<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
[Mark one]
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File Number: 0-26482
PLASMA & MATERIALS TECHNOLOGIES, INC.
- - --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 95-4054321
- - ------------------------------- ----------------------------
(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) number)
9255 Deering Avenue, Chatsworth, California 91311
- - --------------------------------------------------------------------------------
(Address of principle executive offices) (Zip Code)
(818) 886-8000
- - --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
- - --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report)
Indicated by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ______
-----
As of March 31, 1996, the total number of outstanding shares of the Registrant's
common stock was 8,669,660.
<PAGE>
Plasma & Materials Technologies, Inc.
<TABLE>
<CAPTION>
Page
INDEX Number
- - --------------------------------------------------------------------------------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets at March 31,
1996 (unaudited) and December 31, 1995 3
Unaudited Condensed Consolidated Statements of Operations
for the Three Months ended March 31, 1996 and 1995
(unaudited) 4
Unaudited Condensed Consolidated Statements of Cash Flows
for the Three Months ended March 31, 1996 and 1995
(unaudited) 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II. OTHER INFORMATION 11
SIGNATURE PAGE 12
EXHIBITS 13
</TABLE>
-2-
<PAGE>
Plasma & Materials Technologies, Inc.
ITEM 1 - CONDENSED CONSOLIDATED BALANCE SHEETS
----------------------------------------------
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995 (1)
------------- -------------
<S> <C> <C>
(UNAUDITED)
Assets
Current assets:
Cash and cash equivalents............. $11,978,554 $24,770,363
Short-term investments................ 20,152,465 13,992,109
Accounts receivable................... 13,800,653 8,423,272
Inventories........................... 9,466,898 5,453,835
Demonstration inventory............... 1,954,553 1,367,233
Prepaid expenses...................... 400,685 223,970
----------- -----------
Total current assets........... 57,753,808 54,230,782
Property, equipment and leasehold
improvements, net of accumulated
depreciation and amortization.......... 4,754,754 4,576,043
Other assets............................ 326,083 486,182
----------- -----------
Total assets............................ $62,834,645 $59,293,007
=========== ===========
Liabilities and shareholders' equity
Current liabilities:
Accounts payable and accrued expenses. $ 6,230,456 $ 4,023,705
Warranty expense...................... 629,745 449,295
Accrued salaries and related
liabilities.......................... 205,486 228,998
Current portion of capital lease
obligations.......................... 508,153 491,561
----------- -----------
Total current liabilities...... 7,573,840 5,193,559
Capital lease obligations, less current
portion................................ 557,126 686,230
Commitments and contingencies
Shareholders' equity:
Preferred Stock undesignated
Authorized shares - 20,000,000
Issued and outstanding - None
Convertible Preferred Stock (Series A
and B), no par value
Authorized shares -- None
Issued and outstanding -- None
Common Stock, no par value:
Authorized shares -- 16,666,666
Issued and outstanding -- 8,669,660
at March 31, 1996 and 8,659,843 at
December 31, 1995.................. 61,008,443 60,975,483
Accumulated deficit................... (6,304,764) (7,562,265)
----------- -----------
Total shareholders' equity.............. 54,703,679 53,413,218
----------- -----------
Total liabilities and shareholders' $62,834,645 $59,293,007
equity................................. =========== ===========
</TABLE>
(1) The Balance Sheet at December 31, 1995 has been derived from the audited
financial statements at that date but does not include all of the
information and footnotes required by Generally Accepted Accounting
Principles for complete financial statements.
See notes to condensed consolidated financial statements.
-3-
<PAGE>
Plasma & Materials Technologies, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
-----------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------
MARCH 31, MARCH 31,
1996 1995
----------- -------------
<S> <C> <C>
Revenues:
Product sales.......................... $7,753,229 $ 1,615,419
License revenues....................... -- 400,000
----------- -----------
7,753,229 2,015,419
Costs and expenses:
Cost of goods sold..................... 3,748,242 924,105
Research and development............... 1,356,621 957,219
Selling, general and administrative.... 1,821,088 1,419,281
---------- -----------
6,925,951 3,300,605
---------- -----------
827,278 (1,285,186)
Other:
Interest income (expense), net......... 438,196 (57,671)
---------- -----------
Income (loss) before income tax
provision.............................. 1,265,474 (1,342,857)
Income tax provision.................... 7,973 --
---------- ------------
Net income (loss)....................... $1,257,501 $(1,342,857)
========== ===========
Net income (loss) per share:
Primary................................ $0.14 $(0.27)
========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
-4-
<PAGE>
Plasma & Materials Technologies, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
-----------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------
MARCH 31, MARCH 31,
1996 1995
------------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss)....................... $ 1,257,501 $(1,342,857)
Adjustments to reconcile net income
(loss) to net cash used in operating
activities:
Depreciation and amortization....... 355,505 295,495
Changes in operating assets and
liabilities:
Accounts receivable............... (5,377,382) (61,903)
Inventories....................... (4,013,063) (407,872)
Demonstration inventory........... (587,321) 54,394
Prepaid expenses.................. (176,715) 3,824
Accounts payable and other
accrued expenses................. 2,363,689 (625,037)
------------ -----------
Net cash used in operating activities... (6,177,786) (2,083,956)
INVESTING ACTIVITIES
Purchases of property, equipment and
leasehold improvements................. (534,216) (100,545)
Proceeds from sales of short-term
investments............................ 1,956,214 --
Purchases of short-term investments..... (8,116,569) --
Other assets............................ 160,099 22,538
------------ -----------
Net cash used in investing activities... (6,534,472) (78,007)
FINANCING ACTIVITIES
Proceeds from sale of Common Stock...... 32,961 --
Payments on capital lease obligations... (112,512) (137,524)
------------ -----------
Net cash used in financing activities... (79,551) (137,524)
------------ -----------
Net decrease in cash and cash
equivalents............................ (12,791,809) (2,299,487)
Cash and cash equivalents at beginning
of period.............................. 24,770,363 3,563,753
------------ -----------
Cash and cash equivalents at end of
period................................. $ 11,978,554 $ 1,264,266
============ ===========
</TABLE>
See notes to condensed consolidated financial statements.
-5-
<PAGE>
Plasma & Materials Technologies, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
----------------------------------------------------------------
MARCH 31, 1996
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. The operating results for the three months ended March 31, 1996
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1996. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1995.
NOTE B - INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market. The components of inventory consist of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Components................ $ 5,138,257 $3,774,458
Work in process........... 4,175,369 1,611,382
Finished goods............ 153,272 67,995
----------- ----------
9,466,898 5,453,835
Demonstration inventory... 1,954,553 1,367,233
----------- ----------
$11,421,452 $6,821,068
=========== ==========
</TABLE>
Demonstration inventory represents completed systems at certain strategic
customer sites, "Beta Sites". The Company provides these demonstration systems
at no charge for a specified evaluation period. All operating costs incurred
during the evaluation period are paid by the customer. At the conclusion of the
agreed upon evaluation period, providing the equipment performs to
specifications, management expects that the customer will purchase the system.
NOTE C - PMT CVD PARTNERS, L.P.
On March 29, 1996, the Company entered into a number of agreements with PMT CVD
Partners, L.P. (the "Limited Partnership") and the limited partners thereof (the
"Limited Partners"). The Limited Partnership was formed to fund research and
development costs and expenses relating to chemical vapor deposition ("CVD")
technology and applications. An aggregate of approximately $5,350,000 is
available to the Limited Partnership to fund such research and development
efforts. PMT has agreed to provide certain personnel to the Limited Partnership
to perform such research and development activities.
PMT will be paid for such services at an amount equal to its actual direct
costs, as defined, plus a stated percentage of such costs. During the quarter
ended March 31, 1996, the amount of research and development costs incurred with
respect to CVD technology and applications was $389,078. PMT is
-6-
<PAGE>
Plasma & Materials Technologies, Inc.
