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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 September 30, 1998
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
TRIKON TECHNOLOGIES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 95-4054321
--------------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Ringland Way, Newport, Gwent NP62TA, United Kingdom
- --------------------------------------------------- ------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 441-633-414-000
-----------------------------
Not Applicable
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year,
if changed since last report
Indicate by check whether the registrant (1) has filed all reports required to
be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period 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 November 9, 1998, the total number of outstanding shares of the
Registrant's common stock was 94,023,835.
1
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TRIKON TECHNOLOGIES, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
------
PART I. FINANCIAL INFORMATION
<C> <S> <C>
Item 1. Condensed Consolidated Financial Statements: Condensed Consolidated
Balance Sheets at September 30, 1998 (unaudited) and December 31, 1997.......................... 3
Unaudited Condensed Consolidated Statements of Operations for the Three Months ended
September 30, 1998 and 1997 and for Nine Months ended September 30, 1998 and 1997............... 5
Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months ended
September 30, 1998 and 1997..................................................................... 7
Notes to Condensed Consolidated Financial Statements............................................ 9
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........... 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................................................... 23
Item 2. Changes in Securities and Use of Proceeds....................................................... 23
Item 5. Other Information............................................................................... 23
Item 6. Exhibits and Reports on Form 8-K................................................................ 23
SIGNATURE PAGE........................................................................................... 24
EXHIBITS................................................................................................. 25
</TABLE>
2
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TRIKON TECHNOLOGIES, INC.
ITEM I CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997 (1)
------------- ------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 8,338 $ 9,260
Accounts receivable, net of reserves................. 7,506 18,842
Inventories.......................................... 19,199 23,870
Other current assets................................. 2,013 1,622
------- --------
Total current assets ................................ 37,056 53,594
Property, equipment and leasehold improvements, net of 20,374 22,140
accumulated depreciation and amortization............
Demonstration systems, net of accumulated depreciation.... 3,542 1,227
Bond financing costs, net of accumulated amortization. 90 2,313
Other assets.............................................. 300 416
------- --------
Total assets.............................................. $61,362 $ 79,690
======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Convertible subordinated notes....................... $ -- $ 86,250
Accounts payable and accrued expenses................ 5,747 9,765
Sales returns payable................................ 10,718 11,468
Restructuring costs.................................. 1,487 3,952
Other current liabilities............................ 4,152 7,953
------- --------
Total current liabilities............................ 22,104 119,388
Convertible subordinated notes............................ 4,147 --
Other non-current liabilities............................. 5,782 5,245
------- --------
Total liabilities........................................ 32,033 124,633
</TABLE>
See notes to Condensed Consolidated Financial Statements
3
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CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS) CONTINUED
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997 (1)
------------- ------------
(unaudited)
<S> <C> <C>
SHAREHOLDERS' EQUITY (DEFICIENCY):
Preferred Stock
Authorized shares--20,000,000
Series G Preferred Stock, no par value, stated at
$6.75 per share liquidation preference
Designated shares - None at September 30, 1998 and
3,125,000 at December 31, 1997
Issued and outstanding--None at September 30, 1998
and 2,962,032 at December 31, 1997............... -- 19,349
Series H Preferred Stock, no par value, $10 per
share liquidation preference.....................
Designated shares - 3,000,000 at September 30,
1998 and none at December 31, 1997...............
Issued and outstanding 2,855,754 at September 30,
1998 and none at December 31, 1997............... 28,558 --
Common Stock, no par value
Authorized shares -- 110,000,000
Issued and outstanding-- 94,023,835 at
September 30, 1998 and 15,147,115 at
December 31, 1997................................ 199,019 137,767
Cumulative translation adjustment......................... 252 (745)
Deferred compensation..................................... (7,030) --
Accumulated deficit....................................... (191,470) (201,314)
--------- ---------
Total shareholders' equity (deficiency)................... 29,329 (44,943)
--------- ---------
Total liabilities and shareholders' equity................ $ 61,362 $ 79,690
========= =========
</TABLE>
(1) The Balance Sheet at December 31, 1997 has been derived from the audited
financial statements at that date, but does not include all of information
and footnotes required by generally accepted accounting for complete
financial statements.
See notes to Condensed Consolidated Financial Statements
4
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TRIKON TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------------- -------------------------------------
September 30, September 30, September 30, September 30,
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Product sales....................... $ 4,477 $ 12,657 $ 19,972 $ 43,720
License revenues.................... -- -- 10,000 --
------- -------- -------- --------
4,477 12,657 29,972 43,720
Costs and expenses:
Cost of goods sold.................. 3,230 9,159 14,411 31,626
Research and development............ 2,056 4,259 6,429 13,414
Selling, general and
administrative..................... 5,377 9,824 15,634 25,203
In-process technology............... -- -- -- 2,975
Restructuring costs................. -- -- 1,843 --
Amortization of
intangibles..................... -- 904 -- 2,712
------- -------- -------- --------
10,663 24,146 38,317 75,930
------- -------- -------- --------
Loss from operations................... (6,186) (11,489) (8,345) (32,210)
Other:
Interest income (expense),
net............................. 569 (2,813) (2,320) (7,578)
------- -------- -------- --------
Loss before income tax provision
and extraordinary item.......... (5,617) (14,302) (10,665) (39,788)
Income tax benefit.................. -- (841) (217) (3,747)
------- -------- -------- --------
Net loss before extraordinary
item.............................. (5,617) (13,461) (10,448) (36,041)
Extraordinary item..................... -- -- 20,293 --
------- -------- -------- --------
Net income (loss)...................... $(5,617) $(13,461) $ 9,845 $(36,041)
Earnings (loss) per common share data:
Basic:
Loss applicable to common shares
before extraordinary item....... $ (0.08) $ (0.89) $ (0.23) $ (2.47)
Extraordinary gain.................. -- -- 0.41 --
------- -------- -------- --------
Net income (loss) .................. $ (0.08) (0.89) 0.18 (2.47)
======= ======== ======== ========
Diluted:
Loss applicable to common shares
before extraordinary item ........ $ (0.08) (0.89) (0.23) (2.47)
</TABLE>
5
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<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------------- -------------------------------------
September 30, September 30, September 30, September 30,
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Extraordinary gain............. -- -- 0.41 --
------- ------- ------- -------
Net income (loss).............. $ (0.08) (0.89) 0.18 (2.47)
======= ======= ======= =======
Average common shares used
in the calculation - Basic....... 82,284 15,115 49,200 14,617
- Diluted..... 82,284 15,115 49,712 14,617
</TABLE>
See notes to Condensed Consolidated Financial Statements
6
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TRIKON TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine months ended
-------------------------------
September 30, September 30,
1998 1997
-------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss)........................................ $ 9,845 $(36,041)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Extraordinary item.................................. 20,293) --
Depreciation and amortization of plant, equipment, 2,825 5,178
leasehold improvements and demonstration systems
Amortization of intangibles......................... 14 2,772
Amortization of financing costs..................... 300 615
Amortization of deferred compensation............... 555 --
In-process technology............................... -- 2,974
Deferred income taxes............................... -- (3,420)
Changes in operating assets and liabilities:
Accounts receivable............................. 11,336 7,819
Inventories..................................... 4,671 8,395
Demonstration systems........................... (2,315) (1,327)
Other assets.................................... (275) 1,095
Accounts payable, other accrued expenses and
other current liabilities..................... (7,699) (10,439)
Other liabilities............................... 356 1,883
Other........................................... 997 --
------- --------
Net cash provided by (used in) operating activities. 317 (20,496)
</TABLE>
See notes to Condensed Consolidated Financial Statements
7
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TRIKON TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS) CONTINUED
<TABLE>
<CAPTION>
Nine months ended
-----------------------------------
September 30, September 30,
1998 1997
------------- -------------
<S> <C> <C>
Brought forward $ 317 $(20,496)
INVESTING ACTIVITIES
Purchases proceeds of sale of property, equipment and
leasehold improvements............................................ (272) (8,572)
Proceeds from sales of short-term investments........................ -- 1,216
Purchases of short-term investments.................................. -- (6,113)
Other assets......................................................... -- (382)
------ --------
Net cash used in investing activities................................ (272) (13,851)
FINANCING ACTIVITIES
Net borrowing (repayments) under bank credit lines................... -- 416
Costs relating to Exchange Offer..................................... (700) --
Proceeds from sale of preferred stock................................ -- 19,548
Proceeds from sale of common stock and warrants...................... -- 2,329
Payments on capital lease obligations................................ (267) (404)
------ --------
Net cash provided by (used in) financing activities.................. (967) 21,889
------ --------
Net increase (decrease) in cash and cash equivalents................. (922) (12,458)
Cash and cash equivalents at beginning of period..................... 9,260 20,188
------ --------
Cash and cash equivalents at end of period........................... $8,338 $ 7,730
====== ========
</TABLE>
See notes to Condensed Consolidated Financial Statements
8
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TRIKON TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1998
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 nine months ended September 30,
1998, are not necessarily indicative of the results that may be expected for the
year ending December 31, 1998. For further information, refer to the
consolidated financial statements and footnotes thereto included in Trikon
Technologies, Inc.'s (the "Company") Annual Report on Form 10-K for the year
ended December 31, 1997.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. During 1997, following significant losses from
operations, negative cash flows from operating activities, and violations of
debt covenants, the Company's working capital facility was terminated (see Note
G). The Company does not currently have a credit facility with any lenders. In
response to these conditions, the Company sold licenses of its technologies, as
discussed in Note I, restructured its operations, as discussed in Note L, and
consummated the Exchange Offer (as defined below), as discussed in Note J.
