-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DAYZAlTRNUslIwN3mUCmWhmCZLUJoPVmSgMpSKN3jrNa9uEVBrfUrprrmGJ0g2Dx YiuezAcI6OADPbdcIKTM9g== 0000929624-98-001400.txt : 19980817 0000929624-98-001400.hdr.sgml : 19980817 ACCESSION NUMBER: 0000929624-98-001400 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRIKON TECHNOLOGIES INC CENTRAL INDEX KEY: 0000868326 STANDARD INDUSTRIAL CLASSIFICATION: SPECIAL INDUSTRY MACHINERY, NEC [3559] IRS NUMBER: 954054321 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-26482 FILM NUMBER: 98687138 BUSINESS ADDRESS: STREET 1: RINGLAND WAY STREET 2: 222 W. ORANGE GROVE AVE CITY: NEWPORT, GWENT STATE: X0 ZIP: NP6 2TA BUSINESS PHONE: 011-44-1-633-414-000 MAIL ADDRESS: STREET 1: 9255 DEERING AVENUE STREET 2: 9255 DEERING AVENUE CITY: SACHATSWORTH STATE: CA ZIP: 91311 FORMER COMPANY: FORMER CONFORMED NAME: PLASMA & MATERIALS TECHNOLOGIES INC DATE OF NAME CHANGE: 19950713 10-Q 1 FORM 10-Q 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 June 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 of incorporation or (I.R.S. Employer organization) Identification No.) Ringland Way, Newport, Gwent NP6 2TA, 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 August 12, 1998, the total number of outstanding shares of the Registrant's common stock was 93,723,829. 1 TRIKON TECHNOLOGIES, INC. INDEX
PAGE NUMBER ------ PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements: Unaudited Condensed Consolidated Balance Sheets at June 30, 1998 and December 31, 1997..................... 3 Unaudited Condensed Consolidated Statements of Operations for the Three Months ended June 30, 1998 and 1997 and for Six Months ended June 30, 1998 and 1997....... 6 Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months ended June 30, 1998 and 1997...... 7 Notes to Unaudited Condensed Consolidated Financial Statements................................................. 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........................ 14 PART II. OTHER INFORMATION Item 1. Legal Proceedings.......................................... 21 Item 2. Changes in Securities and Use of Proceeds.................. 21 Item 5. Other Information.......................................... 21 Item 6. Exhibits and Reports on Form 8-K........................... 22 SIGNATURE PAGE............................................................ 23 EXHIBITS.................................................................. 24
2 TRIKON TECHNOLOGIES, INC. ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
June 30, December 31, 1998 1997(1) -------- ------------ (unaudited) ASSETS Current assets: Cash and cash equivalents..................................... $13,405 $ 9,260 Accounts receivable, net of reserves.......................... 9,460 18,842 Inventories................................................... 18,961 23,870 Other current assets.......................................... 2,650 1,622 ------- ------- Total current assets.......................................... 44,476 53,594 Property, equipment and leasehold improvements, net.............. 20,961 22,140 Demonstration systems, net....................................... 3,542 1,227 Bond financing costs, net........................................ 97 2,313 Other assets..................................................... 401 416 ------- ------- Total assets..................................................... $69,477 $79,690 ======= =======
See Notes to Unaudited Condensed Consolidated Financial Statements 3 UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
June 30, December 31, 1998 1997(1) ---- --------- (unaudited) LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Convertible subordinated notes.................................... $ -- $ 86,250 Accounts payable and accrued expenses............................. 5,169 9,765 Sales returns payable............................................. 11,468 11,468 Restructuring costs............................................... 2,520 3,952 Other current liabilities......................................... 6,420 7,953 --------- --------- Total current liabilities......................................... 25,577 119,388 Convertible subordinated notes........................................ 4,147 -- Other non-current liabilities ....................................... 6,046 5,245 --------- --------- Total liabilities..................................................... 35,770 124,633 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 - 3,125,000 Issued and outstanding - 0 at June 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 Issued and outstanding 2,855,754 at June 30, 1998 and none at December 31, 1997................................ 28,558 -- Series I Junior Participating Preferred Stock, no par value, $0.001 per share liquidation preference Designated Shares - 44,000 Issued and outstanding - 43,739.109 at June 30, 1998 and 0 at December 31, 1997................................... 28,868 -- Common Stock, no par value Authorized shares - 50,000,000 Issued and outstanding - 49,984,726 at June 30, 1998 and 15,147,115 at December 31, 1997..................... 170,104 137,767 Cumulative translation adjustment..................................... (272) (745) Deferred Compensation................................................. (7,400) -- Accumulated deficit................................................... (186,151) (201,314) --------- --------- Total shareholders' equity (deficit).................................. 33,707 (44,943) --------- --------- Total liabilities and shareholders' equity (deficit).................. $ 69,477 $ 79,690 ========= =========
See Notes to Unaudited Condensed Consolidated Financial Statements 4 (1) The Condensed Consolidated Balance Sheet at December 31, 1997 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. See Notes to Unaudited Condensed Consolidated Financial Statements 5 TRIKON TECHNOLOGIES, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Three Months Ended Six Months Ended --------------------------- --------------------------- June 30, June 30, June 30, June 30, 1998 1997 1998 1997 ----------- ----------- ----------- ----------- Revenues: Product sales........................... $ 8,292 $ 19,111 $ 15,495 $ 31,063 License revenues........................ -- -- 10,000 -- ----------- ----------- ----------- ----------- 8,292 19,111 25,495 31,063 Costs and expenses: Cost of goods sold...................... 6,546 12,618 11,181 22,467 Research and development................ 2,337 4,251 4,373 9,154 Selling, general and administrative..... 5,455 8,345 10,257 15,380 In-process technology................... -- 2,974 -- 2,974 Restructuring costs..................... 