<PAGE> 1
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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 THREE MONTH PERIOD ENDED SEPTEMBER 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-26824
TEGAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 68-0370244
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
2201 SOUTH MCDOWELL BLVD. P.O. BOX 6020
PETALUMA, CALIFORNIA 94955-6020
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
TELEPHONE NUMBER (707) 763-5600
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate 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 period that the
registrant was required to file reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
As of September 30, 1998, there were 10,621,126 shares of the registrant's
Common Stock outstanding.
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TEGAL CORPORATION AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidated Statements of Operations -- for the
three and six months ended September 30, 1998 and 1997...... 3
Condensed Consolidated Balance Sheets, as of September 30,
1998 and March 31, 1998..................................... 4
Condensed Consolidated Statements of Cash Flows -- for the
six months ended September 30, 1998 and 1997................ 5
Notes to Condensed Consolidated Financial Statements........ 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................... 8
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK................................................. 11
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS........................................... 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......... 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................ 12
SIGNATURES.................................................. 13
</TABLE>
2
<PAGE> 3
PART I -- FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
TEGAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ ------------------
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenue........................................... $10,033 $11,726 $16,517 $20,812
Cost of sales..................................... 7,321 6,827 11,422 11,889
------- ------- ------- -------
Gross profit.................................... 2,712 4,899 5,095 8,923
Operating expenses:
Research and development........................ 2,373 2,994 5,013 5,793
Sales and marketing............................. 1,459 1,834 2,884 3,257
General and administrative...................... 2,173 1,410 4,088 2,824
------- ------- ------- -------
Total operating expenses..................... 6,005 6,238 11,985 11,874
------- ------- ------- -------
Operating loss............................... (3,293) (1,339) (6,890) (2,951)
Other income, net................................. 218 243 425 637
------- ------- ------- -------
Loss before income taxes.......................... (3,075) (1,096) (6,465) (2,314)
Provision for income taxes........................ 0 0 0 0
------- ------- ------- -------
Net loss.......................................... $(3,075) $(1,096) $(6,465) $(2,314)
======= ======= ======= =======
Net loss per common share:
Basic/Diluted................................ $ (0.29) $ (0.11) $ (0.61) $ (0.22)
Shares used in per share computation:
Basic/Diluted................................ 10,618 10,331 10,593 10,306
</TABLE>
See accompanying notes.
3
<PAGE> 4
TEGAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1998 1998
------------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 20,299 $25,660
Receivables, net.......................................... 8,647 7,482
Inventories............................................... 14,830 14,424
Prepaid expenses and other current assets................. 1,351 2,249
-------- -------
Total current assets.............................. 45,127 49,815
Property and equipment, net................................. 4,281 4,982
Other assets, net........................................... 338 349
-------- -------
$ 49,746 $55,146
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable............................................. $ 470 $ 285
Accounts payable.......................................... 3,076 2,691
Accrued expenses and other current liabilities............ 7,331 7,265
-------- -------
Total current liabilities......................... 10,877 10,241
Long-term portion of capital lease obligation............... 60 101
-------- -------
Total liabilities................................. 10,937 10,342
-------- -------
Stockholders' Equity:
Common stock.............................................. 106 106
Additional paid-in capital................................ 55,348 55,177
Cumulative translation adjustment......................... (231) (529)
Accumulated deficit....................................... (16,414) (9,950)
-------- -------
Total stockholders' equity........................ 38,809 44,804
-------- -------
$ 49,746 $55,146
======== =======
</TABLE>
See accompanying notes.
