properties of a film stack, such as detection of missing
layers during deposition, which is not available from traditional single-layer
test wafer metrology. We therefore believe that MetaPULSE offers significant
cost and performance advantages to customers depositing multi-layer film
stacks. As the industry moves toward the widespread adoption of copper
metalization, we believe that MetaPULSE systems will become even more widely
used to control device process parameters.
Transparent Film Measurement Solutions. Our SpectraLASER line of
transparent film metrology systems provides precise and repeatable measurements
of an ever-increasing library of new thin films by incorporating our
proprietary and patented ellipsometer technology. Our patented technology,
which uses four lasers operating simultaneously at multiple angles and
wavelengths, provides our systems with an inherently stable design,
significantly improving the repeatability of the original manufacturing
process. In addition, our use of long life solid state lasers rather than the
traditional white light sources of competitive systems reduces maintenance
costs and minimizes the cost and time required to re-qualify a light source
when it is replaced. SpectraLASER systems can also incorporate reflectometry
technology, which is often more suitable for measuring thicker films. The
addition of reflectometry technology to our SpectraLASER systems allows
simultaneous measurement using both technologies, addressing a trend in the
industry to use film stacks composed of an increasing number of layers of
different films without compromising throughput in the fab.
To complement our SpectraLASER family of transparent film metrology
systems, we have developed our Matrix Metrology family of systems, which we
plan to introduce in September 1999 at the Semicon Taiwan industry conference.
These systems incorporate advanced ellipsometry and reflectometry technologies.
Each model is specifically configured in its hardware and software architecture
to provide an optimized metrology solution for a specific semiconductor process
application, such as CMP, diffusion or etch. Our Matrix Metrology line, when
combined with our existing families of metrology systems, is designed to
provide customers with a flexible full-fab line of metrology solutions for
transparent and opaque thin films, all built on our award-winning Vanguard
automation platform.
Strategy
Our objective is to be the premier worldwide provider of advanced thin film
measurement metrology solutions for the semiconductor device manufacturing
industry. Key elements of this strategy include:
Extend Technology Leadership. We believe that our proprietary technology
and our extensive metrology expertise provide us with a technological advantage
over competing thin film metrology system manufacturers. We further believe
that technical innovation will continue to be one of the leading drivers for
market acceptance of new metrology systems in an industry characterized by
rapid product life cycles and continuous semiconductor performance gains.
Accordingly, we intend to continue to invest in research and development to
extend our technology leadership position. We currently have 15 holders of
Ph.D. degrees and six holders of M.S. degrees on our 45-member development
staff, representing over 40% of this staff. In addition, we maintain a close
relationship with Brown University, which we use to leverage our technology
development efforts. We may also acquire complementary technologies and form
new strategic alliances to further expand our technology expertise.
Focus on Understanding the Needs of Leading Semiconductor Device
Manufacturers. We intend to maintain our emphasis on the needs of leading
semiconductor device manufacturers. We focus our resources on understanding
selected customers through close technical relationships at the operating and
management levels. We believe this strategy provides us with a first-mover
advantage in developing and qualifying products at each technology inflection
point when our customers alter their fabrication techniques in response to
advances in semiconductor technology. Due to the high costs of technical
modifications and production line downtime, semiconductor device manufacturers
are reluctant to switch to competing vendors' technologies during the life of a
production line, which underscores the importance of being selected for next-
generation products. Further,
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the selection of our systems by recognized industry leaders is an endorsement
which enhances our ability to market our metrology systems to a broader set of
semiconductor device manufacturers.
Increase Sales to Existing Customers. We intend to continue to develop and
expand our extensive customer relationships in order to increase sales of new
systems. Tracing our technical heritage to 1940, we have developed a
longstanding reputation for technological leadership as a global producer of
highly accurate and reliable systems. We believe that we have the largest
installed base of ellipsometers in the world, and that our ellipsometry
metrology systems are used by most major semiconductor device manufacturers.
Our access to such a wide base of current customers and our brand-name
recognition provide an opportunity for increased sales of additional systems to
our customers without the extensive efforts that would otherwise be required
when approaching new customers.
Seek Opportunities for Strategic Alliances and Joint Development
Arrangements. We expect to continue to strengthen our existing customer
relationships by seeking opportunities for strategic alliances and joint
development arrangements with our customers. Our customers include virtually
all of the leading semiconductor device manufacturers with their world-class
research and development organizations. We believe that we can significantly
leverage our resources in this area through alliances with these customers.
Further, we believe that pursuing joint development arrangements with these
leading manufacturers will provide us with critical insight into semiconductor
industry trends, and could lead to the development of new systems with broad
market appeal.
Develop Complementary Metrology Applications. We plan to leverage our
extensive thin film measurement expertise to develop complementary metrology
applications. The addition of complementary product offerings will enhance our
ability to provide a full-fab solution for a variety of metrology applications.
We have, for example, built upon our dominance in metrology used for the
diffusion process to develop our Matrix Metrology line of systems optimized for
the CMP, diffusion and etch processes. In addition, we have applied our
technology for the semiconductor device manufacturing process to develop
applications for the magnetic storage industry, such as measuring the thin
films applied during the manufacture of hard disk drive storage heads. The
modular architecture of the Vanguard platform is designed to enable
incorporation of new applications with our current systems in a rapid and cost-
effective manner, thereby decreasing downtime and increasing productivity of
our customers.
Capitalize on Our Global Customer Support Network. We presently maintain a
worldwide network of sales, service, and applications centers with a highly
trained technical and commercial support staff. We intend to continue to invest
in this worldwide customer support network. This network, combined with our
core team of product technical specialists in New Jersey, has led to our
receiving the top ranking among our thin film metrology competitors for the
past four years in the annual VLSI Customer Satisfaction Survey. We will
continue to provide our customers with dedicated, comprehensive support before,
during and after the sale of our systems.
Technology
We believe that our expertise in engineering, research and development
enables us to rapidly develop new technologies and products in response to
emerging industry trends. The breadth of our technology enables us to offer our
customers a combination of measurement technologies, which we believe is
critical for today's advanced thin film metrology applications.
Optical Acoustics. Optical acoustic metrology involves the use of ultra-
fast laser induced sonar for metal and opaque thin film measurement. This
technology sends ultrasonic waves into multi-layer opaque films, then analyzes
the resulting echoes to determine the thickness of each individual layer
simultaneously. The echo's amplitude and phase can be used to detect film
properties, missing layers and interlayer problems. Since different phenomena
affect amplitude and phase uniquely, a variety of interlayer problems can be
detected and measured.
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The use of optical acoustics to measure multi-layer metal and opaque films
was pioneered by scientists at Brown University in collaboration with us. The
proprietary optical acoustic technology in our MetaPULSE systems measures the
thickness of single or multi-layer opaque films ranging from less than 20
Angstroms to greater than five microns. It provides these measurements at a
rate of 60 wafers per hour with one to two percent accuracy and 0.5%
repeatability. Our optical acoustic technology also enables our MetaPULSE
systems to measure film properties on product wafers at existing test sites by
using small measurement spots of only ten microns in combination with pattern
recognition software algorithms.
Ellipsometry. Ellipsometry is a non-contact, non-destructive optical
technique for transparent thin film measurement. When a surface or interface is
struck by polarized light, ellipsometers measure the change in the reflected
light's polarization. By measuring at multiple wavelengths, an ellipsometer can
determine multiple properties of transparent films. The combination of multiple
angles of incidence and multiple wavelength ellipsometry also allows accurate
and reliable measurement across a wide range of thicknesses and a wide variety
of films and film stacks.
Since 1977, when we introduced our AutoEL, the industry's first production-
oriented, microprocessor-based ellipsometer, we have been an industry leader in
ellipsometry technology. We hold patents on several ellipsometry technologies
developed by our engineers, including our proprietary technique which uses four
lasers for multiple angle of incidence, multiple wavelength ellipsometry.
Incorporating this proprietary technology, our SpectraLASER systems provide the
accuracy and analytical power of research-grade spectroscopic ellipsometers
together with the high throughput required for production applications.
Reflectometry. For applications requiring broader spectrum coverage, some
ellipsometry tools are also equipped with a reflectometer. Reflectometry uses
white light to determine the properties of transparent thin films by analyzing
the wavelength of light reflected from the surface of a wafer. This light is
analyzed with software algorithms to determine film thickness and, in some
cases, other material properties of the measured film. Reflectometry is often
more suitable for measuring thicker films, whereas ellipsometry is often more
suitable for measuring very thin films. Thus, neither system alone is capable
of accurate and reliable measurements over the full range of film thickness.
Using state-of-the-art deep ultraviolet reflectometers along with our
proprietary ellipsometry tools, our SpectraLASER systems have the ability to
simultaneously measure the thickness and optical properties of films ranging in
thickness from 20 Angstroms to several microns. When introduced, our Matrix
Metrology systems will also incorporate next-generation reflectometry
technology to enhance their metrology performance in a broad range of
semiconductor device manufacturing applications.
Products
Our thin film measurement systems are non-contact, non-destructive
metrology systems capable of measuring thin film properties across the wafer
with a high degree of precision and repeatability. Our thin film measurement
solutions consist of five product families, three of which are built on our
Vanguard automation platform. In 1977 we introduced the industry's first
production-oriented, microprocessor-based ellipsometer, the AutoEL. As
semiconductor device manufacturing technology continued to advance rapidly, we
developed our second product family, the FOCUS ellipsometer. More recently, we
introduced two additional product families, the SpectraLASER family of
transparent thin film measurement systems and the MetaPULSE family of systems
for measuring metal and other opaque films. Finally, at the Semicon Taiwan
industry conference in September 1999, we plan to introduce our new line of
Matrix Metrology systems optimized for the CMP, diffusion and etch processes.
All of our SpectraLASER, MetaPULSE and Matrix Metrology systems will be
produced on our common Vanguard automation platform.
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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> <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 CMP, Diffusion, CVD, PVD,
200 (four Lithography, Etch
models)
SpectraLASER CMP, Diffusion, CVD, PVD,
300 (four Lithography, Etch
models)
Matrix Metrology
Systems 1999 $400,000-$1.0 million
Matrix
Metrology
S200 CMP CMP
Matrix
Metrology
S200 Etch Etch
Matrix
Metrology
S200
Diffusion Diffusion
Matrix
Metrology
S300 CMP CMP
Matrix
Metrology
S300 Etch Etch
Matrix
Metrology
S300
Diffusion Diffusion
FOCUS Series 1991 $200,000-$600,000
FOCUS FE III Diffusion, Etch, CMP, CVD
FOCUS FE VII Diffusion, Etch, CMP, CVD
CALIBER 300 Diffusion, Etch, CMP, CVD
AutoEL Series 1977 $20,000-$100,000
AutoEL III
Ellipsometer Diffusion, Thin Films
AutoEL IV
Ellipsometer Diffusion, Thin Films
</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.
Our Vanguard automation platform was awarded the Editor's Choice Award for Best
Product by Semiconductor International in 1998.
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FOCUS Series
In the early 1990s, semiconductor manufacturing technology advanced rapidly
with the proliferation of 200 millimeter wafers and line widths under one
micron. In response to this industry trend, we introduced the FOCUS
ellipsometer family. Based on our patented Focused Beam measurement technology,
our FOCUS series of ellipsometers offered increased repeatability and accuracy
as well as a greater degree of automation and cleanliness for our customers. We
believe that the ability to handle complex applications has made our FOCUS
ellipsometers an industry standard in film thickness metrology.
FOCUS FE III. Our FOCUS FE III system provides a low cost 100 to 200
millimeters automated ellipsometer using our dual wavelength Focused Beam
technology. It directly measures sample wafers with a small spot at multiple
angles of incidence.
FOCUS FE VII. Our FOCUS FE VII system is designed for high volume, sub-
micron device manufacturing requiring superior film thickness and index of
refraction measurements in diffusion, etch, CMP and CVD applications. Using the
same type of Focused Beam technology as the FOCUS FE III, our FOCUS FE VII can
provide accurate results for both film composition and film thickness.
CALIBER 300. Our Caliber 300 was one of the first commercial, production-
oriented ellipsometers to measure 300 millimeter wafers. Caliber 300 combines
our patented Focused Beam technology with an ultra-fast wafer handler.
AutoEL Series
In 1977, our predecessor company developed the industry's first production-
oriented, microprocessor-based ellipsometer, the AutoEL. Our AutoEL series of
ellipsometers offers customers a fully automated desktop solution with long-
term repeatability and thin film precision. Using our proprietary Ellipto MAP
software, the AutoEL family of ellipsometers can display maps of film
thickness, refractive index and absorption, as well as the optical constants of
bare substrates. Film thicknesses and refractive index data points measured and
calculated by the AutoEL can be automatically downloaded to a personal computer
where the data can be displayed immediately or stored on a disk for off-line
processing.
AutoEL III Ellipsometer. Our AutoEL III family of ellipsometers provides
low-cost tabletop automatic tools for routine measurements of thickness and
index. Its operating wavelength is 633 nanometers.
AutoEL IV Ellipsometer. Our AutoEL IV ellipsometers have the same
specifications as our AutoEL III and operate at wavelengths of 405 nanometers,
546 nanometers and 633 nanometers.
Customers
We sell our products worldwide to over 100 semiconductor device
manufacturers, including both independent semiconductor device manufacturers
and foundries throughout the world. We seek to establish and maintain close and
mutually beneficial relationships with our customers by consistently providing
them with superior service and support. In each of the years from 1996 through
1999, we received the number one ranking among our competitors in the annual
VLSI Customer Satisfaction Survey. Customers from which we have received a
total of at least $1.0 million in revenues since January 1, 1997 include:
<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 Phillips Winbond Electronics
</TABLE>
43
<PAGE>
We believe that our top customers are among the fastest growing
manufacturers in the semiconductor device industry. In addition, we have a
diverse customer base in terms of both geographic location and type of
semiconductor device manufactured. Our customers are located in 24 different
countries.
As part of our strategy of developing complementary metrology applications
for our systems, we have built on our technology for the semiconductor device
manufacturing process to develop applications for the magnetic storage
industry. Our customers include Seagate Technology and other leading magnetic
storage device manufacturers.
We depend on a relatively small number of customers for a large percentage
of our revenues. In the combined year 1996, in 1997 and 1998 and in the six
months ended June 30, 1999, sales to customers that individually represented at
least five percent of our revenues accounted for 18.0%, 7.7%, 43.2% and 44.3%
of our revenues. In the combined year 1996 and in 1997, no individual customer
accounted for more than 10% of our revenues. In 1998, sales to Intel and
Advanced Micro Devices accounted for 19.8% and 11.1% of our revenues. In the
six months ended June 30, 1999, sales to Intel accounted for 37.3% of our
revenues. In addition, a significant portion of our revenues in each quarter
and year has been derived from sales to particular distributors. These
distributors purchase our products for ultimate distribution to customers in
particular geographic regions. We do not have purchase contracts with any of
our customers or distributors that obligate them to continue to purchase our
products, and these customers and distributors could cease purchasing our
products at any time. See "Risk Factors--Our largest customers account for a
significant portion of our revenues, and our business and operating results
could be harmed by the loss of one or more of these customers or by reductions
or delays in their purchases of our systems" and "Risk Factors--We rely on
independent sales representatives and distributors for a significant portion of
our sales, and a disruption in our relationships with these representatives or
distributors could have a negative impact on our sales."
Research and Development
The thin film transparent and opaque process control metrology market is
characterized by continuous technological development and product innovations.
We believe that the rapid and ongoing development of new products and
enhancements to existing products is critical to our success. Accordingly, we
devote a significant portion of our technical, management and financial
resources to research and development programs. At July 31, 1999, our research
and development staff was comprised of 45 persons, including 15 holders of
Ph.D. degrees and six holders of M.S. degrees. The efforts of our research and
development engineers have consistently received significant industry
recognition. For example, our Vanguard automation platform was awarded the
Editor's Choice Award for Best Product by Semiconductor International in 1998,
and our MetaPULSE product received Photonics magazine's Circle of Excellence
Product of the Year Award in 1999.