Management believes that these actions and the cash flow from future operations
will be sufficient to fund the Company's operations. However, any increase in
costs or decrease or elimination of anticipated sources of revenues or the
inability of the Company to successfully implement management's plans would
raise significant doubt as to the Company's ability to fund its operations in
the ordinary course.
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 (in thousands):
September 30, December 31,
1998 1997
------------ ------------
Components................................. $ 6,795 $ 7,864
Work in process............................ 11,664 13,680
Finished goods............................. 740 2,326
------- -------
$19,199 $23,870
======= =======
NOTE C: DEMONSTRATION SYSTEMS
Demonstration systems represent completed systems at certain strategic customer
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, provided that the equipment performs to specifications, management
expects that the customer will purchase the system, though they are not
obligated to do so. If the system is returned, it is refurbished for resale or
used for research and development. Demonstration systems are stated at the lower
of cost or estimated net realizable value and are depreciated on a straight line
method over four years, if they are not sold after one year.
NOTE D: PMT CVD PARTNERS, L.P. AGREEMENT
In the first quarter of fiscal 1997, the Company determined that certain
characteristics of the CVD technology of Trikon Technologies Limited and Trikon
Equipments Limited (collectively, "Trikon Limited"), known as "Flowfill", were
superior to the high density plasma CVD processes then being pursued by a
limited partnership sponsored by the Company (the "Limited Partnership")
pursuant to a R&D Agreement (the "R&D Agreement") entered into as of March 29,
1996 between the Limited Partnership and the Company (under which the Company
performed all research and development work for the Limited Partnership).The
Company decided to discontinue
9
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TRIKON TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1998 (C0NTINUED)
further research and development work under the R&D Agreement and instead focus
its consolidated efforts, on its own behalf and not on behalf of the Limited
Partnership, upon the Flowfill(R) CVD technology used in the equipment developed
and manufactured by Trikon Technologies Limited and Trikon Equipments Limited
(collectively "Trikon Limited"). Accordingly, a settlement of any and all rights
and claims by the limited partners of the Limited Partnership was made on June
30, 1997 ("CVD Purchase Agreement") to terminate the R&D Agreement and all
related agreements, and purchase all of the outstanding interests in the Limited
Partnership for 679,680 shares of the Company's Common Stock (the "CVD
Partnership Shares"). The assets acquired included approximately $2.2 million of
cash and approximately $3.0 million of in-process research and development which
was recorded as a one-time charge as purchased in-process technology expense in
the quarter ended June 30, 1997. In connection with the purchase of all of the
outstanding interests in the Limited Partnership, the Company agreed to cause a
registration statement covering the CVD Partnership Shares filed under the
Securities Act of 1933, as amended (the "Securities Act"), to become effective
on or prior to September 1, 1997. In the event that the Company did not cause a
registration statement to become effective on or prior to September 1, 1997, the
Company originally agreed to pay the holders of the CVD Partnership Shares
liquidated damages comprising a one-time fee of $75,000 and an amount equal to
$2,500 per day for each day after September 1, 1997, and prior to the effective
date of the registration statement. The Company and the holders of the CVD
Partnership Shares amended the CVD Purchase Agreement on December 12, 1997, to
provide for (i) the immediate payment of liquidated damages accrued through
November 1, 1997, of $225,000, (ii) no further incurrence of liquidated damages
should the registration statement be effective by March 15, 1998, (iii) in the
event that Trikon did not cause the registration statement to become effective
by March 15, 1998, resumption of liquidated damages accruing at a rate of $2,500
for each day thereafter until the Registration Statement becomes effective, and
(iv) should the registration statement not be effective by April 1, 1998, Trikon
would become obligated to the holders of CVD Partnership Shares for the
liquidated damages for the period between November 1, 1997, and March 15, 1998,
of $335,000. On September 15, 1998, pursuant to a second amendment to the CVD
Purchase Agreement, the Company issued 300,000 shares of Common Stock to the
holders of CVD Partnership Shares in exchange for the termination of their
registration rights, the relinquishment of any right to liquidated damages under
the CVD Purchase Agreement, including those accrued to the date of the second
amendment, and the release the Company from any liability or claim arising from
or relating to the CVD Purchase Agreement. This has resulted in a $0.6 million
and a $0.2 million gain which has been recorded in the statements of operations
for the three and nine months ended September 30, 1998, respectively.
NOTE E: INCOME TAXES
The tax benefit in the nine months ended September 30, 1998 represents the
combination of a foreign tax benefit associated with Trikon Limited's operating
loss and no tax liability on domestic profits because they are fully absorbed by
tax losses brought forward. In the third fiscal quarter of 1997, the tax benefit
represents the combination of a foreign tax benefit associated with Trikon
Limited's operating loss and no tax liability on domestic losses. For these
reasons the effective tax rates differ from the statutory federal tax rate. The
Company's ability to use its domestic and foreign net operating losses and
credit carryforwards will depend upon future income and will be subject to an
annual limitation, required by the Internal Revenue Code of 1986 and similar
state provisions.
Upon closing of the Exchange Offer (see Note J), a change of ownership occurred
under section 382 of the Internal Revenue Code, which will substantially limit
the availability of the Company's net operating loss carryforward. Due to the
limitation, a substantial amount of net operating loss carryforward may expire
unused.
The Company has operating subsidiaries in several countries, and each subsidiary
is taxed based on the laws of the jurisdiction in which it operates. Because
taxes are incurred at the subsidiary level, and one subsidiary's tax losses
cannot be used to offset the taxable income of subsidiaries in other
jurisdictions, the Company's consolidated effective tax rate may increase to the
extent it reports tax losses in some subsidiaries and taxable income in others.
The subsidiaries are subject to taxation in countries where they operate, and
such operations generally are taxed at rates similar to or higher than tax rates
in the United States. The payment of dividends or distributions by the
10
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TRIKON TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1998 (C0NTINUED)
subsidiaries to the United States would be subject to withholding taxes in the
country of domicile and may be mitigated under the terms of relevant double tax
treaties.
NOTE F: NET INCOME (LOSS) PER SHARE
On December 31, 1997, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings Per Share," which changes the method
previously used to compute earnings per share and requires restating all prior
periods. Under the new requirements for calculating basic earnings per share,
the dilutive effect of stock options are excluded from the calculation of basic
earnings per share and included in the calculation of diluted earnings per
share, when dilutive. Diluted earnings per share for the nine months ended
September 30, 1998 excludes the effects of all outstanding stock options because
the exercise price of such stock options exceeded the market price of the
underlying stock and assumes the Series G Preferred Stock was converted into
2,962,032 shares of Common Stock as of January 1, 1998 under the if-converted
method. Diluted earnings per share for the three months ended September 30, 1998
also excludes the effects of all options and convertible preferred stock because
such securities were antidilutive for the periods. Net income and loss amounts
used in the calculations of basic and diluted per share are adjusted by
dividends on preferred stock. Basic and diluted earnings (loss) per share under
SFAS 128 for the three and nine months ending September 30, 1997 were the same
as previously reported as primary loss per share.
NOTE G: LINE OF CREDIT AND LONG-TERM DEBT
During the period from November 14, 1996 to November 12, 1997, the Company had a
senior secured credit facility with certain domestic and U.K. lenders (the
"Working Capital Facility") that permitted the Company and its subsidiaries to
borrow an aggregate of up to $35.0 million, subject to borrowing base
limitations, based upon eligible accounts receivable. The Company was out of
compliance with certain financial ratios and covenants established under the
Working Capital Facility at December 31, 1996, March 31, 1997, June 30, 1997 and
September 30, 1997.
On November 12, 1997, in connection with the sale of licenses to Applied
Materials, the Company entered into a pay-off agreement with its domestic and
U.K. lenders relating to the Working Capital Facility (the "Pay-off Agreement").
Under the Pay-off Agreement, among other things, the Company made payments in
the aggregate of approximately $12.5 million (which included all outstanding
principal and interest due at November 12, 1997) to its lenders under the
Working Capital Facility, the lenders under the Working Capital Facility
released all of their liens on the assets of the Company and the Working Capital
Facility was terminated. In addition, in order to collateralize certain
obligations of Trikon Limited relating to bankers' guarantees and a credit
facility with the Company's U.K. lender, the Company provided cash collateral of
approximately $1.4 million to the U.K. lender. As of September 30, 1998, the
cash collateral provided was $1.1 million.