4
<PAGE> 5
TEGAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30,
------------------
1998 1997
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(6,465) $(2,314)
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation and amortization.......................... 1,135 1,264
Changes in operating assets and liabilities............ (113) (1,742)
------- -------
Net cash used in operating activities............. (5,443) (2,792)
------- -------
Cash flows used in investing activities:
Purchases of property and equipment....................... (434) (1,687)
------- -------
Cash flows from financing activities:
Proceeds from issuance of common stock.................... 172 128
Borrowings under lines of credit.......................... 185 2,339
Repayment of capital lease financing...................... (138) (155)
------- -------
Net cash provided by financing activities......... 219 2,312
------- -------
Effect of exchange rates on cash and cash equivalents....... 297 84
------- -------
Net decrease in cash and cash equivalents................... (5,361) (2,083)
Cash and cash equivalents at beginning of period............ 25,660 30,323
------- -------
Cash and cash equivalents at end of period.................. $20,299 $28,240
======= =======
</TABLE>
See accompanying notes.
5
<PAGE> 6
TEGAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(ALL AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. BASIS OF PRESENTATION:
In the opinion of management, the unaudited condensed consolidated interim
financial statements have been prepared on the same basis as the March 31, 1998
audited consolidated financial statements and include all adjustments consisting
only of normal recurring adjustments, necessary to fairly state the information
set forth herein. The statements have been prepared in accordance with the
regulations of the Securities and Exchange Commission, but omit certain
information and footnote disclosures necessary to present the statements in
accordance with generally accepted accounting principles. These interim
financial statements should be read in conjunction with the financial statements
and footnotes thereto included in the annual report on Form 10-K of Tegal
Corporation (the "Company") for the year ended March 31, 1998. The results of
operations for the three and six months ended September 30, 1998 are not
necessarily indicative of results to be expected for the entire year.
2. INVENTORIES:
Inventories consisted of:
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1998 1998
------------- ---------
<S> <C> <C>
Raw Materials........................................ $ 3,016 $ 2,050
Work in Progress..................................... 1,767 2,053
Finished Goods and Spares............................ 10,047 10,321
------- -------
$14,830 $14,424
======= =======
</TABLE>
3. NET LOSS PER COMMON SHARE:
FAS 128 requires the reconciliation of the numerators and the denominators
of the basic and diluted per share computation as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -----------------
1998 1997 1998 1997
-------- -------- ------- -------
<S> <C> <C> <C> <C>
Net loss (numerator)................................... $(3,075) $(1,096) $(6,465) $(2,314)
======= ======= ======= =======
Shares calculation (denominator):
Weighted average shares outstanding during the
period............................................ 10,618 10,331 10,593 10,306
Basic earnings per share............................... $ (0.29) $ (0.11) $ (0.61) $ (0.22)
======= ======= ======= =======
</TABLE>
Options and warrants to purchase 2,030 and 1,770 shares of common stock
were outstanding as of September 30, 1998 and 1997, respectively, but were not
reflected in the computations of diluted EPS because the Company recorded a net
loss in those periods and to do so would have been anti-dilutive.
4. INCOME TAX EXPENSE:
No provision for federal or state income tax has been recorded for the
three and six month periods ended September 30, 1998 and 1997, respectively, as
the Company has recorded a net loss before taxes for those periods. The Company
did not recognize a benefit for these net losses because any benefit derived
would require offsetting current losses against future profitability where such
profitability's timing and magnitude are uncertain.
