Pursuant to the Agreement and Plan of Merger dated as of June 23, 2019 (the “Merger Agreement”), among Rudolph Technologies, Inc. (“Rudolph”), Nanometrics Incorporated, (“Nanometrics”) and PV Equipment Inc., a wholly-owned subsidiary of Nanometrics, (“Merger Sub”) Merger Sub merged with and into Rudolph, with Rudolph continuing as a wholly-owned subsidiary of Onto Innovation (formerly Nanometrics) and the surviving corporation of the merger (the “Merger”). The Merger was effective on October 25, 2019 (the “Effective Time”). At the Effective Time, each share of Rudolph common stock, par value $0.001 per share, issued and outstanding immediately prior to the Effective Time (other than shares owned by Rudolph or Nanometrics) was converted into the right to receive 0.8042 (the “Exchange Ratio”) shares of common stock, par value $0.001 per share, of Onto Innovation common stock, par value $0.001 per share, and cash in lieu of any fractional shares of Onto Innovation common stock any former holder of Rudolph common stock would otherwise be entitled to receive. Immediately following the Effective Time of the Merger, Rudolph’s and Nanometrics’ common stockholders each owned approximately 50% of the outstanding common stock of the combined company on a fully diluted basis.

The Merger creates a company that is an end-to-end metrology, inspection, process control software, and lithography equipment provider for the semiconductor industry and other advanced markets with a global support organization whose technology development teams, and product portfolio creates unique end-to-end solutions across the entire semiconductor fabrication process. The company will be able to provide improved device yield at reduced manufacturing cycle time, supporting the accelerated product life cycles in the semiconductor and other advanced markets.

The combined company accounts for the Merger as a reverse acquisition, using the acquisition method of accounting in accordance with generally accepted accounting principles, with Rudolph being treated as the acquiring entity for accounting purposes. In identifying Rudolph as the accounting acquiring entity, Rudolph and Nanometrics reviewed the accounting guidance as provided in ASC 805, which takes into account the type of consideration, the structure of the merger and the other transactions contemplated by the merger agreement, relative outstanding share ownership, the composition of the combined company board of directors, designation of certain senior management positions of the combined company, mainly the Chief Executive Officer and the Chief Financial Officer, relative voting rights, relative size as measured by assets, revenue or earnings as well as other metrics an investor would use for evaluating the respective company’s current and future financial performance, which of the combining entities initiated the combination and where the combined company’s headquarters will be located.

The acquisition method of accounting is based on ASC 805, and uses the fair value concepts defined in ASC Topic 820, “Fair Value Measurement” (“ASC 820”). The purchase price allocation described herein is preliminary and is based on the information that was available to make estimates of the fair value and may change as further information becomes available and additional analysis are completed. While the Company believes that such information provides a reasonable basis for estimating the fair values, more evidence and information may be obtained during the measurement period that results in changes to the estimated fair value amounts. The measurement period ends on the earlier of one year after the Effective Time or the date information about the facts and circumstances that existed at the Effective Time becomes available. Such adjustments, if necessary, will be recognized during the period in which that amounts are determined. These

adjustments may include: (1) changes in the fair value of certain intangible assets acquired; and (2) changes in deferred tax assets and liabilities related to the fair value estimates.

At the Effective Time of the Merger, Nanometrics changed its name to Onto Innovation Inc., and its shares began trading on the New York Stock Exchange (the “NYSE”) on October 28, 2019 (NYSE: ONTO). At the close of trading on October 25, 2019, Rudolph common stock ceased being listed on the NYSE. The accompanying consolidated financial statements for all periods presented are those of Rudolph with those of Nanometrics included only from the Effective Time through year-end.

The acquisition was nontaxable to the Company and certain of the assets acquired, including goodwill, will not be deductible for tax purposes. The acquired assets and liabilities of Nanometrics were recorded at their respective fair values including an amount for goodwill, which represents the purchase price paid in excess of the fair value of the net tangible and intangible assets acquired and liabilities assumed, and is attributable primarily to expected synergies, economies of scale and the assembled workforce of Nanometrics.

ASC 805 requires, among other things, that assets acquired, and liabilities assumed, be recognized at their fair values as of the Effective Time. In addition, ASC 805 requires that the consideration transferred be measured at the Effective Time of the Merger at the then-current market price. The market price of the shares of Rudolph common stock at the Effective Time was $28.50, which was based on the closing price of shares of Rudolph common stock on the NYSE on Friday, October 25, 2019, the last day of trading prior to the Effective Time.

ASC 820 defines the term “fair value” and sets forth the valuation requirements for any asset or liability measured at fair value, expands related disclosure requirements and specifies a hierarchy of valuation techniques based on the nature of the inputs used to develop the fair value measurements. Fair value is defined in ASC 829 as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” This is an exit price concept for the valuation of the asset or liability. In addition, market participants are assumed to be buyers and sellers in the principal (or most advantageous) market for the asset or liability. Fair value measurements for an asset assume the highest and best use by these market participants, As a result of these standards, the Company may be required to record the fair value of assets which are not intended to be used or sold and/or to value assets at fair values that do not reflect the Company’s intended use for those assets. Many of these fair value measurements can be highly subjective, and it is possible that other professionals, applying reasonable judgment to the same facts and circumstances, could develop and support a range of alternative estimated amounts.

The aggregate purchase price of $890,131 consisted of 25,060 shares of common stock valued at $884,801 and the fair value of assumed Nanometrics equity awards of $5,330. Under ASC 805, acquisition-related transaction costs (e.g., advisory, legal, investment banking and other professional fees) are not included as a component of consideration transferred but are accounted for as expenses in the periods in which such costs are incurred. Total transaction costs incurred by the Company were $9,907 during the year ended December 31, 2019 and are included in general and administrative expense in the Consolidated Statements of Operations.

