| RUDOLPH TECHNOLOGIES INC Item 1A Risk Factors Cyclicality in the semiconductor device industry has led to substantial decreases in demand for our systems and may from time to time continue to do so Our operating results are subject to significant variation due to the cyclical nature of the semiconductor device industry |
| 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 timing, length and severity of the up-and-down cycles in the semiconductor equipment industry are difficult to predict |
| This cyclical nature of the industry in which we operate affects our ability to accurately predict future revenue and, thus, future expense levels |
| When cyclical fluctuations result in lower than expected revenue levels, operating results may be adversely affected and cost reduction measures may be necessary in order for us to remain competitive and financially sound |
| During a down cycle, we must be in a position to adjust our cost and expense structure to prevailing market conditions and to continue to motivate and retain our key employees |
| In addition, during periods of rapid growth, we must be able to increase manufacturing capacity and personnel to meet customer demand |
| We can provide no assurance that these objectives can be met in a timely manner in response to industry cycles |
| If we fail to respond to industry cycles, our business could be seriously harmed |
| 8 ______________________________________________________________________ [37]Table of Contents We obtain some of the components and subassemblies included in our systems from a limited group of suppliers, and the partial or complete loss of one of these suppliers could cause production delays and a substantial loss of revenues We obtain some of the components and subassemblies included in our systems from a limited group of suppliers and do not have long-term contracts with many of our suppliers |
| Our dependence on limited source suppliers of components and our lack of long-term contracts with many of our suppliers 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 could seriously harm our results of operations and cash flows |
| Our largest customers account for a significant portion of our revenues, and our revenues and cash flows would significantly decline if one or more of these customers were to purchase significantly fewer of our systems or they delayed or cancelled a large order In 2003, 2004 and 2005, sales to end user customers that individually represented at least five percent of our revenues accounted for, in the aggregate, 59dtta4prca, 53dtta4prca and 62dtta6prca of our revenues |
| In 2003, 2004 and 2005, sales to Intel Corporation, a key customer, accounted for 35dtta3prca, 23dtta2prca and 20dtta3prca, respectively, of our revenues |
| We operate in the highly concentrated, capital-intensive semiconductor device manufacturing industry |
| Historically, a significant portion of our revenues in each quarter and year has been derived from sales to relatively few customers, and this trend is expected to continue |
| If any of our key customers were to purchase significantly fewer of our systems in the future, or if a large order were delayed or cancelled, our revenues and cash flows would significantly decline |
| We expect that we will continue to depend on a small number of large customers for a significant portion of our revenues for at least the next several years |
| In addition, as large semiconductor device manufacturers seek to establish closer relationships with their suppliers, we expect that our customer base will become even more concentrated |
| Our operating results have varied and will likely continue to vary significantly from quarter to quarter in the future, causing volatility in our stock price Our quarterly operating results have varied in the past and will likely continue to vary significantly from quarter to quarter in the future, causing volatility in our stock price |
| Some of the factors that may influence our operating results and subject our stock to extreme price and volume fluctuations include: • changes in customer demand for our systems, which is influenced by economic conditions in the semiconductor device industry, demand for products that use semiconductors, market acceptance of our systems and products 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, shipments and acceptance; • 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 |
| 9 ______________________________________________________________________ [38]Table of Contents In light of these factors and the cyclical nature of the semiconductor industry, we expect to continue to experience significant fluctuations in quarterly and annual operating results |
| Moreover, many of our expenses are fixed in the short-term which, together with the need for continued investment in research and development, marketing and customer support, limits our ability to reduce expenses quickly |
| As a result, declines in net sales could harm our business and the price of our common stock could substantially decline |
| Our revenue may vary significantly each quarter due to relatively small fluctuations in our unit sales During any quarter, a significant portion of our revenue may be derived from the sale of a relatively small number of systems |
| Our transparent film measurement systems range in selling price from approximately dlra30cmam000 to dlra1dtta0 million per system, our opaque film measurement systems range in selling price from approximately dlra900cmam000 to dlra2dtta0 million per system and our macro-defect detection systems range in selling price from approximately dlra250cmam000 to dlra1dtta4 million per system |
| Accordingly, a small change in the number of systems we sell may also cause significant changes in our operating results |
| This, in turn, could cause fluctuations in the market price of our common stock |
| Variations in the amount of time it takes for us to sell our systems may cause fluctuations in our operating results, which could cause our stock price to decline Variations in the length of our sales cycles could cause our revenues and cash flows, and consequently, our business, financial condition, operating results and cash flows, 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, but not limited to: • the efforts of our sales force; • 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, and receive payment varies widely in length |