The core competencies of our research and development team include
metrology systems for high volume manufacturing, ellipsometry, ultra-fast
optics, picosecond acoustic and optical design, advanced metrology application
development and algorithm development. We have been granted or hold exclusive
licenses to eleven U.S. and foreign patents covering technology in the
transparent thin film measurement, altered material characterization and
picosecond ultrasonic areas. We also have 15 pending regular and provisional
applications in the U.S. and in other countries.
To leverage our internal research and development capabilities, we maintain
close relationships with leading research institutions in the metrology field
including Brown University. Our four year partnership with Brown University has
resulted in the development of the optical acoustic technology underlying our
MetaPULSE product line. We have been granted exclusive licenses from Brown
University Research Foundation, subject to rights returned by Brown and the
United States government for their own non-commercial uses for several patents
relating to this technology. The terms of these exclusive licenses are equal to
the lives of the patents. We also have the right to support patent activity
with respect to new ultra-fast acoustic technology developed by Brown
scientists, and to acquire exclusive licenses to this technology.
Our research and development expenditures in 1997, 1998 and the first half
of 1999 were $5.8 million, $5.1 million and $2.1 million. We plan to continue
our strong commitment to new product development in the future, and we expect
that our level of research and development expenses will increase in absolute
dollar terms in future periods.
44
<PAGE>
Sales, Customer Service and Application Support
Our strategy is to develop and expand our close relationships with leading
semiconductor device manufacturers worldwide in order to promote customer
satisfaction and the ongoing sale of our products. To this end, we maintain an
extensive network of direct sales, customer service and application support
offices in several locations throughout the world. We maintain sales, service
or applications offices in California, New Jersey, Texas, Germany, Holland,
Ireland, Israel, Korea, and Taiwan.
To leverage the capabilities of our direct sales, customer service and
application support team of 51 employees, we make use of leading independent
sales organizations in selected geographic regions. We believe that these
organizations significantly enhance our sales capabilities in the regions they
serve without requiring a significant capital outlay from us. For example, in
Japan we have maintained a close relationship with Tokyo Electron Limited, or
TEL, the largest semiconductor capital equipment manufacturer in Japan, for
more than ten years. TEL purchases our products directly for ultimate
distribution to customers throughout Japan, and maintains a dedicated sales,
service and applications organization of 18 professionals to support our
products. TEL has offices at several locations in close proximity to our
customers and other Japanese device manufacturers. We also work through sales
representatives that maintain support facilities near our customers in
Singapore and China, and we make some of our sales through independent
representatives in Taiwan and Korea.
We provide our customers with comprehensive support before, during and
after the delivery of our products. For example, in order to facilitate the
smooth integration of our tools into our customers' operations, we often assign
dedicated, site-specific field service and applications engineers to provide
long-term support at selected customer sites. We also provide comprehensive
service and applications training for customers at our new training facility in
Ledgewood, New Jersey and at customer locations. In addition, we maintain a
group of highly skilled applications scientists at strategically located
facilities throughout the world and at selected customer locations. Our
customer support operation also offers customers an array of fee-based support
services including preventive maintenance, on-call service and applications and
service training programs.
Our products are normally covered under warranty for a period of twelve
months. After the warranty period, customers may enter into support agreements
for continuing service and applications support.
Intellectual Property
Our success depends in part upon our ability to protect our intellectual
property. Despite our efforts to protect our proprietary rights, unauthorized
parties may attempt to copy aspects of our products or obtain and use
information that we regard as proprietary. We rely in part on patents to
protect our intellectual property. We have been granted or hold exclusive
licenses to eleven U.S. and foreign patents. The patents we own or exclusively
license have expiration dates ranging from 2005 to 2017. We also have 15
pending regular and provisional applications in the U.S. and other countries.
Our patents and applications principally cover various aspects of the
transparent thin film measurement and altered material characterization.
We have been granted exclusive licenses from Brown University Research
Foundation, subject to rights retained by Brown and the United States
government for their own non-commercial uses, for several patents relating to
the optical acoustic technology underlying our MetaPULSE product family. The
terms of these exclusive licenses are equal to the lives of the patents. We pay
royalties to Brown based upon a percentage of our revenues from the sale of
systems that incorporate technology covered by the Brown patents. We also have
the right to support patent activity with respect to new ultra-fast acoustic
technology developed by Brown scientists, and to acquire exclusive licenses to
this technology. Brown may terminate the licenses if we fail to pay royalties
to Brown or if we materially breach our license agreement with Brown.
Our pending patents may never be issued, and even if they are, these
patents, our existing patents and the patents we license may not provide
sufficiently broad protection to protect our proprietary rights, or they may
prove to be unenforceable. To protect our proprietary rights, we also rely on a
combination of copyrights,
45
<PAGE>
trademarks, trade secret laws, contractual provisions and licenses. We also
enter into confidentiality agreements with our employees and some of our
consultants and customers, and seek to control access to and distribution of
our proprietary information. We may be required to initiate litigation in order
to enforce any patents issued to or licensed by us, or to determine the scope
or validity of a third party's patent or other proprietary rights.
We are now involved with a patent interference proceeding with Therma-Wave,
Inc. In addition, we may in the future be subject to lawsuits by third parties
seeking to enforce their own intellectual property rights. Such litigation,
regardless of outcome, could be expensive and time consuming, and could subject
us to significant liabilities or require us to reengineer our product or obtain
expensive licenses from third parties. See "Risk Factors--Protection of our
intellectual property rights, or the efforts of third parties to enforce their
own intellectual property rights against us, has in the past resulted and may
in the future result in costly and time-consuming litigation."
The laws of some foreign countries do not protect our proprietary rights to
as great an extent as do the laws of the United States, and many U.S. companies
have encountered substantial infringement problems in protecting their
proprietary rights against infringement in such countries, some of which are
countries in which we have sold and continue to sell products. There is a risk
that our means of protecting our proprietary rights may not be adequate. For
example, our competitors may independently develop similar technology or
duplicate our products. If we fail to adequately protect our intellectual
property, it would be easier for our competitors to sell competing products.
Manufacturing
Our manufacturing strategy is to produce high-quality thin film transparent
and opaque process control metrology systems in a cost-effective manner. In
order to decrease production costs, we are continuing to focus our internal
manufacturing activities on processes that add significant value or require
unique technology or specialized knowledge. Our core manufacturing competencies
include electrical, optical and mechanical assembly and testing as well as the
management of new product transitions. We expect to rely increasingly on
subcontractors and turnkey suppliers to fabricate components, build assemblies
and perform other non-core activities in a cost-effective manner.
Our principal manufacturing activities include assembly, final test and
calibration. These activities are conducted in our new state-of-the-art
manufacturing and service facility in Ledgewood, New Jersey. While we use
standard components and subassemblies wherever possible, most mechanical parts,
metal fabrications and critical components used in our products are engineered
and manufactured to our specifications. Some of these components and
subassemblies, including the lasers we use in some of our products, are
obtained from a limited group of suppliers, and occasionally from a single
source supplier. The partial or complete loss of one of these suppliers could
cause production delays and harm our operating results. See "Risk Factors--We
obtain some of the components and subassemblies included in our products from a
single source or a limited group of suppliers, and the partial or complete loss
of one of these suppliers could cause production delays and harm our operating
results."
We use our Vanguard modular system architecture to produce metrology
equipment for both transparent and opaque films. We have realized significant
economies of scale in the manufacturing, service inventory, service training
and customer repair areas by combining these activities using the common
Vanguard architecture.
Competition
The market for semiconductor capital equipment is highly competitive. We
face substantial competition from established companies in each of the markets
that we serve. We principally compete with KLA-Tencor, Philips Analytical
Instruments and Therma-Wave. We compete to a lesser extent with companies such
as Dai Nippon Screen, Nanometrics and Sopra. Each of our product lines also
competes with products that use
46
<PAGE>
different metrology techniques. Some of our competitors have greater financial,
engineering, manufacturing and marketing resources, broader product offerings
and service capabilities and larger installed customer bases than we do.
Significant competitive factors in the market for metrology systems include
system performance, ease of use, reliability, cost of ownership, technical
support and customer relationships. We believe we compete favorably on the
basis of these factors in each of the markets we serve.
There has in the past been merger and acquisition activity among our
competitors and potential competitors. Acquisitions by our competitors and
potential competitors could enable them to expand their product offerings in
order to meet a broader range of customer needs. The greater resources,
including financial, marketing and support resources, of competitors engaged in
these acquisitions could also permit them to accelerate the development and
commercialization of new products and to further enlarge their installed
customer bases. Accordingly, business combinations and acquisitions involving
our competitors could have a detrimental impact on both our market share and
the pricing of our products, either of which could cause our business and
results of operations to suffer.
Employees
As of July 31, 1999, we had 164 employees, including 45 employees engaged
in research and development, 55 engaged in sales, marketing and customer
support, 49 engaged in manufacturing and 15 engaged in general and
administrative activities. Our employees are not represented by any collective
bargaining agreements, and we have never experienced a work stoppage. We
believe our employee relations are good.
Properties
We own our 20,000 square foot executive office building in Flanders, New
Jersey, and we lease our 31,000 square foot manufacturing facility in
Ledgewood, New Jersey pursuant to a lease agreement that expires in 2009. We
also lease space for our sales, service and applications offices in California,
Texas, Korea, Taiwan and various other locations throughout the world. We
believe that our existing facilities and capital equipment are adequate to meet
our current requirements, and that suitable additional or substitute space is
available on commercially reasonable terms if needed.
Legal Proceedings
We are presently involved in a patent interference proceeding with Therma-
Wave, Inc. in the United States Patent Office. In this proceeding, we are
defending our patent rights with respect to some of the multiple angle,
multiple wavelength ellipsometry technology we use in our transparent thin film
measurement systems. Therma-Wave requested that the proceeding be initiated in
1993 by filing a reissue application for one of its own patents, in which it
sought to broaden the original issued claims. The proceeding was initiated by
the Patent Office in June 1998.
Preliminary motions and statements have been filed, and we are presently
awaiting a decision by the Patent Office on those motions. If we lose the
interference, a reissue patent will be granted to Therma-Wave permitting
Therma-Wave to assert patent rights against the ellipsometers we use in our
transparent thin film measurement systems. In that event, we could assert a
defense of intervening rights against Therma-Wave's reissued patent since we
relied on the restricted claims of Therma-Wave's original patent. If the
intervening rights defense and other defenses fail, we would either have to pay
royalties to Therma-Wave or redesign our SpectraLASER and other transparent
thin film measurement systems. Either of these events could harm our business,
financial condition and results of operations.
In addition, from time to time we are subject to legal proceedings and
claims in the ordinary course of business. Other than the Therma-Wave patent
interference proceeding discussed above, we are not now involved in any
material legal proceedings.
47
<PAGE>
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., where he structured and
implemented leveraged transactions. Mr. McLaughlin holds a B.S. in
Metallurgical Engineering from Rensselaer Polytechnic Institute, an M.S. in
Metallurgy and Materials Science from Lehigh University and an M.B.A. from
Harvard University, Graduate School of Business Administration.
Robert M. Loiterman has served as our Vice President of Engineering since
June 1996. From June 1993 to June 1996, Mr. Loiterman served as our Director
of Engineering, from January 1990 to June 1993 he served as a Project Manager
and from January 1988 to January 1990 he served as a design engineer. Mr.
Loiterman holds a B.S. in Electrical Engineering from Rutgers University.
Steven R. Roth has served as our Vice President, Finance and
Administration and Chief Financial Officer since September 1996. From August
1991 to August 1996, Mr. Roth served as a Director of Corporate Finance for
Bell Communications Research, now called Telcordia, a research and development
company serving the telecommunications industry. Mr. Roth is a C.P.A. and
holds a B.S. in Accounting from Villanova University.
David Belluck has served as one of our directors since June 1996. Since
February 1989, Mr. Belluck has been a general partner of Riverside Partners,
Inc., a private equity investment firm. Mr. Belluck holds a B.A from Harvard
University and an M.B.A. from Harvard University, Graduate School of Business
Administration. Mr. Belluck is currently a director of Atchison Casting,
Evergreen Electronics and Riverside Partners, Inc.
Daniel H. Berry has served as one of our directors since October 1998.
Since May 1999, Mr. Berry has served as President and Chief Operating Officer
of Ultratech Stepper, Inc., a lithography tool supplier. From
48
<PAGE>
August 1998 to May 1999 he served as Executive Vice President and Chief
Operating Officer of Ultratech Stepper and from January 1994 to August 1999, he
served as a Senior Vice President of Sales and Marketing of that company. Mr.
Berry holds a B.S. in Electrical Engineering from the Polytechnic Institute of
Brooklyn.
Paul Craig has served as one of our directors since June 1996. Since
February 1989, Mr. Craig has served as a general partner and the director of
Riverside Partners, Inc., a private equity investment firm. He is also a member
of the board of directors of Evergreen Electronics. Mr. Craig holds a B.A. from
Harvard University.
Stephen J. Fisher has served as one of our directors since June 1996. Since
July 1998, Mr. Fisher has served as a partner of Liberty Partners, L.P., a
private equity investment firm. From June 1994 to July 1998, Mr. Fisher served
as a Vice President of Liberty Capital Partners, Inc. Mr. Fisher holds a B.S.
and an M.B.A. from Washington University and a J.D. from Boston University
School of Law. Mr. Fisher is currently a director of Medical Logistics and
Gallaher Paper Company.
Carl E. Ring, Jr. has served as one of our directors since June 1996. He is
a founding partner of Liberty Partners, L.P.. Mr. Ring holds a B.A. in
mathematics from George Washington University and an M.B.A. from Harvard
University, Graduate School of Business Administration. Mr. Ring is a director
of Monaco Coach Corporation and Gallaher Paper Company.
Richard F. Spanier has served as our Chairman of the Board of Directors
since September 1966. From September 1966 to June 1996, Mr. Spanier served as
our President and Chief Executive Officer. Mr. Spanier holds a B.S. in Physics,
an M.S. in Physical Chemistry and a Ph.D. in Chemical Physics from Stevens
Institute of Technology.
Aubrey C. Tobey has served as one of our directors since October 1998.
Since April 1987, Mr. Tobey has served as President of ACT International
Consulting, Inc., a company which provides marketing and management services
for high technology companies. Mr. Tobey holds a B.S. in Mechanical Engineering
from Tufts University and an M.S. in Mechanical Engineering from the University
of Connecticut.
Biographical information for key employees:
George J. Collins has served as our Director of Marketing since April 1996.
From April 1994 to April 1996, Mr. Collins served as Marketing Manager for
Topometrix Corporation. Mr. Collins holds a B.S. in Chemistry from Thiel
College, and a Ph.D. in Food Science and an M.B.A. from Rutgers University.
Ajay Khanna has served as our International Sales Director since August
1996. From June 1988 to July 1996, he served as our International Sales
Manager. Mr. Khanna holds a B.S. in Electrical Engineering from Clarkson
University and an M.B.A. from the University of Michigan.
Walter R. Knott has served as our Director of Manufacturing since 1997.
From 1996 to 1997, Mr. Knott served as Manager of Operations and Shared
Resources for Philips Electronics, a manufacturer of electron microscopes. From
1991 to 1996, he served as Vice President of Operations for Whatman
Incorporated, a manufacturer of filtration, purification, and chromatography
equipment and supplies. Mr. Knott holds a B.S. from Rutgers University and an
M.B.A. from Fairleigh Dickinson University.
John B. Sheridan has served as our Director of Customer Support since
November 1998. From 1996 to 1998, Mr. Sheridan served as the Director of
Customer Service for Plasma-Therm, Inc., a manufacturer of dry etch systems.
From 1988 to 1995, Mr. Sheridan served as president of Beta Squared, Inc., an
equipment engineering and technical services company and now a subsidiary of
Photronics, Inc. Mr. Sheridan holds a B.S. from the University of Phoenix.