In connection with the acquisition of Trikon Limited, the Company issued
$86,250,000 principal amount of Convertible Subordinated Notes (the "Convertible
Notes"). The Convertible Notes bear interest at 7-1/8% which is payable in
semi-annual installments beginning on April 15, 1997. From January 1997 to May
14, 1998, the Convertible Notes bore an additional 0.5% interest per annum due
to the Company's noncompliance with certain registration rights of the
Convertible Notes.
Until May 14, 1998, the Convertible Notes contained certain provisions which,
upon the occurrence of an "Event of Default" (as defined in the Convertible
Notes) could cause the Convertible Notes to become due and payable immediately.
Such an Event of Default would occur if, among other things, the Company were to
default on the Working Capital Facility or any other secured indebtedness, as
defined in the Convertible Notes, caused by the failure to pay principal and
interest payments when due or resulting from the acceleration of any such
indebtedness prior to its express maturity in excess of $10.0 million.
11
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TRIKON TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1998 (C0NTINUED)
On May 14, 1998, the Company accepted for exchange approximately $82.1 million
principal amount of Convertible Notes duly tendered in the Exchange Offer
described in Note J below.
As outlined in the offering document disseminated in connection with the
Exchange Offer, the Company did not pay interest of $3.3 million accrued to and
due on April 15, 1998. Interest was paid to the holders of the Convertible Notes
which did not accept the Exchange Offer on May 15, 1998. In accordance with the
terms of the Exchange Offer, any accrued and unpaid interest on Convertible
Notes accepted in the Exchange Offer was not paid and was included in the
calculation of the extraordinary gain arising on the exchange of the Convertible
Notes.
NOTE H: SERIES G PREFERRED STOCK
During the quarter ended June 30, 1997, the Company commenced a private offering
(the "Private Placement") of shares of its newly-authorized Series G Preferred
Stock together with three-year warrants to purchase Common Stock at an exercise
price of $8.00 per share (the "Warrants").The Company sold an aggregate of
2,962,032 shares of Series G Preferred Stock (together with Warrants to purchase
an aggregate of 888,610 shares of Common Stock) with net proceeds to the Company
of approximately $19,349,000. Investors in the Private Placement received
Warrants exercisable for a number of shares of Common Stock equal to 30% of the
number of shares of Series G Preferred Stock purchased, at a total price of
$6.75 per share of Series G Preferred Stock.
On May 14, 1998, following the expiration of the Exchange Offer (see Note J),
the Company accepted for conversion 2,873,143 shares of G Preferred Stock, or
approximately 97% of the outstanding shares, duly tendered in the Exchange
Offer. In accordance with the terms of the Certificate of Determination of the
Company that sets forth the rights, preferences and privileges of the Series G
Preferred Stock, the conversion of more than two- thirds of the outstanding
shares of Series G Preferred Stock has caused the automatic conversion of all
the outstanding shares of Series G Preferred Stock.
NOTE I: LICENSE AGREEMENTS
On November 12, 1997, the Company granted non-exclusive, worldwide, paid-up
licenses of its MORI(TM) source and Forcefill(R) PVD technologies to Applied
Materials. Under the terms of the license agreements and related technology
transfer agreements, Applied Materials paid the Company $29.5 million, $26.5
million of which was paid in 1997 and an additional $3 million of which was paid
in the first quarter of 1998 upon completion of the technology transfer. Under
one of the license agreements, Applied Materials also purchased four MORI(TM)
sources for $0.5 million prior to December 31, 1997.
On March 18, 1998, the Company granted a nonexclusive, worldwide license of its
MORI(TM) source technology to Lam Research. Under the terms of the license
agreement, Lam Research will pay up to $20.0 million, $10.0 million of which was
paid in the first half of 1998 and $10.0 million of which consists of contingent
payments and royalties. License revenue of $10 million has been recognized in
the consolidated income statement for the three months ended March 31, 1998. The
license agreements with Applied Materials and Lam Research do not preclude
Trikon from utilizing, or licensing to other third parties, the licensed
technology.
NOTE J: EXCHANGE OFFER
On April 14, 1998, the Company commenced an exchange offer (the "Exchange
Offer") for all of the outstanding Convertible Notes, Series G Preferred Stock
and Warrants and filed a Schedule 13E-4 with the Securities and Exchange
Commission. The Exchange Offer expired at 5:00 p.m., New York City time, on May
14, 1998, and immediately thereafter, the Company accepted for exchange or
conversion all validly tendered Convertible Notes, Series G Preferred Stock and
Warrants. $82,103,000 principal amount of Convertible Notes (approximately 95%
of the aggregate principal amount outstanding), 2,873,143 shares of Series G
Preferred Stock (approximately 97% of
12
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TRIKON TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1998 (C0NTINUED)
the total shares outstanding) and 866,388 Warrants (approximately 97% of the
Warrants outstanding) had been validly tendered for exchange. Because more than
two-thirds of the outstanding shares of Series G Preferred Stock tendered, in
accordance with the terms of the Certificate of Determination of the Company
establishing the rights, preferences and privileges of the Series G Preferred
Stock, all other outstanding shares of Series G Preferred Stock automatically
converted into shares of Common Stock. The $82,103,000 principal amount of
Convertible Notes tendered have been exchanged for 22,660,798 new shares of
Common Stock, 2,855,754 new shares of Series H Preferred Stock, $10 stated
amount per share, and 29,264.625 new shares of Series I Junior Participating
Preferred Stock. The shares of Series G Preferred Stock and warrants were
exchanged for 7,161,002 new shares of Common Stock and 7,997.489 new shares of
Series I Junior Participating Preferred Stock. In the quarter ended September
30, 1998, the Company exchanged the remaining 22,222 Warrants on the same terms
as those already tendered. The Series H Preferred Stock will be redeemable at
the option of the Company for cash on June 30, 2001, at a redemption price equal
to the stated amount and the holders of the Series H Preferred Stock shall be
entitled to receive dividends at an annual rate of 8-1/8% of the stated amount
payable annually, at the option of the Company, in cash or additional shares of
preferred stock or any combination thereof. The Series H Preferred Stock will be
subject to automatic conversion if the Company's Common Stock price reaches
certain levels and accelerated redemption if certain cash flow levels are
achieved. Dividends amounting to $973,238 due on October 14, 1998 on the Series
H Preferred Stock were paid with 97,320 new shares of Preferred Stock.
In connection with the consummation of the Exchange Offer, the Company has
agreed to issue 5,015,811 shares of restricted Common Stock and 6,476.995 shares
of restricted Series I Preferred Stock to the Company's Chairman of the Board.
Subject to certain conditions, the restricted stock will vest one hundred
percent (100%) upon the earlier of (i) May 14, 2003, or (ii) the sale of all or
substantially all of the assets of the Company. The restricted stock was valued
at $7.6 million based upon average traded prices immediately after the grant.
This amount has been accounted for as an addition to Common Stock and as
deferred compensation within the Statement of Shareholders Equity. The deferred
compensation is being amortized on a straight line basis over a five year period
resulting in a charge of $0.4 million and $0.6 million which is included in
selling, general and administrative expenses during the three and nine months
ended September 30, 1998, respectively. Upon conversion of all Series I
Preferred Stock into Common Stock, the stock issued to the Chairman of the Board
represented approximately 11,500,000 shares or 12% of the outstanding Common
Stock (after giving effect to the elimination of the restrictions on the
Chairman of the Board's stock).
On July 28, 1998, at the Company's Annual Meeting of Shareholders, the
Shareholders approved, among other things, an amendment (the "Charter
Amendment") to the Articles of Incorporation of the Company to provide for an
increase in the number of authorized shares of Common Stock. Upon approval of
the Charter Amendment, each share of Series I Preferred Stock automatically
converted into 1,000 shares of Common Stock.
As outlined in the Exchange Offer documents, the Company did not pay interest of
$3.3 million accrued to and due on April 15, 1998. Interest was paid to the
holders of Convertible Notes which did not accept the Exchange Offer on May 15,
1998. In accordance with the terms of the Exchange Offer, any accrued and unpaid
interest on Convertible Notes accepted in the Exchange Offer will not be paid
and has been included in the calculation of the extraordinary gain arising on
the exchange of the Convertible Notes.
The Exchange Offer has been accounted for under SFAS No. 15, "Troubled Debt
Restructuring."
NOTE K: EMPLOYMENT AGREEMENTS
In connection with the negotiation of the Applied Materials and Lam Research
licenses, restructuring the Company and future licensing efforts, the Board of
Directors authorized a $1,500,000 bonus payable to the Chairman of the Board.
The bonus is not payable prior to June 30, 1999 and is conditional amongst other
matters upon the Company having at least $8,000,000 of earnings before the
deduction of interest, taxes, depreciation and amortization, computed in
accordance with generally accepted accounting principles, during and for its two
most recently
13
<PAGE>
TRIKON TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1998 (C0NTINUED)
completed fiscal quarters taken as one period. This bonus has not been reflected
in the financial statements to and at September 30, 1998 and will be charged to
future earnings when it is probable that the financial and other conditions
relating to the bonus will be met.