| Our sales cycles, including the time it takes for us to build a product to customer specifications after receiving an order to the time we recognize revenue, 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 |
| If we are not successful in developing new and enhanced products for the semiconductor device manufacturing industry we will lose market share to our competitors We operate in an industry that is subject to evolving industry standards, rapid technological changes, rapid changes in consumer demands and the rapid introduction of new, higher performance systems with shorter 10 ______________________________________________________________________ [39]Table of Contents product life cycles |
| To be competitive in our demanding market, we must continually design, develop and introduce in a timely manner new film metrology systems that meet the performance and price demands of semiconductor device manufacturers |
| We must also continue to refine our current systems so that they remain competitive |
| We expect to continue to make significant investments in our research and development activities |
| We may experience difficulties or delays in our development efforts with respect to new systems, and we may not ultimately be successful in developing them, as not all research and development activities result in viable commercial products |
| 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 |
| If new products developed by us do not gain general market acceptance, we will be unable to generate revenues and recover our research and development costs Metrology and inspection product development is inherently risky because it is difficult to foresee developments in semiconductor device manufacturing technology, coordinate technical personnel, and identify and eliminate system design flaws |
| Any new systems we introduce may not achieve or sustain a significant degree of market acceptance and sales |
| We expect to spend a significant amount of time and resources developing new systems and refining our 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 those systems |
| Our ability to commercially introduce and successfully market new systems is subject to a wide variety of challenges during the 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 are placed may be cancelled |
| As a result, if we do not achieve market acceptance of new products, we may be unable to generate sufficient revenues and cash flows to recover our research and development costs |
| Even if we are able to develop new products that gain market acceptance, sales of these new products could impair our ability to sell existing products Competition from our new systems could have a negative effect on sales of our existing systems and the prices that we could charge for these systems |
| We may also divert sales and marketing resources from our current systems in order to successfully launch and promote our new or next generation systems |
| This diversion of resources could have a further negative effect on sales of our current systems |
| If our relationships with our large customers deteriorate, our product development activities could be adversely affected The success of our product development efforts depends on our ability to anticipate market trends and the price, performance and functionality requirements of semiconductor device manufacturers |
| In order to anticipate these trends and ensure that critical development projects proceed in a coordinated manner, we must continue to collaborate closely with our largest customers |
| Our relationships with these and other customers provide us with access to valuable information regarding trends in the semiconductor device industry, which enables us to better plan our product development activities |
| If our current relationships with our large customers are impaired, or if we are unable to develop similar collaborative relationships with important customers in the future, our product development activities could be adversely affected |
| 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, our operating results could be materially affected if operating costs associated with our research and development as well as customer support activities increase in the future or we are unable to reduce those activities |
| 11 ______________________________________________________________________ [40]Table of Contents We may fail to adequately protect our intellectual property and, therefore, lose our competitive advantage Our future success and competitive position depend in part upon our ability to obtain and maintain proprietary technology for our principal product families, and we rely, in part, on patent, trade secret and trademark law to protect that technology |
| If we fail to adequately protect our intellectual property, it will give our competitors a significant advantage |
| We own or have licensed a number of patents relating to our transparent and opaque thin film metrology and macro-defect inspection systems, and have filed applications for additional patents |
| Any of our pending patent applications may be rejected, and we may be unable to develop additional proprietary technology that is patentable in the future |
| In addition, the patents that 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 |
| Further, third parties may also design around these patents |
| 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 and other third parties |
| However, in the event that a confidentiality agreement is breached, we may not have adequate remedies |
| Our confidential and proprietary information and technology might also be independently developed by, or become otherwise known to, third parties |
| Successful infringement claims by third parties could result in substantial damages, lost product sales and the loss of important intellectual property rights Our commercial success depends in part on our ability to avoid infringing or misappropriating patents or other proprietary rights owned by third parties |
| From time to time we may receive communications from third parties asserting that our products or systems infringe, or may infringe, the proprietary rights of these third parties |
| These claims of infringement may lead to protracted and costly litigation, which could require us to pay substantial damages or have the sale of our products or systems stopped by an injunction |