6
<PAGE> 7
TEGAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(ALL AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
5. NEW ACCOUNTING PRONOUNCEMENTS:
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). FAS 133 establishes a new model for
accounting for derivatives and hedging activities and supersedes and amends a
number of existing accounting standards. SFAS 133 requires that all derivatives
be recognized in the balance sheet at their fair market value, and the
corresponding derivative gains or losses be either reported in the statement of
operations or as a deferred item depending on the type of hedge relationship
that exists with respect to such derivative. Adopting the provisions of SFAS 133
are not expected to have a material effect on the Company's consolidated
financial statements, which will be effective for the Company's fiscal year
ending March 31, 2001.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Information contained herein contains "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995, which can
be identified by the use of forward-looking terminology such as "may," "will,"
"expect," "anticipate," "estimate," or "continue" or the negative thereof or
other variations thereon or comparable terminology or which constitute projected
financial information. The forward-looking statements relate to the near-term
semiconductor capital equipment industry outlook, demand for the Company's
products, the Company's quarterly revenue and earnings prospects for the
near-term future and other matters contained herein. Such statements are based
on current expectations and beliefs and involve a number of uncertainties and
risks that could cause the actual results to differ materially from those
projected. Such uncertainties and risks include, but are not limited to, the
impact of the Asian financial crisis on semiconductor capital equipment demand,
current soft demand for semiconductor manufacturing equipment, particularly for
equipment procured for capacity additions such as the Company's non-critical
etch systems, the cyclicality of the semiconductor industry, dependence on
recently introduced systems for the critical etch markets, impediments to
customer acceptance, fluctuations in quarterly operating results, competitive
pricing pressures, the introduction of competitor products having technological
and/or pricing advantages, product volume and mix and other risks detailed from
time to time in the Company's Securities and Exchange Commission reports. For
further information, refer to the business description and additional risk
factors sections included in the Company's Form 10-K for the year ended March
31, 1998, as filed with the Securities and Exchange Commission.
RESULTS OF OPERATIONS
The Company designs, manufactures, markets and services plasma etch systems
used in the fabrication of integrated circuits, read-write heads for the disk
drive industry, printer heads and small flat panel displays.
The following table sets forth certain financial items as a percentage of
revenue for the three and six month periods ended September 30, 1998 and 1997:
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------- --------------
1998 1997 1998 1997
----- ----- ----- -----
<S> <C> <C> <C> <C>
Revenue........................................... 100.0% 100.0% 100.0% 100.0%
Cost of sales..................................... 73.0 58.2 69.2 57.1
----- ----- ----- -----
Gross profit.................................... 27.0 41.8 30.8 42.9
----- ----- ----- -----
Operating expenses:
Research and development........................ 23.6 25.6 30.3 27.9
Sales and marketing............................. 14.5 15.6 17.5 15.6
General and administrative...................... 21.7 12.0 24.7 13.6
----- ----- ----- -----
Total operating expenses..................... 59.8 53.2 72.5 57.1
----- ----- ----- -----
Operating loss............................... (32.8) (11.4) (41.7) (14.2)
Other income, net................................. 2.2 2.1 2.6 3.1
----- ----- ----- -----
Loss before income taxes.......................... (30.6) (9.3) (39.1) (11.1)
Provision for income taxes........................ 0.0 0.0 0.0 0.0
----- ----- ----- -----
Net loss.......................................... (30.6)% (9.3)% (39.1)% (11.1)%
===== ===== ===== =====
</TABLE>
Revenue. Revenue for the three and six months ended September 30, 1998 was
$10.0 million and $16.5 million, respectively, down 14.4% and 20.6% from the
comparable periods in 1997. The decrease of $1.7 for the three months ended
September 30,1998 was principally due to the sale of one less 6500 series system
and reduced spare parts sales offset, in part, by an increase in non-critical
etch systems sales. The decrease in revenue for the six months ended September
30,1998 was principally due to reduced sales of critical etch systems and
reduced spare parts sales offset, in part, by an increase in sales of
non-critical etch systems.
8
<PAGE> 9
Revenue from spare parts and service sales was $3.9 million and $8.1
million for the three and six month periods ended September 30, 1998, down from
$4.8 million and $9.4 million for the comparable periods in the prior year,
which the Company believes is a result of customers reducing spare parts
purchases during the current industry slowdown and to increased competition from
third party spare parts suppliers who have offered replacement parts at prices
below those offered by the Company.
International sales as a percentage of the Company's revenue was
approximately 75.1% and 76.5% for the three months and 71.6% and 68.7% for the
six months ended September 30, 1998 and 1997, respectively. The Company believes
that international sales will continue to represent a significant portion of its
revenue.