The following table summarizes the preliminary allocation of the total purchase consideration to the initial estimated fair values of the assets acquired and liabilities assumed as of October 25, 2019:

Cash and cash equivalents	$43,882
Marketable securities	94,389
Account receivables	49,917
Inventories	98,478
Prepaid expenses and other current assets	7,734
Property, plant and equipment	77,451
Operating lease right-of-use assets	9,658
Identifiable intangible assets	374,900
Deferred income taxes	1,352
Other assets	850
Total assets acquired	758,611
Accounts payable	(23,361)
Payroll and related expenses	(20,290)
Deferred revenue	(5,931)
Other current liabilities	(10,739)
Income taxes payable	(2,699)
Other non-current liabilities	(90,113)
Net assets acquired	605,478
Goodwill	284,653
Total purchase consideration	$890,131

The fair value of accounts receivable, net, consisted of gross contractual accounts receivable reduced by approximately $200 for receivables not expected to be collected as of the acquisition date. The inventory acquired consisted primarily of work in process, for which fair value was measured based on determining its net realizable value as such value represents an exit price in an orderly transaction between market participants, and raw materials. Factors that required judgment in determining the net realizable value for the inventory included determining estimated selling prices, cost to complete, costs to dispose, operating profit, and discount rates, among others. The Company recorded a $26,486 step-up of inventory to its fair value as of the Merger date based on the preliminary valuation.

The preliminary allocation of the intangible assets subject to amortization is as follows:

	Estimated Fair Value	Weighted Average Useful Life (years)
Developed technology	$260,500	6.6
In-process research and development	46,600	indefinite
Customer relationships	53,000	13.1
Backlog	6,700	1.1
Trademarks and trade names	8,100	7.5
Total intangible assets	$374,900

Acquired intangible assets reported above are being amortized using the straight-line method over their estimated useful lives, which approximates the pattern of how the economic life is expected to be used. This includes amounts allocated to customer relationships because of anticipated high customer retention rates that are common in the semiconductor capital equipment industry.

Developed technology relates to Nanometrics’ product family and was valued using the multi-period excess earnings method under the income approach. This method reflects the present value of the projected cash flows that are expected to be generated by the developed technology less charges representing the contribution of other assets to those cash flows. The

average estimated useful life of developed technologies was determined to be 6.6 years and was based on the technology cycle related to each developed technology, as well as the cash flows over the respective forecast period.

The fair value of the in-process research and development (“IPRD”) was determined using the multi-period excess earnings method under the income approach. Such method reflects the present value of the projected cash flows that are expected to be generated by the IPRD, less costs to complete the development and charges representing the contribution of other assets to those cash flows.

Customer relationships represent the fair value of future projected revenue that will be derived from sales of products to new and existing customers and was valued using the distributor method under the income approach. This method reflects the present value of projected distributor margins to be derived from sales to existing customers less charges representing the contribution of other assets to those cash flows. The estimated useful life of the customer relationships was determined to be 13.1 years and was based on historical customer turnover rates.

Order backlog represents the fair value of future projected revenue that will be derived from outstanding orders from customers that have not yet been shipped and was valued using the multi-period excess earnings method under the income approach, which reflects the present value of such outstanding orders less charges representing the contribution of other assets to those cash flows. The estimated useful life of the order backlog was determined to be 1.1 years and was based on historical order fulfilment rates.

Trademarks and trade names relate to the “Nanometrics” trademarks and trade names and were fair valued by applying the relief-from-royalty method under the income approach. This method is based on the application of a royalty rate to forecasted revenue under the trademarks and trade names. The estimated useful life of the trademarks and trade names was determined to be 7.5 years and was based on the expected life of the trademarks and trade names and the cash flows anticipated over the forecast period.

Factors that required a judgment in determining the fair value for the acquired intangible assets included estimating future cash flows, revenue and gross margin assumptions, technology lives, future operating expenses, and discount rates, among others.

The Company has determined that the estimated useful life of the acquired in-process research and development is currently indeterminate; thus, it has been categorized as indefinite and will be reviewed annually for impairment, along with the Company’s other long-lived assets with indefinite lives, unless its estimated useful life is known.

The Company believes the amounts of purchased intangible assets recorded above represent the fair values of and approximate the amounts a market participant would pay for such assets as of the Effective Time.

The results of operations of Nanometrics are reported in the Company’s consolidated financial statements from the Effective Time and include $66,261 of total net sales and an operating loss of $7,065 for the year ended December 31, 2019.

The following unaudited pro forma financial information summarizes the combined results of operations of Rudolph and Nanometrics, on a pro forma basis, as if the companies had combined at the beginning of fiscal year 2018. The pro forma financial information is presented for informational purposes only and may not necessarily reflect the actual results of operations that would have been achieved if the Merger had taken place on January 1, 2018, nor are they necessarily reflective of future results of operations. The pro forma information for all periods presented also includes adjustments to amortization charges for acquired intangible assets, depreciation charges for stepped-up fair value of acquired fixed assets, related tax effects and other adjustments.

The reported financial information for the year ended December 31, 2019 includes the results of Rudolph for the year then-ended and the results of Nanometrics from the Effective Time through December 31, 2019. The reported financial information for the year ended December 31, 2018 is the historical results of Rudolph:

	Year Ended December 31,
	2019				2018
	Reported		Pro Forma		Reported		Pro Forma
Net revenue	$	305,896	$	525,455	$	273,784	$	598,307
Net income attributable to Onto Innovation		1,910		901		45,096		36,246

The pro forma results have been adjusted to eliminate $37,900 of merger-related costs incurred by Rudolph and Nanometrics that would have been incurred in 2017 had the Merger occurred on January 1, 2018.