| Infringement claims could also cause product or system delays or require us to redesign our products or systems, and these delays could result in the loss of substantial revenues |
| We may also be required to obtain a license from the third party or cease activities utilizing the third party’s proprietary rights |
| We may not be able to enter into such a license or such a license may not be available on commercially reasonable terms |
| Accordingly, the loss of important intellectual property rights could hinder our ability to sell our systems, or make the sale of these systems more expensive |
| 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 litigation, regardless of outcome, could be expensive and time consuming, and could subject us to significant liabilities or require us to re-engineer our products or obtain expensive licenses from third parties |
| Our efforts to protect our intellectual property may be less effective in certain foreign countries, where intellectual property rights are not as well protected as in the United States In 2003, 2004 and 2005, 65dtta4prca, 69dtta1prca and 77dtta5prca, respectively, of our revenue was derived from sales in foreign countries, including certain countries in Asia, such as Taiwan, China, Korea, Singapore and Japan and certain Western European countries |
| 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 US companies have encountered substantial problems in protecting their proprietary rights against infringement abroad |
| For example, Taiwan is not a signatory of the Patent Cooperation Treaty, which is designed to specify rules and methods for defending intellectual property internationally |
| The publication of a patent in Taiwan prior to the filing of a patent in 12 ______________________________________________________________________ [41]Table of Contents Taiwan would invalidate the ability of a company to obtain a patent in Taiwan |
| Similarly, in contrast to the United States where the contents of patents remain confidential during the patent application process, in Taiwan the contents of a patent are published upon filing which provides competitors an advance view of the contents of a patent application prior to the establishment of patent rights |
| Consequently, there is a risk that Rudolph may be unable to adequately protect its proprietary rights in certain foreign countries |
| If this occurs, it would be easier for our competitors to develop and sell competing products in these countries |
| Our current and potential competitors have significantly greater resources than we do, and increased competition could impair sales of our products or cause us to reduce our prices The market for semiconductor capital equipment is highly competitive |
| We face substantial competition from established companies in each of the markets we serve |
| We principally compete with KLA-Tencor and Therma-Wave |
| We compete to a lesser extent with companies such as Dai Nippon Screen, Nanometrics, Sopra and Leica |
| Each of our products also competes with products that use different metrology techniques |
| Some of our competitors have greater financial, engineering, manufacturing and marketing resources, broader product offerings and service capabilities and larger installed customer bases than we do |
| As a result, these competitors may be able to respond more quickly to new or emerging technologies or market developments by devoting greater resources to the development, promotion and sale of products, which, in turn, could impair sales of our products |
| Further, there may be significant merger and acquisition activity among our competitors and potential competitors, which, in turn, 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 |
| We believe that our global support and service infrastructure is sufficient to meet the needs of our customers and potential customers |
| However, some of our 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 our systems |
| We have from time to time selectively reduced prices on our systems in order to protect our market share, and competitive pressures may necessitate further price reductions |
| We expect our competitors in each product area to continue to improve the design and performance of their products and to introduce new products with competitive prices and performance characteristics |
| These product introductions would likely require us to decrease the prices of our systems and increase the level of discounts that we grant our customers |
| Because of the high cost of switching equipment vendors in our markets, it is sometimes difficult for us to win customers from our competitors even if our systems are superior to theirs We believe that once a semiconductor device manufacturer has selected one vendor’s capital equipment for a production-line application, the manufacturer generally relies upon that capital equipment and, to the 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 13 ______________________________________________________________________ [42]Table of Contents these key personnel, each of whom 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 future downturns |
| 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 still leave us |
| We do not have key person life insurance on any of our executives |
| In addition, to support our future growth, we will need to attract and retain additional qualified employees |
| Competition for such personnel in our industry is intense, and we may not be successful in attracting and retaining qualified employees |
| We 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 revenues We produce all of our systems in our manufacturing facility located in Ledgewood, New Jersey |
| In the second quarter of 2006, we will be moving these activities to our new facility in Mt |
| Olive, 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, start-up of our new location, destruction of or damage as a result of a fire or any other reason, could seriously harm our ability to satisfy our customer order deadlines |
| If we cannot timely deliver our systems, our results from operations and cash flows could be materially and adversely affected |
| 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 39dtta9prca, 59dtta6prca and 56dtta3prca of our revenues in 2003, 2004 and 2005, respectively |
