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,
	2016			2015			2014
Balance, beginning of the year	$	1,894		$	1,574		$	1,551
Accruals	2,405			2,640			2,048
Usage	(2,511		)	(2,320		)	(2,025		)
Balance, end of the year	$	1,788		$	1,894		$	1,574

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, 2016.

Integrated Technology Corporation v. Rudolph Technologies, Inc., No. CV-06-2182 (PHX-ROS): The sole remaining issue in this case was the determination and payment of remanded attorney’s fees which were initially set by the U.S. District Court for the District of Arizona (the “AZ District Court”) at $3,252. Subsequent to the Company’s successful appeal before the U.S. Federal Court of Appeals, the matter was remanded back to the AZ District Court for a determination of a proper fee award. On October 5, 2016, the AZ District Court issued an order determining that the Company is to pay $1,289 to ITC for its attorney’s fees. The payment was made in November of 2016 and this matter is now closed.

August Technology Corporation and Rudolph Technologies, Inc. v. Camtek, Ltd., No. 05-CV-01396 (JRT/FLN): Subsequent to the ruling by the U.S. District Court for the District of Minnesota (the “MN District Court”) in the Company’s favor that Camtek’s Falcon tools continue to infringe the Company’s patent under the revised claim construction of the patent determined by the Court of Appeals, the MN District Court, on February 9, 2015, 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 MN 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,” which is projected to be in 2020. While, in March of 2015, Camtek filed an appeal with the Court of Appeals challenging the MN District Court’s ruling, the Court of Appeals denied Camtek’s appeal on February 3, 2016, affirming both the infringement ruling and the damages and interest totaling approximately $14,632 assessed against Camtek by the MN District Court, the payment of which is guaranteed by a supersedeas bond. All of Camtek’s rights to appeal the final judgment have expired. On July 22, 2016, the MN District Court ordered that the full amount of the judgment be paid to the Company. With the payment of the final judgment amount on August 11, 2016, this matter has been closed.

August Technology Corporation and Rudolph Technologies, Inc. v. Camtek, Ltd., No. 11-CV-03707 (MJD/TNL): A lawsuit against Camtek, Ltd., of Migdal Hamek, Israel, was filed by the Company in 2011 alleging infringement of its U.S. Patent No. 7,729,528 related to its proprietary continuous scan wafer inspection technology. Camtek filed an inter partes reexamination petition with the U.S. Patent and Trademark Office (the “PTO”) on January 19, 2012 asserting that certain claims of the patent are unpatentable. In the course of this proceeding the PTO issued a final determination that 35 claims of the patent were valid and 18 claims were rejected. The Company appealed the PTO’s rejection of the 18 claims to the US. Court of Appeals. On December 22, 2016, the U.S. Court of Appeals for the Federal Circuit reversed the PTO’s rejection of three of the 18 patent claims and affirmed the PTO’s rejection of nine of the 18 patent claims. The appeal of the remaining six patent claims was dismissed for procedural reasons. Thus, 38 claims are available to be asserted under the ‘528 patent in this lawsuit. During the pendency of the reexamination process, the parties have stipulated that the lawsuit be stayed. With resolution of Camtek’s petition, it is intended to lift the stay in the lawsuit in Q1 2017.

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’s U.S. Patent No. 6,826,298 by Camtek’s Eagle product with the U.S. District Court in Minnesota. The ‘6,298 patent is also related to our proprietary continuous scan wafer inspection technology and was the subject of Rudolph’s prior litigation against the Camtek Falcon system (the “Falcon Litigation”) in which Rudolph prevailed with a final judgment of infringement and damages of $14,600 assessed against Camtek. 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. 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. On August 8, 2016 the Minnesota District Court issued an order regarding motions for partial summary judgment which we had filed in March of 2016 granting (i) that the ‘6,298 patent is valid and Camtek is precluded from contesting its validity at trial, and (ii) that the claim constructions adopted in the Falcon Litigation for four terms are entitled to a preclusive effect and will apply in the course of the present litigation. The Minnesota District Court also ruled that three phrases not subject to claim construction in the Falcon Litigation may be defined in the present case. This matter is currently ongoing in the U.S. District Court in Minnesota with no trial date set.

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 $3,296, $3,525 and $3,716 for the years ended December 31, 2016, 2015 and 2014, respectively.

The Company also leases certain equipment pursuant to operating leases, which expire through 2020. Rent expense related to these leases amounted to $99, $105 and $95 for the years ended December 31, 2016, 2015 and 2014, respectively.

Total future minimum lease payments under noncancelable operating leases as of December 31, 2016 amounted to $2,922 for 2017, $2,621 for 2018, $1,780 for 2019, $1,010 for 2020, $541 for 2021 and $772 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 $586, $813 and $819 for the years ended December 31, 2016, 2015 and 2014, respectively.

Open and Committed Purchase Orders

The Company has open and committed purchase orders of $19,296 as of December 31, 2016.

Line of Credit

The Company has a credit agreement with a bank that provides for a line of credit which is secured by the marketable securities the Company has with the bank. The Company is permitted to borrow up to 70% of the value of eligible securities held at the time the line of credit is accessed. The available line of credit as of December 31, 2016 was approximately $68,327. The Company entered into our current credit agrement and concurrently terminated a prior credit agreement in June 2016. The credit agreement is available to the Company until such time that either party terminates the arrangement at their discretion. The Company has not utilized the line of credit to date.