1,843 -- 1,843 -- Amortization of intangibles............. -- 904 -- 1,808 ----------- ----------- ----------- ----------- 16,181 29,092 27,654 51,783 ----------- ----------- ----------- ----------- Loss from operations....................... (7,889) (9,981) (2,159) (20,720) Other: Interest expense, net................... (948) (2,421) (2,889) (4,766) ----------- ----------- ----------- ----------- Loss before income tax provision (benefit)................... (8,837) (12,402) (5,048) (25,486) Income tax provision (benefit).......... -- (1,441) (217) (2,906) ----------- ----------- ----------- ----------- Net loss before extraordinary item......... (8,837) (10,961) (4,831) (22,580) Extraordinary item 20,293 -- 20,293 -- ----------- ----------- ----------- ----------- Net income (loss) $ 11,456 $ (10,961) $ 15,462 $ (22,580) =========== =========== =========== =========== Net income (loss) applicable to common shares........................ $ 11,158 $ (10,961) $ 15,164 $ (22,580) =========== =========== =========== =========== Earnings (loss) per common share data: Basic: Loss applicable to common shares before extraordinary gain.................... $ (0.18) $ (0.76) $ (0.15) $ (1.57) Extraordinary gain...................... 0.41 -- 0.62 -- ----------- ----------- ----------- ----------- Net income (loss)....................... $ 0.23 $ (0.76) $ 0.47 $ (1.57) =========== =========== =========== =========== Diluted: Loss applicable to common shares before extraordinary gain..................... $ (0.18) $ (0.76) $ (0.16) $ (1.57) Extraordinary gain...................... $ 0.40 $ -- $ 0.61 -- ----------- ----------- ----------- ----------- Net income (loss)....................... $ 0.22 $ (0.76) $ 0.45 $ (1.57) =========== =========== =========== =========== Average common shares used in the calculation: - Basic................. 49,794 14,433 32,566 14,378 - Diluted............... 51,226 14,433 33,335 14,378
See Notes to Unaudited Condensed Consolidated Financial Statements 6 TRIKON TECHNOLOGIES, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
Six months ended ------------------------------------ June 30, June 30, 1998 1997 ------------- --------- OPERATING ACTIVITIES Net income (loss)............................................... $ 15,462 $(22,580) Adjustments to reconcile net income (loss) to net cash used in operating activities: Extraordinary item.............................................. (20,293) -- Depreciation and amortization of plant, equipment, leasehold improvements and demonstration systems......................... 1,948 3,359 Amortization of intangibles..................................... 7 1,808 Amortization of financing costs................................. 300 349 Amortization of deferred compensation........................... 185 In-process technology........................................... -- 2,974 Deferred income taxes........................................... -- (3,048) Changes in operating assets and liabilities: Accounts receivable............................................. 9,382 (2,339) Inventories..................................................... 4,909 11,549 Demonstration systems........................................... (2,315) (1,629) Other current assets............................................ (1,013) 797 Accounts payable, other accrued expenses and other current (4,224) (11,042) liabilities.................................................... Other liabilities............................................... 704 2,370 Other........................................................... 473 -- -------- -------- Net cash generated (used) in operating activities............... 5,525 (17,432) INVESTING ACTIVITIES Purchases of property, equipment and leasehold improvements.......................................... (520) (6,175) Proceeds from sales of short-term investments............. -- 824 Purchases of short-term investments....................... -- (2,472) Other long-term assets.................................... -- (867) ------- -------- Net cash used in investing activities..................... (520) (8,690) FINANCING ACTIVITIES Net borrowings (repayments) under bank credit lines....... -- 6,534 Costs relating to Exchange Offer.......................... (700) -- Proceeds from sale of preferred stock..................... -- 15,775 Proceeds from sale of common stock and warrants........... -- 2,260 Payments on capital lease obligations..................... (160) (281) ------- -------- Net cash provided by (used) in financing activities....... (860) 24,288 ------- -------- Net increase (decrease) in cash and cash equivalents...... 4,145 (1,834) Cash and cash equivalents at beginning of period.......... 9,260 20,188 ------- -------- Cash and cash equivalents at end of period................ $13,405 $ 18,354 ======= ========
See Notes to Unaudited Condensed Consolidated Financial Statements 7 TRIKON TECHNOLOGIES, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 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 six months ended June 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. Management's plans with respect to these conditions include the sale of licenses, as discussed in Note I, restructuring of its operations, obtaining a new working capital facility and the Exchange Offer (as defined below) discussed in Note J. Management believes that the successful implementation of 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):
June 30, December 31, 1998 1997 ------- ------- Components.......................... $ 6,665 $ 7,864 Work in process..................... 12,296 13,680 Finished goods...................... -- 2,326 ------- ------- $18,961 $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 Limited (as defined below) 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 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 8 TRIKON TECHNOLOGIES, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1998 (CONTINUED) 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, in the amount of $335,000. As of June 30, 1998, the Company had not caused a registration statement to become effective. NOTE E: INCOME TAXES The tax benefit in the three and six months ended June 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 first and 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 Trikon Limited assets acquired. 