| Countries in the Asia Pacific region, including Japan, Korea, China, Singapore and Taiwan, each of which accounted for a significant portion of our business in that region, have experienced currency, banking and equity market weaknesses in the past |
| We expect that political or economic instability in the Asian markets we service could adversely affect our results of operations and cash flows in future periods |
| Our significant level of international sales subjects us to operational, financial and political risks, such as unexpected changes in regulatory requirements, tariffs, political and economic instability, outbreaks of hostilities, and difficulties in managing foreign sales representatives and foreign branch operations International sales accounted for approximately 65dtta4prca, 69dtta1prca and 77dtta5prca, respectively, of our revenues in 2003, 2004 and 2005 |
| We anticipate that international sales will account for a significant portion of our revenue during at least the next five years |
| Due to the significant level of our international sales, we are subject to a number of material risks, including: Unexpected changes in regulatory requirements including tariffs and other market barriers |
| The semiconductor device industry is a high-visibility industry in many of the European and Asian countries in which we sell our products |
| Because the governments of these countries have provided extensive financial support to our semiconductor device manufacturing customers in these countries, we believe that our customers could be disproportionately affected by any trade embargoes, excise taxes or other restrictions imposed by their governments on trade with United States companies such as ourselves |
| Any restrictions of these types could result in a reduction in our sales to customers in these countries |
| Political and economic instability |
| We are subject to various global risks related to political and economic instabilities in countries in which we derive sales |
| If terrorist activities, armed conflict, civil or military unrest or political instability occurs outside of the US, these events may result in reduced demand for our products |
| There is considerable political instability in Taiwan related to its disputes with China and in South Korea related to its disputes with North Korea |
| In addition, several Asian countries, particularly Japan, have experienced significant economic instability |
| An outbreak of hostilities or other political upheaval in China, Taiwan or South Korea, or an economic downturn in Japan or other countries, would likely harm the operations of our customers in these 14 ______________________________________________________________________ [43]Table of Contents countries |
| The effect of these types of events on our revenues and cash flows could be material because we derive substantial revenues from sales to semiconductor device foundries in Taiwan such as TSMC and UMC, from memory chip manufacturers in South Korea such as Hynix and Samsung, and from semiconductor device manufacturers in Japan such as NEC and Toshiba |
| Difficulties in staffing and managing foreign branch operations |
| During periods of tension between the governments of the United States and certain other countries, it is often difficult for United States companies such as ourselves to staff and manage operations in such countries |
| Since a substantial portion of our revenues and cash flows are derived from sales in other countries but denominated in US dollars, we could experience a significant decline in sales or experience collection problems in the event the dollar becomes more expensive relative to local currencies A substantial portion of our international sales are denominated in US dollars |
| As a result, if the dollar rises in value in relation to foreign currencies, our systems will become more expensive to customers outside the United States and less competitive with systems produced by competitors outside the United States |
| These conditions could negatively impact our international sales |
| Foreign sales also expose us to collection risk in the event it becomes more expensive for our foreign customers to convert their local currencies into US dollars |
| Terrorist attacks and terrorist threats may disrupt our operations and negatively impact our revenues, costs and stock price The terrorist attacks in September 2001 in the United States, the US response to these attacks and the resulting decline in consumer confidence has had a substantial adverse impact on the economy |
| Any similar future events may disrupt our operations or those of our customers and suppliers |
| In addition, these events have had, and may continue to have, an adverse impact on the US and world economy in general and consumer confidence and spending in particular, which could harm our sales |
| In addition, any of these events could increase volatility in the US and world financial markets, which, in turn, could adversely affect our stock price, limit the capital resources available to us and our customers or suppliers and/or have a significant impact on our operating results and cash flows |
| We may choose to acquire new and complementary businesses, products or technologies instead of developing them ourselves, and may be unable to complete these acquisitions or may not be able to successfully integrate an acquired business in a cost-effective and non-disruptive manner Our success depends on our ability to continually enhance and broaden our product offerings in response to changing technologies, customer demands and competitive pressures |
| To this end, we may, from time to time, engage in the process of identifying, analyzing and negotiating possible acquisition transactions and we expect to continue to do so in the future |
| 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 cannot provide any assurance that we will be successful in consummating future acquisitions on favorable terms or that we will realize the benefits that we anticipate from one or more acquisitions that we consummate |
| Integrating any business, product or technology we acquire could be expensive and time-consuming, disrupt our ongoing business and/or distract our management |