NOTE C - PMT CVD PARTNERS, L.P. - R&D LIMITED PARTNERSHIP (CONTINUED)
obligated to pay stated royalties to the Limited Partnership on sales of related
products, and the royalty percentage will vary based on the geographic location
of the sale. There is no provision for royalty payments to the Limited Partners
in fiscal 1996.
PMT has been granted an exclusive option to purchase all of the Limited
Partners' interest in the Limited Partnership, based on an established purchase
price formula. PMT may exercise such option at its sole discretion.
NOTE D - IMPACT ON FINANCIAL STATEMENTS OF RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of
("SFAS No. 121"), which will be effective for the Company's fiscal year ending
December 31, 1996. SFAS No. 121 requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are presented
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. SFAS No. 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. The
Company adopted SFAS No. 121 in the first quarter of 1996 and there was no
material effect on the financial statements of the Company.
In October 1995, the FASB issued Statement of Financial Accounting Standards No.
123, Accounting for Awards of Stock-Based Compensation to Employees ("SFAS No.
123"), which will be effective for the Company's fiscal year ending December 31,
1996. SFAS No. 123 provides alternative accounting treatment to APB No. 25 with
respect to stock-based compensation and requires certain additional disclosures,
including disclosures if the Company elects not to adopt the accounting
requirements of SFAS No. 123. The Company adopted the annual disclosure
requirements of SFAS No. 123 in the first quarter of 1996, but will elect to
continue to measure compensation costs following present accounting rules under
APB No. 25.
NOTE E - INCOME TAXES
The provision for income taxes at March 31, 1996 differs from the statutory
federal rate of 35% due to the reduction of the valuation allowance attributed
to the utilization of the net operating loss carryforwards.
NOTE F - NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed using the weighted average number of
shares of Common Stock outstanding. Common equivalent shares from stock options
and warrants (using the treasury stock method) have been included in the
computation when dilutive, and common equivalent shares from the redeemable
convertible Preferred Stock and convertible Preferred Stock which converted into
Common Stock in connection with the Company's Initial Public Offering are
included as if converted at the original date of issuance, even though inclusion
is anti-dilutive, for the three months ended March 31, 1995. Pursuant to the
Securities and Exchange Commission (SEC) Staff Accounting Bulletins, all common
and common equivalent shares issued by the Company at an exercise price below
the Initial Public Offering price of $14.00 per share during the twelve-month
period prior to the offering (cheap stock) have been included in the calculation
as if they were outstanding for the three months ended March 31, 1995 (using the
treasury stock method at the Initial Public Offering price of $14.00 per share
and the if-converted method for redeemable convertible Preferred Stock and
convertible Preferred Stock). For the three months ended March 31, 1996, such
cheap stock shares were not included in the calculation.
-7-
<PAGE>
Plasma & Materials Technologies, Inc.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
This Management's Discussion and Analysis in Form 10-Q contains forward looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. These statements are set
forth in paragraph 3 of Revenues and paragraphs 1 and 3 of Liquidity and Capital
Resources.
OVERVIEW
During the first quarter of fiscal 1996, Plasma & Materials Technologies, Inc.
("PMT" or the "Company") reported record net revenues of $7.8 million. In
addition, the Company recorded net income of $1.3 million.
RESULTS OF OPERATIONS
The following table sets forth the statement of operations data of the Company
expressed as a percentage of revenues for the period indicated.
<TABLE>
<CAPTION>
Three months ended
------------------------
March 31, March 31,
1996 1995
---------- -----------
<S> <C> <C>
Revenues................................ 100.0% 100.0%
Cost of sales........................... 48.3% 45.9%
----- -----
Gross profit........................... 51.7% 54.1%
Operating expenses:
Research and development............... 17.5% 47.5%
Selling, general and administrative.... 23.5% 70.4%
----- -----
Total operating expenses............... 41.0% 117.9%
----- -----
Income (loss) from operations 10.7% (63.8%)
Interest income (expense), net.......... 5.7% (2.9%)
----- -----
Income (loss) before income tax
provision.............................. 16.4% (66.7%)
Income tax provision.................... 0.1% --%
----- ---------
Net income (loss)....................... 16.3% (66.7%)
===== =====
</TABLE>
Revenues
Revenues for the first quarter of fiscal 1996 increased 285% to $7.8 million
compared to $2.0 million for the first quarter of fiscal 1995. Such increase in
revenues resulted from the shipment of four of the Company's PINNACLE 8000(R)
and PINNACLE 8000R(R) systems and four MORI(TM) sources compared to one process
module and six MORI(TM) sources shipped in the first quarter of fiscal 1995.
International sales, which are predominately to customers based in Japan and
Korea, accounted for 53% and 37% of net revenues for the first quarters of
fiscal years 1996 and 1995, respectively.
The Company received no license revenues in the first quarter of fiscal 1996,
compared to $400,000 for the first quarter of fiscal 1995, because all of the
past license agreements the Company had entered into were fully paid prior to
1996. The Company does not anticipate the receipt of any additional license
revenues in the next twelve months. However, the Company may enter into
additional license agreements as it deems appropriate in order to broaden the
applications of its MORI(TM) technology, or to improve the Company's market
penetration.
-8-
<PAGE>
Plasma & Materials Technologies, Inc.
Gross Margin on Product Sales
The Company's gross margin on product sales increased to 52% for the first
quarter of fiscal 1996 as compared to 43% for the first quarter of fiscal 1995.
The improved margin is attributable principally to the higher sales volume which
resulted in increased production efficiencies.
Research and Development
Research and development expenses for the first quarter of fiscal 1996 were $1.4
million, or 18% of net revenues compared to $1.0 million, or 48% of net
revenues, for the first quarter of fiscal 1995. As the Company's revenue
increased, these expenses became a smaller percentage of net revenues. The
dollar increases in expenses are attributable principally to the continued
expansion of the Company's proprietary plasma source technology to develop new
processes for advanced etch requirements.
During March 1996, the Company entered into an agreement with a Company-
sponsored limited partnership, owned principally by other investors, for the
development and distribution of an intermetal dielectric CVD system based on
PMT's technology. (See Note C of "Notes to Condensed Consolidated Financial
Statements".) Under the agreement, the Company is paid by the partnership for
research and development services rendered to the partnership. Approximately
$389,000 was charged to the partnership and credited against the Company's
research and development charges incurred during the first quarter of fiscal
1996.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the first quarter of fiscal
1996 were $1.8 million, or 24% of net revenues, compared to $1.4 million, or 70%
of net revenues, for the first quarter of fiscal 1995. The increased expense was
due primarily to the Company's Korean subsidiary's need to hire additional
employees in order to comply with the Korean semiconductor manufacturers'
requirements of having direct local representation for sales and support.
Income Taxes Provision
The Company paid a nominal amount of Federal and State income taxes for the
first quarter of fiscal 1996. In addition, a nominal amount of income tax was
paid by the Company's Korean subsidiary. The Company paid no income tax for the
first quarter of fiscal 1995 due to the Company's loss position at the end of
this period. The provision for income taxes at March 31, 1996 differs from the
statutory federal rate of 35% due to the reduction of the valuation allowance
attributed to the utilization of the net operating loss carryforwards. The
Company has a net operating loss and credit carryforward that could be applied
against future income but is subject to an annual limitation due to the
ownership change limitations provided by the Internal Revenue Code of 1986 and
similar state provisions.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, the Company had $32.1 million in cash, cash equivalents and
short-term investments, compared to $38.8 million at December 31, 1995. This
$6.7 million decrease was primarily due to increases in inventory and accounts
receivable, partially offset by cash provided by the increase in accounts
payable. Other uses of cash included the investment of $534,216 for purchases of
capitalizable lab equipment. Capital expenditures are expected to increase in
fiscal 1996, in addition to the continued investment in the inventory of
demonstration evaluation systems placed at customer sites.