NOTE L: RESTRUCTURING
At December 31, 1997 the Company recorded a liability for certain restructuring
costs related to the closure of its Chatsworth operations. For the three and
nine months ended September 30, 1998, the restructuring liability has been
reduced by actual payments as anticipated by the Company. At June 30, 1998, the
Company set up an additional reserve of $1.8 million for future support costs
relating to MORI(TM) equipment supplied to customers prior to the commencement
of the restructuring. During the quarter ended September 30, 1998, support costs
of $0.7 million relating to MORI equipment have been charged against this
reserve, in line with Company estimates.
As a result of the Company's decision to substantially exit the MORI(TM) Etch
business, the Company anticipates certain MORI(TM) Etch related product returns.
Although the Company is not required to accept all such returns, the Company
believes accepting returns may be necessary to maintain certain customer
relationships. Accordingly, the sales return reserve recorded as of September
30, 1998 is management's estimate of the liability for MORI(TM) Etch products
that may be returned due to the Company's decision to substantially exit the
MORI(TM) Etch business. There have been payments made for sales returns of $0.75
million in the three and nine months ended September 30, 1998. Dallas
Semiconductor Corporation ("Dallas Semiconductor") filed on April 9, 1998 an
action against the Company in state court in Dallas County, Texas. The complaint
alleges breech of warranty, fraud, negligent misrepresentation, and breech of
contract regarding the purchase of two PMT Pinnacle Polysilicon Etch Systems
from the Company. Dallas Semiconductor seeks damages of $8.0 million and
exemplary damages of $16.0 million. The lawsuit was removed to federal court on
May 7, 1998. In response, Dallas Semiconductor decided not to oppose the merits
of the motion but instead exercise its "one time" right to amend its pleading
under applicable law. On June 26, 1998, Dallas Semiconductor filed a first
amended complaint setting forth its claims with greater specificity. The Company
filed a motion to dismiss the amended claims on July 30, 1998. The Company
believes that the claims are without merit and intends to vigorously defend
them. At this early stage, the Company cannot determine the total expense or the
ultimate outcome of the lawsuit. Although the Management does not believe the
claim will have a material adverse effect on the Company's financial position,
results of its operations or cash flow, there can be no assurance to that
effect.
In the ordinary course of business and in connection with the Company's
restructuring, the Company is involved in various types of claims and legal
proceedings which will result in litigation or other legal proceedings. The
Company does not anticipate that any of the proceedings will have a material
adverse effect on the Company's financial position, results of operations or
cash flow.
NOTE M: EXTRAORDINARY GAIN
On May 14, 1998, the Company accepted for exchange $82.1 million principal
amount of Convertible Notes tendered in the Exchange Offer (See Note J). The
Convertible Notes were exchanged for 22,660,798 shares of Common Stock,
29,264.625 Series I Junior participating Preferred Stock and 2,855,754 Series H
preferred Stock. The shares of Common Stock and equivalents had an average value
of $0.66 each following the exchange. The extraordinary gain arising on the
exchange is as follows (in thousands):
Principal amount of Convertible Notes exchanged..... $82,103
Interest waived...................................... 3,635
-------
Value of Common Stock and equivalents issued......... 85,738
(34,271)
14
<PAGE>
TRIKON TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1998 (C0NTINUED)
Series H Preferred Stock issued - principal amount... (28,558)
Convertible Note issuance costs written off.......... (1,916)
Costs relating to the exchange offer................. (700)
--------
Gain on exchange..................................... $ 20,293
--------
NOTE N: COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted SFAS 130, Reporting Comprehensive
Income. SFAS 130 establishes new rules for the reporting and display of
comprehensive income and its components; however, the adoption of this statement
has no impact on the Company's net income or shareholders' equity. SFAS 130
requires unrealized gains or losses on the Company's available-for-sale
securities and foreign currency translation adjustments, which prior to adoption
were reported separately in shareholders' equity to be included in other
comprehensive income. Prior year financial statements have been reclassified to
conform to the requirements of SFAS 130.
During the nine months of 1998 and 1997, total comprehensive income (loss)
amounted to $10.8 million and ($37.8) million, respectively.
During the three months ended September 30, 1998 and 1997, total comprehensive
loss amounted to ($5.1) million and ($13.6) million, respectively.
15
<PAGE>
TRIKON TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1998 (C0NTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and Results of
Operations set forth below 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 with respect to the financial condition, results
of operations and business of the Company. These forward-looking statements are
subject to certain risks and uncertainties that could cause actual results to
differ materially and adversely from those set forth in the forward-looking
statements, including, without limitation, the availability of financial
resources adequate for the Company's short-, medium- and long-term needs, the
Company's ability to successfully implement its strategy of reorganizing its
product lines and overall business, varying customer demand for the Company's
new products and system products, potential material adverse effects on such
demand resulting from the Company's licensing of its MORI(TM) source and
Forcefill(R) physical vapor deposition ("PVD") technologies to Applied
Materials, and its MORI(TM) source technology to Lam Research, supply and
manufacturing constraints and costs, dependence on outside suppliers, the
various effects on revenue, margins, inventories and operating expenses of
reorganizing in the Company's product lines and overall business, the Company's
ability to build and maintain adequate staff infrastructure in the area of PVD
and chemical vapor deposition ("CVD") design, product engineering and
development, sales and marketing, and administrations, customer warranty claims,
slowing growth in the demand for semiconductors, challenges from the Company's
competition, general economic conditions, including the economic downturn in
Asia, year 2000 problems, and the other risks and uncertainties described from
time to time in the Company's public announcements and SEC filings, including
without limitation the Company's Quarterly and Annual Reports on Form 10-Q and
10-K, respectively. The Company cautions that the foregoing list of important
factors is not exclusive. In addition, such list of important factors speaks
only as of the date hereof and the Company does not undertake to update any
written or oral forward-looking statement that may be made from time to time by
or on behalf of the Company.
OVERVIEW
The Company develops, manufactures, markets and services semiconductor equipment
for the worldwide semiconductor manufacturing industry.
On November 15, 1996, the Company acquired (the "Acquisition") Electrotech
Limited and Electrotech Equipments Limited, privately-owned United Kingdom
companies founded in 1968, for an aggregate consideration of $75.0 million in
cash and 5.6 million shares of Common Stock, with an estimated fair market value
of $70.7 million, based on the closing sale price of a share of Common Stock on
the Nasdaq National Market on the last day prior to the public announcement of
the parties' agreement to the terms of the Acquisition. During the second
quarter of 1997, Electrotech Limited and Electrotech Equipments Limited changed
their names to Trikon Technologies Limited and Trikon Equipments Limited
(collectively, "Trikon Limited"). Trikon Limited develops, manufactures, markets
and services semiconductor fabrication equipment with products and technologies
for CVD, PVD and etch applications. The Acquisition expanded the Company's
product lines and its sales and service organization which has enabled the
Company to have a greater presence throughout the United States, Europe and
Asia.
In the second half of 1997, in response to continuing losses, violations of debt
covenants and the limited availability of financing, the Company began a
restructuring effort that included exploring various strategic alternatives as
to the future of the business. In October 1997, the Company announced a 20%
reduction in its workforce. In November 1997, the Company sold worldwide,
non-exclusive, paid up licenses of its MORI(TM) source and Forcefill(R) PVD
technologies to Applied Materials for $29.5 million. With the sale of the
MORI(TM) source license, the Company began executing a plan to close its Etch
Division located in Chatsworth, California, resulting in the termination of an
additional 13% of its work force. In connection with the closure of the
Chatsworth Etch operations and the sale of the licenses, the Company incurred
during the fourth quarter of 1997, non-cash related charges of approximately
$32.5 million for the write-off of certain accounts receivable, inventories and
long-lived assets which due to the sale of the licenses and the decision to
close the Etch Division had become impaired. In addition, due to the continuing
losses, reduced sales and changes in the Company's business, since the
acquisition of Trikon Limited, the Company wrote off, during the fourth quarter
of 1997, approximately $32.3 million of intangible assets established in the
allocation of the purchase price of Trikon Limited. The Company incurred certain
cash related charges of approximately $18.3 million associated with the
termination of employees of the
16
<PAGE>
TRIKON TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1998 (C0NTINUED)
Etch Division and of the Company's worldwide operations, closing of the
Chatsworth Etch operations and anticipated product returns. During the three and
nine months ended September 30, 1998, the Company settled approximately $1.1
million and $4.4 million, respectively, of the accrued restructuring costs. At
June 30, 1998, the Company reserved a further $1.8 million to meet future
customer support costs associated with MORI(TM) equipment supplied to customers
prior to closure of the MORI(TM) etch division. Approximately $0.7 million of
these costs have been charged to this reserve in the quarter ended September 30,
1998. The Company anticipates approximately $1.5 million of the remaining
restructuring liabilities at September 30, 1998 will be paid in 1998, $3.0
million in 1999, and the balance thereafter. Actual payments of remaining
restructuring liabilities could vary significantly depending on the Company's
cash flows and continuing negotiations with its customers. As a result of the
closure of the Chatsworth Etch operations, operating costs for the first three
quarters of 1998 are significantly reduced by comparison with the same periods
of 1997. Costs of $97.6 million relating to the restructuring of the Company
were charged in the consolidated Statement of Operations for the year ended
December 31, 1997. The above-described charges to earnings and reserves reflect
the estimates and assumptions of management, and there can be no assurance that
the provisions and allowances are adequate. If actual costs are greater than the
provisions and allowances, then it will materially and adversely affect its
results of operations.