Matthew J. Smith has served as our Director of North American Sales since
July 1999. From April 1998 to July 1999, Mr. Smith served as the Director of
Sales for the Semiconductor Equipment Group of Leica, Inc., a manufacturer of
microscopes and other optical metrology equipment. From September 1994 to March
1998, Mr. Smith was the Director of Business Development at the Semiconductor
Equipment Group of Leica. Mr. Smith studied optical instrumentation and
photography at the Rochester Institute of Technology.
49
<PAGE>
Under an agreement we entered into with Liberty Partners and Riverside
Partners in connection with the acquisition of our predecessor company, Messrs.
Fisher and Ring were designated to serve on our board of directors by Liberty
Partners, and Messrs. Belluck and Craig were designated to serve on our board
of directors by Riverside Partners. Prior to the offering, Liberty Partners,
Riverside Partners and Mr. McLaughlin intend to enter into an agreement under
which each party will agree to vote his or its shares in favor of one nominee
of each other party to serve on our board of directors.
Our certificate of incorporation and bylaws to be effective upon this
offering provide that our board of directors will be divided into three
classes. Each class will consist of two or three directors. The terms of office
of the class I, class II and class III directors will expire at our 2000, 2001,
and 2002 annual meetings of stockholders. Our initial class I directors will be
Messrs. Craig, Ring and McLaughlin, our initial class II directors will be
Messrs. Berry, Fisher and Spanier and our initial class III directors will be
Messrs. Belluck and Tobey. At each annual meeting of stockholders at which the
term of office of a particular class of directors first expires, the persons
elected to serve as directors of that class will be elected to serve until the
third annual meeting following election. Any additional directorships resulting
from an increase in the number of directors will be distributed among the three
classes of directors so that, as nearly as possible, each class will consist of
one-third of the directors. This classification of the board of directors may
have the effect of delaying or preventing changes in our control or management.
There are no family relationships among any of our directors or officers.
Compensation Committee Interlocks and Insider Participation
The members of the compensation committee of our board of directors are
Messrs. Craig and Ring. Neither of them has at any time been an officer or
employee of Rudolph Technologies. In addition, none of our executive officers
serves on the board of directors or compensation committee of any entity which
has one or more executive officers serving as a member of our board of
directors or compensation committee.
Director Compensation
Employee directors receive no compensation for their services as members of
the board of directors. Directors who are, or who are employed by, significant
stockholders receive cash compensation of $20,000 per year. Non-employee
directors who are not, and are not employed by, significant stockholders
receive cash compensation of $20,000 per year and are eligible to receive
annual stock option grants under our 1999 stock plan at the discretion of the
compensation committee of our board of directors. See "Management--Stock
Plans."
Committees of the Board of Directors
Our compensation committee currently consists of Messrs. Craig and Ring.
The compensation committee reviews and approves the compensation and benefits
for our executive officers and makes recommendations to the board of directors
regarding such matters. Our audit committee currently consists of Messrs. Berry
and Tobey. The audit committee makes recommendations to the board of directors
regarding the selection of independent auditors, reviews the results and scope
of the audit and other services provided by our independent auditors and
reviews and evaluates our audit and control functions.
50
<PAGE>
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.
<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.
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<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 July 31, 1999, we had granted options to purchase 1,064,945 shares
of our Class B common stock.
1999 Stock Plan
The board of directors adopted the 1999 plan in August 1999, and the
stockholders are expected to approve the 1999 plan prior to closing this
offering. The 1999 plan provides for the grant of incentive stock options
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended, to employees, and for the grant of nonstatutory stock options and
stock purchase rights to employees, directors and consultants. As of the date
of this offering, a total of 2,000,000 shares of common stock will be reserved
for issuance pursuant to the 1999 plan, none of which will have been issued.
The 1999 plan provides for annual increases in the number of shares available
for issuance thereunder, on the first day of each year, effective beginning
with 2001, equal to the lesser of 2% of the outstanding shares of common stock
on the first day of the year, 400,000 shares or a lesser amount as the board
may determine.
The board of directors or a committee of the board administers the 1999
plan. In the case of options intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Internal Revenue
Code, the committee will consist of two or more "outside directors" within the
meaning of Section 162(m) of the Internal Revenue Code. The administrator has
the power to determine the terms of the options or stock purchase rights
granted, including the exercise price, the number of shares subject to each
option or stock purchase right, the exercisability of the options and the form
of consideration payable upon exercise. The administrator determines the
exercise price of nonstatutory stock options granted under the 1999 plan, but
with respect to nonstatutory stock options intended to qualify as "performance-
based compensation" within the
52
<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
53
<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.
54
<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 March 31, 2004. Approximately $28.3 million of these amounts
were paid directly to the stockholders of our predecessor company and $8.0
million was placed in escrow to cover liabilities of our predecessor company.
$6.3 million of the escrow amount was subsequently released to the stockholders
of our predecessor company, $661,000 was paid to us and $1.0 million remains in
escrow. We repaid the junior subordinated loan from Mr. Spanier in full in
1997.
55
<PAGE>
In connection with the acquisition, the State Board Liberty Partners,
Riverside Partners, Messrs. Spanier, McLaughlin and Loiterman and others
purchased equity interests in us. The State Board purchased 44,195 shares of
Series A preferred stock for a purchase price of $4,419,529. Others, including
Messrs. McLaughlin and Loiterman, purchased in the aggregate 1,680 shares of
Series A preferred stock for an aggregate purchase price of $168,000. Mr.
Spanier purchased 8,125 shares of Series B preferred stock, which constitutes
all of the issued and outstanding Series B preferred stock, for a purchase
price of $812,471. Liberty Partners purchased 1,571,294 shares of Class A
common stock for a purchase price of $900,498. We also granted a warrant to
Liberty Partners to purchase shares of Class A common stock equal to 15% of our
outstanding common stock on a fully diluted basis, then 534,951 shares, at an
exercise price of $.0003 per share. Riverside Partners, Messrs. Spanier,
McLaughlin and Loiterman and others purchased a total of 1,046,079 shares of
our Class B common stock for an aggregate purchase price of $599,503. Messrs.
Spanier, McLaughlin and Loiterman purchased their stock at the same price paid
by other investors. No other stock was issued in connection with the
acquisition.
The preferred stock accrues cumulative dividends at a rate of 8% per annum
and is entitled to a liquidation preference over the common stock. The
preferred stock may be redeemed by us or by a vote of the majority of the
preferred stock upon the occurrence of a change in ownership, merger or sale of
assets. The preferred stock is not convertible into common stock. Holders of
the Series A preferred stock are entitled to vote on all matters together with
the holders of the common stock, except as provided by law and in connection
with the election of the Class A directors, as discussed below. The Series B
preferred stock is identical to the Series A preferred stock except that it
does not have any voting rights. From the time of the acquisition until this
offering, holders of the Class A common stock, voting separately as a class,
were entitled to elect two of the eight directors on our board of directors.
These directors were each entitled to four votes each on any matter on which
they voted, while each other director was entitled to one vote. The Class B
common stock is identical to the Class A common stock except that it does not
entitle the holders to vote as a class for the election of any directors.
In January 1997, Messrs. McLaughlin and Loiterman and Steven R. Roth, our
Vice President, Finance and Chief Financial Officer, each purchased from one of
our prior stockholders 53 shares of Series A preferred stock for $5,333 and
2,318 shares of Class B common stock for $1,333.
On July 20, 1998, some of our stockholders, including Liberty Partners,
Riverside Partners and Messrs. McLaughlin, Loiterman, and Roth, purchased
additional shares of our Class A common stock and Class B common stock. Liberty
Partners purchased an additional 3,230,997 shares of Class A common stock for a
purchase price of $2,355,508. Riverside Partners purchased 733,310 shares of
Class B common stock for a purchase price of $534,626. Messrs. McLaughlin,
Loiterman and Roth and others purchased an aggregate of 150,714 shares of our
Class B common stock for an aggregate purchase price of $109,866. Messrs.
McLaughlin, Loiterman and Roth purchased their stock at the same price paid by
other investors. These transactions caused an antidilution adjustment to the
warrant we granted to Liberty Partners in 1996, which resulted in an additional
945,740 shares of Class A common stock becoming subject to this warrant.
In a series of transactions occurring on or around November 1, 1998, we
issued to the State Board a junior subordinated note with a maximum principal
amount of $7.0 million, which bears interest at a rate of 14.0% and matures on
July 31, 2001. As of June 30, 1999 we had been advanced a total of $6.4 million
under the junior subordinated note. We also increased the maximum amount of our
senior revolving loan from $8 million to $12 million. On November 1, 1998, we
also granted a warrant to Liberty Partners to purchase 592,012 shares of our
Class A common stock at an exercise price of $0.73 per share.
56
<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 for these
fees since April 1998 and we will pay them in arrears from the proceeds of this
offering. Liberty Partners and Riverside Partners advise us on the operations
of our business and appoint designees to serve as members of our board of
directors. After this offering, we will no longer be obligated to pay the
management fees. However, we will pay a yearly director's fee of $20,000 to
each director who is appointed by either Liberty Partners or Riverside
Partners.
Registration Rights Agreement
Liberty Partners, Riverside Partners, Messrs. Spanier and McLaughlin and
some of our other stockholders have the right to require us to register their
shares under the Securities Act for public resale. We are also required to pay
the expenses incurred in connection with such registration.
Support Agreement
Liberty Partners Holdings 11, L.L.C. has agreed to provide us with funding,
if necessary, to enable us to continue to liquidate our liabilities in the
ordinary course of business and to fulfill our obligations as they come due
through the earlier of (1) this offering and the concurrent repayment of all
outstanding debt or (2) December 31, 2000.
57
<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.
58
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding beneficial ownership
of common stock by:
. each person or entity known to us to own beneficially more than 5% of
our common stock;
.each of our directors;
.each of our executive officers; and
.all of our executive officers and directors as a group.
The numbers in the table below are based on the number of shares outstanding as
of July 31, 1999. Except as otherwise noted, the address of each person on the
table below is c/o Rudolph Technologies, Inc., One Rudolph Road, Flanders, NJ
07836.
<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 (1) Percentage (2) Number (1)(3) Percentage Number (1)(3) Percentage
- ---------------- ---------- -------------- ------------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Liberty Partners
Holdings 11, L.L.C.
(4)................... 44,195 81.8% 6,841,730 74.8% 6,841,730 49.1%
c/o Liberty Capital
Partners, Inc.
1177 Avenue of the
Americas
New York, NY 10036
Riverside Rudolph,
L.L.C................. -- -- 1,089,964 15.3 1,089,964 9.2
One Exeter Plaza
Boston, MA 02116
Paul F. McLaughlin...... 614 1.1 725,461 9.8 725,461 5.9
Robert M. Loiterman..... 213 * 111,155 1.6 111,155 *
Steven R. Roth.......... 53 * 66,869 * 66,869 *
David Belluck (5)....... -- -- 1,089,964 15.3 1,089,964 9.2
c/o Riverside Rudolph,
L.L.C.
One Exeter Plaza
Boston, MA 02116
Daniel H. Berry......... -- -- 1,783 * 1,783 *
Paul Craig (5).......... -- -- 1,089,964 15.3 1,089,964 9.2
c/o Riverside Rudolph,
L.L.C.
One Exeter Plaza
Boston, MA 02116
Stephen J. Fisher
(4)(6)................ 44,195 81.8 6,841,730 74.8 6,841,730 49.1
c/o Liberty Capital
Partners, Inc.
1177 Avenue of the
Americas
New York, NY 10036
Carl E. Ring, Jr.
(4)(6)................ 44,195 81.8 6,841,730 74.8 6,841,730 49.1
c/o Liberty Capital
Partners, Inc.
1177 Avenue of the
Americas
New York, NY 10036
Richard F. Spanier...... 8,125 15.0 616,160 8.7 616,160 5.2
Aubrey C. Tobey......... -- -- 1,783 * 1,783 *
All directors and
executive officers as
a group (ten persons)
(7)................... 53,200 98.5 9,454,906 98.9 9,454,906 65.8
</TABLE>
- --------
* Less than 1% of the outstanding shares of common stock.
(Footnotes appear on the following page.)
59
<PAGE>
(1) Beneficial ownership is determined in accordance with the rules of the SEC.
In computing the number of shares beneficially owned by a person and the
percentage ownership of that person, shares of common stock subject to
options held by that person that are currently exercisable or exercisable
within 60 days of July 31, 1999 are deemed outstanding. Such shares,
however, are not deemed outstanding for the purpose of computing the
percentage ownership of any other person. Except as indicated in the
footnotes to this table and pursuant to applicable community property laws,
each stockholder named in the table has sole voting and investment power
with respect to the shares set forth opposite such stockholder's name.
(2) Percentage calculations are based on 54,000 shares of preferred stock
outstanding on July 31, 1999. We intend to use approximately $7.0 million
of the net proceeds of this offering to redeem all of our outstanding
preferred stock immediately following this offering.
(3) Includes stock subject to stock options held by directors and executive
officers that will become exercisable upon completion of this offering, as
follows: Mr. McLaughlin, 331,125 shares; Mr. Loiterman, 48,309 shares; Mr.
Roth, 36,842 shares; Mr. Berry, 1,783 shares; Mr. Tobey, 1,783 shares; and
all directors and officers as a group, 419,842 shares. Percentage
calculations are based on 7,103,365 shares of common stock outstanding on
July 31, 1999.
(4) The number of shares of preferred stock beneficially owned by Liberty
Partners 11, L.L.C. and Messrs. Fisher and Ring consists of 44,195 shares
held by the State Board of Administration of Florida, over which Liberty
Partners 11, L.L.C. has voting and dispositive power. Liberty Partners 11,
L.L.C. and Messrs. Fisher and Ring disclaim beneficial ownership of such
shares except to the extent of their pecuniary interests in such shares.
The number of shares of common stock beneficially owned by Liberty
Partners Holdings 11, L.L.C. and Messrs. Fisher and Ring includes
2,039,460 shares of our common stock to be issued on exercise of warrants
immediately prior to the offering.
(5) The number of shares of common stock beneficially owned by Messrs. Belluck
and Craig consists of 1,089,964 shares of our common stock held by
Riverside Rudolph, L.L.C. Mr. Belluck and Mr. Craig disclaim beneficial
ownership of all shares except to the extent of their pecuniary interest in
Riverside Rudolph, L.L.C.
(6) The number of shares of common stock beneficially owned by Messrs. Fisher
and Ring consists of 6,841,730 shares of our common stock held by Liberty
Partners Holdings 11, L.L.C. Mr. Fisher and Mr. Ring disclaim beneficial
ownership of all shares except to the extent of their pecuniary interest in
Liberty Partners Holdings 11, L.L.C.
(7) The number of shares of preferred stock beneficially owned by our directors
and executive officers as a group includes 44,195 shares of preferred stock
held by the State Board of Administration of Florida, over which Liberty
Partners Holdings 11, L.L.C. has voting and dispositive power. The number
of shares of common stock beneficially owned by our directors and executive
officers as a group includes 6,841,730 and 1,089,964 shares of our common
stock held by Liberty Partners Holdings 11, L.L.C. and Riverside Rudolph,
L.L.C.
60
<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
61
<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 or may be taken by a consent in writing by
stockholders.
Our certificate of incorporation may be amended with the approval of a
majority of the board and the holders of a majority of our outstanding voting
securities.
The number of directors shall be fixed by resolution of the board. The size
of the board is currently fixed at eight members. The directors shall be
elected at the annual meeting of the stockholders, except for filling
vacancies. Directors may be removed with the approval of the holders of a
majority of our voting power present and entitled to vote at a meeting of
stockholders. Vacancies and newly-created directorships resulting from any
increase in the number of directors may be filled by a majority of the
directors then in office, a sole remaining director, or the holders of a
majority of the voting power present and entitled to vote at a meeting of
stockholders.