In March 1996, the Company sponsored a partnership with certain third-party
investors to fund research and development costs and expenses relating to CVD
technology and applications. Third-party investors invested an aggregate of
approximately $5,350,000 in the partnership, which aggregate amount is
-9-
<PAGE>
Plasma & Materials Technologies, Inc.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
available to fund such costs and expenses. See "Research and Development" and
Note C to "Notes to Condensed Consolidated Financial Statements."
The Company believes that cash generated from operations, together with the
existing cash, cash equivalents, short-term investments and borrowings under
existing bank lines should be sufficient to support its operations through at
least December 31, 1996.
-10-
<PAGE>
Plasma & Materials Technologies, Inc.
PART II - OTHER INFORMATION
---------------------------
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) The following exhibits are included herein:
<TABLE>
<CAPTION>
Exhibit
Number Description
- - ------- -----------
<S> <C>
10.13 Agreement of Limited Partnership of PMT CVD Partners, L.P., dated as
of March 29, 1996, entered into between CVD, Inc. and the limited
partners listed therein.
11.1 Computation of Per Share Earnings
27.1 Financial Statement Data
</TABLE>
-11-
<PAGE>
Plasma & Materials Technologies, Inc.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PLASMA & MATERIALS TECHNOLOGIES, INC.
Date May 15, 1996 /s/ John W. La Valle
-------------------- -------------------------------------
John W. La Valle
Vice President, Chief Financial
Officer and Secretary
-12-
<PAGE>
Plasma & Materials Technologies, Inc.
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit Page
Number Description Number
- - ------- ----------- ------
<S> <C> <C>
10.13 Agreement of Limited Partnership of PMT CVD Partners,
L.P., dated as of March 29, 1996, entered into between
CVD, Inc. and the limited partners listed therein.......
11.1 Computation of Per Share Earnings.......................
27.1 Financial Statement Data................................
</TABLE>
-13-
<PAGE>
Exhibit 10.13--Agreement of Limited Partnership of PMT CVD Partners, L.P., dated
as of March 29, 1996, entered into between CVD, Inc. and the limited partners
listed therein
--------------------------------
AGREEMENT OF LIMITED PARTNERSHIP
OF
PMT CVD PARTNERS, L.P.
--------------------------------
March 29, 1996
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I. FORMATION, NAME AND PURPOSE OF THE PARTNERSHIP............ 1
1.1 Formation; Certificate.................................... 1
1.2 Name of Partnership....................................... 1
1.3 Principal Place of Business............................... 1
1.4 Registered Agent.......................................... 1
1.5 Tax Matters Partner....................................... 1
1.6 Purpose................................................... 2
1.7 Definitions............................................... 2
ARTICLE II. TERM; TERMINATION......................................... 5
2.1 Term; Termination......................................... 5
ARTICLE III. CONTRIBUTIONS TO CAPITAL.................................. 5
3.1 Capital Contributions..................................... 5
3.2 Additional Limited Partners or Capital Contributions;
Company Option........................................... 6
ARTICLE IV. CAPITAL ACCOUNTS; ACCOUNTING PRACTICES AND ALLOCATIONS.... 7
4.1 Capital Accounts.......................................... 7
4.2 Financial Reporting....................................... 7
4.3 Allocation of Net Income.................................. 7
4.4 Allocation of Net Loss.................................... 8
4.5 Time of Allocations....................................... 8
4.6 Limitation of Liability................................... 8
4.7 Supervision; Inspection of Books.......................... 8
4.8 Reports................................................... 9
4.9 Tax Returns............................................... 9
ARTICLE V. DISTRIBUTIONS............................................. 9
5.1 Distributions............................................. 9
5.2 Restrictions on Distribution.............................. 10
ARTICLE VI. MANAGEMENT OF THE PARTNERSHIP............................. 10
6.1 General Partner........................................... 10
6.2 Duties and Activities of the General Partner.............. 12
6.3 Powers of the Limited Partners............................ 13
6.4 Standard of Care; Indemnification......................... 13
</TABLE>
i.
<PAGE>
TABLE OF CONTENTS (cont'd)
--------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
6.5 Interest and Capital Withdrawals.......................... 15
6.6 Partnership Contracts..................................... 15
ARTICLE VII. TRANSFER OF PARTNERSHIP INTERESTS......................... 15
7.1 Transfer of General Partner's Interest; Removal........... 15
7.2 Admission of Additional General Partner................... 15
7.3 Admission of Successor General Partner.................... 15
7.4 Admission of Additional Limited Partners.................. 16
7.5 Transfer of Interest...................................... 16
7.6 Transfers Void............................................ 17
ARTICLE VIII. PROCEDURES ON TERMINATION................................. 17
8.1 Termination Procedures.................................... 17
ARTICLE IX. MEETINGS AND VOTING....................................... 18
9.1 Meetings of Partners...................................... 18
9.2 Voting.................................................... 19
9.3 Waiver.................................................... 19
ARTICLE X. MISCELLANEOUS............................................. 19
10.1 Instruments............................................... 19
10.2 Assignability............................................. 19
10.3 Law....................................................... 19
10.4 Notices................................................... 19
10.5 Counterparts.............................................. 20
10.6 Subscription Agreement.................................... 20
</TABLE>
Schedule A - CAPITAL CONTRIBUTIONS AND PERCENTAGE INTERESTS
Exhibit 1.7 - FORM OF OPTION AGREEMENT
ii.
<PAGE>
AGREEMENT OF LIMITED PARTNERSHIP
OF
PMT CVD PARTNERS, L.P.
THIS AGREEMENT OF LIMITED PARTNERSHIP OF PMT CVD PARTNERS, L.P. (this
"Agreement") is made and entered into as of the 29th day of March, 1996, by and
among CVD, Inc., a California corporation, as general partner (the "General
Partner"), the parties executing the signature page hereto as limited partners
(each, a "Limited Partner," and, collectively, the "Limited Partners"), and such
other persons who hereafter shall be admitted as additional or Substituted
Limited Partners.
In consideration of the mutual covenants and agreements contained
herein, the parties hereto hereby agree as follows:
ARTICLE I.
FORMATION, NAME AND PURPOSE OF THE PARTNERSHIP
1.1 Formation; Certificate. The Partners hereby agree to become
----------------------
partners and to form a limited partnership pursuant to the Act. The rights
and liabilities of the Partners shall be as provided in the Act, except as set
forth in this Agreement. The General Partner shall, prior to or concurrently
with the execution of this Agreement, prepare, execute and file with the office
of the Secretary of State of the State of California a certificate of limited
partnership that meets the requirements of Section 15621 of the Act. The General
Partner shall prepare and file such other certificates as may be required for
the Partnership to carry out its business.
1.2 Name of Partnership. The name of the Partnership is "PMT CVD
-------------------
Partners, L.P."
1.3 Principal Place of Business. The principal place of business
---------------------------
of the Partnership shall initially be located at 9255 Deering Avenue,
Chatsworth, California 91311 or at such other place as the General Partner may
from time to time determine. The General Partner shall give notice in writing to
the Limited Partners of any change in the principal place of business of the
Partnership.
1.4 Registered Agent. The registered agent of the Partnership shall
----------------
be John W. La Valle, whose address is 9255 Deering Avenue, Chatsworth,
California 91311.
1.5 Tax Matters Partner. The General Partner is designated the
-------------------
Partnership's tax matters partner as provided in Section 6231(a)(7)(A) of the
Code.
<PAGE>
1.6 Purpose. The Partnership shall develop and refine chemical vapor
-------
deposition ("CVD") technology for commercial use in connection with the
production of integrated circuits (the "Business"). The Partnership will use the
technology licensed to it under the PMT License Agreement to establish and
expand the Business and all prospects relating thereto.
1.7 Definitions. For purposes of this Agreement, along with all
-----------
capitalized terms otherwise defined herein, the following terms shall have the
following meanings:
(a) "Act" shall mean the California Revised Limited Partnership
Act, as amended.
(b) "Affiliate" shall have the meaning ascribed thereto in Rule
12b-2 under the Securities Exchange of Act of 1934, as amended.