Severance costs of $0.5 million in respect of 63 redundancies announced in the
quarter have been charged to operations in the third quarter of 1998.
As a result of the restructuring, the remaining business consists of the
worldwide operations of Trikon Limited, the Company acquired by Trikon on
November 15, 1996, with headquarters located in the United Kingdom.
17
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain operating data as a percentage of total
revenue for the periods indicated:
<TABLE>
<CAPTION>
Three months ended Nine months ended
---------------------------------- ------------------------------------
September 30, September 30, September 30, September 30,
1998 1997 1998 1997
---------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Product revenues............................... 100.0% 100.0% 66.6% 100.0%
License revenues............................... -- -- 33.4 --
------ ------ ------ ------
Total revenues................................. 100.0 100.0 100.0 100.0
Cost of goods sold............................. 72.2 72.4 48.1 72.3
------ ------ ------ ------
Gross margin................................... 27.8 27.6 51.9 27.7
Operating expenses:
Research and development.................. 45.9 33.6 21.4 30.7
Selling, general and administrative....... 120.1 77.6 52.1 57.6
In-process technology..................... -- -- -- --
Restructuring costs....................... -- -- 6.2 --
Amortization of intangibles............... -- 7.2 -- --
------ ------ ------ ------
Total operating expenses....................... 166.0 118.4 79.7 101.3
------ ------ ------ ------
Loss from operations........................... (138.2) (90.8) (27.8) (73.7)
Interest income (expense), net................. 12.7 (22.2) (7.7) (17.3)
------ ------ ------ ------
Loss before income tax benefit and
extraordinary item........................ (125.5) (113.0) (35.5) (91.0)
Income tax benefit............................. -- (6.6) (0.7) (8.6)
------ ------ ------ ------
Net loss before extraordinary item............. (125.5)% (106.4)% (34.8)% (82.4)%
====== ====== ====== ======
</TABLE>
PRODUCT REVENUES. Product revenues for the third quarter of fiscal 1998
decreased 65% to $4.5 million compared to $12.7 million for the third quarter of
fiscal 1997. During the third quarter of fiscal 1998, the Company shipped one
Omega etch system and two MORI modules as compared to one Sigma PVD, one ND and
three Flowfill CVD, two Omega(TM) etch, and one MORI system during the third
quarter of fiscal 1997. Revenues from product sales for the nine month period
ended September 30, 1998 decreased by 54% to $20.0 million as compared to $43.7
million for the nine months ended September 30, 1997. Product sales decreased as
a result of the shipment of eight systems, including one MORI etch system in the
nine months ended September 30, 1998 as compared to twenty-two systems,
including five MORI etch systems in the nine months ended September 30, 1997.
Sales outside of the United States accounted for approximately 77% of total
revenues in the third quarter of 1998 and 88% of total revenues in the third
quarter of 1997. Sales outside of the United States accounted for approximately
48% of total revenues in both the nine months ended September 30, 1998 and 1997.
Excluding the license revenues, sales outside the United States accounted for
73% and 48% of product revenues for the nine months ended September 30, 1998 and
1997, respectively. The quantity of product shipped will fluctuate significantly
from quarter to quarter and the individual customers to which these products are
sold can also change from quarter to quarter. Given the significance of each
individual sale, the percentage of sales made outside of the United States will
also fluctuate significantly from quarter to quarter.
LICENSE REVENUES. License revenues in the nine months ended September 30, 1998,
comprise the sale of a non-exclusive worldwide license of MORI(TM) source
technology to Lam Research Corporation (see Note I to Notes to Condensed
Consolidated Financial Statements).
18
<PAGE>
GROSS MARGIN ON PRODUCT REVENUES. The Company's gross margin on product revenues
for the three and nine months ended September 30, 1998 and the three and nine
months ended September 30, 1997 was 28%. The relatively low gross margin for the
third quarter of fiscal 1998 was due to the low level of production and product
sales which has resulted in under-recovery of manufacturing overhead. The gross
margin for the nine months ended September 30, 1998 has also been adversely
affected by a $0.6 million write-down of inventory considered redundant.
Excluding this write-down the gross margin for the nine months would have been
31%. The gross margin for the three and nine months ended September 30, 1997 was
adversely affected by charges of $0.6 million and $4.4 million respectively
arising from the application of a write-up of Trikon Limited inventory on hand
as of November 15, 1996 and sold during those periods as required by Accounting
Principles Board Opinion No. 16 ("APB No. 16"). The gross margin for the three
and nine months ended September 30, 1997, excluding the APB No. 16 write-ups was
32% and 38% respectively. Gross margins will continue to be adversely impacted
by issues related to weakened product demand such as unabsorbed manufacturing
overhead associated with reduced units sold in the remainder of 1998.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses for the
third quarter of fiscal 1998 were $2.1 million, or 46% of total revenues,
compared to $4.3 million, or 34% of total revenues, for the third quarter of
fiscal 1997. Included in research and development expenses during the third
quarter of fiscal 1997 is $2.0 million related to the Chatsworth Etch division.
For the nine months ended September 30, 1998, research and development expenses
were $6.4 million, or 21% of total revenues, as compared to $13.4 million, or
31% of total revenues, for the nine months ended September 30, 1997. During the
nine months ended September 30, 1998 research and development expenses were 32%
of product revenues. The major focus of the Company's research and development
efforts during the first nine months of fiscal 1998, was on the development of
new processes in further advancing its proprietary PVD, CVD and etch
technologies as well as adding enhancements to its existing products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the third quarter of fiscal 1998 were $5.4 million,
or 120% of total revenues, compared to $9.8 million, or 78% of total revenues,
in the third quarter of fiscal 1997. In the nine months to September 30, 1998,
selling, general and administrative expenses were $15.6 million or 52% of total
revenues, compared to $25.2 million or 58% of total revenues in the nine months
ended September 30, 1997. Selling, general and administrative costs for the
quarter ended September 30, 1998 included severance costs of $0.5 million and
deferred compensation costs of $0.4 million relating to the issue of restricted
Common Stock to the Company Chairman. The dollar decreases were primarily due to
the reduced overhead resulting from the closure of the Chatsworth Etch
operations.
INCOME (LOSS) FROM OPERATIONS. The Company realized a $6.2 million loss from
operations in the third quarter of fiscal 1998, as compared with a $11.5 million
loss from operations in the third quarter of fiscal 1997. The loss from
operations in the third quarter of fiscal 1998 was due primarily to weak product
demand resulting in reduced product revenues and lowered gross margins and to a
charge for severance costs of $0.5 million. For the nine months ended September
30, 1998 the Company realized a $8.3 million loss from operations, compared with
a $32.2 million loss from operations for the nine months ended September 30,
1997. The Company anticipates that operating results will continue to be
unfavorably impacted by weak product demand during the remainder of fiscal 1998.
INTEREST INCOME (EXPENSE), NET. Interest income, net amounted to $0.6 million in
the third quarter of fiscal 1998 compared with interest expense, net of $2.8
million in the third quarter of fiscal 1997. Interest income, net in the third
quarter of 1998 includes a credit of $0.6 million being the amount of penalties
waived by the holders of shares in the CVD Partnership less the value of shares
of Common Stock issued to them calculated at the closing share price on the date
of the agreement. The reduction in interest expense between the third quarter of
1997 and the third quarter of 1998 arises from the repayment and non-utilization
of the Working Capital Facility since November 1997 and the exchange for equity
of approximately $82.1 million of convertible unsecured loan notes on May 14,
1998. Interest expense for the three months and nine months ended September 30,
1998 is net of interest income of $0.1 million and $0.5 million, respectively.
Interest expense for the three and nine months ended September 30, 1997 is net
of interest income of $0.1 million and $0.6 million, respectively.
INCOME TAXES. The Company recorded no tax benefit or charge in the three months
ended September 30, 1998 and a tax benefit of $0.2 million in the nine months
ended September 30, 1998 compared to a $0.8 million tax benefit in the third
quarter of fiscal 1997 and a $3.7 million benefit for the nine months ended
September 30, 1997.
19
<PAGE>
The tax benefit in the nine months ended September 30, 1998 represents the
combination of a foreign tax benefit associated with Trikon Limited's operating
loss and no tax liability on domestic profits which are fully absorbed by tax
losses brought forward. In the second fiscal quarter of 1997, the tax benefit
represents the combination of a foreign tax benefit associated with Trikon
Limited's operating loss and the reversal of deferred tax credits established at
November 15, 1996 for the difference in the tax basis and financial reporting
basis of the Electrotech assets acquired.