The presence, in person or by proxy, of the holders of a majority of the
votes entitled to be cast by the stockholders entitled to vote generally shall
constitute a quorum for stockholder action at any meeting.
Limitation of Liability; Indemnification
Our certificate of incorporation contains certain provisions permitted
under the Delaware General Corporation Law relating to the liability of
directors. These provisions eliminate a director's personal liability for
monetary damages resulting from a breach of fiduciary duty, except in certain
circumstances involving certain wrongful acts, including:
. for any breach of the director's duty of loyalty to us or our
stockholders;
. for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. under Section 174 of the Delaware General Corporation Law; or
. for any transaction from which the director derives an improper personal
benefit.
These provisions do not limit or eliminate our rights or those of any
stockholder to seek non-monetary relief, such as an injunction or rescission,
in the event of a breach of a director's fiduciary duty. These provisions will
not alter a director's liability under federal securities laws. Our bylaws also
contain provisions indemnifying our directors and officers to the fullest
extent permitted by the Delaware General Corporation Law. We believe that these
provisions are necessary to attract and retain qualified individuals to serve
as directors and officers.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is .
62
<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 July 31, 1999, we had outstanding options to purchase 693,951
shares of common stock under our stock plan. All of these options will become
fully exercisable upon consummation of this offering.
We intend to file a registration statement on Form S-8 under the Securities
Act shortly after the completion of the offering to register the shares of
common stock subject to outstanding stock options that may be issued under
these plans, which will permit the resale of these shares in the public market
without restriction after the lock-up period expires.
63
<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.
64
<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.
65
<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.
66
<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
June 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) six months ended June 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) six months ended June 30, 1999.............................. F-5
Consolidated Statements of Cash Flows for the period June 14, 1996 to
December 31, 1996 , the years ended December 31, 1997, and 1998 and the
(unaudited) six months ended June 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 September 7, 1999. When it has been consummated, we expect
to be in a position to render the following report:
PricewaterhouseCoopers LLP
Florham Park, New Jersey
September 7, 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, June 30,
---------------- -----------
1997 1998 1999
------- ------- -----------
(unaudited)
<S> <C> <C> <C>
Assets
Current assets
Cash and cash equivalents....................... $ 189 $ 431 $ 412
Accounts receivable, less allowance of $500 in
1997 and $294 in 1998 and 1999................ 5,593 4,412 5,527
Inventories..................................... 10,302 9,418 10,006
Income tax receivables.......................... 558 270 270
Prepaid expenses and other assets............... 114 210 232
------- ------- -------
Total current assets.......................... 16,756 14,741 16,447
Property, plant and equipment, net............... 2,411 2,631 2,891
Intangibles...................................... 7,503 3,295 3,164
Deferred income taxes............................ 1,263 -- --
Other assets..................................... 580 454 422
------- ------- -------
Total assets.................................. $28,513 $21,121 $22,924
======= ======= =======
Liabilities and stockholders' equity
Current liabilities
Short-term borrowings........................... $ 6,600 $ 9,600 $ 9,300
Current portion of long-term debt............... 2,000 2,500 2,750
Accounts payable................................ 1,153 1,113 1,380
Accrued liabilities:
Commissions.................................... 1,435 564 358
Payroll and related expenses................... 1,072 463 927
Warranty....................................... 303 342 513
Other liabilities............................... 1,059 1,211 1,498
------- ------- -------
Total current liabilities..................... 13,622 15,793 16,726
Long-term liabilities
Deferred compensation........................... 111 103 78
Long-term debt.................................. 24,000 25,370 26,290
------- ------- -------
Total long-term liabilities................... 24,111 25,473 26,368
------- ------- -------
Commitments and contingencies (Note 6)
Redeemable preferred stock, $0.01 par value,
56,001 shares authorized:
Class A, 45,876 shares designated, 45,875.29
shares issued and outstanding
(at liquidation value)......................... 5,188 5,619 5,848
Class B, 10,125 shares designated, 8,124.71
shares issued and outstanding (at liquidation
value)........................................ 919 995 1,035
Stockholders' deficit
Common stock, $0.01 par value, 9,910,681 shares
authorized:
Class A, 6,874,976 shares designated,
1,571,294 shares issued and outstanding at
December 31, 1997, and 4,802,291 shares issued
and outstanding at December 31, 1998 and
June 30, 1999................................. 1 2 2
Class B, 3,035,705 shares designated,
1,046,079 shares issued and outstanding at
December 31, 1997, 1,930,103 shares issued and
outstanding at December 31, 1998 and 2,301,074
issued and outstanding at June 30, 1999....... -- -- --
Additional paid-in-capital...................... 1,499 4,638 4,886
Accumulated other comprehensive loss............ (166) (153) (246)
Accumulated deficit............................. (16,661) (31,246) (31,695)
------- ------- -------
Total stockholders' deficit.................... (15,327) (26,759) (27,053)
------- ------- -------
Total liabilities and stockholders' deficit.... $28,513 $21,121 $22,924
======= ======= =======
</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 Six Months
December 31, December 31, Ended June 30,
------------ ---------------------- ----------------------
1996 1997 1998 1998 1999
------------ ---------- ---------- ---------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues................ $ 14,373 $ 35,339 $ 20,106 $ 11,872 $ 15,170
Cost of revenues........ 6,579 13,903 13,179 6,455 7,373
---------- ---------- ---------- ---------- ----------
Gross profit........... 7,794 21,436 6,927 5,417 7,797
---------- ---------- ---------- ---------- ----------
Operating expenses:
Research &
development.......... 2,345 5,750 5,096 2,688 2,097
In-process research &
development.......... 3,821 -- -- -- --
Selling, general &
administrative....... 4,340 9,475 7,077 3,306 3,537
Write-down of
intangibles.......... 6,734 -- -- -- --
Amortization........... 3,650 4,201 4,208 2,103 131
---------- ---------- ---------- ---------- ----------
Total operating
expenses............ 20,890 19,426 16,381 8,097 5,765
---------- ---------- ---------- ---------- ----------
Operating income
(loss)................ (13,096) 2,010 (9,454) (2,680) 2,032
Interest expense........ 2,013 3,717 4,210 2,135 2,148
Other income............ (156) (92) (199) (15) (29)
---------- ---------- ---------- ---------- ----------
Loss before income
taxes................ (14,953) (1,615) (13,465) (4,800) (87)
Provision (benefit) for
income taxes.......... -- (614) 613 (699) 93
---------- ---------- ---------- ---------- ----------
Net loss............... (14,953) (1,001) (14,078) (4,101) (180)
Preferred stock
dividends............. 239 468 507 247 269
---------- ---------- ---------- ---------- ----------
Loss available to common
stockholders.......... $ (15,192) $ (1,469) $ (14,585) $ (4,348) $ (449)
========== ========== ========== ========== ==========
Net loss per share
available to common
stockholders:
Basic.................. $ (5.80) $ (.56) $ (3.24) $ (1.66) $ (.07)
Diluted................ $ (5.80) $ (.56) $ (3.24) $ (1.66) $ (.07)
Weighted average number
of shares outstanding:
Basic.................. 2,617,373 2,617,373 4,503,396 2,617,373 6,767,415
Diluted................ 2,617,373 2,617,373 4,503,396 2,617,373 6,767,415
</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 six months ended June 30,
1999
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional Other
---------------- Paid-In Comprehensive Accumulated Comprehensive
Shares Amount Capital Loss Deficit Total Loss
--------- ------ ---------- ------------- ----------- -------- -------------
<S> <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)
--------- --- ------ ----- -------- -------- --------
Balance at December 31,
1996.................. 2,617,373 1 1,499 (15) (15,192) (13,707) $(14,968)
========
Net loss............... -- -- -- -- (1,001) (1,001) (1,001)
Accretion of preferred
stock dividend....... -- -- -- -- (468) (468) --
Currency translation... -- -- -- (151) -- (151) (151)
--------- --- ------ ----- -------- -------- --------
Balance at December 31,
1997.................. 2,617,373 1 1,499 (166) (16,661) (15,327) $(16,120)
========
Issuance of common
stock:
Class A............... 3,230,997 1 2,999 -- -- 3,000
Class B............... 884,024 -- -- -- -- --
Issuance of warrants in
connection with debt
financing............ -- -- 140 -- -- 140
Net loss............... -- -- -- -- (14,078) (14,078) $(14,078)
Accretion of preferred
stock dividend....... -- -- -- -- (507) (507) --
Currency translation... -- -- -- 13 -- 13 13
--------- --- ------ ----- -------- -------- --------
Balance at December 31,
1998.................. 6,732,394 2 4,638 (153) (31,246) (26,759) $(30,185)
========
Exercise of employee
stock options
(unaudited).......... 370,971 -- 248 -- -- 248
Net loss (unaudited)... -- -- -- -- (180) (180) $ (180)
Accretion of preferred
stock dividend
(unaudited).......... -- -- -- -- (269) (269) --
Currency translation
(unaudited).......... -- -- -- (93) -- (93) (93)
--------- --- ------ ----- -------- -------- --------
Balance at June 30, 1999
(unaudited)........... 7,103,365 $ 2 $4,886 $(246) $(31,695) $(27,053) $(30,458)
========= === ====== ===== ======== ======== ========
</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 Six
June 14 to For the Years Ended Months Ended
December 31, December 31, June 30,
------------ --------------------- -----------------
1996 1997 1998 1998 1999
------------ --------- ---------- -------- -------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flow from operating
activities
Net loss................ $ (14,953) $ (1,001) $ (14,078) $ (4,101) $ (180)
Adjustment to reconcile
net loss to net cash
provided by (used in)
operating activities
Amortization and other
adjustments to
intangibles........... 14,205 4,201 4,208 2,103 131
Depreciation............ 205 448 778 263 274
Provision for doubtful
accounts.............. -- 353 71 (26) --
Gain on sale of
property.............. -- -- (147) -- --
Decrease (increase) in
assets:
Accounts receivable.... 1,999 (1,131) 1,199 (432) (1,187)
Income tax receivable.. -- (558) 288 511 --
Inventories............ (147) (4,559) 889 (402) (587)
Prepaid expenses and
other................ 13 394 (14) (128) (82)
Deferred income taxes.. -- (1,263) 1,263 (699) --
Increase (decrease) in
liabilities:
Accounts payable....... (294) 122 (36) (365) 318
Accrued liabilities.... (410) 1,065 (1,447) (1,134) 427
Other liabilities...... 542 (30) 154 1,476 336
--------- --------- ---------- -------- -------
Net cash provided by
(used in) operating
activities............ 1,160 (1,959) (6,872) (2,934) (550)
Cash flows from
investing activities
Purchase of property,
plant and equipment... (107) (586) (986) (508) (538)
Proceeds from disposal
of property, plant and
equipment............. -- -- 82 -- 27
--------- --------- ---------- -------- -------
Net cash used in
investing activities.. (107) (586) (904) (508) (511)
Cash flows from
financing activities
Principal borrowings on
long-term debt........ 27,600 -- 4,000 -- 2,345
Principal payments on
long-term debt........ -- (1,600) (2,000) -- (1,250)
Net borrowing under
lines of credit....... 3,800 2,800 3,000 3,400 (300)
Capital Contribution.... 6,900 -- 3,000 -- 248
Distribution to
stockholders.......... (37,075) -- -- -- --
Payment of financing
cost.................. (700) -- -- -- --
--------- --------- ---------- -------- -------
Net cash provided by
financing activities.. 525 1,200 8,000 3,400 1,043
Effect of exchange rate
changes on cash....... -- (44) 18 (20) (1)
--------- --------- ---------- -------- -------
Net (decrease) increase
in cash and cash
equivalents........... 1,578 (1,389) 242 (62) (19)
Cash and cash
equivalents at
beginning of period... -- 1,578 189 189 431
--------- --------- ---------- -------- -------
Cash and cash
equivalents at end of
period................ $ 1,578 $ 189 $ 431 $ 127 $ 412
========= ========= ========== ======== =======
Supplemental disclosures
of cash flow
information
Cash paid during the
period for:
Interest................ $ 1,572 $ 3,939 $ 4,031 $ 654 $ 1,723
Income taxes............ -- $ 1,257 -- -- $ 93
========= ========= ========== ======== =======
</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 six months ended June 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 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 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 represents the
excess of the purchase price over the fair value of the net assets acquired.
Intangibles are reviewed for impairment whenever events or changes in
circumstances indicate that the carry amount may not be recoverable. If the
fair value is less than the carrying amount of the asset, a loss is recognized
for the difference.
F-7
<PAGE>
RUDOLPH TECHNOLOGIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited with respect to the six months ended June 30, 1998 and 1999)
(In thousands, except share and per share amounts)
F. Deferred Financing Costs:
Included in other assets are deferred financing costs of $538, $431 and
$377 at December 31, 1997 and 1998 and (unaudited) at June 30, 1999,
respectively, consisting of costs to obtain the working capital line of credit
and long-term debt, which are being amortized on a basis which approximates the
interest method, over the life of the respective debt. Amortization expense
amounted to $53 for the period June 14, 1996 to December 31,1996, $107 for each
of the years ended December 31, 1997 and 1998 and $54 for each of the
(unaudited) six month periods ended June 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 $513 at December 31, 1997
and 1998, and (unaudited) June 30, 1999, respectively, for these anticipated
future warranty costs.
I. Inventories:
Inventories are stated at the lower of cost (first-in, first-out) or
market. Demonstration units, which are available for sale, are stated at their
manufacturing costs and reserves are recorded to state the demonstration units
at their net realizable value.
J. Income Taxes:
The Company accounts for income taxes using the asset and liability
approach for deferred taxes which requires the recognition of deferred tax
assets and liabilities for the expected future tax consequences of events that
have been recognized in the Company's financial statements or tax returns. A
valuation allowance is recorded to reduce a deferred tax asset to that portion
which more likely than not will be realized.
K. Translation of Foreign Currencies:
The Company has foreign operations in Korea and Taiwan, which use their
local currency as their functional currency. Assets and liabilities are
translated at exchange rates in effect at the balance sheet date, and income,
expense accounts and cash flow items at average exchange rates during the
period. Resulting translation adjustments are recorded directly as a separate
component of stockholder's deficit. Foreign exchange rate gains and losses
included in operating results are not material for all periods presented.
L. Stock Based Compensation:
The Company accounts for its employee stock option plan in accordance with
provisions of the Accounting Principles Board's Opinion' (APB) No. 25,
"Accounting for Stock Issued to Employees." The Company provides additional
disclosure required by Financial Accounting Standard (SFAS) No. 123,
"Accounting for Stock-Based Compensation" (see Note 8).
F-8
<PAGE>
RUDOLPH TECHNOLOGIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited with respect to the six months ended June 30, 1998 and 1999)
(In thousands, except share and per share amounts)
M. Software Development Costs:
The Company accounts for software development costs in accordance with
Statement of Financial Accounting Standards No. 86. "Accounting for Costs of
Computer Software to Be Sold, Leased or Marketed" ("SFAS No. 86"). SFAS No. 86
requires that certain software product development costs ("Capitalized Costs"),
incurred after technological feasibility has been established, be capitalized
and amortized, commencing upon the general release of the software product to
the Company's customers, over the economic life of the software product. Annual
amortization of Capitalized Costs is computed using the greater of: (i) the
ratio of current gross revenues for the software product over the total of
current and anticipated future gross revenues for the software product or (ii)
the straight-line basis. Software product development costs incurred prior to
the product reaching technological feasibility are expensed as incurred and
included in research and development costs. Capitalized Costs incurred to date
have been immaterial and, accordingly, SFAS No. 86 had no significant impact on
the financial position or results of operations of the Company.
N. Fair Value of Financial Instruments:
The carrying amounts of the Company's financial instruments, including cash
and cash equivalents, accounts receivable, accounts payable and accrued
expenses approximates fair value due to their short maturities.