(c) "Agreement" shall mean this Agreement of Limited Partnership
of PMT CVD Partners, L.P., as amended from time to time.
(d) "Anelva Development Agreement" shall mean that certain Joint
Development Agreement to be entered into between the Company and Anelva
Corporation in accordance with the terms of that certain Memorandum of Intent
dated December 7, 1995 between such parties.
(e) "Assignee" shall mean a person who has acquired all or a
portion of a Limited Partner's beneficial interest in the Partnership and has
not become a Substituted Limited Partner.
(f) "Bankruptcy" shall mean with respect to any person (i) that
a petition shall have been filed by or against such person as a "debtor" and the
adjudication of such person as a bankrupt under the provisions of the bankruptcy
laws of the United States of America shall have commenced, (ii) that such person
shall have made an assignment for the benefit of its creditors generally or
(iii) a receiver shall have been appointed for substantially all of the property
and assets of such person.
(g) "Buyout Options" shall mean the right of the Company to
purchase each Limited Partner's Interests pursuant to the Option Agreements.
(h) "Capital Account" of a Partner shall mean the Capital
Account maintained for such Partner in accordance with Section 4.1.
(i) "Capital Contribution" of a Partner shall mean the amount of
capital contributed by the Partners to the Partnership pursuant to Article III.
2
<PAGE>
(j) "Closing Date" shall mean March 29, 1996.
(k) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(l) "Company" shall mean Plasma & Materials Technologies, Inc.,
a California corporation.
(m) "Dissolution" of a Partner that is not a natural person
shall mean that such Partner has terminated its existence, whether partnership
or corporate, wound up its affairs and dissolved.
(n) "Fiscal Year" shall mean the period from January 1 to
December 31 of each year, or, in the case of the Partnership's first year, the
period from its inception through December 31 of that year.
(o) "General Partner" shall mean CVD, Inc., a California
corporation, or any individual, corporation, partnership, limited liability
company, trust or other entity admitted to the Partnership as a General Partner
pursuant to Sections 7.2 and 7.3.
(p) "Interest" shall mean the entire interest of a Partner in
the Partnership at any time, including the right of such Partner to any and all
benefits to which a Partner may be entitled as provided in this Agreement,
together with the obligations of such Partner to comply with all of the terms
and conditions hereof.
(q) "License Agreement" shall mean that certain Technology
License Agreement dated as of March 29, 1996 between the Company and the
Partnership.
(r) "Limited Partner" shall mean any person who is a limited
partner hereunder at the time of reference thereto, in such Person's capacity as
a limited partner of the Partnership, which definitions shall not include the
General Partner as such and any Assignee of a Limited Partner who has not been
admitted as a Substituted Limited Partner.
(s) "Net Income or Net Loss" shall mean for any Fiscal Year, the
income or loss of the Partnership, as determined for federal income tax
purposes.
(t) "Notice" shall mean notice given in accordance with Section
11.5.
3
<PAGE>
(u) "Option Agreements" shall mean those certain Option
Agreements dated of even date herewith and substantially in the form of Exhibit
1.7 hereto, entered into between the Company and each of the other Limited
Partners hereto.
(v) "Partners" shall mean all of those persons who are partners
of the Partnership, whether designated as General Partner or Limited Partner.
(w) "Partnership" shall mean the limited partnership formed
pursuant to this Agreement.
(x) "Percentage Interest" shall mean the percentage interest of
each Partner in the Partnership, as set forth on Schedule A hereto, as amended
from time to time.
(y) "Regulations" shall mean applicable Treasury Regulations
promulgated under the Code, as amended from time to time.
(z) "R&D Agreement" shall mean that certain R&D Agreement dated
as of an even date herewith by and between the Company and the Partnership.
(aa) "Subscription Agreement" shall mean that certain
Partnership Subscription Agreement entered into between the Partnership and each
Limited Partner (other than the Company).
(ab) "Substituted Limited Partner" shall mean a person admitted
pursuant to Section 7.5 as the successor to all of the rights of a Limited
Partner with respect to all or any portion of its Interests.
(ac) "Supermajority in Interest" shall mean Partners holding at
least eighty-five percent (85%) of Interests then outstanding, provided that, on
and after March 29, 2001, such term shall mean Partners holding fifty-one
percent (51%) of Interests then outstanding.
(ad) "Transfer" shall mean any sale, exchange, transfer, gift,
encumbrance, assignment, pledge, mortgage, hypothecation or other disposition,
whether voluntary or involuntary.
4
<PAGE>
ARTICLE II.
TERM; TERMINATION
2.1 Term; Termination. The term of the Partnership shall commence on
-----------------
the date the Certificate of Limited Partnership is filed in the office of the
California Secretary of State and shall continue until the earlier of the
following dates:
(a) December 31, 2010, except that the General Partner may
extend the term of the Partnership with the consent of Limited Partners holding
a majority of the outstanding Interests;
(b) Any date on which the General Partner shall have determined
to dissolve the Partnership;
(c) Unless the business of the Partnership is continued as
provided in Section 7.3, upon the Bankruptcy or Dissolution of the General
Partner;
(d) Unless the business of the Partnership is continued as
provided in Section 7.3, the date the General Partner withdraws from the
Partnership; or
(e) The date of the final winding up of the Partnership
following the occurrence of any event which would result in the dissolution of
the Partnership under the Act.
ARTICLE III.
CONTRIBUTIONS TO CAPITAL
3.1 Capital Contributions
---------------------
(a) As of the Closing Date, each Partner (other than the
Company) has contributed, or will contribute, cash to the capital of the
Partnership in exchange for Interests, in the amounts set forth on Schedule A
hereto.
(b) The Company has granted a license to the Partnership under
the License Agreement as its contribution to the capital of the Partnership and
such contribution has an agreed fair market value as set forth on Schedule A
hereto and the Company has received Interests in exchange for such contribution
as set forth on Schedule A hereto.
5
<PAGE>
(c) The General Partner agrees to make further cash
contributions to the capital of the Partnership on the date on which any
additional capital contribution is made hereto under Section 3.2 such that, at
all times, the General Partner's total capital contribution equals at least one
percent (1%) of the total capital contributions of all Partners.
3.2 Additional Limited Partners or Capital Contributions; Company
-------------------------------------------------------------
Option
- - ------
(a) The General Partner, if it determines that additional
capital is required for the conduct of the Business or for the operation of the
Partnership, may give notice of such fact to each Limited Partner (the "Call
Notice"). Such Call Notice shall specify in reasonable detail the aggregate
amount of additional capital required, the purposes for which such amount is
required and the number of Interests to be offered (the "Additional Interests"),
provided that, if the General Partner wishes to offer more than One Million
Dollars ($1,000,000) of Additional Interests, all amounts exceeding such One
Million Dollar ($1,000,000) level shall be subject to the prior approval of a
Supermajority in Interest. The purchase price for the Additional Interests, and
all other material terms and conditions relating thereto, shall be determined by
the General Partner, with the prior approval of a Supermajority in Interest. For
a period of thirty (30) days from the date of such Call Notice, each Limited
Partner (other than the Company) shall have the right, but not the obligation,
to purchase up to that number of the Additional Interests determined by
multiplying the total number of Additional Interests by such Limited Partner's
Percentage Interest as of the date of such Call Notice. Such right shall be
exercised by written notice to the Partnership within such thirty (30)-day
period. If such rights of purchase are exercised for less than all of the
Additional Interests covered by such Call Notice, the General Partner shall so
notify the Limited Partners (the "Second Notice"). The Limited Partners who
elected to acquire Additional Interests shall have the right to acquire the
remaining Additional Interests pro rata in accordance with their respective
Percentage Interests or as they may agree. Such Limited Partners shall exercise
the rights arising under the Second Notice by giving written notice to the
Partnership within ten (10) days after receipt of the Second Notice. Any
Additional Interests not so purchased may be offered for sale by the General
Partner to any investor, including without limitation, the Company, on the same
terms as were offered to the Limited Partners, provided that each such investor
shall be subject to the prior approval of a Supermajority in Interest.