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 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, 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 three and six months ended June 30, 1998 exclude the effects of all outstanding stock options because the exercise price of such stock options exceeded the market price of the underlying stock, exclude the restricted shares issued to the Company's Chairman of the Board (see Note J) because under the treasury stock method these shares are anti-dilutive and assume the Series G Preferred Stock was converted into 2,962,032 shares of 9 TRIKON TECHNOLOGIES, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1998 (CONTINUED) Common Stock as of January 1, 1998 under the if-converted method. Diluted earnings per share for the three and six months ended June 30, 1997 exclude the effects of all options and convertible preferred stock because such securities were anti-dilutive for the periods. Basic and diluted earnings (loss) per share under SFAS No. 128 for the three and six months ending June 30, 1997 were the same as previously reported as primary loss per share. Net income and the loss before extraordinary item used in computing basic and diluted per share amounts has been adjusted for the accretion of $298,000 of dividends on the Series G Preferred Stock. The weighted average shares outstanding used in the computation of the basic and diluted per share amounts assumes the Series I Preferred Stock had been converted into Common Stock at the date of issuance. 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, Inc. ("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 June 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"). Interest on the Convertible Notes was 7-1/8%, which was 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 holders 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. On May 14, 1998, the Company accepted for exchange approximately $82.1 million principal amount of the 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 on May 15, 1998 to the holders of the Convertible Notes which did not accept the Exchange Offer. 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. NOTE H: 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 10 TRIKON TECHNOLOGIES, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1998 (CONTINUED) 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 Series 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 caused the automatic conversion of all other 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 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. 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 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 have been exchanged for 7,161,002 new shares of Common Stock and 7,997.489 new shares of Series I Junior Participating Preferred Stock. 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 is subject to automatic conversion if the Company's Common Stock price reaches certain levels and accelerated redemption if certain cash flow levels are achieved. In connection with the consummation of the Exchange Offer, the Company has agreed to issue 5,015,811 million 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 issued 11 TRIKON TECHNOLOGIES, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1998 (CONTINUED) to the Chairman of the Board is valued at $7.6 million, based upon average traded prices immediately before and after the grant. This amount has been accounted for as an increase to Common Stock and a charge to deferred compensation within shareholders' equity. The deferred compensation is being amortized on a straight line basis over a five year period and $0.2 million has been charged to selling, general and administrative expenses during the three and six months ended June 30, 1998. 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 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. After June 30, 1998 the Company agreed to exchange the remaining 22,222 Warrants on the same terms as those already tendered. 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 EBITDA during and for its two most recently completed fiscal quarters, taken as one period. This bonus has not been reflected in the financial statements at June 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 six months ended June 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 $1.843 million for future support costs relating to MORI equipment supplied to customers prior to the commencement of the restructuring. As a result of the Company's decision to substantially exit the MORI 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 it may be necessary to maintain certain customer relationships. Accordingly, the sales return reserve recorded as of June 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 Etch business. There have been no payments made for sales returns in the six months ended June 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 breach of warranty, fraud, negligent misrepresentation, and breach 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 on May 7, 1998 to federal court in the Northern District Court of Texas. The Company filed a motion to dismiss the claims in federal court on May 27, 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 12 TRIKON TECHNOLOGIES, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1998 (CONTINUED) 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 flows. NOTE M: 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). The Convertible Notes were exchanged for 22,660,798 million shares of Common Stock, 29,264.625 shares of Series I Junior Participating Preferred Stock and 2,855,754 million 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 Subordinated Notes exchanged $ 82,103 Interest waived 3,635 -------- 85,738 Value of Common Stock and Series I Preferred Stock (34,271) Series H Preferred Stock issued (28,558) Convertible Subordinated Note issuance costs written-off (1,916) Costs relating to the Exchange Offer (700) -------- Net gain on exchange $ 20,293 ========
NOTE N: COMPREHENSIVE INCOME As of January 1, 1998, the Company adopted Statement 130, Reporting Comprehensive Income. Statement 130 establishes new rules for the reporting and display of comprehensive income and its components; however, the adoption of this statement had no impact on the Company's net income or shareholders' equity. Statement 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 Statement 130. During the six months of 1998 and 1997, total comprehensive income (loss) amounted to $15.9 million and ($24.2) million, respectively. During the three months ended June 30, 1998 and 1997, total comprehensive income (loss) amounted to $4.6 million and $(13.9) million, respectively. 13 TRIKON TECHNOLOGIES, INC. 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 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, potential delisting from the Nasdaq National Market if the Company cannot meet the listing requirements, 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 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 Etch Division and of the Company's worldwide operations, closing of the Chatsworth Etch operations and anticipated product returns. 14 TRIKON TECHNOLOGIES, INC. During the three and six months ended June 30, 1998, the Company settled approximately $2.4 million and $3.3 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. The Company anticipates approximately $3.0 million of the remaining liability at June 30, 1998 will be paid in 1998 and $11.0 million in 1999, however, actual payments 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 two 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 to earnings 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. As a result of the restructuring, the remaining business consists primarily of the worldwide operations of Trikon Limited, the Company acquired by Trikon on November 15, 1996, with headquarters located in the United Kingdom. RESULTS OF OPERATIONS The following table sets forth certain operating data as a percentage of total revenue for the periods indicated:
