Commitments and Contingencies:

Intellectual Property Indemnification Obligations

The Company has entered into agreements with customers that include limited intellectual property indemnification obligations that are customary in the industry. These guarantees generally require the Company to compensate the other party for certain damages and costs incurred as a result of third party intellectual property claims arising from these transactions. The nature of the intellectual property indemnification obligations prevents the Company from making a reasonable estimate of the maximum potential amount it could be required to pay to its customers. Historically, the Company has not made any indemnification payments under such agreements and no amount has been accrued in the accompanying consolidated financial statements with respect to these indemnification guarantees.

Warranty Reserves

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 estimates the costs that may be incurred during the warranty period and records a liability in the amount of such costs at the time revenue is recognized. The Company’s estimate is based primarily on historical experience. The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary. Settlements of warranty reserves are generally associated with sales that occurred during the 12 to 15 months prior to the year-end and warranty accruals are related to sales during the year.

Changes in the Company’s warranty reserves are as follows:



	Year Ended December 31,
	2015			2014			2013
Balance, beginning of the year	$	1,574		$	1,551		$	2,024
Accruals	2,640			2,048			1,956
Usage	(2,320		)	(2,025		)	(2,429		)
Balance, end of the year	$	1,894		$	1,574		$	1,551

Legal Matters

From time to time, the Company is subject to legal proceedings and claims in the ordinary course of business. The following reflects an overview of the material activities with regard to these matters through December 31, 2015.

Integrated Technology Corporation v. Rudolph Technologies, Inc., No. CV-06-2182 (PHX-ROS): As previously disclosed, in December 2007, the Company completed the acquisition of specific assets and liabilities of the semiconductor division of Applied Precision LLC (“Applied”). As a result of the acquisition, the Company assumed certain liabilities of Applied including a lawsuit filed in the United States District Court, District of Arizona, by Integrated Technology Corporation (“ITC”) which alleged Applied’s PrecisionPoint™, PrecisionWoRx^® and ProbeWoRx^® products infringed an ITC patent. Prior to trial, the District Court ruled that such products sold prior to August of 2007 (the “pre-August 2007 tools”) infringed the ITC patent. At trial in December of 2011, a trial verdict was rendered in which the jury found that while the Company’s products manufactured after August of 2007 (the “post-August 2007 tools”) did not literally infringe ITC’s patent, the products were found to infringe under a rule known as the doctrine of equivalents, a legal principle which expands the language of patent claims to encompass products or processes which may otherwise be found not to literally infringe the patent. The jury awarded $15,475 to ITC in damages for sales made during the years 2000-2011, of which approximately one-half related to sales for pre-August 2007 tools. The jury found that for the sales of the post-August 2007 tools, the infringement was willful. On July 23, 2012, the District Court issued an Order which affirmed the jury’s award, applied treble damages to the portion of the jury award related to post-August 2007 tool sales and granted ITC’s motion for attorney’s fees and prejudgment interest on the verdict and attorney’s fees. At that time, the District Court also enjoined the Company from future infringement of the ITC patent and from selling or supplying the applicable products with the applicable features from or into the United States. The Company appealed the injunction, the District Court Order and the damages assessment. In October 2012, the injunction was stayed by the U.S. Federal Court of Appeals and thereafter in June of 2013, the patent expired. On November 4, 2013, the U.S. Federal Court of Appeals issued a ruling which reversed the judgment of infringement against all post-August 2007 tools, reversed the finding of willfulness, vacated the treble damages award, vacated the award of attorney’s fees and costs, remanded the issue back to the District Court for further review, and affirmed the award of damages and interest for the pre-August 2007 tools. As a result, the matter is resolved with regard to the alleged infringement of the post-August 2007 tools. With regard to the damages assessment against the pre-August 2007 tools, on March 4, 2014, the Company filed a Petition for a Writ of Certiorari with the U.S. Supreme Court to appeal the basis of the Federal Court of Appeals’ decision affirming the damages award for the pre-August 2007 tools. On June 30, 2014, the Supreme Court denied the Company’s Petition and as a result, on July 22, 2014, the Company paid to ITC $10,613 which represented only the damages and interest portion of the judgment. Since the patent expired in June of 2013 and payment of the judgment has been made, this matter is fully resolved with the sole exception of the issue of the remanded attorney’s fees. On August 8, 2014, the District Court issued an order for setting the attorney’s fees award at $3,252 which the Company appealed to the U.S. Federal Court of Appeals on September 5, 2014. A hearing regarding the Company’s appeal was held on October 6, 2015 and thereafter, the U.S. Federal Court of Appeals issued a ruling that the award was improperly established, vacated the amount of the award and remanded the matter back to the District Court for a determination of a proper fee award. The Company believes that it has meritorious defenses regarding this issue and intend to continue to vigorously prosecute the matter. The $3,252 is held in escrow and is recorded in “Prepaid expenses and other current assets” in the Consolidated Balance Sheet at December 31, 2015. The corresponding liability is recorded under the caption, “Other current liabilities,” in the Consolidated Balance Sheet at December 31, 2015. The Company expects this to be the maximum liability reasonably possible for the attorney’s fees, excluding interest, for this lawsuit with respect to both the pre-August 2007 and post-2007 August tools.