(b) Promptly upon the admission of additional Limited Partners
and/or acceptance of additional capital contributions, the General Partner shall
cause Schedule A hereto to be amended.
6
<PAGE>
ARTICLE IV.
CAPITAL ACCOUNTS; ACCOUNTING PRACTICES AND ALLOCATIONS
4.1 Capital Accounts. The Partnership shall maintain a capital
----------------
account ("Capital Account") for each Partner. The Capital Account of each
Partner shall consist of the agreed upon net value of each Partner's Capital
Contributions made in accordance with Article III above and set forth on
Schedule A hereto, plus the portion of the Partnership's Net Income allocated to
such Partner pursuant to this Agreement minus the sum of:
(a) the portion of the Partnership's Net Loss allocated to such
Partner pursuant to this Agreement; and
(b) all distributions (whether in cash or in kind) made by the
Partnership to such Partner pursuant to this Agreement (for purposes of
computing the Capital Account of each Partner, distributions in kind shall be
valued at the then-fair-market value thereof, net of liabilities assumed or
taken subject to by the Partner); and
(c) all allocations to such Partner of expenditures of the
Partnership described in Section 705(a)(2)(B) of the Code.
The foregoing provisions and the other provisions of this Agreement relating to
the maintenance of the Capital Accounts are intended to comply with Regulation
Section 1.704(b)(2)(iv), and shall be interpreted and applied in a manner
consistent with such Regulations. In the event the Partners shall determine
that it is prudent to modify the manner in which the Capital Accounts are
computed in order to comply with such Regulations the General Partner may make
such modification.
4.2 Financial Reporting. The Partnership shall prepare its financial
-------------------
statements in accordance with generally accepted accounting principles as
from time to time in effect, using the accrual method of accounting.
4.3 Allocation of Net Income. The Net Income of the Partnership
------------------------
shall be allowed as follows:
(a) If there have been allocations of Net Loss to the General
Partner in prior fiscal periods under Section 4.4(c), Net Income shall be first
allocated to the General Partner to offset the allocation of Net Loss in such
prior fiscal periods, but only to the extent that such prior allocation of Net
Loss has not been reversed with prior allocations of Net Income under this
Section 4.3(a);
(b) If there have been allocations of Net Loss to the Partners
in prior fiscal periods under Section 4.4(b), Net Income shall be allocated
among the Partners
7
<PAGE>
to offset in reverse order the allocations of Net Loss in prior fiscal periods
to the Partners, but only to the extent such prior allocation of Net Loss has
not been reversed with prior allocations of Net Income under this Section
4.3(b);
(c) Thereafter, Net Income shall be allocated pro rata to all
Partners based upon their Percentage Interests.
4.4 Allocation of Net Loss. The Net Loss of the Partnership shall
----------------------
be allocated as follows:
(a) If there have been allocations of Net Income to the Partners
in prior fiscal periods under Section 4.3(c), Net Loss shall be allocated among
the Partners to offset in reverse order the allocations of Net Income in such
prior fiscal periods to the Partners, to the extent that such prior allocation
of Net Income has not been reversed with prior allocations of Net Loss under
this Section 4.4(a);
(b) Thereafter, Net Loss shall be allocated pro rata to the
Partners to the extent that there exist positive balances in the Capital
Accounts of such Partners; and
(c) Finally, all remaining Net Loss shall be allocated to the
General Partner.
4.5 Time of Allocations. Net Income or Net Loss for each Fiscal
-------------------
Year shall be allocated to the Partners at the end of the Fiscal Year, or at
such other times during the Fiscal Year as may be appropriate, in accordance
with provisions of Sections 4.3 and 4.4.
4.6 Limitation of Liability. Notwithstanding anything to the
-----------------------
contrary herein contained, no Limited Partner shall be liable for any debts,
expenses, liabilities or obligations of the Partnership, except as provided in
the Act. No Limited Partner shall be required or obligated to make any
contributions or payments of any kind to or with respect to the Partnership
except for the return of distributions as required by the Act. It is expressly
understood and agreed that the Limited Partners shall not participate in the
management and control of the business of the Partnership.
4.7 Supervision; Inspection of Books. Proper and complete books
--------------------------------
of account and records of the business of the Partnership shall be maintained by
the General Partner at the principal place of business of the Partnership. The
General Partner shall give notice to each Partner of any changes in the location
of such books and records. Such books and records shall be open to inspection,
audit and copying by any Partner, or its designated representatives, upon
reasonable notice, at any time during business hours for any purpose reasonably
related to the Partner's interest as a Partner of the Partnership. Any
information
8
<PAGE>
so obtained or copied shall be kept and maintained in strictest confidence. Such
books and records shall be kept in compliance with the Act.
4.8 Reports. The annual financial statements of the Partnership
-------
shall be audited and reported on as of the end of each Fiscal Year by the
Partnership's independent certified public accountants who shall be selected by
the General Partner. The General Partner shall use its best efforts to transmit
a copy of the audit report from such accountants to the Limited Partners within
ninety (90) days after the end of each Fiscal Year.
4.9 Tax Returns. The General Partner shall after the end of each
-----------
Fiscal Year file a Federal income tax information return and transmit to each
Partner a schedule (Schedule K-1 or successor schedule) showing such Partner's
distributive share of the Partnership's income, deductions and credits, and all
other information necessary for such Limited Partners to file timely their
Federal income tax returns. The General Partner shall use its best efforts to
deliver such materials to the Limited Partners within seventy-five (75) days
after the end of each Fiscal Year, provided that the General Partner shall, in
all circumstances, deliver such materials to the Limited Partners within ninety
(90) days after the end of each such Fiscal Year.
ARTICLE V.
DISTRIBUTIONS
5.1 Distributions.
-------------
(a) The General Partner shall distribute cash to each Partner,
no later than ninety (90) days after the close of each Fiscal Year, in an amount
equal to forty percent (40%) of the Partnership's taxable income allocated to
such Partner in such Fiscal Year pursuant to Section 4.3(c).
(b) Thereafter, additional distributions shall be at the
discretion of the General Partner and shall be made in the following order:
(i) First, pro rata to all Partners in accordance with the
Capital Account balances thereof, to the extent that current and
prior allocations of Net Income to each such Partner under
Section 4.3 exceed current and prior allocations of Net Loss to
each such Partner under Section 4.4;
(ii) Second, pro rata to all Partners (other than the
Company) in accordance with the Capital Account balances
thereof, to the extent of the positive Capital Account balances
of such Partners;
9
<PAGE>
(iii) Third, to the Company, to the extent of the positive
balance in its Capital Account; and
(iv) Fourth, to all Partners, pro rata in accordance with
the Percentage Interests of such Partners.
5.2 Restrictions on Distribution. As required by the Act, the General
----------------------------
Partner shall not cause the Partnership to make any distribution to the Partners
unless immediately after giving effect to the distribution, all liabilities of
the Partnership, other than liabilities to Partners on account of thier Interest
and liabilities as to which recourse of creditors is limited to specified
property of the Partnership, do not exceed the fair value of the Partnership
assets, provided that the fair value of any property that is subject to a
liability as to which recourse of creditors is so limited shall be included in
the Partnership assets only to the extent that the fair value of the property
exceeds such liability. In addition, no distribution shall be made to a Partner
to the extent the distribution would create or increase a deficit in such
Partner's Capital Account.
ARTICLE VI.