Gross profit. Gross profit as a percentage of revenue (gross margin) was
27.0% and 41.8% for the three months and 30.8% and 42.9% for the six months
ended September 30, 1998 and 1997, respectively. The decline in gross margin for
the three and six months ended September 30, 1998 compared to the comparable
periods in the prior year was principally attributable to spreading
manufacturing overhead expenses over substantially lower production volume, to a
one-time service commission of $0.2 million payable to the Company's Korean
sales representative, to spreading slightly increased spare parts overhead
expenses over a substantially lower spares revenue volume and to foreign
exchange rate adjustments to spare parts inventory located at the Company's
international support locations.
Restructuring Charge. The Company took a one time restructuring charge of
$0.7 million for severance and facilities consolidation costs attributable to
downsizing actions taken in September 1998. Of these charges, approximately $0.4
million was reflected in cost of sales, $0.2 million was reflected in general
and administrative expenses and the balance was evenly split between research
and development and sales and marketing expenses.
Research and development. Research and development expenses consist
primarily of salaries, prototype material and other costs associated with the
Company's ongoing systems and process technology development, applications and
field process support efforts. Research and development expenses were $2.4
million and $3.0 million for the three months and $5.0 and $5.8 million for the
six months ended September 30, 1998 and 1997, respectively, representing 23.6%,
25.6%, 30.3% and 27.9% of revenue, respectively. The decrease in research and
development spending for the three and six month periods ended September 30,
1998, compared to the comparable periods in the prior year, was attributable to
decreased spending on prototype materials and lower salaries and wages on a
reduced headcount.
Sales and marketing. Sales and marketing expenses consist primarily of
salaries, commissions, trade show promotion and travel and living expenses
associated with those functions. Sales and marketing expenses were $1.5 million
and $1.8 million for the three months and $2.9 million and $3.3 million for the
six months ended September 30, 1998 and 1997, respectively, representing 14.5%,
15.6%, 17.5% and 15.6% of revenue, respectively. The decrease in sales and
marketing expense for the three and six months ended September 30,1998 compared
to the comparable periods in the prior year was due principally to reduced sales
commissions on a lower revenue base and reduced advertising expenses.
General and administrative. General and administrative expenses consist
primarily of compensation for general management, accounting and finance, human
resources, information systems and investor relations functions and for legal,
consulting and accounting fees of the Company. General and administrative
expenses were $2.1 million and $1.4 million for the three months and $4.1
million and $2.8 million for the six months ended September 30, 1998 and 1997,
respectively, representing 21.7%, 12.0%, 24.7% and 13.6% of revenue,
respectively. The increase in general and administrative spending for the three
and six month periods ended September 30, 1998, compared to the comparable
period in the prior year, was primarily attributable to the Company incurring
additional legal expenses in connection with its patent disputes with Austria
Mikro Systeme International AG and AMS Austria MikroSysteme International, Inc.
("AMS") and Tokyo Electron Limited ("TEL"). See "Part II, Item 1. Legal
Proceedings."
Other income, net. Other income, net consists primarily of interest income
on outstanding cash balances, and gains and losses on foreign exchange.
9
<PAGE> 10
Income tax expense. No provision for federal or state income tax has been
recorded for the three and six months ended September 30, 1998 and 1997,
respectively, as the Company has recorded a net loss before taxes in those
periods. The Company did not recognize a benefit for this net loss in those
periods because any benefit derived would require offsetting current losses
against future profitability where such profitability's timing and magnitude are
uncertain.
LIQUIDITY AND CAPITAL RESOURCES
For the six month periods ended September 30, 1998 and 1997, the Company
financed its operations through the use of outstanding cash balances.
Net cash used in operations was $5.4 million during the six months ended
September 30, 1998, due principally to a net loss of $5.3 million after
adjusting for depreciation. Net cash used in operations was $2.8 million for the
six months ended September 30, 1997, due principally to a net loss of $1.0
million after adjusting for depreciation, a decline in accrued expenses and
accounts payable and an increase in inventories offset, in part, by a reduction
in accounts receivable.