The fair values of the Company's debt, including current maturities, are
estimated using discounted cash flow analyses, based on the estimated current
incremental borrowing rates for similar types of securities. The carrying
amount of the Company's debt at December 31, 1997 and 1998 approximates fair
value.
O. Risks Inherent in the Business:
The Company sells its products to the semiconductor device industry and
believes that changes in any of the following areas could have a material
adverse effect on the Company's financial position, results of operations or
cash flows: advances and trends in new technologies and industry standards;
competitive pressures in the form of new products or price reductions on
current products; changes in product mix; changes in the overall demand for
products and services offered by the Company; changes in customer
relationships; litigation or claims against the Company based on intellectual
property, patent, product, regulatory or other factors; risks associated with
changes in domestic and international economic and/or political conditions or
regulations; dependency on suppliers and availability of necessary product
components; risks associated with year 2000 compliance; and the Company's
ability to attract and retain employees necessary to support its growth.
P. Consolidation:
The consolidated financial statements reflect the consolidated balance
sheet, results of operations and cash flows of the Company and its
subsidiaries. All intercompany accounts and transactions have been eliminated.
Q. Recent Accounting Pronouncements:
During June 1998, as amended in July 1999 for Statement No. 137, the
Financial Accounting Standards Board issued Statement No. 133 "Accounting for
Derivative Investments and Hedging Activities" ("SFAS 133"). Based on the
Company's current operations, management has concluded that the future adoption
of SFAS 133 will have no impact on the Company's operations or financial
position.
F-9
<PAGE>
RUDOLPH TECHNOLOGIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited with respect to the six months ended June 30, 1998 and 1999)
(In thousands, except share and per share amounts)
R. Interim Financial Data (unaudited):
The unaudited financial data as of June 30, 1999 and for the six months
ended June 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 six months ended
June 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, June 30,
-------------- -----------
1997 1998 1999
------ ------ -----------
(unaudited)
<S> <C> <C> <C>
Land and building................................... $1,707 $1,609 $ 1,609
Machinery and equipment............................. 298 754 784
Furniture and fixtures.............................. 237 250 266
Computer equipment.................................. 609 592 627
Leasehold improvements.............................. 194 312 767
------ ------ -------
3,045 3,517 4,053
Accumulated Depreciation............................ (634) (886) (1,162)
------ ------ -------
Net Property, Plant and Equipment................... $2,411 $2,631 $ 2,891
====== ====== =======
</TABLE>
Depreciation expense amounted to $205, $448, $778, $263 and $274 for the
period June 14, 1996 to December 31, 1996, the years ended December 31, 1997
and 1998, and the (unaudited) six months ended June 30, 1998 and 1999,
respectively.
4. Inventories:
Inventories are comprised of the following:
<TABLE>
<CAPTION>
December 31, June 30,
-------------- -----------
1997 1998 1999
------- ------ -----------
(unaudited)
<S> <C> <C> <C>
Materials........................................... $ 5,139 $3,664 $ 4,177
Work-in-process..................................... 3,729 3,722 4,431
Finished goods...................................... 1,434 2,032 1,398
------- ------ -------
Total Inventories................................. $10,302 $9,418 $10,006
======= ====== =======
</TABLE>
The Company has established reserves of $540, $413 and $413 at December 31,
1997 and 1998, and (unaudited) at June 30, 1999, respectively, for slow moving
and obsolete inventory.
In the fourth quarter of 1998, the Company recorded a charge of $1,407 for
the writedown of inventory for excess parts, for older product lines and for
parts which design and engineering advancements rendered obsolete.
F-10
<PAGE>
RUDOLPH TECHNOLOGIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited with respect to the six months ended June 30, 1998 and 1999)
(In thousands, except share and per share amounts)
5. Intangibles:
Intangibles are comprised of the following:
<TABLE>
<CAPTION>
December 31, June 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) (22,745)
------- -------- --------
Total Intangibles............................. $ 7,503 $ 3,295 $ 3,164
======= ======== ========
</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 shipments and canceling orders. In the fourth quarter of
1996, the Company also initiated the development of the next generation of its
products. As a result, the Company assessed the recoverability of its
intangible assets and a pro rata share of the goodwill using expected
undiscounted future cash flows from operations. Based on this analysis, an
impairment was determined. The Company then used discounted expected future
cash flows to determine the net realizable value of these assets and recorded a
$6,734 charge during the fourth quarter of 1996.
In June 1997, goodwill was increased by $323 to reflect the impact of
additional tax liabilities not recorded at the acquisition date.
Amortization of Intangibles expense amounted to $3,650, $4,201, $4,208,
$2,103 and $131 for the period June 14, 1996 to December 31, 1996, the years
ended December 31, 1997 and 1998, and the (unaudited) six months ended June 30,
1998 and 1999, respectively.
F-11
<PAGE>
RUDOLPH TECHNOLOGIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited with respect to the six months ended June 30, 1998 and 1999)
(In thousands, except share and per share amounts)
6. Commitments and Contingencies:
The Company rents space for its manufacturing and service operations and
sales offices. Total rent expense for these facilities amounted to $110, $242,
$302, $150 and $204 for the period June 14, 1996 to December 31, 1996, the
years ended December 31, 1997 and 1998, and the (unaudited) six months ended
June 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, $27 and $26 for the period June 14, 1996 to December 31, 1996, the
years ended December 31, 1997 and 1998, and the (unaudited) six months ended
June 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, $219 and $351 for the period June 14, 1996 to December 31, 1996,
the years ended December 31, 1997 and 1998, and the (unaudited) six months
ended June 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 six months ended June 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, June 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 $ 11,750
Subordinated term loan, due in 2003, interest
rate of prime plus 4%......................... 11,000 11,000 11,000
Junior Subordinated Note, due in 2001, with
interest at 14% and an effective interest rate
of 16.57%, net of unamortized discount of
$110.......................................... -- 3,870 6,290
Senior revolving term loan, balance due 2002,
interest rate of prime plus 1.5%.............. 6,600 9,600 9,300
------- -------- --------
32,600 37,470 38,340
Less current maturities......................... (8,600) (12,100) (12,050)
------- -------- --------
Total Long-Term Debt.......................... $24,000 $ 25,370 $ 26,290
------- -------- --------
</TABLE>
As of December 31, 1998 and June 30, 1999, the Company had additional
aggregate borrowings available under the junior subordinated note and senior
revolving loan of $5,400 and (unaudited) $3,300, respectively.
The senior term loan, senior revolving term loan and the subordinated term
loan agreements contain covenants which were modified in 1997, and among other
matters (i) limit the Company's ability to pay dividends on the Company's
capital stock, incur indebtedness, merge, consolidate and acquire or sell
assets, and (ii) require the Company to satisfy certain financial ratios
related to earnings, fixed charges and interest coverage. Because of the
operating losses reported by the Company, the Company would not have been in
compliance with the financial ratios above had the lender not granted waivers
of such technical defaults extending through June 30, 1999. It is anticipated
that the Company will not be in compliance with these financial ratios over the
next twelve months (See Note 13).
In October 1996, the Company requested a deferral of the subordinated term
loan interest payments through March 31, 1997. In March 1997, all deferred
interest on the loan was paid. In February 1998, the Company requested a
deferral of interest payments on the senior and subordinated term loans and to
reschedule the principal payments of the Senior term loan to later dates in
1998. In July 1998, the deferred interest payments on the loans were paid. The
principal payments were paid through December 1998. In consideration for
accepting the Company's requests, the lender increased the interest rate an
additional 2.0% on the loans and all deferred interest during the deferral
periods.
The junior subordinated notes issued to finance working capital needs of
the Company are subordinate in priority to the senior term loans and will
mature on July 31, 2001. The holder of the junior subordinated notes was also
issued warrants to purchase 592,012 shares of Class A common stock at a
purchase price of $(0.73) per share. These warrants expire on November 1, 2008.
The fair value of the warrants are being amortized over the life of the debt.
The long-term debt is collateralized by essentially all the assets of the
Company. The revolving term loan is classified as current. In addition, the
provisions of the long-term debt contain certain clauses that allow for the
prepayment of principal without penalty.
F-13
<PAGE>
RUDOLPH TECHNOLOGIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited with respect to the six months ended June 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) June 30, 1999, there were
109,380 shares of common stock reserved for future grants under the Option
Plan.
In July 1999, the Company granted options under the Option Plan to purchase
104,401 shares, net of options to purchase 3,481 shares that were cancelled and
reissued, of Class B common stock at an exercise price of $0.73 per share. The
exercise price was equal to the fair value based on an independent appraisal of
the Company's stock in June 1999.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation," (SFAS 123) requires the disclosure of pro forma net loss
had the Company adopted the fair value method. Under SFAS 123, the fair value
of stock-based awards to employees is calculated through the use of option
pricing models. For the period ended June 14, 1996 to December 31, 1996, the
years ended December 31, 1997 and 1998, and (unaudited) for the six months
ended June 30, 1999, the fair value of each option grant was estimated on the
date of the grant using the Black-Scholes option-pricing model using a dividend
yield of 0%, volatility of 66%, expected life of an option of 9 years and a
risk-free interest rate of 4.85% for all periods. For purposes of pro forma
disclosures, the estimated fair value of the options is amortized to expense
over the option's vesting period. Had compensation costs been determined based
upon the fair value at the grant date for awards under the Option Plan,
consistent with the methodology prescribed under SFAS No. 123, the Company's
pro forma net loss attributable to common stockholders under SFAS No. 123 would
have been $15,207, $1,510, $14,786 and $465 for the period June 14, 1996 to
December 31, 1996, the years ended December 31, 1997 and 1998, and the
(unaudited) six months ended June 30, 1999, respectively. The pro forma basic
and diluted net loss per share would have been $5.81, $0.58, $3.28, $0.07 for
the period June 14, 1996 to December 31, 1996, the years ended December 31,
1997 and 1998, and the (unaudited) six months ended June 30, 1999,
respectively.
F-14
<PAGE>
RUDOLPH TECHNOLOGIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited with respect to the six months ended June 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) six months ended June 30, 1999 and the stock option
information as of December 31, 1998 and June 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).................... -- -- --
Exercised (unaudited).................. (370,971) 0.67 (370,971)
Canceled (unaudited)................... -- -- --
-------- ----- --------
Balance at June 30, 1999 (unaudited)... 589,550 $0.68 104,636
======== ===== ========
</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 June 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 6.9 $0.57 29,422
0.73 386,875 9.0 0.73 75,214
----------- ------- --- ----- -------
$0.57-$0.73 589,550 8.2 $0.68 104,636
=========== ======= === ===== =======
</TABLE>
F-15
<PAGE>
RUDOLPH TECHNOLOGIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited with respect to the six months ended June 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, $0.01 par value at $0.57 per share and 1,046,079 shares of
Class B non-voting common stock, $0.01 par value at $0.57 per share. The
Company also issued to the holder of the Class A voting common stock a warrant
to purchase 534,951 shares of Class A common stock of the Company at a purchase
price of $0.0003 per share. The warrants expire on June 14, 2006.
During 1998 the Company issued additional Class A voting common stock and
Class B non-voting common stock in connection with certain capital
contributions. The Company also issued to the holder of the Class A voting
common stock warrants to purchase 945,740 shares of Class A common stock of the
Company at a purchase price of $0.0003 per share based upon the holder's
antidilution rights. The warrants expire on June 14, 2006.
11. Employee Benefit Plans:
The Company has a 401(k) savings plan to provide retirement and incidental
benefits for its employees. As allowed under Section 401(k) of the Internal
Revenue Code, the Plan provides tax-deferred salary deductions for eligible
employees. Employees may contribute from 1% to 15% of their annual compensation
to the Plan, limited to a maximum annual amount as set periodically by the
Internal Revenue Service. The Plan provides a 50% match of all employee
contributions up to 6 percent of the employee's salary. Company matching
contributions to the Plan totaled $71, $133, $158 and $82 for the period June
14, 1996 to December 31, 1996, the years ended December 31, 1997 and 1998, and
the (unaudited) six months ended June 30, 1999, respectively.
In addition, the Company has a profit sharing program, wherein a percentage
of pre-tax profits, at the discretion of the Board of Directors, is provided to
all employees who have completed a stipulated employment period. The Company
did not make contributions to this program for the period June 14, 1996 to
December 31, 1996, the years ended December 31, 1997 and 1998, and the
(unaudited) six months ended June 30, 1999.
F-16
<PAGE>
RUDOLPH TECHNOLOGIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited with respect to the six months ended June 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 six months ended June 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 six months ended June 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 December 31, 2000.
Management believes that the stockholder has the ability to fulfill this
commitment.
The Company receives management, consulting and financial services from
related parties for an annual fee. Such services include, but are not limited
to, advice and assistance concerning any and all aspects of the operation,
planning and financing of the Company. Management fee expense amounted to $120,
$200, $200 and $100 for the period June 14, 1996 to December 31,1996, the years
ended December 31, 1997 and 1998 and the (unaudited) six months ended June 30,
1999, respectively. In addition, the Company has long-term loan agreements with
a related party that is a major stockholder of Rudolph Technologies, Inc. (see
Note 7).
14. Comprehensive Income:
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income" (SFAS 130). The statement established standards for the
reporting and display of comprehensive income and its components. The
disclosures required by SFAS 130 have been included with the statements of
stockholders equity (deficit) or below. The difference between net loss and
comprehensive loss for the Company is due to currency translation adjustments.
The effects of income taxes on comprehensive income was not material.
For the (unaudited) six months ended June 30, 1998 comprehensive loss
amounted to approximately $171.
F-18
<PAGE>
RUDOLPH TECHNOLOGIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited with respect to the six months ended June 30, 1998 and 1999)
(In thousands, except share and per share amounts)
15. Geographic Reporting and Customer Concentration:
<TABLE>
<CAPTION>
Six months
June 14 to Year ended ended
December 31, December 31, June 30,
------------ ---------------- -----------
1996 1997 1998 1999
------------ ------- ------- -----------
(unaudited)
<S> <C> <C> <C> <C>
Revenues from third parties:
United States..................... $ 3,538 $12,031 $ 8,388 $ 6,389
Asia.............................. 8,596 20,468 8,380 3,725
Europe............................ 2,180 2,833 3,289 3,269
Other............................. 59 7 49 1,787
------- ------- ------- -------
Total............................. $14,373 $35,339 $20,106 $15,170
======= ======= ======= =======
Customers comprising 10% or more of
the Company's total revenue for
the period indicated:
Intel............................. 0.8% 3.4% 19.8% 37.3%
Tokyo Electron Limited............ 23.9% 29.9% 17.6% 7.0%
Metron Technology................. 13.5% 5.3% 15.3% 14.0%
AMD............................... 0.0% 0.0% 11.1% 7.6%
</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 six months ended June 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) six months ended June 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 six months ended June 30, 1998
(unaudited)
Net loss.................................... $ (4,101)
Preferred Stock Dividends................... (247)
Basic EPS:
Income available to common stockholders... (4,348) 2,617,373 $(1.66)
Effect of dilutive stock options.......... -- -- --
Diluted EPS:
Income available to common stockholders
plus assumed conversions................ $ (4,348) 2,617,373 $(1.66)
======== ========= ======
For the six months ended June 30, 1999
(unaudited)
Net loss.................................... $ (180)
Preferred Stock Dividends................... (269)
Basic EPS:
Income available to common stockholders... (449) 6,767,415 $(0.07)
Effect of dilutive stock options.......... -- -- --
Diluted EPS:
Income available to common stockholders
plus assumed conversions................ $ (449) 6,767,415 $(0.07)
======== ========= ======
</TABLE>
For the period ending June 14, 1996 to December 31, 1996, the years ended
December 31, 1997 and 1998 and the (unaudited) six months ended June 30, 1998
and 1999, the Company had outstanding options and warrants to purchase an
aggregate 881,421, 917,084, 3,033,208, 917,084 and 2,998,186 shares of Class A
and Class B common stock, respectively, which are not included in the
calculation of earnings per share for such periods, due to the anti-dilutive
nature of these instruments.