MANAGEMENT OF THE PARTNERSHIP
6.1 General Partner.
---------------
(a) Except as otherwise expressly provided in this Agreement,
the General Partner shall have full responsibility and authority for the
management, supervision and conduct of the business and affairs of the
Partnership, subject to the approval of the Limited Partners to the extent
expressly required under Section 6.3. As such, the General Partner is hereby
granted the right, power and authority to do on behalf of the Partnership all
things that it determines to be necessary or desirable to carry out the
aforementioned duties and responsibilities, including without limitation, the
right, power and authority from time to time to do the following:
(i) to borrow money in the name and on behalf of the
Partnership, and to secure any such loans by a mortgage, pledge
or other encumbrance upon any assets of the Partnership;
(ii) to cause to be paid all amounts due and payable by the
Partnership to any person or entity;
(iii) to employ such agents, employees, managers,
accountants, attorneys, consultants and other persons necessary
or appropriate to carry out the business and affairs of the
Partnership, and
10
<PAGE>
to pay to such persons such fees, expenses, salaries, wages and
other compensation as it shall in its sole discretion determine;
(iv) to pay, extend, renew, modify, adjust, subject to
arbitration, prosecute, defend or compromise, upon such terms as
it may determine and upon such evidence as it may deem
sufficient, any obligation, suit, liability, cause of action or
claim, including taxes, either in favor of or against the
Partnership;
(v) to pay any and all fees and to make any and all
expenditures which it deems necessary or appropriate in
connection with the organization of the Partnership, the
management of the affairs of the Partnership and the carrying
out of its obligations and responsibilities under this
Agreement, including without limitation, all research and
development expenses incurred by the Company with respect to the
Business;
(vi) to the extent that funds of the Partnership are, in its
judgment, not immediately required for the conduct of the
Partnership's business, temporarily to deposit the excess funds
in such bank account or accounts, or invest such funds in such
interest-bearing taxable or nontaxable investments as the
General Partner shall deem appropriate;
(vii) to acquire, prosecute, maintain, protect and defend
or cause to be protected and defended all patents, patent
rights, tradenames, trademarks, copyrights and servicemarks, all
applications with respect thereto and all proprietary
information which may be held by or licensed to the Partnership;
(viii) to enter into, execute, acknowledge and deliver, or
accept the assignment of rights under, any and all contracts,
agreements or other instruments necessary or appropriate to
carry on the Business, including without limitation, the License
Agreement, the R&D Agreement, the Anelva Development Agreement
and any other contract or agreement entered into with the
Company;
(ix) to cause to be paid any and all taxes, charges and
assessments that may be levied, assessed or imposed upon any of
the assets of the Partnership, unless the same are contested by
the Partnership; and
11
<PAGE>
(x) on behalf of the Partnership, to make or revoke tax
elections permitted under the Code, including the election
referred to in Section 754 of the Code or any similar provisions
enacted in lieu thereof, as well as under state tax laws (and
each Partner will upon request supply the information necessary
to give effect to such elections).
(b) Except as is otherwise specifically provided in this
Agreement or under the Act, the General Partner shall have and exercise all of
the powers of a general partner in a partnership and is authorized and empowered
to carry out and implement any and all purposes and objects of the Partnership.
6.2 Duties and Activities of the General Partner.
--------------------------------------------
(a) The General Partner shall be under a fiduciary duty and
obligation to conduct the affairs of the Partnership in the best interest of the
Partnership, for the benefit of the Partnership, provided that engaging in
transactions authorized by this Agreement shall not constitute a breach of the
foregoing duty and obligation notwithstanding any interest which the General
Partner or its directors, officers, agents or Affiliates may have in the
transaction if the persons authorizing and approving the transaction on behalf
of the Partnership act in good faith and in a manner reasonably believed to be
in the best interest of the Partnership.
(b) The General Partner shall not have authority to:
(i) do any act in contravention of this Agreement;
(ii) possess Partnership property or assign rights in
Partnership property other than for the Partnership's purpose;
or
(iii) without the consent of a Supermajority in Interest,
withdraw as General Partner, liquidate, sell or distribute all
or substantially all of its assets, merge with another
corporation or take or permit the occurrence of any other action
which would prevent it from serving as General Partner in
accordance with this Agreement.
(c) The Partners each acknowledge that the General Partner, its
officers, directors, employees, shareholders and Affiliates are or may be
involved in other financial, investment and professional activities whether or
not any such activities may conflict with the Business or with any interest of
the Partnership or any of the Partners. The Partners hereby approve all of the
present business activities of the Company, notwithstanding the fact that such
activities may compete or conflict with the Business of the Partnership.
12
<PAGE>
6.3 Powers of the Limited Partners.
------------------------------
(a) The consent of a Supermajority in Interest shall be required
to approve the following matters proposed by the General Partner:
(i) any amendment of this Agreement;
(ii) merger or consolidation of the Partnership into or with
any other entity;
(iii) incorporation or other reorganization of the
Partnership;
(iv) sale, lease or exchange of a substantial portion of the
property or assets of the Partnership;
(v) voluntary termination of the Partnership prior to
expiration of its term;
(vi) admission of a new Partner by the Partnership pursuant
to Article VII or withdrawal of a Partner; and
(vii) any amendment to any material provision of the
License Agreement or the R&D Agreement.
6.4 Standard of Care; Indemnification.
---------------------------------
(a) Neither the General Partner nor any of its officers or any
member of its board of directors shall have any liability to the Partnership or
any Limited Partner for errors in judgment or for acts or omissions made in good
faith and reasonably believed to be in the best interest of the Partnership,
except by reason of willful misfeasance, gross negligence or reckless disregard
of duties in the performance of its duties hereunder.
(b) The Partnership shall indemnify and hold harmless the
General Partner, each member of its board of directors and its officers,
employees, agents and Affiliates (collectively, the "Indemnitees") to the
fullest extent permitted by law from and against any and all loss, claims,
damages, liabilities joint and several, expenses, judgments, fines, settlements
and other amounts arising from any and all claims (including reasonable legal
expenses), demands, actions, suits or proceedings (civil, criminal,
administrative or investigative) in which they may be involved, as a party or
otherwise, by reason of their management of the business and affairs of the
Partnership, or rendering of advice or consultation with respect thereto, or
which relate to the Partnership, its properties, its Business, if such
Indemnitee acted in good faith and in a manner such Indemnitee reasonably
believed to be in, or not opposed to, the best interests of the Partnership,
and, with respect
13
<PAGE>
to any criminal proceeding, had no reasonable cause to believe the conduct of
such Indemnitee was unlawful. The termination of a proceeding by judgment,
order, settlement, conviction or upon a plea of nolo contendere, or its
equivalent, shall not, of itself, create a presumption that the Indemnitee did
not act in good faith and in a manner which the Indemnitee reasonably believed
to be in, or not opposed to, the best interests of the Partnership or that the
Indemnitee had reasonable cause to believe that the Indemnitee's conduct was
unlawful (unless there has been a final adjudication in the proceeding that the
Indemnitee did not act in good faith and in a manner which the Indemnitee
reasonably believed to be in or not opposed to the best interests of the
Partnership or that the Indemnitee did have reasonable cause to believe that the
Indemnitee's conduct was unlawful). Expenses (including attorneys' fees)
incurred in defending any proceeding shall be paid by the Partnership in advance
of the final disposition of such proceeding upon receipt of an undertaking by or
on behalf of the Indemnitee to repay such amount if it shall ultimately be
determined that the Indemnitee is not entitled to be indemnified by the
Partnership as authorized hereunder.
(c) The indemnification provided by Section 6.4(b) shall not be
deemed to be exclusive of any other rights to which the Indemnitee may be
entitled under any agreement, or as a matter of law, or otherwise, both as to
action in an Indemnitee's official capacity and to action in another capacity,
and shall continue as to an Indemnitee who has ceased to have an official
capacity and shall inure to the benefit of the heirs, successors and
administrators of such Indemnitee.
(d) The General Partner shall have power to purchase and
maintain insurance on behalf of the Partnership, the General Partner and the
Indemnitees at the expense of the Partnership, against any liability asserted
against or incurred by them in any such capacity or arising out of the General
Partner's status as such, whether or not the Partnership would have the power to
indemnify the indemnitees against such liability under the provisions of this
Agreement.
(e) The General Partner may consult with legal counsel,
accountants and other experts selected by it, and any opinion of an independent
legal counsel, independent accountant or independent expert (which may be
counsel, accountant or expert for the General Partner or any Affiliate) shall be
full and complete authorization and protection in respect of any action taken or
suffered or omitted by it hereunder in good faith and in accordance with such
opinion.