Net capital expenditures totaled $0.4 million and $1.7 million for the six
months ended September 30, 1998 and 1997, respectively. Capital expenditures in
both periods were incurred principally for leasehold improvements and to acquire
design tools, analytical equipment and computers.
Net cash provided by financing activities totaled $0.2 million and $2.3
million for the six months ended September 30, 1998 and 1997, respectively. In
both periods, the increase was due principally to increased borrowings under the
Company's two Japanese borrowing facilities offset, in part, by repayment of
capital lease obligations.
As of September 30, 1998, the Company had approximately $20.3 million of
cash and cash equivalents. In addition to cash and cash equivalents, the
Company's other principal sources of liquidity consisted of the unused portions
of several bank borrowing facilities. At September 30, 1998, the Company had an
aggregate borrowing capacity of $12.5 million available under a domestic line of
credit secured by substantially all of the Company's assets. The facility has
been extended to November 15, 1998. The Company is presently negotiating the
terms of a renewal of the domestic line of credit. In addition to the foregoing
facility, as of September 30, 1998, the Company's Japanese subsidiary had
available a 536 million Yen (approximately $3.9 million at exchange rates
prevailing on September 30, 1998) unused portion of two Japanese bank lines of
credit totaling 600 million Yen (approximately $4.4 million at exchange rates
prevailing on September 30, 1998) secured by Japanese customer promissory notes
held by such subsidiary in advance of payment on customers' accounts receivable.
The Company believes that funds available under its lines of credit and
existing cash and cash equivalent balances will be sufficient to meet the
Company's cash requirements for at least the next twelve months.
YEAR 2000 COMPLIANCE
In the past, many information technology products were designed with two
digit year codes that did not recognize century and millennium fields. As a
result these hardware and software products may not function or may give
incorrect results beginning in the year 2000. The "Year 2000 Issue" is faced by
substantially every company which relies on computer systems. In order to
address this issue, such hardware and software products may need to be upgraded
or replaced in order to correctly process dates beginning in the year 2000.
The Company has formed a team and named an executive sponsor to identify
remedies and test and develop contingency plans for, the Year 2000 Issue. The
Company estimates that the tasks identified by this team will be completed by
September 1999. To date, the Company has evaluated its internal systems as well
as its products to determine their year 2000 status.
The Company's Enterprise Resource Planning (ERP) system is provided by a
software vendor and contains some custom modifications to meet the Company's
business requirements. The vendor-provided software is ITAA certified Year 2000
compliant. The custom modifications are being evaluated to identify the
10
<PAGE> 11
changes necessary to make them compliant. The Company estimates that the
required modifications will be complete by September 1999. The Company's current
product offerings have been tested and determined to either be Year 2000
compliant or where they are not compliant an upgrade program is available to
address the problem.
The Company expects to complete its Year 2000 contingency plan by March
1999 and will consider, among other issues, required modifications and upgrades
to all its business software and hardware, the readiness of its key suppliers
and other third parties and the effect their compliance readiness might have on
the Company. The Company is not currently planning on assessing the compliance
readiness of its customers. The Company's customers are generally considerably
larger than the Company and are unlikely to complete any questionnaire which the
Company might furnish to its customers to assess Year 2000 compliance. The
Company does not anticipate that its ability to conduct its business operations
with its suppliers or customers is likely to be materially adversely impacted by
Year 2000 issues since purchase and sales order transactions are generally
transmitted by mail, phone or facsimile between parties as opposed to through
some form of electronic data interchange.
The total expense of preparing the Company for Year 2000 compliance is
estimated at approximately $0.2 million, which is not material to the Company's
business operations or financial condition. Nevertheless, satisfactorily
addressing the Year 2000 Issue is dependent on many factors, some of which are
not within the Company's control. Should the Company's internal systems, or the
internal systems of one or more of its significant vendors, customers, or other
third parties fail to achieve Year 2000 compliance, the Company's business and
its results of operations could be materially adversely affected.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has an investment portfolio of securities that are principally
comprised of money market funds. These funds are subject to interest rate risk
and may fall in value if market interest rates increase. The Company attempts to
limit this exposure by investing primarily in short-term securities having a
maturity of three months or less.