F-20
<PAGE>
RUDOLPH TECHNOLOGIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited with respect to the six months ended June 30, 1998 and 1999)
(In thousands, except share and per share amounts)
17. Subsequent Events (unaudited):
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>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<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 of the
Underwriting Agreement contained in Exhibit 1.1 hereto, which provides for the
indemnification of officers and directors of the registrant against certain
liabilities.
Item 15. Recent Sales of Unregistered Securities
During the three year period ended June 30, 1999, the registrant issued
and sold the following securities:
<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 June 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 10,404.36 shares of Class B common stock have been
exercised.
The issuances of the securities described above were deemed to be exempt
from registration under the Securities Act in reliance on Section 4(2) of such
Act as transactions by an issuer not involving any public offering and, in the
case of the issuance of shares pursuant to options, in reliance on Section 4(2)
of the Act or Rule 701 promulgated thereunder as transactions pursuant to
contemporary benefit plans and contracts relating to compensation. All of the
securities were acquired by the recipient for investment and not with a view
toward the resale or distribution thereof. The recipient was a director and
officer of ours and/or a sophisticated investor, the offer and sales were made
without any public solicitation and the stock certificates bear restrictive
legends. No underwriter was involved in the transactions and no commissions
were paid. The recipient had adequate access, through his relationships with
the registrant, to information about the registrant.
Item 16 . Exhibits and Financial Statement Schedules
(a) Exhibits
<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 Amended and Restated Certificate of Incorporation of
Registrant to be effective following this offering
3.2(a)* Bylaws of Registrant
3.3(b)* Form of Amended and Restated Bylaws of Registrant to be effective
following this Offering
4.1* Form of Registrant's Common Stock certificate
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation
10.1* License Agreement, dated June 28, 1995, between the Registrant and
Brown University Research Foundation
10.2* Distributor Agreement, dated May 15, 1987, between the Registrant and
Tokyo Electron Limited
10.3* Intel Corporation Purchase Agreement--Goods and Services, dated
December 31, 1997, between the Registrant and Intel Corporation
10.4* Form of Indemnification Agreement
10.5 Form of 1999 Stock Plan
10.6 Form of 1999 Employee Stock Purchase Plan
10.7* Management Agreement, dated June 14, 1996, between the Registrant and
Paul F. McLaughlin
10.8* Management Agreement, dated June 14, 1996, between the Registrant and
Robert Loiterman
10.9* Management Agreement, dated May 5, 1997 between the Registrant and
Steven R. Roth
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 (included on page II-4)
27.1 Financial Data Schedule
27.2 Financial Data Schedule
27.3 Financial Data Schedule
27.4 Financial Data Schedule
</TABLE>
- --------
*To be filed by amendment.
(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 Registration Statement on Form S-1 to be signed on its
behalf by the undersigned, thereunto duly authorized, in Flanders, New Jersey
on this 8th day of September, 1999.
Rudolph Technologies, Inc.
/s/ Paul F. McLaughlin
By: __________________________________
Paul F. McLaughlin
Chief Executive Officer and
President
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Paul F.
McLaughlin and Steven R. Roth, and each of them, as attorneys-in-fact, each
with the power of substitution, for him or her in any and all capacities, to
sign any amendment to this Registration Statement (including post-effective
amendments and registration statements filed pursuant to Rule 462 and
otherwise), and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting to
said attorneys-in-fact, and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said attorneys-
in-fact or either of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has had been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- -----
<S> <C> <C>
/s/ Paul F. McLaughlin Chief Executive Officer, September 8, 1999
____________________________ President and Director
Paul F. McLaughlin (Principal Executive
Officer)
/s/ Steven R. Roth Vice President & Chief September 8, 1999
____________________________ Financial Officer
Steven R. Roth (Principal Financial and
Accounting Officer)
/s/ David Belluck Director September 8, 1999
____________________________
David Belluck
/s/ Daniel H. Berry Director September 8, 1999
____________________________
Daniel H. Berry
/s/ Paul Craig Director September 8, 1999
____________________________
Paul Craig
/s/ Stephen J.Fisher Director September 8, 1999
____________________________
Stephen J. Fisher
/s/ Carl E. Ring, Jr. Director September 8, 1999
____________________________
Carl E. Ring, Jr.
/s/ Richard F. Spanier Director September 8, 1999
____________________________
Richard F. Spanier
/s/ Aubrey C. Tobey Director September 8, 1999
____________________________
Aubrey C. Tobey
</TABLE>
II-4
<PAGE>
The stock split discussed in Note 17 to the financial statements has not
been consummated at September 7, 1999. When it has been consummated, we expect
to be in a position to render the following report:
PricewaterhouseCoopers LLP
Florham Park, New Jersey
September 7, 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
<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 Amended and Restated Certificate of Incorporation of
Registrant to be effective following
this offering
3.2(a)* Bylaws of Registrant
3.3(b)* Form of Amended and Restated Bylaws of Registrant to be effective
following this Offering
4.1* Form of Registrant's Common Stock certificate
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation
10.1* License Agreement, dated June 28, 1995, between the Registrant and
Brown University Research
Foundation
10.2* Distributor Agreement, dated May 15, 1987, between the Registrant and
Tokyo Electron Limited
10.3* Intel Corporation Purchase Agreement--Goods and Services, dated
December 31, 1997, between
the Registrant and Intel Corporation
10.4* Form of Indemnification Agreement
10.5 Form of 1999 Stock Plan
10.6 Form of 1999 Employee Stock Purchase Plan
10.7* Management Agreement, dated June 14, 1996, between the Registrant and
Paul F. McLaughlin
10.8* Management Agreement, dated June 14, 1996, between the Registrant and
Robert Loiterman
10.9* Management Agreement, dated May 5, 1997, between the Registrant and
Steven R. Roth
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 (included on page II-4)
27.1 Financial Data Schedule
27.2 Financial Data Schedule
27.3 Financial Data Schedule
27.4 Financial Data Schedule
</TABLE>
- --------
*To be filed by amendment.
(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>
<PAGE>
RUDOLPH TECHNOLOGIES, INC.
1999 STOCK PLAN
Exhibit 10.5
1. Purposes of the Plan. The purposes of this 1999 Stock Plan are:
--------------------
. to attract and retain the best available personnel for positions
of substantial responsibility,
. to provide additional incentive to Employees, Directors and
Consultants, and
. to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant. Stock Purchase Rights may also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" means the Board or any of its Committees as
-------------
shall be administering the Plan, in accordance with Section 4 of the Plan.
(b) "Applicable Laws" means the requirements relating to the
---------------
administration of stock option plans under U. S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options or Stock Purchase Rights are,
or will be, granted under the Plan.
(c) "Board" means the Board of Directors of the Company.
-----
(d) "Code" means the Internal Revenue Code of 1986, as amended.
----
(e) "Committee" means a committee of Directors appointed by the
---------
Board in accordance with Section 4 of the Plan.
(f) "Common Stock" means the common stock of the Company.
------------
(g) "Company" means Rudolph Technologies, Inc., a Delaware
-------
corporation.
(h) "Consultant" means any person, including an advisor, engaged by
----------
the Company or a Parent or Subsidiary to render services to such entity.
(i) "Director" means a member of the Board.
--------
<PAGE>
(j) "Disability" means total and permanent disability as defined in
----------
Section 22(e)(3) of the Code.
(k) "Employee" means any person, including Officers and Directors,
--------
employed by the Company or any Parent or Subsidiary of the Company. A Service
Provider shall not cease to be an Employee in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, then three (3) months following the 91st day of
such leave any Incentive Stock Option held by the Optionee shall cease to be
treated as an Incentive Stock Option and shall be treated for tax purposes as a
Nonstatutory Stock Option. Neither service as a Director nor payment of a
director's fee by the Company shall be sufficient to constitute "employment" by
the Company.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(m) "Fair Market Value" means, as of any date, the value of Common
-----------------
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system on
the day of determination, as reported in The Wall Street Journal or such other
source as the Administrator deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the day of determination, as reported in The Wall
Street Journal or such other source as the Administrator deems reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(n) "Incentive Stock Option" means an Option intended to qualify as
----------------------
an incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(o) "Nonstatutory Stock Option" means an Option not intended to
-------------------------
qualify as an Incentive Stock Option.
-2-
<PAGE>
(p) "Notice of Grant" means a written or electronic notice
---------------
evidencing certain terms and conditions of an individual Option or Stock
Purchase Right grant. The Notice of Grant is part of the Option Agreement.
(q) "Officer" means a person who is an officer of the Company
-------
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(r) "Option" means a stock option granted pursuant to the Plan.
------
(s) "Option Agreement" means an agreement between the Company and
----------------
an Optionee evidencing the terms and conditions of an individual Option grant.
The Option Agreement is subject to the terms and conditions of the Plan.
(t) "Optioned Stock" means the Common Stock subject to an Option or
--------------
Stock Purchase Right.
(u) "Optionee" means the holder of an outstanding Option or Stock
--------
Purchase Right granted under the Plan.
(v) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(w) "Plan" means this 1999 Stock Plan.
----
(x) "Restricted Stock" means shares of Common Stock acquired
----------------
pursuant to a grant of Stock Purchase Rights under Section 11 of the Plan.
(y) "Restricted Stock Purchase Agreement" means a written agreement
-----------------------------------
between the Company and the Optionee evidencing the terms and restrictions
applying to stock purchased under a Stock Purchase Right. The Restricted Stock
Purchase Agreement is subject to the terms and conditions of the Plan and the
Notice of Grant.
(z) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
----------
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(aa) "Section 16(b) " means Section 16(b) of the Exchange Act.
-------------
(bb) "Service Provider" means an Employee, Director or Consultant.
----------------
(cc) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 13 of the Plan.
(dd) "Stock Purchase Right" means the right to purchase Common Stock
--------------------
pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.
-3-
<PAGE>
(ee) "Subsidiary" means a "subsidiary corporation", whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 13
-------------------------
of the Plan, the maximum aggregate number of Shares that may be optioned and
sold under the Plan is 2,000,000 Shares, plus an annual increase to be added on
the first day of the Company's fiscal year beginning in fiscal year 2001 equal
to the lesser of (i) 400,000 shares or (ii) two percent (2%) of the outstanding
shares on such date, or (iii) a lesser amount determined by the Board. The
Shares may be authorized, but unissued, or reacquired Common Stock.
If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, the unpurchased Shares which were subject
thereto shall become available for future grant or sale under the Plan (unless
the Plan has terminated); provided, however, that Shares that have actually been
--------
issued under the Plan, whether upon exercise of an Option or Right, shall not be
returned to the Plan and shall not become available for future distribution
under the Plan, except that if Shares of Restricted Stock are repurchased by the
Company at their original purchase price, such Shares shall become available for
future grant under the Plan.
4. Administration of the Plan.
--------------------------
(a) Procedure.
---------
(i) Multiple Administrative Bodies. The Plan may be
------------------------------
administered by different Committees with respect to different groups of Service
Providers.
(ii) Section 162(m). To the extent that the Administrator
--------------
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.
(iii) Rule 16b-3. To the extent desirable to qualify
----------
transactions hereunder as exempt under Rule 16b-3, the transactions contemplated
hereunder shall be structured to satisfy the requirements for exemption under
Rule 16b-3.
(iv) Other Administration. Other than as provided above, the
--------------------
Plan shall be administered by (A) the Board or (B) a Committee, which committee
shall be constituted to satisfy Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the
---------------------------
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:
(i) to determine the Fair Market Value;
-4-
<PAGE>
(ii) to select the Service Providers to whom Options and Stock
Purchase Rights may be granted hereunder;
(iii) to determine the number of shares of Common Stock to be
covered by each Option and Stock Purchase Right granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any Option or Stock Purchase Right granted
hereunder. Such terms and conditions include, but are not limited to, the
exercise price, the time or times when Options or Stock Purchase Rights may be
exercised (which may be based on performance criteria), any vesting acceleration
or waiver of forfeiture restrictions, and any restriction or limitation
regarding any Option or Stock Purchase Right or the shares of Common Stock
relating thereto, based in each case on such factors as the Administrator, in
its sole discretion, shall determine;
(vi) to construe and interpret the terms of the Plan and
awards granted pursuant to the Plan;
(vii) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;
(viii) to modify or amend each Option or Stock Purchase Right
(subject to Section 15(c) of the Plan), including the discretionary authority to
extend the post-termination exercisability period of Options longer than is
otherwise provided for in the Plan;
(ix) to allow Optionees to satisfy withholding tax obligations
by electing to have the Company withhold from the Shares to be issued upon
exercise of an Option or Stock Purchase Right that number of Shares having a
Fair Market Value equal to (or less than) the minimum amount required to be
withheld. The Fair Market Value of the Shares to be withheld shall be determined
on the date that the amount of tax to be withheld is to be determined. All
elections by an Optionee to have Shares withheld for this purpose shall be made
in such form and under such conditions as the Administrator may deem necessary
or advisable;
(x) to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Option or Stock
Purchase Right previously granted by the Administrator;
(xi) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) Effect of Administrator's Decision. The Administrator's
----------------------------------
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options or Stock Purchase Rights.
-5-
<PAGE>
5. Eligibility. Nonstatutory Stock Options and Stock Purchase Rights
-----------
may be granted to Service Providers. Incentive Stock Options may be granted only
to Employees.
6. Limitations.
-----------
(a) Each Option shall be designated in the Option Agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(b) Neither the Plan nor any Option or Stock Purchase Right shall
confer upon an Optionee any right with respect to continuing the Optionee's
relationship as a Service Provider with the Company, nor shall they interfere in
any way with the Optionee's right or the Company's right to terminate such
relationship at any time, with or without cause.
(c) The following limitations shall apply to grants of Options:
(i) No Service Provider shall be granted, in any fiscal year
of the Company, Options to purchase more than 500,000 Shares.
(ii) In connection with his or her initial service, a Service
Provider may be granted Options to purchase up to an additional 500,000 Shares
which shall not count against the limit set forth in subsection (i) above.
(iii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization as
described in Section 13.
7. Term of Plan. Subject to Section 19 of the Plan, the Plan shall
------------
become effective upon its adoption by the Board. It shall continue in effect for
a term of ten (10) years unless terminated earlier under Section 15 of the Plan.
8. Term of Option. The term of each Option shall be stated in the
--------------
Option Agreement. In the case of an Incentive Stock Option, the term shall be
ten (10) years from the date of grant or such shorter term as may be provided in
the Option Agreement. Moreover, in the case of an Incentive Stock Option granted
to an Optionee who, at the time the Incentive Stock Option is granted, owns
stock representing more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or any Parent or Subsidiary, the
term of the Incentive Stock Option shall be five (5) years from the date of
grant or such shorter term as may be provided in the Option Agreement.
-6-
<PAGE>
9. Option Exercise Price and Consideration.
---------------------------------------
(a) Exercise Price. The per share exercise price for the Shares to
--------------
be issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time the Incentive
Stock Option is granted, owns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of grant.
(B) granted to any Employee other than an Employee
described in paragraph (A) immediately above, the per Share exercise price shall
be no less than 100% of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option, the per Share
exercise price shall be determined by the Administrator. In the case of a
Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
(iii) Notwithstanding the foregoing, Options may be granted
with a per Share exercise price of less than 100% of the Fair Market Value per
Share on the date of grant pursuant to a merger or other corporate transaction.
(b) Waiting Period and Exercise Dates. At the time an Option is
---------------------------------
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions that must be satisfied before the
Option may be exercised.
(c) Form of Consideration. The Administrator shall determine the
---------------------
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares acquired upon
exercise of an option, have been owned by the Optionee for more than six months
on the date of surrender, and (B) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised;
-7-
<PAGE>
(v) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan;
(vi) a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's participation
in any Company-sponsored deferred compensation program or arrangement;
(vii) any combination of the foregoing methods of payment; or
(viii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.
10. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Stockholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement. Unless the Administrator provides otherwise,
vesting of Options granted hereunder shall be tolled during any unpaid leave of
absence. An Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company receives:
(i) written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a stockholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 13 of the Plan.
Exercising an Option in any manner shall decrease the number of
Shares thereafter available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.
(b) Termination of Relationship as a Service Provider. If an
-------------------------------------------------
Optionee ceases to be a Service Provider, other than upon the Optionee's death
or Disability, the Optionee may exercise his or her Option within such period of
time as is specified in the Option Agreement to the extent that the Option is
vested on the date of termination (but in no event later than the expiration of
the term of such Option as set forth in the Option Agreement). In the absence of
a specified time in the Option Agreement, the Option shall remain exercisable
for three (3) months following the Optionee's termination. If, on the date of
termination, the Optionee is not vested as to his or her
-8-
<PAGE>
entire Option, the Shares covered by the unvested portion of the Option shall
revert to the Plan. If, after termination, the Optionee does not exercise his or
her Option within the time specified by the Administrator, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(c) Disability of Optionee. If an Optionee ceases to be a Service
----------------------
Provider as a result of the Optionee's Disability, the Optionee may exercise his
or her Option within such period of time as is specified in the Option Agreement
to the extent the Option is vested on the date of termination (but in no event
later than the expiration of the term of such Option as set forth in the Option
Agreement). In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for twelve (12) months following the Optionee's
termination. If, on the date of termination, the Optionee is not vested as to
his or her entire Option, the Shares covered by the unvested portion of the
Option shall revert to the Plan. If, after termination, the Optionee does not
exercise his or her Option within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(d) Death of Optionee. If an Optionee dies while a Service
-----------------
Provider, the Option may be exercised within such period of time as is specified
in the Option Agreement (but in no event later than the expiration of the term
of such Option as set forth in the Notice of Grant) but only to the extent that
the Option is vested on the date of death. In the absence of a specified time in
the Option Agreement, the Option shall remain exercisable for twelve (12) months
following the Optionee's death. The Option may be exercised by the Optionee's
designated beneficiary, provided such beneficiary has been designated prior to
Optionee's death in a form acceptable by the Administrator. If no such
beneficiary has been designated by the Optionee, then such Option may be
exercised within the applicable time period by the personal representative of
the Optionee's estate or by the person or persons to whom the Option is
transferred pursuant to the Optionee's will or in accordance with the laws of
descent and distribution. If, at the time of death, the Optionee is not vested
as to his or her entire Option, the Shares covered by the unvested portion of
the Option shall immediately revert to the Plan. If the Option is not so
exercised within the time specified herein, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.
(e) Buyout Provisions. The Administrator may at any time offer to
-----------------
buy out for a payment in cash or Shares an Option previously granted based on
such terms and conditions as the Administrator shall establish and communicate
to the Optionee at the time that such offer is made.
11. Stock Purchase Rights.
---------------------
(a) Rights to Purchase. Stock Purchase Rights may be issued
------------------
either alone, in addition to, or in tandem with other awards granted under the
Plan and/or cash awards made outside of the Plan. After the Administrator
determines that it will offer Stock Purchase Rights under the Plan, it shall
advise the offeree in writing or electronically, by means of a Notice of Grant,
of the terms, conditions and restrictions related to the offer, including the
number of Shares that the offeree shall be entitled to purchase, the price to be
paid, and the time within which the offeree must accept such offer. The offer
shall be accepted by execution of a Restricted Stock Purchase Agreement in the
form determined by the Administrator.
-9-
<PAGE>
(b) Repurchase Option. Unless the Administrator determines
-----------------
otherwise, the Restricted Stock Purchase Agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's service with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock Purchase Agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at a rate determined by the
Administrator.
(c) Other Provisions. The Restricted Stock Purchase Agreement
----------------
shall contain such other terms, provisions and conditions not inconsistent with
the Plan as may be determined by the Administrator in its sole discretion.
(d) Rights as a Stockholder. Once the Stock Purchase Right is
-----------------------
exercised, the purchaser shall have the rights equivalent to those of a
stockholder, and shall be a stockholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 13
of the Plan.
12. Non-Transferability of Options and Stock Purchase Rights. Unless
--------------------------------------------------------
determined otherwise by the Administrator, an Option or Stock Purchase Right may
not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee. If the
Administrator makes an Option or Stock Purchase Right transferable, such Option
or Stock Purchase Right shall contain such additional terms and conditions as
the Administrator deems appropriate.
13. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
------------------------------------------------------------------
Asset Sale.
- ----------
(a) Changes in Capitalization. Subject to any required action by
-------------------------
the stockholders of the Company, the number of shares of Common Stock covered by
each outstanding Option and Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option or Stock
Purchase Right.
-10-
<PAGE>
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until fifteen (15) days prior to
such transaction as to all of the Optioned Stock covered thereby, including
Shares as to which the Option would not otherwise be exercisable. In addition,
the Administrator may provide that any Company repurchase option applicable to
any Shares purchased upon exercise of an Option or Stock Purchase Right shall
lapse as to all such Shares, provided the proposed dissolution or liquidation
takes place at the time and in the manner contemplated. To the extent it has not
been previously exercised, an Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the Company
--------------------
with or into another corporation, or the sale of substantially all of the assets
of the Company, each outstanding Option and Stock Purchase Right shall be
assumed or an equivalent option or right substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation. In the event
that the successor corporation refuses to assume or substitute for the Option or
Stock Purchase Right, the Optionee shall fully vest in and have the right to
exercise the Option or Stock Purchase Right as to all of the Optioned Stock,
including Shares as to which it would not otherwise be vested or exercisable. If
an Option or Stock Purchase Right becomes fully vested and exercisable in lieu
of assumption or substitution in the event of a merger or sale of assets, the
Administrator shall notify the Optionee in writing or electronically that the
Option or Stock Purchase Right shall be fully vested and exercisable for a
period of fifteen (15) days from the date of such notice, and the Option or
Stock Purchase Right shall terminate upon the expiration of such period. For the
purposes of this paragraph, the Option or Stock Purchase Right shall be
considered assumed if, following the merger or sale of assets, the option or
right confers the right to purchase or receive, for each Share of Optioned Stock
subject to the Option or Stock Purchase Right immediately prior to the merger or
sale of assets, the consideration (whether stock, cash, or other securities or
property) received in the merger or sale of assets by holders of Common Stock
for each Share held on the effective date of the transaction (and if holders
were offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding Shares); provided, however, that if
such consideration received in the merger or sale of assets is not solely common
stock of the successor corporation or its Parent, the Administrator may, with
the consent of the successor corporation, provide for the consideration to be
received upon the exercise of the Option or Stock Purchase Right, for each Share
of Optioned Stock subject to the Option or Stock Purchase Right, to be solely
common stock of the successor corporation or its Parent equal in fair market
value to the per share consideration received by holders of Common Stock in the
merger or sale of assets.
14. Date of Grant. The date of grant of an Option or Stock Purchase
-------------
Right shall be, for all purposes, the date on which the Administrator makes the
determination granting such Option or Stock Purchase Right, or such other later
date as is determined by the Administrator. Notice of the determination shall be
provided to each Optionee within a reasonable time after the date of such grant.
-11-
<PAGE>
15. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may at any time amend,
-------------------------
alter, suspend or terminate the Plan.
(b) Stockholder Approval. The Company shall obtain stockholder
--------------------
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.
(c) Effect of Amendment or Termination. No amendment, alteration,
----------------------------------
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to Options granted under the
Plan prior to the date of such termination.
16. Conditions Upon Issuance of Shares.
----------------------------------
(a) Legal Compliance. Shares shall not be issued pursuant to the
----------------
exercise of an Option or Stock Purchase Right unless the exercise of such Option
or Stock Purchase Right and the issuance and delivery of such Shares shall
comply with Applicable Laws and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
(b) Investment Representations. As a condition to the exercise of
--------------------------
an Option or Stock Purchase Right, the Company may require the person exercising
such Option or Stock Purchase Right to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required.
17. Inability to Obtain Authority. The inability of the Company to
-----------------------------
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.
18. Reservation of Shares. The Company, during the term of this Plan,
---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
19. Stockholder Approval. The Plan shall be subject to approval by the
--------------------
stockholders of the Company within twelve (12) months after the date the Plan is
adopted. Such stockholder approval shall be obtained in the manner and to the
degree required under Applicable Laws.
-12-
<PAGE>
RUDOLPH TECHNOLOGIES, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
Exhibit 10.6
The following constitute the provisions of the 1999 Employee Stock Purchase
Plan of Rudolph Technologies, Inc.
1. Purpose. The purpose of the Plan is to provide employees of the
-------
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the intention
of the Company to have the Plan qualify as an "Employee Stock Purchase Plan"
under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
-----------
(a) "Board" shall mean the Board of Directors of the Company.
-----
(b) "Code" shall mean the Internal Revenue Code of 1986, as
----
amended.
(c) "Common Stock" shall mean the common stock of the Company.
------------
(d) "Company" shall mean Rudolph Technologies, Inc. and any
-------
Designated Subsidiary of the Company.
(e) "Compensation" shall mean all salary, wages (including amounts
------------
elected to be deferred by the employee, that would otherwise have been paid,
under a cash or deferred arrangement established by the Company), overtime pay,
commissions, bonuses and any other remuneration paid directly to the employee,
but excluding profit sharing, the cost of employee benefits paid for by the
Company, education or tuition reimbursements, imputed income arising under any
Company group insurance or benefit program, traveling expenses, business and
moving expense reimbursements, income recognized in connection with stock
options, contributions made by the Company under any employee benefit plan, and
similar items of compensation.
(f) "Designated Subsidiary" shall mean any Subsidiary that has been
---------------------
designated by the Board from time to time in its sole discretion as eligible to
participate in the Plan.
(g) "Employee" shall mean any individual who is an Employee of the
--------
Company for tax purposes whose customary employment with the Company is at least
twenty (20) hours per week and more than five (5) months in any calendar year.
For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the
<PAGE>
individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship shall be deemed to have terminated on the
91st day of such leave.
(h) "Enrollment Date" shall mean the first Trading Day of each
---------------
Offering Period.
(i) "Exercise Date" shall mean the last Trading Day of each
-------------
Purchase Period.
(j) "Fair Market Value" shall mean, as of any date, the value of
-----------------
Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system on
the date of determination, as reported in The Wall Street Journal or such other
source as the Board deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean of the closing bid and asked prices for the Common Stock on
the date of determination, as reported in The Wall Street Journal or such other
source as the Board deems reliable;
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board; or
(iv) For purposes of the Enrollment Date of the first Offering
Period under the Plan, the Fair Market Value shall be the initial price to the
public as set forth in the final prospectus included within the registration
statement in Form S-1 filed with the Securities and Exchange Commission for the
initial public offering of the Company's Common Stock (the "Registration
Statement").
(k) "Offering Periods" shall mean the periods of approximately
----------------
twenty-four (24) months during which an option granted pursuant to the Plan may
be exercised, commencing on the first Trading Day on or after May 1st and
November 1st of each year and terminating on the last Trading Day in the periods
ending twenty-four months later; provided, however, that the first Offering
Period under the Plan shall commence with the first Trading Day on or after the
date on which the Securities and Exchange Commission declares the Company's
Registration Statement effective and ending on the last Trading Day on or before
October 31, 2001. The second Offering Period under the Plan shall commence on
the first Trading Day on or after May 1, 2000 and end on the last Trading Day on
or before April 30, 2002. The duration and timing of Offering Periods may be
changed pursuant to Section 4 of this Plan.
(l) "Plan" shall mean this 1999 Employee Stock Purchase Plan.
----
-2-
<PAGE>
(m) "Purchase Period" shall mean the approximately six month period
---------------
commencing after one Exercise Date and ending with the next Exercise Date,
except that the first Purchase Period of any Offering Period shall commence on
the Enrollment Date and end with the next Exercise Date; provided however that
the first Purchase Period shall end on the last Trading Day on or before April
30, 2000.
(n) "Purchase Price" shall mean 85% of the Fair Market Value of a
--------------
share of Common Stock on the Enrollment Date or on the Exercise Date, whichever
is lower; provided however, that the Purchase Price may be adjusted by the Board
pursuant to Section 20.
(o) "Reserves" shall mean the number of shares of Common Stock
--------
covered by each option under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under option.
(p) "Subsidiary" shall mean a corporation, domestic or foreign, of
----------
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
(q) "Trading Day" shall mean a day on which national stock
-----------
exchanges and the Nasdaq System are open for trading.
3. Eligibility.
-----------
(a) Any Employee who shall be employed by the Company on a given
Enrollment Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) to the extent that,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the
Code) would own capital stock of the Company and/or hold outstanding
options to purchase such stock possessing five percent (5%) or more of the
total combined voting power or value of all classes of the capital stock of
the Company or of any Subsidiary, or (ii) to the extent that his or her
rights to purchase stock under all employee stock purchase plans of the
Company and its subsidiaries accrues at a rate which exceeds twenty-five
Thousand Dollars ($25,000) worth of stock (determined at the fair market
value of the shares at the time such option is granted) for each calendar
year in which such option is outstanding at any time.
4. Offering Periods. The Plan shall be implemented by consecutive,
----------------
overlapping Offering Periods with a new Offering Period commencing on the first
Trading Day on or after May 1st and November 1st each year, or on such other
date as the Board shall determine, and continuing thereafter until terminated in
accordance with Section 20 hereof; provided, however, that the first Offering
Period under the Plan shall commence with the first Trading Day on or after the
date on which the Securities and Exchange Commission declares the Company's
Registration Statement effective and ending on the last Trading Day on or before
October 31, 2001. The Board shall have
-3-
<PAGE>
the power to change the duration of Offering Periods (including the commencement
dates thereof) with respect to future offerings without shareholder approval if
such change is announced prior to the scheduled beginning of the first Offering
Period to be affected thereafter.
5. Participation.
-------------
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing it with the Company's payroll office prior
to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on the
first payroll following the Enrollment Date and shall end on the last payroll in
the Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.
6. Payroll Deductions.
------------------
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay day
during the Offering Period in an amount not exceeding fifteen percent (15%) of
the Compensation which he or she receives on each pay day during the Offering
Period.
(b) All payroll deductions made for a participant shall be credited
to his or her account under the Plan and shall be withheld in whole percentages
only. A participant may not make any additional payments into such account.
(c) A participant may discontinue his or her participation in the
Plan as provided in Section 10 hereof, or may increase or decrease the rate of
his or her payroll deductions during the Offering Period by completing or filing
with the Company a new subscription agreement authorizing a change in payroll
deduction rate. The Board may, in its discretion, limit the number of
participation rate changes during any Offering Period. The change in rate shall
be effective with the first full payroll period following five (5) business days
after the Company's receipt of the new subscription agreement unless the Company
elects to process a given change in participation more quickly. A participant's
subscription agreement shall remain in effect for successive Offering Periods
unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to
comply with Section 423(b)(8) of the Code and Section 3(b) hereof, a
participant's payroll deductions may be decreased to zero percent (0%) at any
time during a Purchase Period. Payroll deductions shall recommence at the rate
provided in such participant's subscription agreement at the beginning of the
first Purchase Period which is scheduled to end in the following calendar year,
unless terminated by the participant as provided in Section 10 hereof.
-4-
<PAGE>
(e) At the time the option is exercised, in whole or in part, or at
the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but shall not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
7. Grant of Option. On the Enrollment Date of each Offering Period,
---------------
each eligible Employee participating in such Offering Period shall be granted an
option to purchase on each Exercise Date during such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase during each Purchase Period more than 3,000
shares of the Company's Common Stock (subject to any adjustment pursuant to
Section 19), and provided further that such purchase shall be subject to the
limitations set forth in Sections 3(b) and 12 hereof. The Board may, for future
Offering Periods, increase or decrease, in its absolute discretion, the maximum
number of shares of the Company's Common Stock an Employee may purchase during
each Purchase Period of such Offering Period. Exercise of the option shall occur
as provided in Section 8 hereof, unless the participant has withdrawn pursuant
to Section 10 hereof. The option shall expire on the last day of the Offering
Period.