The Company's ability to use its domestic and foreign net operating losses and
credit carryforwards will depend upon future income and will be subject to an
annual limitation, required by the Internal Revenue Code of 1986, as amended
(the "Internal Revenue Code"), and similar state provisions.
Upon closing of the Exchange Offer (defined in Note J of Notes to Unaudited
Condensed Consolidated Financial Statements), a change of ownership occurred
under section 382 of the Internal Revenue Code, which will substantially limit
the availability of the Company's net operating loss carryforward. Due to the
limitation, a substantial amount of net operating loss carryforward may expire
unused.
The Company has operating subsidiaries in several countries, and each subsidiary
is taxed based on the laws of the jurisdiction in which it operates. Because
taxes are incurred at the subsidiary level, and one subsidiary's tax losses
cannot be used to offset the taxable income of subsidiaries in other
jurisdictions, the Company's consolidated effective tax rate may increase to the
extent it reports tax losses in some subsidiaries and taxable income in others.
The subsidiaries are subject to taxation in countries where they operate, and
such operations generally are taxed at rates similar to or higher than tax rates
in the United States. The payment of dividends or distributions by the
subsidiaries to the United States would be subject to withholding taxes in the
country of domicile and may be mitigated under the terms of relevant double tax
treaties.
EXTRAORDINARY GAIN
On May 14, 1998, the Company accepted for exchange approximately $82.1 million
principal amount of Convertible Notes tendered in the Exchange Offer (see Note J
of Notes to Unaudited Condensed Consolidated Financial Statements). The
Convertible Notes were exchanged for 22,660,798 shares of Common Stock,
29,264.625 shares of Series I Junior participating Preferred Stock and 2,855,754
shares of Series H preferred Stock. The shares of Common Stock and equivalents
had an average value of $0.66 each following the exchange. The extraordinary
gain arising on the exchange is as follows (in thousands):
Principal amount of Convertible Notes exchanged..... $ 82,103
Interest waived...................................... 3,635
--------
85,738
Value of Common Stock and equivalents issued......... (34,271)
Series H Preferred Stock issued - principal amount... (28,558)
Convertible Note issuance costs written off.......... (1,916)
Costs relating to the exchange offer................. (700)
--------
Gain on exchange..................................... $ 20,293
--------
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1998, the Company had $8.3 million in cash and cash
equivalents, compared to $9.3 million at December 31, 1997. The decrease in cash
and cash equivalents resulted from cash generated from operating activities of
$0.3 million, less cash used in investing activities of $0.3 million and cash
used in financing activities of $1.0 million.
20
<PAGE>
On March 18, 1998, the Company granted a non-exclusive, worldwide license of its
MORI(TM) source technology to Lam Research. Under the terms of the license
agreement, Lam Research will pay up to $20.0 million, $10.0 million of which was
paid in the first half of 1998, and $10.0 million of which consists of
contingent payments and royalties.
On November 12, 1997, the Company granted nonexclusive, worldwide, paid-up
licenses of its MORI(TM) source and Forcefill(R) PVD technologies to Applied
Materials. Under the terms of the license agreements and related technology
transfer agreements, Applied Materials paid the Company $29.5 million, $26.5
million of which was paid in 1997 and an additional $3 million of which was paid
in the first quarter of 1998 upon completion of the technology transfer. Under
one of the license agreements, Applied Materials also purchased four MORI(TM)
sources for $0.5 million prior to December 31, 1997. The license agreements with
Applied Materials and Lam Research do not preclude Trikon from utilizing, or
licensing to other third parties, the licensed technology.
During the period from November 14, 1996 to November 12, 1997, the Company had a
senior secured credit facility with certain domestic and U.K. lenders (the
"Working Capital Facility") that permitted the Company and its subsidiaries to
borrow an aggregate of up to $35.0 million, subject to borrowing base
limitations, based upon eligible accounts receivable. The Company was out of
compliance with certain financial ratios and covenants established under the
Working Capital Facility at December 31, 1996, March 31, 1997, June 30, 1997 and
September 30, 1997.
On November 12, 1997, in connection with the sale of licenses to Applied
Materials, the Company entered into a pay-off agreement (the "Pay-off"
Agreement) with its domestic and U.K. lenders relating to the Working Capital
Facility. Under the terms of the Pay-off Agreement, the Company made payments in
the aggregate of approximately $12.5 million (including all outstanding
principal and interest due at November 12, 1997) to its lenders under the
Working Capital Facility, the lenders under the Working Capital Facility
released all of their liens on the assets of the Company and the Working Capital
Facility and all of the Company's obligations under the Working Capital
Agreement were terminated. In order to collateralize certain obligations of
Trikon Limited relating to bankers guarantees and a credit facility with the
Company's U.K. lender, the Company provided cash collateral of approximately
$1.4 million to the U.K. lender. As of September 30, 1998, the cash collateral
provided was $1.1 million.
The $29.5 million in proceeds from the sale of the license agreements to Applied
Materials was used to pay off the $12.5 million balance on the Working Capital
Facility and $3.1 million in interest due on the Convertible Notes. The Company
is using the remainder to fund the closure of the Chatsworth, California, Etch
operations, including the employee termination cost and debt service
requirements.
During the nine months ended September 30, 1998, Trikon Limited made the final
repayment on a term-loan from Lloyd's Bank PLC which was secured by property in
Bristol, United Kingdom.
In connection with the Acquisition of Trikon Limited, the Company issued
$86,250,000 of 7-1/8% Convertible Subordinated Notes due 2001 (the "Convertible
Notes").
On April 14, 1998, the Company commenced an exchange offer (the "Exchange
Offer") for all of the outstanding Convertible Notes, Series G Preferred Stock
and warrants to purchase its Common Stock issued in connection with the
placement of the Series G Preferred Stock (the "Warrants"). The Exchange Offer
expired on May 14, 1998, and immediately thereafter, the Company accepted for
conversion $82,103,000 principal amount of Notes (approximately 95% of the
aggregate principal amount outstanding). The holders of $4,147,000 principal
amount of Notes did not accept the Exchange Offer and those Notes remain
outstanding. The holders of more than two-thirds of the Series G Preferred Stock
accepted the Exchange Offer and in accordance with the terms of the Exchange
Offer all 2,962,032 outstanding of Series G Preferred Stock were exchanged for
shares of Common Stock. The Company has also accepted for exchange all 888,610
Warrants outstanding. As outlined in the offering document issued in connection
with the Exchange Offer, the Company did not pay interest of $3.3 million
accrued to and due on April 15, 1998. Interest was paid to the holders of the
Convertible Notes which did not accept the Exchange Offer on May 15, 1998. In
accordance with the terms of the Exchange Offer, accrued and unpaid interest on
Convertible Notes accepted in the Exchange Offer has not been paid and was
included in the calculation of the profit or loss arising on the exchange of the
Convertible Notes.
21
<PAGE>
The Company anticipates that it will spend up to $0.2 million for capital
expenditures for the months remaining in fiscal 1998. This is expected to
comprise routine replacement of capital items.
During 1997, following significant losses from operations, negative cash flows
from operating activities, and violations of debt covenants, the Company's
working capital facility was terminated (see Note G to Unaudited Condensed
Consolidated Financial Statements above). The Company does not currently have a
credit facility with any lenders. In response to these conditions the Company
sold licenses of its technologies, restructured its operations, and consummated
the exchange offer discussed in Note J to the Notes to the Unaudited Condensed
Consolidated Financial Statements. Management believes that these actions and
the cash flow from future operations will be sufficient to fund the Company's
operations. However, any increase in costs or decrease or elimination of
anticipated sources of revenues or the inability of the Company to successfully
implement management's plans would raise significant doubt as to the Company's
ability to fund its operations in the ordinary course.
YEAR 2000
The Company has carried out a review of computer hardware and software used by
the Company for information purposes. The Company believes that all critical
hardware used by the Company is year 2000 compliant. Certain of the proprietary
software used by the Company is not year 2000 compliant and in those cases the
Company has received assurances from the suppliers that compliance upgrades will
be provided in a timely manner. Non-information technology hardware and software
used in factory and office management systems have been reviewed and are
compliant where appropriate.
Many of the Company's products include hardware/software which has either been
produced by the Company or supplied by outside vendors. The Company does not
consider that the year 2000 issue is relevant to the continued safe operation of
these products. The Company is carrying out Sematech year 2000 readiness tests
on these products to ensure compliance. To date the Omega etch product has
achieved compliance, the Sigma product has passed approximately 80% of the tests
and the Planar product has yet to commence testing. The Company believes that
all products will have been fully tested before March 31, 1999.
The Company has circulated compliance questionnaires to relevant suppliers,
which address continuity of supply and compliance of past and present product.
Non-compliant responses are being investigated.
The Company expects to implement successfully the systems and programming
changes necessary to address year 2000 issues and, based on the information
currently available, does not believe that the cost of such actions will have a
material effect on the Company's results of operations or financial condition.