Three Months Ended Six Months Ended -------------------------- ------------------------- June 30, June 30, June 30, June 30, 1998 1997 1998 1997 ------- -------- -------- -------- Product sales................................... 100.0% 100.0% 60.8% 100.0% License revenues................................ 0.0 0.0 39.2 0.0 ------- -------- -------- -------- Total revenues.................................. 100.0 100.0 100.0 100.0 Cost of goods sold.............................. 78.9 66.0 43.9 72.3 ------- -------- -------- -------- Gross margin.................................... 21.1 34.0 56.1 27.7 Operating expenses: Research and development..................... 28.2 22.2 17.2 29.4 Selling, general and administrative............................... 65.8 43.7 40.2 49.5 In-process technology........................ 0.0 15.6 0.0 9.6 Restructuring costs.......................... 22.2 0.0 7.2 0.0 Amortization of intangibles.................. 0.0 4.7 0.0 5.8 ------- -------- -------- -------- Total operating expenses........................ 116.2 86.2 64.6 94.3 ------- -------- -------- -------- Loss from operations............................ (95.1) (52.2) (8.5) (66.6) Interest expense, net........................... (11.3) (12.7) (11.3) (15.3) ------- -------- -------- -------- Loss before income tax provision (benefit)................................... (106.4) (64.9) (19.8) (81.9) Income tax provision (benefit).................. (1.3) (7.5) ( 0.9) (9.4) --------- --------- -------- --------- Loss before extraordinary item.................. (105.1)% (57.4)% (18.9)% (72.5)% ========= ========= ======== =========
PRODUCT SALES. Product sales for the second quarter of fiscal 1998 decreased 57% to $8.3 million compared to $19.1 million for the second quarter of fiscal 1997. The decrease was partly attributable to the discontinuance of sales of MORI(TM) etch equipment. Revenues from sales of MORI(TM) etch products during the second quarter of fiscal 1997 amounted to $7.2 million. There were no revenues from those products during the second quarter of fiscal 1998. Excluding sales of MORI(TM) etch products, product revenues for the second quarter of fiscal 1998 have 15 TRIKON TECHNOLOGIES, INC. decreased by $3.6 million or 30% from the second quarter of fiscal 1997. During the second quarter of fiscal 1998, the Company shipped two Sigma PVD and two Omega etch systems, as compared to one Sigma ForceFill(TM), one Delta CVD, two Flowfill CVD, two Omega(TM) etch, and four MORI systems during the second quarter of fiscal 1997. Revenues from product sales for the six month period ended June 30, 1998 decreased by 50% to $15.5 million as compared to $31.1 million for the six months ended June 30, 1997. Product sales decreased as a result of the shipment of seven systems, including one MORI etch system, in the six months ended June 30, 1998, as compared to fourteen systems, including four MORI etch systems, in the six months ended June 30, 1997. Sales outside of the United States accounted for approximately 93% of total revenues in the second quarter of 1998 and 28% of total revenues in the second quarter of 1997. Sales outside of the United States accounted for approximately 44% and 30% of total revenues in the six months ended June 30, 1998 and 1997, respectively. Excluding the license revenues, sales outside the United States accounted for 72% and 30% of product sales for the six months ended June 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 six months ended June 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). GROSS MARGIN ON PRODUCT REVENUES. The Company's gross margin on product sales for the second quarter of fiscal 1998 was 21% as compared to 34% for the second quarter of fiscal 1997. For the six months ended June 30, 1998, the gross margin on product sales was 28% as compared to 28% for the six months ended June 30, 1997. The relatively low gross margin for the second quarter of fiscal 1998 was due to the write-down of inventory with a book value of $0.6 million which is now considered redundant. The gross margin for the three and six months ended June 30, 1998, excluding the write down was 28% and 32%, respectively. The relatively low gross margin in 1997 resulted from the write-up of Trikon Limited inventory shipped in the first quarter of 1997, on hand as of November 15, 1996, to the fair market value of such inventory, resulting from the allocation of the purchase price of Trikon Limited as required under Accounting Principles Board ("APB") Opinion No. 16. Gross margins have been negatively impacted due to issues related to weakened product demand, such as unabsorbed manufacturing overhead associated with reduced units sold, and will continue to be adversely affected during remainder of 1998. RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses for the second quarter of fiscal 1998 was $2.3 million, or 28% of total revenues, compared to $4.3 million, or 22% of total revenues, for the second quarter of fiscal 1997. Included in research and development expenses during the second quarter of fiscal 1997 is $2.0 million related to the Chatsworth Etch Division. For the six months ended June 30, 1998, research and development expenses were $4.4 million, or 17% of total revenues as compared to $9.2 million, or 29% of total revenues for the six months ended June 30, 1997. The major focus of the Company's research and development efforts during the first six 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 second quarter of fiscal 1998 were $5.5 million, or 66% of total revenues, compared to $8.3 million, or 44% of total revenues, in the second quarter of fiscal 1997. In the six months to June 30, 1998, selling general and administrative expenses were $10.3 million or 40% of total revenues, compared to $15.4 million or 49.5% of total revenues in the six months ended June 