8. Exercise of Option.
------------------
(a) Unless a participant withdraws from the Plan as provided in
Section 10 hereof, his or her option for the purchase of shares shall be
exercised automatically on the Exercise Date, and the maximum number of full
shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Purchase Period or Offering Period, subject to earlier withdrawal by the
participant as provided in Section 10 hereof. Any other monies left over in a
participant's account after the Exercise Date shall be returned to the
participant. During a participant's lifetime, a participant's option to purchase
shares hereunder is exercisable only by him or her.
(b) If the Board determines that, on a given Exercise Date, the
number of shares with respect to which options are to be exercised may exceed
(i) the number of shares of Common Stock that were available for sale under the
Plan on the Enrollment Date of the applicable Offering Period, or (ii) the
number of shares available for sale under the Plan on such Exercise Date, the
Board may in its sole discretion (x) provide that the Company shall make a pro
rata allocation of the shares of Common Stock available for purchase on such
Enrollment Date or Exercise Date, as
-5-
<PAGE>
applicable, in as uniform a manner as shall be practicable and as it shall
determine in its sole discretion to be equitable among all participants
exercising options to purchase Common Stock on such Exercise Date, and continue
all Offering Periods then in effect, or (y) provide that the Company shall make
a pro rata allocation of the shares available for purchase on such Enrollment
Date or Exercise Date, as applicable, in as uniform a manner as shall be
practicable and as it shall determine in its sole discretion to be equitable
among all participants exercising options to purchase Common Stock on such
Exercise Date, and terminate any or all Offering Periods then in effect pursuant
to Section 20 hereof. The Company may make pro rata allocation of the shares
available on the Enrollment Date of any applicable Offering Period pursuant to
the preceding sentence, notwithstanding any authorization of additional shares
for issuance under the Plan by the Company's shareholders subsequent to such
Enrollment Date.
9. Delivery. As promptly as practicable after each Exercise Date on
--------
which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, of a certificate representing the shares
purchased upon exercise of his or her option.
10. Withdrawal.
----------
(a) A participant may withdraw all but not less than all the
payroll deductions credited to his or her account and not yet used to exercise
his or her option under the Plan at any time by giving written notice to the
Company in the form of Exhibit B to this Plan. All of the participant's payroll
deductions credited to his or her account shall be paid to such participant
promptly after receipt of notice of withdrawal and such participant's option for
the Offering Period shall be automatically terminated, and no further payroll
deductions for the purchase of shares shall be made for such Offering Period. If
a participant withdraws from an Offering Period, payroll deductions shall not
resume at the beginning of the succeeding Offering Period unless the participant
delivers to the Company a new subscription agreement.
(b) A participant's withdrawal from an Offering Period shall not
have any effect upon his or her eligibility to participate in any similar
plan which may hereafter be adopted by the Company or in succeeding
Offering Periods which commence after the termination of the Offering
Period from which the participant withdraws.
11. Termination of Employment.
-------------------------
Upon a participant's ceasing to be an Employee, for any reason, he
or she shall be deemed to have elected to withdraw from the Plan and the payroll
deductions credited to such participant's account during the Offering Period but
not yet used to exercise the option shall be returned to such participant or, in
the case of his or her death, to the person or persons entitled thereto under
Section 15 hereof, and such participant's option shall be automatically
terminated. The preceding sentence notwithstanding, a participant who receives
payment in lieu of notice of termination of employment shall be treated as
continuing to be an Employee for the participant's customary number of hours per
week of employment during the period in which the participant is subject to such
payment in lieu of notice.
-6-
<PAGE>
12. Interest. No interest shall accrue on the payroll deductions of a
--------
participant in the Plan.
13. Stock.
-----
(a) Subject to adjustment upon changes in capitalization of the
Company as provided in Section 19 hereof, the maximum number of shares of the
Company's Common Stock which shall be made available for sale under the Plan
shall be 300,000 shares, plus an annual increase to be added on the first day of
the Company's fiscal year, beginning in 2001, equal to the lesser of (i) 300,000
shares of Common Stock, (ii) two percent (2%) of the outstanding shares of
Common Stock on such date, or (iii) a lesser amount determined by the Board.
(b) The participant shall have no interest or voting right in
shares covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan shall
be registered in the name of the participant or in the name of the participant
and his or her spouse.
14. Administration. The Plan shall be administered by the Board or a
--------------
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision and
determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
15. Designation of Beneficiary.
--------------------------
(a) A participant may file a written designation of a beneficiary
who is to receive any shares and cash, if any, from the participant's account
under the Plan in the event of such participant's death subsequent to an
Exercise Date on which the option is exercised but prior to delivery to such
participant of such shares and cash. In addition, a participant may file a
written designation of a beneficiary who is to receive any cash from the
participant's account under the Plan in the event of such participant's death
prior to exercise of the option. If a participant is married and the designated
beneficiary is not the spouse, spousal consent shall be required for such
designation to be effective.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the estate
of the participant, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its discretion, may deliver
such shares and/or cash to the spouse or to any one or more dependents or
relatives of the participant, or if no spouse, dependent or relative is known to
the Company, then to such other person as the Company may designate.
-7-
<PAGE>
16. Transferability. Neither payroll deductions credited to a
---------------
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
17. Use of Funds. All payroll deductions received or held by the
------------
Company under the Plan may be used by the Company for any corporate purpose, and
the Company shall not be obligated to segregate such payroll deductions.
18. Reports. Individual accounts shall be maintained for each
-------
participant in the Plan. Statements of account shall be given to participating
Employees at least annually, which statements shall set forth the amounts of
payroll deductions, the Purchase Price, the number of shares purchased and the
remaining cash balance, if any.
19. Adjustments Upon Changes in Capitalization, Dissolution,
-------------------------------------------------------
Liquidation, Merger or Asset Sale.
- ---------------------------------
(a) Changes in Capitalization. Subject to any required action by
-------------------------
the shareholders of the Company, the Reserves, the maximum number of shares each
participant may purchase each Purchase Period (pursuant to Section 7), as well
as the price per share and the number of shares of Common Stock covered by each
option under the Plan which has not yet been exercised shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an option.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Offering Period then in progress
shall be shortened by setting a new Exercise Date (the "New Exercise Date"), and
shall terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the Board. The Board
shall notify each participant in writing, at least ten (10) business days prior
to the New Exercise Date, that the Exercise Date for the participant's option
has been changed to the New Exercise Date and that the participant's option
shall be exercised automatically on the New Exercise Date, unless prior to such
date the participant has withdrawn from the Offering Period as provided in
Section 10 hereof.
-8-
<PAGE>
(c) Merger or Asset Sale. In the event of a proposed sale of all
--------------------
or substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each outstanding option shall be assumed or an
equivalent option substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the option, any Purchase Periods
then in progress shall be shortened by setting a new Exercise Date (the "New
Exercise Date") and any Offering Periods then in progress shall end on the New
Exercise Date. The New Exercise Date shall be before the date of the Company's
proposed sale or merger. The Board shall notify each participant in writing, at
least ten (10) business days prior to the New Exercise Date, that the Exercise
Date for the participant's option has been changed to the New Exercise Date and
that the participant's option shall be exercised automatically on the New
Exercise Date, unless prior to such date the participant has withdrawn from the
Offering Period as provided in Section 10 hereof.
20. Amendment or Termination.
------------------------
(a) The Board of Directors of the Company may at any time and for
any reason terminate or amend the Plan. Except as provided in Section 19 hereof,
no such termination can affect options previously granted, provided that an
Offering Period may be terminated by the Board of Directors on any Exercise Date
if the Board determines that the termination of the Offering Period or the Plan
is in the best interests of the Company and its shareholders. Except as provided
in Section 19 and this Section 20 hereof, no amendment may make any change in
any option theretofore granted which adversely affects the rights of any
participant. To the extent necessary to comply with Section 423 of the Code (or
any successor rule or provision or any other applicable law, regulation or stock
exchange rule), the Company shall obtain shareholder approval in such a manner
and to such a degree as required.
(b) Without shareholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or procedures
as the Board (or its committee) determines in its sole discretion advisable
which are consistent with the Plan.
(c) In the event the Board determines that the ongoing operation
of the Plan may result in unfavorable financial accounting consequences, the
Board may, in its discretion and, to the extent necessary or desirable, modify
or amend the Plan to reduce or eliminate such accounting consequence including,
but not limited to:
(i) altering the Purchase Price for any Offering Period
including an Offering Period underway at the time of the change in Purchase
Price;
-9-
<PAGE>
(ii) shortening any Offering Period so that Offering Period
ends on a new Exercise Date, including an Offering Period underway at the time
of the Board action; and
(iii) allocating shares.
Such modifications or amendments shall not require stockholder approval or
the consent of any Plan participants.
21. Notices. All notices or other communications by a participant to
-------
the Company under or in connection with the Plan shall be deemed to have been
duly given when received in the form specified by the Company at the location,
or by the person, designated by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares shall not be issued
----------------------------------
with respect to an option unless the exercise of such option and the issuance
and delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require the
person exercising such option to represent and warrant at the time of any such
exercise that the shares are being purchased only for investment and without any
present intention to sell or distribute such shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned applicable provisions of law.
23. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board or its approval by the stockholders of the
Company. The Plan shall continue in effect for a term of ten (10) years unless
sooner terminated under Section 20 hereof.
24. Automatic Transfer to Low Price Offering Period. To the extent
-----------------------------------------------
permitted by any applicable laws, regulations, or stock exchange rules if the
Fair Market Value of the Common Stock on any Exercise Date in an Offering Period
is lower than the Fair Market Value of the Common Stock on the Enrollment Date
of such Offering Period, then all participants in such Offering Period shall be
automatically withdrawn from such Offering Period immediately after the exercise
of their option on such Exercise Date and automatically re-enrolled in the
immediately following Offering Period as of the first day thereof.
-10-
<PAGE>
EXHIBIT A
---------
RUDOLPH TECHNOLOGIES, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date: ___________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. ____________________ hereby elects to participate in Rudolph Technologies,
Inc. 1999 Employee Stock Purchase Plan (the "Employee Stock Purchase Plan")
and subscribes to purchase shares of the Company's Common Stock in
accordance with this Subscription Agreement and the Employee Stock Purchase
Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount of
____% of my Compensation on each payday (from 1 to 15%) during the Offering
Period in accordance with the Employee Stock Purchase Plan. (Please note
that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise my
option.
4. I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my participation in the Employee Stock Purchase Plan is in
all respects subject to the terms of the Plan. I understand that my
ability to exercise the option under this Subscription Agreement is subject
to shareholder approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and Spouse only).
6. I understand that if I dispose of any shares received by me pursuant to the
Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares) or one year after the
Exercise Date, I will be treated for federal income tax purposes as having
received ordinary income at the time of such disposition in an amount equal
to the excess of the fair market value of the shares at the time such
shares were purchased by me
<PAGE>
over the price which I paid for the shares. I hereby agree to notify the
----------------------------
Company in writing within 30 days after the date of any disposition of my
-------------------------------------------------------------------------
shares and I will make adequate provision for Federal, state or other tax
-------------------------------------------------------------------------
withholding obligations, if any, which arise upon the disposition of the
------------------------------------------------------------------------
Common Stock. The Company may, but will not be obligated to, withhold from
------------
my compensation the amount necessary to meet any applicable withholding
obligation including any withholding necessary to make available to the
Company any tax deductions or benefits attributable to sale or early
disposition of Common Stock by me. If I dispose of such shares at any time
after the expiration of the 2-year and 1-year holding periods, I understand
that I will be treated for federal income tax purposes as having received
income only at the time of such disposition, and that such income will be
taxed as ordinary income only to the extent of an amount equal to the
lesser of (1) the excess of the fair market value of the shares at the time
of such disposition over the purchase price which I paid for the shares, or
(2) 15% of the fair market value of the shares on the first day of the
Offering Period. The remainder of the gain, if any, recognized on such
disposition will be taxed as capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent upon
my eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print)_____________________________________________________
(First) (Middle) (Last)
_________________________ _____________________________________________
Relationship
_____________________________________________
(Address)
-2-
<PAGE>
Employee's Social
Security Number: ____________________________________
Employee's Address: ____________________________________
____________________________________
____________________________________
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:_________________________ ________________________________________
Signature of Employee
________________________________________
Spouse's Signature (If beneficiary other
than spouse)
-3-
<PAGE>
EXHIBIT B
---------
RUDOLPH TECHNOLOGIES, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of Rudolph Technologies,
Inc. 1999 Employee Stock Purchase Plan which began on ____________, ______ (the
"Enrollment Date") hereby notifies the Company that he or she hereby withdraws
from the Offering Period. He or she hereby directs the Company to pay to the
undersigned as promptly as practicable all the payroll deductions credited to
his or her account with respect to such Offering Period. The undersigned
understands and agrees that his or her option for such Offering Period will be
automatically terminated. The undersigned understands further that no further
payroll deductions will be made for the purchase of shares in the current
Offering Period and the undersigned shall be eligible to participate in
succeeding Offering Periods only by delivering to the Company a new Subscription
Agreement.
Name and Address of Participant:
________________________________
________________________________
________________________________
Signature:
________________________________
Date:___________________________
<PAGE>
EXHIBIT 21.1
Subsidiaries of Rudolph Technologies, Inc.
JURISDICTION OF
COMPANY NAME INCORPORATION
------------ ---------------
Rudolph Acquisition Corporation Delaware
Rudolph Technologies, Inc. New Jersey
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the use in this Registration Statement on Form S-1 of our
reports dated September 7, 1999, relating to the financial statements and
financial statement schedule of Rudolph Technologies, Inc. and Rudolph Research
Corporation, which appear in such Registration Statement. We also consent to
the reference to us under the heading "Experts" in such Registration Statement.
PricewaterhouseCoopers LLP
Florham Park, New Jersey
September 8, 1999
<PAGE>
Exhibit 23.3
Antonelli, Terry, Stout & Kraus, LLP
1300 North Seventeenth Street, Suite 1800
Arlington, Virginia 22209
Telephone: (703) 312-6600
Facsimile: (703) 312-6666
September 7, 1999
Rudolph Technologies, Inc.
One Rudolph Road
P.O. Box 1000
Flanders, NH 07836
Re: Rudolph Technologies, Inc.
Registration Statement on Form S-1
Dear Sirs:
We hereby consent to the reference to our firm under the caption "Experts"
in Rudolph Technologies, Inc.'s Registration Statement on Form S-1.
Very truly yours,
ANTONELLI, TERRY, STOUT &
KRAUS, LLP
By: /s/ Gregory Montone
____________________
Gregory Montone
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<MULTIPLIER> 1,000
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<PERIOD-START> JAN-01-1997
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<TOTAL-EXPENSES> (36,954)
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<TOTAL-EXPENSES-DIRECT-COST> (13,903)
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<TOT-EXP-DIRECT-AND-INDIRECT> (36,954)
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<TOTAL-CURRENT-ASSETS> 12,625
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<TOTAL-ASSETS-AND-DEBITS> 28,920
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<TOT-LIABIL-AND-PROPRIET-CAP> 28,920
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<MISC-INCOME-OR-LOSS> 0
<TOTAL-INCOME> 14,373
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<EMPLOYEE-PENSION-AND-BENEFIT> 0
<OTHER-EXPENSES> (1,857)
<TOTAL-EXPENSES> (29,326)
<NET-INCOME> (14,953)
<TOTAL-EXPENSES-DIRECT-COST> (6,579)
<TOTAL-EXPENSES-INDIRECT-COST> (22,747)
<TOT-EXP-DIRECT-AND-INDIRECT> (24,326)
<PERSONNEL-END-OF-YEAR> 150
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