| Our inability to consummate one or more acquisitions on such favorable terms or our failure to realize the intended benefits from one or more acquisitions, could have a material adverse effect on our business, liquidity, financial position and/or results of operations, including as a result of our incurrence of indebtedness and related interest expense and our assumption of unforeseen contingent liabilities |
| 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 |
| In addition, any amortization of intangible assets, write-down of impaired assets or other assets or charges resulting from the costs of acquisitions could harm our business and operating results |
| 15 ______________________________________________________________________ [44]Table of Contents Although Rudolph and August Technology expect that the merger will result in benefits to the combined company, Rudolph may not realize those benefits because of integration and other challenges |
| On February 15, 2006, we completed the merger with August Technology Corporation |
| Rudolph’s failure to meet the challenges involved in integrating the global operations of Rudolph and August Technology successfully or otherwise to realize any of the anticipated benefits of the merger, could seriously harm Rudolph’s financial positions, results of operations and cash flows |
| Realizing the benefits of the merger will depend in part on the successful integration of technology, operations and personnel |
| The integration of the companies is a complex, time-consuming and expensive process that, without proper planning and implementation, could significantly disrupt the respective businesses of Rudolph and/or August Technology |
| The challenges involved in this integration include, but are not limited to, the following: • communicating a strategic vision to the market regarding Rudolph following the merger and executing on that strategic vision; • consolidating operations, including rationalizing corporate information technology and administrative infrastructures; • combining diverse product and service offerings; • coordinating sales and marketing efforts to effectively communicate the capabilities of Rudolph following the merger; • overcoming any perceived adverse changes in business focus, including demonstrating to existing customers of both Rudolph and August Technology that the merger will not result in adverse changes in customer service standards or business focus and helping customers conduct business easily with Rudolph following the merger; • coordinating and harmonizing research and development activities to accelerate introduction of new products and technologies with reduced cost; • preserving customer, distribution, reseller, manufacturing, supplier, marketing and other important relationships of both Rudolph and August Technology and resolving any potential conflicts that may arise; • minimizing the diversion of management attention from ongoing business concerns; • retaining key employees and maintaining employee morale; • addressing differences in the business cultures of Rudolph and August Technology; • addressing the effects of August Technology’s employment contracts and the differences between Rudolph’s and August Technology’s employee bonus plans; • overcoming challenges involved with managing two large groups of employees in geographically disparate areas; • coordinating and combining international operations, relationships and facilities, which may be subject to additional constraints imposed by geographic distance, local laws and regulations; • addressing any challenges involved with Rudolph’s ability to earn profits with the expensing of in-process research and development and the amortization of the fair value of property, plants, equipment and intangible assets; and • overcoming the challenges involved with integrating August Technology’s and Rudolph’s diverse enterprise resource planning systems worldwide and minimizing any disruptions that may be caused by such integration |
| Rudolph may not successfully integrate the operations of Rudolph and August Technology in a timely manner, or at all, and Rudolph may not realize the anticipated benefits and synergies of the merger to the extent, or in the timeframe, anticipated |
| The anticipated benefits of the merger are based on projections and assumptions, 16 ______________________________________________________________________ [45]Table of Contents including successful integration, not actual experience |
| The failure to integrate the businesses of Rudolph and August Technology or to realize any of the anticipated benefits of the merger could seriously hinder Rudolph’s plans for product development as well as business and market expansion following the merger |
| 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 have occasionally contained errors, defects and bugs when introduced |
| When this occurs, 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 these problems |
| Defects could also lead to product liability as a result of product liability lawsuits against us or against our customers |
| We have agreed to indemnify our customers under certain circumstances against liability arising from defects in our systems |
| Our product liability policy currently provides dlra2dtta0 million of coverage per claim, with an overall umbrella limit of dlra4dtta0 million |
| In the event of a successful product liability claim, we could be obligated to pay damages significantly in excess of our product liability insurance limits |
| Provisions of our charter documents and Delaware law, as well as our recently adopted stockholder rights plan, could discourage potential acquisition proposals and/or delay, deter or prevent a change in control of our company Provisions of our certificate of incorporation and bylaws, as well as our recently adopted stockholders rights plan, 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; • the authority of our board to issue, without stockholder approval, preferred stock with such terms as the board may determine; and • the authority of our board, without stockholder approval, to adopt a Stockholders Rights Plan |
| Such a Shareholders Rights Plan was adopted by the board of directors on June 27, 2005 |
| We are also entitled to avail ourselves of the protections of Section 203 of the Delaware General Corporation Law, which could inhibit changes in control of us |