There can be no assurance, however, that there will not be a delay in, or
increased costs associated with, the implementation of such changes, and the
Company's inability to implement such changes could have an adverse effect on
future results of operations.
22
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
During the period covered by this Report, there have been no material
developments in the legal proceeding initiated by Dallas Semiconductor
Corporation against the Company. Reference is made to the report regarding such
legal proceeding in Item 1 of Part II of the Company's Form 10-Q for the
quarterly period ended June 30, 1998.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) On September 15, 1998, pursuant to Amendment No. 2 to Partnership
Interest and Share Purchase Agreement, dated the same date, among the Company
and SBIC Partners, Norwest Equity Partners and R&M Partners/CVD, G.P.
(collectively, the "Holders of CVD Partnership Shares"), the Company issued
300,000 shares of Common Stock to the Holders of CVD Partnership Shares in
exchange for the termination of certain registration rights, the relinquishment
of any right to liquidated damages under the Partnership Interest and Share
Purchase Agreement, dated June 30, 1997, as amended, among the Company and the
Holders of CVD Partnership Shares (the "CVD Purchase Agreement") and the release
of the Company from any liability or claim arising from or relating to the CVD
Purchase Agreement. (See Note D to Notes to Condensed Consolidated Financial
Statements.) Such shares were issued pursuant to the exemption from registration
under the Securities Act of 1933, as amended, afforded by Section 4(2) thereof.
ITEM 5: OTHER INFORMATION
On November 11, 1998, the Company was notified that the Nasdaq Listing
Qualifications Panel had denied its request for continued listing on the Nasdaq
National Market. After the close of business on November 11, 1998, the Company's
common stock was delisted from the NASDAQ National Market due to a failure to
meet quantitative continued listing requirements with respect to bid price and
market value of public float. Effective November 12, 1998, the Company's common
stock is traded on the OTC Bulletin Board under the trading symbol "TRKN."
ITEM 6. EXHIBITS
(a) The following exhibits are included herein:
Number Description
------ -----------
10.1 Amendment No. 2 to Partnership Interest and Share Purchase
Agreement, dated September 15, 1998, among the Company, SBIC
Partners, Norwest Equity Partners and R&M Partners/CVD, G.P.
27.1 Financial Statement Data
23
<PAGE>
TRIKON 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.
TRIKON TECHNOLOGIES, INC.
Date: November 12, 1998 /s/ Nigel Wheeler
--------------------------------
Nigel Wheeler
President and Director
24
<PAGE>
TRIKON TECHNOLOGIES, INC.
EXHIBIT INDEX
Exhibit No. Page No. Description
---------- ------- -----------
10.1 Amendment No. 2 to Partnership Interest and Share
Purchase Agreement, dated September 15, 1998,
among the Company, SBIC Partners, Norwest Equity
Partners and R&M Partners/CVD, G.P.
27.1 Financial Statement Data
25
<PAGE>
EXHIBIT 10.1
AMENDMENT NO. 2 TO PARTNERSHIP INTEREST AND SHARE
PURCHASE AGREEMENT
THIS AMENDMENT NO. 2 TO PARTNERSHIP INTEREST AND SHARE PURCHASE
AGREEMENT (this "Amendment") is entered into as of September 15, 1998 by and
among Trikon Technologies, Inc., a California corporation (the "Company"), SBIC
Partners, L.P., a Texas limited partnership ("SBIC"), Norwest Equity Partners, a
Minnesota Limited Partnership ("Norwest"), and R&M Partners/CVD, G.P., a
California general partnership ("R&M") (collectively, the "Buyers").
RECITALS:
A. WHEREAS, the Company and the Buyers entered into a Partnership
Interest and Share Purchase Agreement, dated as of June 20, 1997, and amended
such agreement pursuant to Amendment No. 1 to Partnership Interest and Share
Purchase Agreement, dated as of December 12, 1997 (as amended, the "Purchase
Agreement").
B. WHEREAS, the Company and the Buyers desire to terminate certain
provisions of the Purchase Agreement in exchange for shares of common stock of
the Company.
C. WHEREAS, the Purchase Agreement provides that no amendment,
modification, termination or waiver of any provision of the Purchase Agreement
shall be effective unless the same shall be in writing and signed by each party
thereto.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, and intending to be legally bound hereby, the parties hereto
hereby agree to amend the Purchase Agreement pursuant to Section 7.7 of the
Purchase Agreement as follows:
ARTICLE 1
AMENDMENTS TO PURCHASE AGREEMENT
Effective as of the Closing (as defined below), Articles 1 through 6
of the Purchase Agreement shall be deleted in their entirety.
ARTICLE 2
RELEASE AND SALE OF THE INTERESTS
2.1 Purchase and Sale of Shares of Common Stock. In consideration of
-------------------------------------------
the amendments to the Purchase Agreement in Article 1 and the releases in
Article 6, upon the terms and subject to the conditions contained herein and in
reliance on the representations and warranties set forth below, at the Closing,
the Company agrees to issue to each Buyer the following number of shares of
Common Stock, no par value ("Common Stock"), of the Company (collectively, the
"Shares"):
<PAGE>
<TABLE>
<CAPTION>
Buyer Shares of Common Stock
----- ----------------------
<S> <C>
SBIC 141,247
Norwest 141,247
R&M 17,505
</TABLE>
1.2 Closing. Following satisfaction of the conditions set forth in
-------
Article 5, the closing of the sale of the Shares (the "Closing") shall occur at
the offices of Brobeck, Phleger & Phleger LLP in San Francisco at 10:00 a.m.
Pacific Daylight Time on the fifth business day following the date of this
Amendment or at such other place or on such other date as the parties hereto may
designate (the "Closing Date"). At the Closing, the Company shall deliver to
each Buyer a certificate or certificates registered to such Buyer, representing
the number of shares of Common Stock set forth opposite such Buyer's name in
Section 2.1 hereof.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents, warrants and covenants to each Buyer that,
except as set forth in Schedule 3 attached hereto:
3.1 Organization. The Company is a corporation duly organized,
------------
validly existing and in good standing under the laws of the State of California.
3.2 Authority, Authorization and Enforceability. The Company has all
-------------------------------------------
requisite corporate power and authority to enter into this Amendment and to
consummate the transactions contemplated by this Amendment. The execution and
delivery of this Amendment and the consummation of the transactions contemplated
by this Amendment have been duly authorized by all necessary corporate action on
the part of the Company. This Amendment has been duly executed and delivered by
the Company and constitutes the legal, valid and binding obligation of the
Company, enforceable against it in accordance with its terms, except to the
extent that such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization or other laws affecting the enforcement of creditors'
rights generally or by general equitable principles.
3.3 Shares Validly Issues. Upon issuance pursuant to the terms
---------------------
hereof, the Shares will be duly authorized and validly issued, fully paid and
nonassessable.
3.4 Company SEC Filings. The Company has furnished, or made
-------------------
available through the EDGAR internet web site of the Securities and Exchange
Commission (the "Commission") to the Buyers true and complete copies of its
Annual Report on Form 10-K for the fiscal year ended December 31, 1997 and its
quarterly report[s] on Form 10-Q for the quarter[s] ended March 31, 1998 [and
June 30, 1998], in each case as filed with the Commission (such documents are
hereinafter collectively referred to as the "SEC Filings"). As of their
2.
<PAGE>
respective filing dates, the SEC Filings complied in all material respects with
the applicable requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and none of the SEC Filings contained any untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements made therein, in the light
of the circumstances under which they were made, not misleading.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF EACH BUYER
Each Buyer, severally and not jointly, represents and warrants to the
Company on its own behalf as follows:
4.1 Investment Intent. Such Buyer is acquiring its portion of the
-----------------
Shares for investment purposes only, for its own account, and not as nominee or
agent for any other person, firm or corporation and not for resale in connection
with any distribution or public offering thereof within the meaning of the
Securities Act of 1933, as amended (the "Securities Act").
4.2 Unregistered Securities. Such Buyer understands that the Shares
-----------------------
have not been registered under the Securities Act, and that, accordingly, such
securities will not be transferable except pursuant to an exemption from the
registration and prospectus delivery requirement of the Securities Act or upon
satisfaction of such requirement. Such Buyer further acknowledges and agrees
that the certificates evidencing such Shares and each certificate issues in
exchange thereof shall bear substantially the following legend:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER EITHER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR APPLICABLE BLUE SKY LAWS, AND ARE
SUBJECT TO CERTAIN INVESTMENT REPRESENTATIONS. THESE SECURITIES MAY NOT BE
SOLD, OFFERED FOR SALE OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION UNDER THE ACT, AND SUCH APPLICABLE BLUE SKY LAWS, OR AN
EXEMPTION THEREFROM."