The Company has foreign subsidiaries which operate and sell the Company's
products in various global markets. As a result, the Company's cashflow and
earnings are exposed to fluctuations in interest rate and foreign currency
exchange rates. The Company attempts to limit these exposures through the use of
various hedge instruments, primarily forward exchange contracts and currency
option contracts (with maturities of less than three months) to manage its
exposure associated with firm obligations and net asset and liability positions
denominated in non-functional currencies.
11
<PAGE> 12
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no material legal proceedings pending against the Company.
However, on June 10, 1996, Lucent Technologies Inc. ("Lucent"), filed a claim
with the United States District Court for the Northern District of California
alleging patent infringement by Austria Mikro Systeme International AG and AMS
Austria Mikro Systeme International, Inc. ("AMS") for the sale of integrated
circuits manufactured with the Company's dry plasma etch systems. On March 7,
1995, the Company executed an indemnification agreement with AMS, covering
certain uses of select equipment sold to AMS. Lucent and AMS have settled the
U.S. claim and AMS is now seeking indemnification from the Company through an
arbitration proceeding with respect to the U.S. claim. The Company has been
informed that Lucent recently filed a claim for patent infringement in Germany
against AMS for the sale of integrated circuits manufactured with the Company's
dry plasma etch systems. AMS has requested indemnification for the German
matter. The Company believes that the claims made by AMS are without merit and
that the ultimate outcome of any defense of any required indemnification
obligation to AMS is unlikely to have a material adverse effect on the Company's
results of operations or financial condition. No assurance can be given,
however, as to the outcome of such legal proceedings or as to the effect of any
such outcome on the Company's results of operations or financial condition.
On March 17, 1998, the Company filed a suit in the United States District
Court in the Eastern District of Virginia against Tokyo Electron Limited and
several of its U.S. subsidiaries (collectively, "TEL") alleging that TEL's
current generation of etch equipment infringes certain of the Company's patents.
The Company is seeking, among other things, injunctive relief barring TEL from
importing or selling such products. No assurance can be given as to the outcome
of such legal proceedings or as to the effect of any such outcome on the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Stockholders' Meeting held on September 15, 1998,
the following individuals were re-elected to the Board of Directors:
<TABLE>
<CAPTION>
VOTES VOTES
FOR WITHHELD
--------- --------
<S> <C> <C>
Robert V. Hery......................................... 7,045,542 49,360
Michael L. Parodi...................................... 7,047,013 47,889
Jeffrey M. Krauss...................................... 7,047,013 47,889
Thomas R. Mika......................................... 7,047,113 47,789
Fred Nazem............................................. 7,047,113 47,789
Edward A. Dohring...................................... 7,047,113 47,789
</TABLE>
The following proposals were approved at the Company's Annual Stockholders'
Meeting:
<TABLE>
<CAPTION>
VOTES VOTES VOTES BROKER
FOR AGAINST ABSTAINED NON-VOTES
--------- ------- --------- ---------
<S> <C> <C> <C> <C>
1. Proposal to adopt the 1998 Equity 4,316,443 197,497 11,626 2,567,336
Participation Plan and authorize an
initial 600,000 shares to the plan
2. Proposal to amend the Company's Stock 4,385,312 161,872 12,826 2,534,892
Option Plan for Outside Directors
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
12
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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.
Dated: November 3, 1998
TEGAL CORPORATION
(Registrant)
/s/ DAVID CURTIS
--------------------------------------
David Curtis
Chief Financial Officer, Treasurer and
Secretary (Principal Financial
Officer)
13
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EXHIBIT INDEX
Exhibit No.
- -----------
27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
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