(f) The General Partner may execute any of the trusts or powers
or perform any duties under this Agreement either directly or by or through
agents or attorneys, and the General Partner shall not be responsible for any
misconduct or negligence on the part of any agent or attorney appointed with due
care by it under this Agreement.
14
<PAGE>
(g) No Indemnitee may seek to have satisfied any right of indemnity or
reimbursement granted in this Section 6.4 or to which it may be otherwise
entitled except out of the assets of the Partnership, and no Partner, General or
Limited, shall be personally liable with respect to any such claim for indemnity
or reimbursement.
6.5 Interest and Capital Withdrawals
--------------------------------
(a) No interest shall be paid to any Partner on account of such
Partner's Capital Contribution.
(b) Except as specifically provided in Section 5.1 and Article
VIII, no Partner shall have the right to withdraw or receive a distribution of
any part of the Partnership without the consent of the General Partner.
6.6 Partnership Contracts. All contracts undertaken by the
---------------------
Partnership shall be executed by the General Partner. The Partners shall
promptly execute (with acknowledgment, if required), at the General Partner's
request, any and all instruments necessary or appropriate to confirm the General
Partner's authority under this Agreement.
ARTICLE VII.
TRANSFER OF PARTNERSHIP INTERESTS
7.1 Transfer of General Partner's Interest; Removal. The General
-----------------------------------------------
Partner shall not Transfer any portion of its interest as General Partner in the
Partnership. Limited Partners, acting unanimously, may remove the General
Partner for any reason and elect a successor General Partner upon such terms as
they approve. In such event, the Interests of the removed General Partner in the
Partnership shall be converted to that of a Limited Partner, and the Business of
the Partnership shall be continued without termination of the Partnership.
7.2 Admission of Additional General Partner. The General Partner
---------------------------------------
shall not admit a person as an additional General Partner without the prior
unanimous written consent of the Limited Partners.
7.3 Admission of Successor General Partner. In the event of the
--------------------------------------
Bankruptcy or Dissolution of the General Partner or the General Partner's
withdrawal from the Partnership for any reason (other than by removal in
accordance with Section 7.1), where there is no remaining or surviving General
Partner, the Limited Partners may, by the affirmative vote of a Supermajority
in Interest within ninety (90) days after such date, elect to continue the
Partnership with the election of a new General Partner.
15
<PAGE>
7.4 Admission of Additional Limited Partners. The General Partner
----------------------------------------
may permit any person or entity to be admitted as a Limited Partner only on the
terms set forth in Section 3.2, provided that, in the opinion of legal counsel
for the Partnership, the investment by such additional Limited Partner would not
have any of the effects described in Section 7.5(a). The admission of such new
Limited Partner pursuant to this Section 7.4 shall become effective upon the
amendment of Schedule A hereto to reflect the name, Capital Contribution and
Percentage Interest of such new Limited Partner, and shall not be cause for
dissolution of the Partnership.
7.5 Transfer of Interest.
--------------------
(a) No Limited Partner shall Transfer any portion of or
beneficial interest in its Interests without the prior written consent of the
General Partner and of Limited Partners holding a majority of the outstanding
Interests, excluding the Limited Partner seeking to Transfer its Interests. The
General Partner shall not permit any Transfer of any Interest, whether by a
Limited Partner or by an Assignee, unless the transferee agrees in writing to be
bound by all of the terms of this Agreement and the General Partner concludes
(which conclusion may be based upon an opinion of legal counsel satisfactory to
it) that such Transfer will not:
(i) require registration of Interests under Section 5 of
the Securities Act of 1933, as amended;
(ii) require the Partnership to register as an investment
company under the Investment Company Act of 1940, as amended;
(iii) require the Partnership or the General Partner to
register as an investment adviser under the Investment Advisers
Act of 1940, as amended;
(iv) violate laws of any state or government agency
applicable to such transfer;
(v) violate this Agreement; or
(vi) effect a termination of the Partnership under Section
708 of the Code or cause the Partnership to be classified for
tax purposes as an association taxable as a corporation.
The General Partner may, in its sole and absolute discretion, withhold consent
to any such requested Transfer.
16
<PAGE>
(b) Each of the Limited Partners agrees with all other Partners
that it will not make any Transfer of any Interest that will violate this
Section 7.5. In the event of any Transfer not prohibited by this Section 7.5
which shall result in multiple ownership of any Interest, the General Partner
may require one or more trustees or nominees to be designated to represent a
portion of or the entire Interest transferred for the purpose of receiving all
notices which may be given and all payments which may be made under this
Agreement, and for the purpose of exercising the rights which the transferror as
a Limited Partner had pursuant to the provisions of this Agreement.
(c) An Assignee who is not a Partner at the time of Transfer
shall be entitled to the allocations and distributions attributable to the
Interests assigned to it in accordance with this Section 7.5 and to Transfer and
assign such Interests in accordance with the terms of this Agreement, provided
that such Assignee shall not be entitled to the other rights of a Limited
Partner until it becomes a Substituted Limited Partner. Notwithstanding the
above, the Partnership and the General Partner shall incur no liability for
allocations and distributions made in good faith to the transferring Partner
until a written instrument of assignment has been received by the Partnership
and recorded on its books and the effective date of the assignment has passed.
(d) An Assignee of a Limited Partner in accordance with this
Section 7.5 shall become a Substituted Limited Partner only with the prior
written consent of the General Partner, which may be withheld in the General
Partner's absolute discretion. The transferring Limited Partner and the Assignee
shall also execute and acknowledge such instrument or instruments as the General
Partner may deem necessary or desirable to effect such admission and the
Assignee shall accept, adopt and approve in writing all of the terms and
provisions of this Agreement.
(e) The Transfer of all or any part of a Limited Partner's
Interests and the admission of a Substituted Limited Partner shall not be cause
for dissolution of the Partnership.
7.6 Transfers Void. The purported Transfer of any Limited Partner's
--------------
Interest in violation of Section 7.5 shall be null and void, ab initio.
-- ------
ARTICLE VIII.
PROCEDURES ON TERMINATION
8.1 Termination Procedures. Upon termination of the Partnership
----------------------
at the expiration of the term of the Partnership or for any other cause set
forth in Section 2.1:
(a) The affairs of the Partnership shall be wound up and the
17
<PAGE>
Partnership liquidated by the General Partner. All items of income, gain and
loss (including any gain or loss from liquidation of the Partnership) for the
Fiscal Year in which the Partnership is finally liquidated, shall be allocated
among the Partners as provided in Article IV. The General Partner shall pay to
the Partnership any negative balance in the General Partner's Capital Account
after making the foregoing allocations. If there is no remaining General
Partner, then a liquidator shall be appointed by the Limited Partners who shall
wind up the of the Partnership.
(b) The net proceeds of liquidation shall be distributed in payment
of liabilities of the Partnership, and then distributed to the Partners, in the
following order:
(i) first, to creditors of the Partnership (including any
Limited Partner, in its capacity as such) in the order of
priority provided by law; and
(ii) then to the General Partner for any amounts the
Partnership owes it, other than in respect of the net credit balance
of its Capital Account; and
(iii) then to the Partners, pro rota in the amounts of the net
credit balances of their Capital Accounts.
(c) The assets of the Partnership may be distributed pursuant to
subsection (b) of this Section 8.1 in cash or in kind, and the proportion of
each Partner's share that is distributed in cash, as well as the nature of the
assets distributed in kind, may vary from Partner to Partner, all as the General
Partner or the liquidator may decide in its sole discretion. In the event that
any part of such net assets consists of notes or accounts receivable or other
non-cash assets, the General Partner or the liquidator shall take whatever steps
it deems appropriate to convert such assets into cash or into any other form
which would facilitate the distribution thereof. If any assets of the
Partnership are to be distributed in kind, such assets shall be distributed on
the basis of their fair market value at the time of such distribution, as
determined by the General Partner or the liquidator, acting in good faith. Any
unrealized income or loss inherent in distributed property (in an amount equal
to the excess of the fair market value of the property over its book basis for
Partnership accounting) shall be deemed allocated to the Capital Accounts
pursuant to the income and loss allocation provisions of Article IV.