30,1997. The dollar decreases were primarily due to the reduced overhead resulting from the closure of the Chatsworth Etch operations. LOSS FROM OPERATIONS. The Company realized a $7.9 million loss from operations in the second quarter of fiscal 1998, as compared with a $10.0 million loss from operations in the second quarter of fiscal 1997. The loss from operations in the second quarter of fiscal 1998 was due primarily to weak product demand, resulting in reduced product revenues and lower gross margins. In addition, the Company has set up a restructuring reserve of $1.8 million in the quarter to cover future customer support costs relating to MORI(TM) etch products supplied prior to the closure of the division. For the six months ended June 30, 1998, the Company realized a $2.2 million loss from operations, compared with a $20.7 million loss from operations for the six months ended June 30, 1997. The 16 TRIKON TECHNOLOGIES, INC. Company anticipates that operating results will continue to be unfavorably impacted by weak product demand during the remainder of fiscal 1998. INTEREST EXPENSE, NET. Interest expense, net decreased to $0.9 million in the second quarter of fiscal 1998 from $2.4 million in the second quarter of fiscal 1997. The interest expense in the second quarter of 1998 is primarily due to the accrual of interest payable to the holders of the Convertible Notes. The reduction in interest expense between the second quarter of 1997 and the second quarter of 1998 arises from the repayment and non-utilization of the Working Capital Facility since November 1997. Interest expense for the three months and six months ended June 30, 1998 is net of interest income of $0.3 million and $0.4 million, respectively. Interest expense for the three and six months ended June 30, 1997 is net of interest income of $0.1 million and $0.5 million, respectively. INCOME TAXES. The Company recorded a $0.2 million tax benefit in the three months ended March 31, 1998 and the six months ended June 30, 1998, compared to a $1.4 million tax benefit in the second quarter of fiscal 1997 and a $2.9 million benefit for the six months ended June 30, 1997. The tax benefit in the first quarter of 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 first and second fiscal quarters 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 Trikon Limited 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 and similar state provisions. Upon closing of the Exchange Offer (as defined below; see also 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. 17 TRIKON TECHNOLOGIES, INC. 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 to Notes to Unaudited Condensed Consolidated Financial Statements above.) The Convertible Notes were exchanged for 22,660,798 million shares of Common Stock, 29,264.625 shares of Series I Junior Participating Preferred Stock and 2,855,754 million 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 Subordinated Notes exchanged $ 82,103 Interest waived 3,635 -------- 85,738 Value of Common Stock and Series I Preferred Stock (34,271) Series H Preferred Stock issued (28,558) Convertible Subordinated Note issuance costs written-off (1,916) Costs relating to the Exchange Offer ( 700) -------- Net gain on exchange $ 20,293 ========
LIQUIDITY AND CAPITAL RESOURCES At June 30, 1998, the Company had $13.4 million in cash and cash equivalents, compared to $9.3 million at December 31, 1997. The increase in cash and cash equivalents principally arose from cash generated from operating activities of $5.5 million offset by cash used in investing activities of $0.5 million and cash used in financing activities of $0.9 million. 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 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 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 June 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 used the remainder to fund the closure of the Chatsworth, California, Etch operations, including the employee termination cost and debt service requirements. During the quarter ended June 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 at 5:00 P.M,, New York City time, on May 14, 1998, and immediately thereafter, the Company accepted for exchange or conversion all 18 TRIKON TECHNOLOGIES, INC. validly tendered Convertible Notes, its Series G Preferred Stock and Warrants. $82,103,000 principal amount of Notes (approximately 95% of the aggregate principal amount outstanding), 2,873,143 shares of Series G Preferred Stock (approximately 97% of the total shares outstanding) and 866,388 Warrants (approximately 97% of the Warrants outstanding) had been validly tendered for exchange. $4,147,000 principal amount of Convertible Notes did not accept the Exchange Offer and remain 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, 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 profit or loss arising on the exchange of the Convertible Notes. Since June 30, 1998, the Company has agreed to exchange the remaining 22,222 Warrants which had not previously been tendered. As previously disclosed, in early 1997 the Company determined that certain characteristics of the chemical vapor deposition ("CVD") technology of Trikon Limited known as "Flowfill" are superior to the high density plasma CVD processes which were being pursued by PMT CVD Partners, L.P. (the "Limited Partnership"), a limited partnership sponsored by the Company for MORI(TM) CVD development pursuant to an R&D agreement (the "R&D Agreement") entered into as of March 29, 1997 between the Limited Partnership and the Company (under which the Company agreed to perform all research and development work for the Limited Partnership). Accordingly, during the first quarter of 1997, the Company decided to discontinue 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 Trikon Limited equipment. Certain of the limited partners of the Limited Partnership asserted that this decision was inconsistent with the R&D Agreement and representations made by the Company in connection with the Limited Partnership and that, accordingly, a settlement of any and all claims that the limited partners of the Limited Partnership might have in connection with such discontinuation was appropriate. Effective June 30, 1997, the Company acquired all of the outstanding limited partnership interests of the Limited Partnership and all of the shares of the Limited Partnership's corporate general partner, in exchange for the Company's issuance of an aggregate of 679,680 shares of Common Stock of the Company (the "CVD Partnership Shares") pro rata to the limited partners of the Limited Partnership (excluding the Company) (the "CVD Purchase Agreement").Pursuant to this transaction, all CVD technology which had been developed by the