4.3 Sophistication and Knowledge. Such Buyer represents to the
----------------------------
Company that it is an "accredited investor" (as such term is defined in Rule 501
of Regulation D under the Securities Act) and that, by reason of its business
and financial experience, has such knowledge, sophistication and experience in
business and financial matters so as to be capable of evaluating the merits and
risks of an investment in the Shares and is able to bear the economic risk of
such investment. Such Buyer acknowledges that it has been given the reasonable
opportunity to ask questions and receive answers from the Company concerning the
terms and conditions of the transactions contemplated hereby and the accuracy of
the information contained in any document provided to such Buyer by the Company.
4.4 Authorization and Enforceability. All action on the part of such
--------------------------------
Buyer necessary for the performance of such Buyer's obligations hereunder has
been taken or will be taken prior to the Closing Date. This Amendment has been
duly executed and delivered by such Buyer and constitutes a legal, valid and
binding obligation thereof, enforceable against it in accordance with its terms,
except to the extent that such enforceability may be limited by
3.
<PAGE>
applicable bankruptcy, insolvency, reorganization or other laws affecting the
enforcement of creditors' rights generally or by general equitable principles.
4.5 Transfer. Such Buyer has not transferred Registrable Shares (as
--------
defined in the Purchase Agreement) to any other person (other than any
subsequently holder who acquires such securities in a public sale, such that
such securities are no longer deemed "restricted securities" within the meaning
of Rule 144 under the Securities Act).
ARTICLE 5
CONDITIONS PRECEDENT
5.1 Conditions to Each Party's Obligations. The respective
--------------------------------------
obligations of each party to effect the transactions contemplated by this
Amendment shall be subject to the conditions that no federal or state
governmental authority or other agency or commission or federal or state court
of competent jurisdiction shall have enacted, issued, promulgated, enforced or
entered any statute, rule, regulation, injunction or other order (whether
temporary, preliminary, or permanent) which is in effect and has the effect of
prohibiting consummation of the transactions contemplated by this Amendment.
5.2 Conditions to the Obligations of the Company. The obligation of
--------------------------------------------
the Company to effect the transactions contemplated by this Amendment shall be
subject to the fulfillment at or prior to the Closing Date of the additional
condition that the representations and warranties of the Buyers contained in
this Amendment shall be true and correct in all material respects at and as of
the Closing Date as if made at and as of such date, except to the extent that
any such representation or warranty is made as of a specified date in which case
such representation or warranty shall have been true and correct in all material
respects as of such date.
5.3 Conditions to the Obligations of the Buyers. The obligations of
-------------------------------------------
the Buyers to effect the transactions contemplated by this Amendment shall be
subject to the fulfillment at or prior to the Closing Date of the additional
condition that the representations and warranties of the Company contained in
this Amendment shall be true and correct in all material respects at and as of
the Closing Date as if made at and as of such date, except to the extent that
any such representation or warranty is made as of a specified date in which case
such representation or warranty shall have been true and correct in all material
respects as of such date.
ARTICLE 6
RELEASE
6.1 Mutual Release. Effective as of the Closing, in consideration of
--------------
the issuance of the Shares hereunder and the agreements herein, each Buyer, on
behalf of such Buyer and all of its owners, partners, officers, directors,
employees, shareholders, affiliates, related entities, assigns and successors,
and each and every agent, insurer and attorney of any of the foregoing, and all
persons acting by, through, under or in concert with any of them (collectively,
the "Buyer Parties"), hereby irrevocably, finally and unconditionally releases,
relieves, acquits and forever discharges each of the Company and the Company's
subsidiaries (direct and
4.
<PAGE>
indirect), officers, directors, employees, shareholders, affiliates, related
entities, assigns and successors, and each and every agent, insurer and attorney
of any of the foregoing, and all persons acting by, through, under or in concert
with any of them (collectively, the "Company Parties"), and each of the Company
Parties hereby irrevocably, finally and unconditionally releases, relieves,
acquits and forever discharges each of the Buyer Parties from and against any
and all liabilities, claims, demands, obligations, damages, expenses (including
attorneys' fees and costs actually incurred) and causes of action at law or in
equity, of any nature, known or unknown, which such Buyer Party or Company
Party, as applicable, now owns or holds, has at any time heretofore owned or
held, or may any time hereafter own or hold, by reason of any agreement,
representation, warranty, statement, act, event or omission which existed or
occurred, or failed to occur, prior to the date of this Amendment, arising from
or relating in any way whatsoever to the Purchase Agreement.
6.2 Waiver of Unknown Claims. Effective as of the Closing, each
------------------------
Buyer and the Company expressly waives and relinquishes all rights and benefits
afforded by Section 1542 of the Civil Code of the State of California ("Section
1542"), and any statute, rule or regulation of any other relevant jurisdiction
similar in nature to Section 1542, and do so understanding and acknowledging the
significance of such specific waiver of Section 1542 and such other statute,
rule or regulation. Section 1542 of the Civil Code of the State of California
states as follows:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES
NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE
RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR."
Thus, notwithstanding the provisions of Section 1542 and any statute,
rule or regulation of any other relevant jurisdiction similar in nature to
Section 1542, and for the purpose of implementing a full and complete release
and discharge of all those released by this Amendment, each of the Buyers and
the Company expressly acknowledges that this Amendment is intended to include in
its effect, without limitation, all claims which such party does not know or
suspect to exist in its favor at the time of execution hereof, and that this
Amendment contemplates the extinguishment of any such claims.
Each of the parties hereto acknowledge that they have expressly
bargained for the foregoing waiver of the provisions of Section 1542 and any
statute, rule or regulation of any other relevant jurisdiction similar in nature
to Section 1542.
6.3 Waiver. Effective as of the Closing, pursuant to Section 7.7 of
------
the Agreement, Buyers hereby expressly waive any breach of Article 6 of the
Purchase Agreement occurring prior to the effectiveness hereof.
5.
<PAGE>
ARTICLE 7
MISCELLANEOUS
7.1 Reference to and Effect on the Purchase Agreement.
-------------------------------------------------
(a) Upon the effectiveness of Article 1 hereof, on and after the
date hereof each reference in the Purchase Agreement to "this Agreement," "the
Agreement," "hereunder," "hereof," "herein" or words of like import shall mean
and be a reference to the Purchase Agreement as amended by Article 1 hereof.
(b) Except as specifically amended above, the Purchase Agreement
shall remain in full force and effect and is hereby ratified and confirmed.
7.2 Expenses. Each party shall pay all costs and expenses that it
--------
incurs with respect to the negotiation, execution, delivery and performance of
this Amendment and any related agreements.
7.3 Survival. The representations and warranties set forth herein
--------
shall survive the Closing for one year.
7.4 Parties in Interest. All of the terms and provisions of this
-------------------
Amendment shall be binding upon and inure to the benefit of and be enforceable
by the respective successors and assigns of the parties hereto.
7.5 Governing Law. This Amendment shall be governed by and construed
-------------
in accordance with the laws of the State of California.
7.6 Counterparts. This Amendment may be executed in one or more
------------
counterparts with the same effect as if all parties hereto had signed the same
document. All counterparts so executed shall be deemed to be an original, shall
be construed together and shall constitute one agreement.
6.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment on
the date first written above.
COMPANY: TRIKON TECHNOLOGIES, INC.
Ringland Way
Newport, Gwent NP6 2TA
United Kingdom
Fax: 011 441 633 414 040
By: ___________________________________________
Name:
Title:
BUYERS: SBIC PARTNERS, L.P.
201 Main Street, Suite 2302
Fort Worth, TX 76102
Fax: (817) 338-2047
By: Forrest Binkley & Brown L.P.,
General partner
By: Forrest Binkley & Brown Venture Co.,
General Partner
By: __________________________________
Jeffrey J. Brown
Office of the President
[Signatures continued on following page]
7.
<PAGE>
[Signatures continued from previous page]
NORWEST EQUITY PARTNERS, V
245 Lytton Avenue, Suite 250
Palo Alto, CA 94301-1426
Fax: (650) 321-8010
By: Itasca Partners V, L.L.P.
General Partner
By: _______________________________________
Kevin G. Hall
Partner
R&M PARTNERS/CVD, G.P.
300 South Grand Avenue, Suite 2900
Los Angeles, CA 90071
Fax: (213) 229-8550
By: ____________________________________________
Name:
Title:
8.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS CONTAINED IN THE FORM 10-Q FOR THE
PERIOD ENDING SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 8,338
<SECURITIES> 0
<RECEIVABLES> 10,202
<ALLOWANCES> (2,696)
<INVENTORY> 19,199
<CURRENT-ASSETS> 37,056
<PP&E> 26,431
<DEPRECIATION> (6,057)
<TOTAL-ASSETS> 61,362
<CURRENT-LIABILITIES> 22,104
<BONDS> 4,147
0
28,558
<COMMON> 199,019
<OTHER-SE> (198,248)
<TOTAL-LIABILITY-AND-EQUITY> 61,362
<SALES> 4,477
<TOTAL-REVENUES> 4,477
<CGS> 3,230
<TOTAL-COSTS> 10,663
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 569
<INCOME-PRETAX> (5,617)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,617)
<EPS-PRIMARY> (0.08)
<EPS-DILUTED> (0.08)
</TABLE>