ARTICLE IX.
MEETINGS AND VOTING
9.1 Meetings of Partners.
--------------------
18
<PAGE>
(a) Meetings of Partners shall be held at such time and place as
the General Partner may designate.
(b) Meetings shall be held only when called by the General
Partner at its discretion or, for any matters on which the Limited Partners are
entitled to vote pursuant to Section 6.3, at the request of Limited Partners
representing more than fifty percent (50%) of the total Interests then
outstanding.
(c) Meeting notices and procedures shall be in conformity with
the Act. Notice of a meeting shall be given in accordance with Section 10.6 of
this Agreement.
(d) Limited Partners holding a majority of the outstanding
Interests represented either in person or by proxy, shall constitute a quorum at
such a meeting.
9.2 Voting. Limited Partners shall have the right, by vote or
------
written consent to approve to disapprove matters set forth in Section 6.3 and
elsewhere in this Agreement.
9.3 Waiver. The Limited Partners shall take no part in the
------
management or control of the Partnership business, and have no right or
authority to act for the Partnership or to vote on matters except as set forth
in this Agreement or as specifically permitted by the Act.
ARTICLE X.
MISCELLANEOUS
10.1 Instruments. The parties agree to execute any further
-----------
instruments or perform any acts which are or may become necessary to effectuate
and carry on the Partnership created by this Agreement.
10.2 Assignability. This Agreement shall be binding upon the
-------------
transferees, successors, assigns and legal representatives of the parties of
this Agreement.
10.3 Law. This Agreement shall be governed by and construed under
---
the laws of the State of California as applied to agreements among California
residents entered into and to be performed entirely within California.
10.4 Notices. Any notice or other communication which one or more
-------
Partners may desire to give to another Partner, General or Limited, shall be in
writing, and shall be deemed effectively given upon personal delivery or upon
deposit in any United States mail box, by registered or certified mail, return
receipt requested, postage prepaid, or
19
<PAGE>
upon transmission by facsimile transmission, addressed to such other Partner:
(a) at the address and facsimile number shown in the records of
the Partnership maintained in accordance with Section 15615(a) of the Act,
except that notice relating to Partnership meetings shall be accordance with
Section 15637 the Act; or
(b) at such other address or facsimile number as such Partner
may designate by fifteen (15) days advance written notice to all other Partners.
10.5 Counterparts. This Agreement may be executed in counterparts
------------
with the same force and effect as if each of the signatories had executed the
same instrument.
10.6 Subscription Agreement. Each Limited Partner will make the
----------------------
representations and warranties called for in the Subscription Agreement.
20
<PAGE>
IN WITNESS WHEREOF, this Agreement of Limited Partnership has been
executed as of the date first above written.
GENERAL PARTNER: CVD, INC.,
a California corporation
By: /s/ John W. La Valle
----------------------
John W. La Valle
Chief Financial Officer and Secretary
LIMITED PARTNERS: SBIC PARTNERS, L.P.,
a Texas limited partnership
By: Forrest Binkley & Brown L.P.,
General Partner
By: Forrest Binkley & Brown Venture Co.,
General Partner
By: /s/ Jeffrey J. Brown
----------------------
Jeffrey J. Brown
Office of the President
By: SL-SBIC Partners, L.P.,
General Partner
By: FW-SBIC, Inc.,
General Partner
By: /s/ Peter Sterling
--------------------
Name: Peter Sterling
----------------
Title: Chairman
---------
21
<PAGE>
PLASMA & MATERIALS TECHNOLOGIES, INC.,
a California corporation
By: /s/ John W. La Valle
-----------------------
John W. La Valle
Vice President and Chief Financial Officer
NORWEST EQUITY PARTNERS IV,
a Minnesota Limited Partnership
By: Itasca Partners, General Partner
By: /s/ Kevin G. Hall
-------------------
Kevin G. Hall
General Partner
R&M PARTNERS/CVD, G.P.,
a California general partnership
By: /s/ Jeffrey L. DuRocher
-------------------------
Jeffrey L. DuRocher
Partner
22
<PAGE>
Schedule A
CAPITAL CONTRIBUTIONS AND PERCENTAGE INTERESTS
----------------------------------------------
<TABLE>
<CAPTION>
Capital Percentage
Name and Address Contribution Interest
- - ---------------- ------------- --------
<S> <C> <C>
GENERAL PARTNER:
CVD, Inc. $ 67,000 1.00%
9255 Deering Avenue
Chatsworth, California 91311
LIMITED PARTNERS:
Plasma & Materials Technologies, Inc. $1,300,000 19.47% (1)
9255 Deering Avenue
Chatsworth, California 91311
SBIC Partners, L.P. $2,500,000 37.44%
201 Main Street, Suite 2302
Fort Worth, Texas 76102
NorWest Equity Partners IV, L.P. $2,500,000 37.44%
3000 Sand Hill Road
Building 3, Suite 105
Menlo Park, California 94025
R&M Partners/CVD, G.P. $ 310,000 4.64%
300 South Grand Avenue, Suite 2900
Los Angeles, California 90071
---------- -----------
TOTAL: $6,677,000 100.00%
========== ============
</TABLE>
- - --------------------
(1) Agreed Value of PMT License
23
<PAGE>
EXHIBIT 11.1 - STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
--------------------------------------------------------------
<TABLE>
<CAPTION>
Three months ended
---------------------------
March 31, March 31,
1996 1995
----------- -------------
<S> <C> <C>
Primary:
Average Common shares outstanding....... 8,666,527 938,590
Preferred Stock converted to common
shares................................. -- 3,031,279
Stock options and warrants issued
during the period prior to the initial
public offering using the treasury
method (offer price of $14 per share).. -- 1,052,461
Net effect of dilutive stock options -
based on the treasury stock method
using average market price............. 370,134 --
Net effect of dilutive warrants - based
on the treasury stock method using
average market price................... 50,329 --
---------- ------------
Total Shares............................ 9,086,990 5,022,330
========== ===========
Net income (loss)....................... $1,257,501 $(1,342,856)
========== ===========
Per share amount........................ $ 0.14 $ (0.27)
========== ===========
Fully diluted:
Average Common shares outstanding....... 8,666,527 938,590
Preferred Stock converted to common
shares................................. -- 3,031,279
Stock options and warrants issued
during the period prior to the initial
public offering using the treasury
method (offer price of $14 per share).. -- 1,052,461
Net effect of dilutive stock options -
based on the treasury stock method
using fair market price at the end of
the period............................. 377,480 --
Net effect of dilutive warrants - based
on the treasury stock method using
fair market price at the end of the
period................................. 51,200 --
Total shares............................ 9,095,207 5,022,330
========== ===========
Net income (loss)....................... $1,257,501 $(1,342,856)
========== ===========
Per share amount........................ $ 0.14 $ (0.27)
========== ===========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 3,645
<SECURITIES> 28,486
<RECEIVABLES> 13,801
<ALLOWANCES> 0
<INVENTORY> 9,467
<CURRENT-ASSETS> 57,754
<PP&E> 8,268
<DEPRECIATION> (3,513)
<TOTAL-ASSETS> 62,835
<CURRENT-LIABILITIES> 7,574
<BONDS> 0
0
0
<COMMON> 61,008
<OTHER-SE> (6,305)
<TOTAL-LIABILITY-AND-EQUITY> 62,835
<SALES> 7,753
<TOTAL-REVENUES> 7,753
<CGS> 3,748
<TOTAL-COSTS> 6,926
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 438
<INCOME-PRETAX> 1,265
<INCOME-TAX> 8
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,258
<EPS-PRIMARY> .14
<EPS-DILUTED> .14
</TABLE>