Limited Partnership prior to such discontinuation, together with approximately $2.2 million of unspent funds of the Limited Partnership, are now owned solely by the Company, and any and all claims that the limited partners of the Limited Partnership may have had in connection with the termination of the research and development project thereunder or otherwise relating to the Limited Partnership have been resolved. In connection with the purchase of all of the outstanding interests in the Limited Partnership and its corporate general partner, the Company agreed to cause a registration statement covering the CVD Partnership Shares 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 does 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 will become obligated to the holders of CVD Partnership Shares for the liquidated damages for the period between November 1, 1997, and March 15, 1998, in the amount of $335,000. As of June 30, 1998, the Company had not caused a registration statement to become effective. The Company anticipates that it will spend up to $2.0 million for capital expenditures for the months remaining in fiscal 1998. This is expected to include investments in demonstration and test equipment, information systems, leasehold improvements and other capital items that should enable the Company to expand its ability to support and develop new products and services. 19 TRIKON TECHNOLOGIES, INC. 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 Notes to Unaudited Condensed Consolidated Financial Statements above.) The Company does not currently have a credit facility with any lenders. Management's plan with respect to these conditions includes the sale of licenses, restructuring of its operations, obtaining a new working capital facility and the Exchange Offer discussed in Note J to the Notes to the Unaudited Condensed Consolidated Financial Statements. Management believes that the successful implementation of 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 Many computer systems experience problems handling dates beyond the year 1999. Therefore, some computer hardware and software will need to be modified prior to the year 2000 in order to maintain functionality. The Company is assessing both the internal readiness of its computer systems and the compliance of its products sold to customers for handling the year 2000. The Company expects to implement successfully the systems and programming changes necessary to address year 2000 issues and 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. 20 PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS 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 breach of warranty, fraud, negligent misrepresentation, and breach 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 on May 7, 1998 to federal court in the Northern District Court of Texas. The Company filed a motion to dismiss the claims in federal court on May 27, 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. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS During the quarter ended June 30, 1998, the Company commenced an exchange offer (the "Exchange Offer") for all of its outstanding 7-1/8% Convertible Subordinated Notes due 2001 (the "Convertible Notes") Series G Preferred Stock (the "Series G Preferred Stock") and warrants issued in connection with the issuance of Series G Preferred Stock (the "Warrants"). 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 the total shares outstanding) and 866,388 Warrants (approximately 97% of the Warrants outstanding) were 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 were exchanged for 22,660,798 shares of the Company's Common Stock (the "Common Stock"), 2,855,754 shares of the Company's Series H Preferred Stock, $10 stated amount per share (the "Series H Preferred Stock"), and 29,264.625 shares of Series I Junior Participating Preferred Stock (the "Series I Preferred Stock"). The shares of Series G Preferred Stock were converted and exchanged for 6,294,614 shares of Common Stock and 7,997.489 shares of Series I Preferred Stock. The Warrants were converted and exchanged for 866,388 shares of Common Stock. The Exchange Offer was made by the Company in reliance on the exemption from the registration requirements of the Securities Act of 1933, as amended (the "Securities Act"), afforded by Section 3(a)(9) thereof. This exemption was made available because all the securities exchanged were with existing security- holders of the Company and the Company did not pay any commission or other remuneration to any broker, dealer, salesman or other person for soliciting tenders of Notes, Series G Preferred Stock or Warrants. Each share of Series H Preferred Stock is subject to automatic conversion into 1.4285 shares of Common Stock if and when the closing price of the Common Stock on a United States national securities exchange or on an established automated over-the-counter trading market in the United States is at a price in excess of $7.00 for a period of 30 consecutive trading days. 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, pursuant to its terms, automatically converted into 1,000 shares of Common Stock (the "Conversion Ratio"). ITEM 5. OTHER INFORMATION As disclosed in the Company's latest proxy statement, the deadline for submitting proposals to be considered for inclusion in the Company's Proxy Statement for the 1999 Annual Meeting is March 4, 1999. Pursuant to recent amendments to Rule 14a-4(c)(1) under the Securities Exchange Act of 1934, as amended, the Company will have discretionary voting authority if a proponent does not notify the Company by May 22, 1999 of their intent to present a proposal from the floor at the 1999 Annual Meeting of Shareholders or of their intent to commence a proxy solicitation for the 1999 Annual Meeting of Shareholders. 21 TRIKON TECHNOLOGIES, INC. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) The following exhibits are included herein:
Number Description ------ ----------- 4.5* Certificate of Determination establishing the rights, preferences and privileges of the Series H Preferred Stock 4.6* Certificate of Determination establishing the rights, preferences and privileges of the Series I Junior Participating Preferred Stock 4.7* First Supplemental Indenture, dated as of May 14, 1998, between the Company and U.S. Trust Company of California, N.A. 10.1 Employment Agreement, dated as of May 14, 1998, among Christopher D. Dobson, the Company and Trikon Technologies Limited 10.2 Letter Agreement, dated as of May 14, 1998, between Christopher D. Dobson and the Company 10.3 Employment Agreement, dated as of May 28, 1998 between the Company and Thomas C. McKee 27.1 Financial Statement Data