August Technology Corporation and Rudolph Technologies, Inc. v. Camtek, Ltd., No. 05-CV-01396 (JRT/FLN): The Company’s patent infringement suit against Camtek, Ltd., of Migdal Hamek, Israel, concerning its proprietary continuous scan wafer inspection technology, was initially brought in 2005 by August Technology prior to its merger with the Company. On August 22, 2011, the U.S. Federal Court of Appeals issued a decision in which it affirmed multiple rulings from trial at the District Court level including (i) finding the Company’s U.S. Patent No. 6,826,298 valid, (ii) the part of the infringement ruling based on the finding that Camtek’s Falcon product strobes “based on velocity,” and (iii) the dismissal of Camtek’s claim against the Company for inequitable conduct against the U.S. Patent and Trademark Office. The Appellate Court did, however, revise one claim construction ruling made by the District Court in the original case. As a result, the Appellate Court set aside the verdict delivered by the jury for damages and the District Court’s decision to enter an injunction against Camtek’s selling Falcon tools in the U.S. and remanded the case back to the District Court for a limited trial on this single infringement issue. On March 31, 2014, the District Court ruled in the Company’s favor, finding that Camtek’s Falcon tools continue to infringe the Company’s patent even under the revised claim construction of the patent, obviating the need for the limited trial. On February 9, 2015, the District Court issued an Order granting the Company’s Motion for Final Judgment, reinstating the original damages and applying prejudgment interest for a total award of $14,512. In addition, the District Court issued a permanent injunction against Camtek from “making, using, selling and offering to sell any of its Falcon machines and any machines that are colorable imitations thereof in the United States, intended for sale and use within the United States, until the expiration of the ‘6,298 patent [projected to be in 2020].” While, in March of 2015, Camtek filed an appeal with the U.S. Federal Court of Appeals challenging the District Court’s ruling. The Appeals Court denied Camtek's appeal on February 3, 2016, affirming both the infringement ruling and the damages and interest totaling approximately $14,600 assessed against Camtek by the District Court.

August Technology Corporation and Rudolph Technologies, Inc. v. Camtek, Ltd., No. 10-CV-2202 (MJD/FLN): A lawsuit against Camtek was filed by the Company in 2011 alleging infringement of its U.S. Patent No. 7,729,528 which is also related to the Company’s proprietary continuous scan wafer inspection technology. Camtek filed an inter partes reexamination petition with the U.S. Patent and Trademark Office on January 19, 2012 asserting that certain claims of the patent are unpatentable. The reexamination of the subject patent is ongoing at this time. During the pendency of the reexamination process, the parties have stipulated that the lawsuit be stayed pending resolution of Camtek’s petition.

Rudolph Technologies, Inc. v. Camtek, Ltd., No. 15-CV-1246 (ADM/BRT): On March 12, 2015, the Company filed and served on Camtek a complaint asserting infringement of Rudolph ‘6,298 patent by Camtek’s Eagle product with the U.S. District Court in Minnesota. On April 21, 2015, the Company filed a Motion for Preliminary Injunction to enjoin Camtek’s sale of the Eagle device in the United States which is currently pending. On or about April 20, 2015, Camtek filed a complaint in the U.S. District Court in New Jersey seeking a declaratory judgment challenging the jurisdiction and venue of the Minnesota District Court and seeking to have the New Jersey District Court find that the ‘6,298 patent is not infringed and, in the alternative, that the ‘6,298 patent is invalid. On August 26, 2015, the U.S. District Court in Minnesota ruled that Minnesota jurisdiction was appropriate for this matter while at the same time denying the Company’s Motion for Preliminary Injunction. Camtek’s complaint filed in the U.S. District Court in New Jersey was subsequently dismissed. This matter is currently ongoing in the U.S. District Court in Minnesota.

Lease Agreements

The Company rents space for its manufacturing and service operations and sales offices, which expire through 2020. Total rent expense for these facilities amounted to $3,525, $3,716 and $3,794 for the years ended December 31, 2015, 2014 and 2013, respectively.

The Company also leases certain equipment pursuant to operating leases, which expire through 2020. Rent expense related to these leases amounted to $105, $95 and $171 for the years ended December 31, 2015, 2014 and 2013, respectively.

Total future minimum lease payments under noncancelable operating leases as of December 31, 2015 amounted to $3,153 for 2016, $2,558 for 2017, $2,327 for 2018, $1,692 for 2019, $1,005 for 2020 and $1,310 for all periods thereafter.

Royalty Agreements

Under various licensing agreements, the Company is obligated to pay royalties based on net sales of products sold. There are no minimum annual royalty payments. Royalty expense amounted to $813, $819 and $831 for the years ended December 31, 2015, 2014 and 2013, respectively.

Open and Committed Purchase Orders

The Company has open and committed purchase orders of $29,579 as of December 31, 2015.

Debt Obligations

The Company’s contractual obligation relating to the principal payment of its convertible senior notes totaling $60,000 is due on July 15, 2016.

Line of Credit

During the fourth quarter of 2015, the Company entered into a credit agreement with Credit Suisse providing for a $60,000 committed secured revolving line of credit. The agreement will expire on October 31, 2016. The Company has not utilized the credit agreement to date.