*Filed as an exhibit to the Company's Current Report on Form 8-K on May 28, 1998 and incorporated herein by reference. (b) Reports on Form 8-K: The Company filed a Current Report on Form 8-K (the "Form 8-K") with the Securities and Exchange Commission on May 28, 1998. The Form 8-K reported that the Company had consummated the Exchange Offer. The Company, at its option, provided unaudited pro forma financial information pursuant to Item 5 of the Form 8-K. 22 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: August 13, 1998 /s/ Thomas C. McKee ------------------- Thomas C. McKee Chief Executive Officer and Director Date: August 13, 1998 /s/ Jeremy Linnert ------------------ Jeremy Linnert Chief Financial Officer 23 TRIKON TECHNOLOGIES, INC. TRIKON TECHNOLOGIES, INC. EXHIBIT INDEX
Exhibit No. Page No. Description ----------- -------- ----------- 4.5* Certificate of Determination establishing the rights, preferences and privileges of the Series H Preferred Stock 4.6* Certificate of Determination establishing the rights, preferences and privileges of the Series I Junior Participating Preferred Stock 4.7* First Supplemental Indenture, dated as of May 14, 1998, between the Company and U.S. Trust Company of California, N.A. 10.1 Employment Agreement, dated as of May 14, 1998, among Christopher D. Dobson, the Company and Trikon Technologies Limited 10.2 Letter Agreement, dated as of May 14, 1998, between Christopher D. Dobson and the Company 10.3 Employment Agreement, dated as of May 28, 1998 between the Company and Thomas C. McKee 27.1 Financial Statement Data
*Filed as an exhibit to the Company's Current Report on Form 8-K on May 28, 1998 and incorporated herein by reference. EX-10.1 2 EMPLOYMENT AGREEMENT, DATED 05/14/98 EXHIBIT 10.1 EMPLOYMENT AGREEMENT -------------------- EMPLOYMENT AGREEMENT made as of the 14th day of May, 1998 by and between Trikon Technologies, Inc., a California corporation (the "Corporation"), Trikon Technologies Limited, an English corporation and a wholly owned subsidiary of the Corporation ("Trikon Limited"), and CHRISTOPHER D. DOBSON ("Executive"). WHEREAS, the Corporation, Trikon Limited and Executive wish to enter into a formal employment contract which will govern the terms and conditions applicable to Executive's employment with the Corporation and the payout of the special bonus to which Executive may become entitled in connection with the restructuring of the Corporation's capital structure. NOW, THEREFORE, the parties hereto agree as follows: PART ONE -- DEFINITIONS For purposes of this Agreement, the following definitions shall be in effect: Board shall mean the Corporation's Board of Directors. ----- Cause shall mean the termination of Executive's employment by the ----- Corporation for (i) a material breach of Section 7 of this Agreement or (ii) any other intentional misconduct by Executive adversely affecting the pecuniary interests of the Corporation in a material manner. Disability shall mean the Executive's inability, by reason of any ---------- physical or mental injury or illness, to substantially perform the services required of him hereunder for a period in excess of ninety (90) consecutive days, and Executive shall be deemed to have terminated employment by reason of Disability on the last day of such ninety (90)-day period. EBITDA shall mean the Corporation's earnings, determined before ------ deduction of the following expenses: interest, taxes, depreciation and amortization. EBITDA shall be computed at the close of each fiscal quarter in accordance with generally accepted accounting principles, consistently applied. However, EBITDA shall, solely for purposes of this Agreement, be subject to the following special adjustments: (i) any up-front technology license fees paid to the Corporation shall be treated as if paid in twelve (12) successive equal monthly installments, beginning with the month in which such fees are paid to the Corporation, and (ii) any incremental license fees paid to the Corporation in connection with the Corporation's MORI source technology (other than the fees paid under the Licenses), to the extent paid to the Corporation in fiscal year 1998, shall be deemed to be paid in fiscal year 1999 in a series of twelve (12) successive equal monthly installments during that year. Employment Period shall mean the period of Executive's employment ----------------- with the Corporation pursuant to the terms and provisions of this Agreement. Such Employment Period will begin as of the date hereof and will end when Executive's employment is terminated in accordance with Paragraph 10 of this Agreement. Exchange Offer shall mean the following formal offers, -------------- collectively, made by the Company: (i) the offer to exchange each $1,000 principal amount of its 7-1/8% Convertible Subordinated Notes due October 15, 2001 (the "Notes"), into (a) 262.7339 shares of Common Stock, (b) 34.7826 shares of Series G Preferred Stock and (c) 0.3393 shares of Series I Preferred Stock; (ii) the solicitation of the conversion of each share of Series G Preferred Stock into one share of Common Stock in exchange for a conversion payment of 1.1251 shares of Common Stock and 0.0027 shares of Series I Preferred Stock; and (iii) the offer to exchange each warrant to purchase its Common Stock issued in connection with the issuance of its Series G Preferred Stock into one share of its Common Stock. Full Business Time shall mean the Executive's performance of at ------------------ least 320 hours of service for the Corporation per quarter, which shall include all of Executive's efforts devoted to the Company's research and development projects and other matters wherever conducted. Incentive Award Agreement shall mean that agreement of even date ------------------------- herewith between the Corporation and Executive pursuant to which Executive has been awarded special incentives in the form of a restricted stock grant and a participating interest in certain proceeds payable in connection with a change in ownership or control of Corporation partially as an additional incentive for him to remain in the Corporation's employ. Licenses shall mean (i) the license of the Corporation's MORI -------- source technology to Applied Materials, Inc. pursuant to the MORI Source Technology License Agreement dated November 12, 1997 and the (ii) license of the Corporation's MORI source technology to Lam Research Corporation pursuant to the MORI Source Technology License Agreement dated March 18, 1998. Pik Preferred shall mean dividends paid from time to time on the ------------- Series H Preferred Stock issued in the Exchange Offer, to the extent those dividends are paid in the form of additional shares of the preferred stock of the Corporation. Proprietary Information and Inventions Agreement shall have the ------------------------------------------------ meaning set forth in Paragraph 8. Restructuring shall mean the restructuring of the Corporation's ------------- capital structure effected through the consummation of the Exchange Offer, the consolidation of Corporation's business operations in the United Kingdom and relocation of the corporate offices to Newport, Gwent, United Kingdom. PART TWO -- TERMS AND CONDITIONS OF EMPLOYMENT 1. DUTIES AND RESPONSIBILITIES. --------------------------- A. Executive shall serve as the Chief Executive Officer and Chief Science Officer of the Corporation and shall in such capacities report directly to the Board. As Chief Executive Officer, Executive shall have primary responsibility for the formulation, implementation and execution of strategic policies relating to the Corporation's business operations, financial objectives and market growth and shall accordingly have overall responsibility for the formulation of the business plan for each fiscal year to be submitted for Board approval. As Chief Science Officer, Executive shall have primary responsibility for the design and implementation of the Corporation's research and development projects and the development, enhancement and commercialization of the Corporation's technology worldwide. Executive shall continue to serve as Chairman of the Board during the Employment Period, and the Corporation shall use its best efforts to maintain him as Chairman of the Board throughout such period by taking all action necessary to nominate him for re-election to such position at each shareholders meeting at which Board members are to be elected. B. During the Employment Period, Executive shall perform in good faith and to the best of his ability all services which may be reasonably required of Executive hereunder and to be available to render such services at all reasonable times and places in accordance with such reasonable directives and requests made by the Corporation acting by majority vote of the Board. C. Executive shall, during the Employment Period, devote his Full Business Time to the performance of his duties and responsibilities hereunder. Executive shall be based at the Corporation's principal offices in Newport, Gwent, United Kingdom, but he may also perform his duties hereunder from his office at Cambridge University in Cambridge, England. In addition, Executive may be required to travel to other geographic locations in connection with the performance of his executive duties hereunder. Notwithstanding the foregoing, after a new Chief Executive Officer has been successfully recruited and commences Employment as such (the "New Chief Executive Officer"), Executive may devote less than his Full Business Time. 2. PERIOD OF EMPLOYMENT. -------------------- A. Executive's employment with the Corporation shall be governed by the provisions of this Agreement during the Employment Period. Executive shall continue to serve as the Corporation's Chief Executive Officer until such time as the New Chief Executive Officer commences employment as such. Thereafter, Executive shall continue to serve as Chief Science Officer of the Corporation without any reduction in his compensation hereunder, provided he devotes his Full Business Time to the performance of his duties in such capacity. If after the commencement of the employment of the New Chief Executive Officer as such, Executive devotes less than seventy-five percent (75%) of his Full Business Time to the performance of his duties, his base salary shall be reduced to fifty percent (50%) of the amount set forth in Paragraph 3.A. 3. COMPENSATION. ------------ A. BASE SALARY. Executive shall be paid by Trikon Limited a base salary at the annual rate of One Hundred Ninety-Two Thousand British Pounds ((Pounds)192,000). Base salary shall be paid at periodic intervals in accordance with Trikon Limited's payroll practices for salaried employees. B. SPECIAL BONUS. In consideration for the services Executive has rendered the Corporation in connection with (i) the negotiation and closing of the Licenses, (ii) the consummation of the Exchange Offer and (iii) the Restructuring, the Board has authorized a special bonus for the Executive in the amount of One Million Five Hundred Thousand Dollars (U.S.$1,500,000) (the "Bonus"). The Bonus shall become fully vested and earned upon the consummation of the Exchange Offer, and no further services shall be required of Executive as a condition to his entitlement to the Bonus. However, the Bonus shall not actually be paid to Executive until the Corporation's is deemed to be in a sufficiently sound financial condition to make such payment, as measured by the Corporation's attainment of the following performance milestones: - the Corporation shall have paid all accrued and unpaid dividends on the Series H Preferred Stock issued in the Exchange Offer and redeemed for cash all outstanding shares of Pik Preferred; and - the Corporation shall have had at least Eight Million Dollars (U.S $8,000,000) of cumulative EBITDA for the two fiscal quarters immediately preceding the payment date of the Bonus. Payment of the Bonus shall be made by Trikon Limited within thirty (30) business days after the close of such fiscal period, but in no event shall the Bonus be paid prior to June 30, 1999. C. Executive shall not be entitled to any additional bonuses with respect to future licenses of the Corporation's MORI source technology. D. Trikon Limited shall deduct and withhold from the compensation payable to Executive hereunder any and all applicable withholding taxes and any other amounts required to be deducted or withheld by the Corporation under applicable statutes, regulations, ordinances or orders governing the withholding or deduction of amounts otherwise payable as compensation or wages to employees. 4. EXPENSE REIMBURSEMENT. Executive shall be entitled to --------------------- reimbursement from the Corporation, in accordance with the Corporation's reimbursement policies as in effect from time to time, for all reasonable business expenses incurred by Executive in the performance of his duties hereunder, provided Executive furnishes the Corporation with vouchers, receipts -------- and other details of such expenses in the form required by the Corporation sufficient to substantiate a deduction for such business expenses under applicable rules and regulations of the taxing authorities. In no event, however, shall Executive be entitled to any reimbursement or other dollar allowance in connection with the use of his personal automobile for business purposes. 5. FRINGE BENEFITS. --------------- A. Executive shall, throughout the Employment Period, be eligible to participate in all employee benefit programs and other executive perquisites which are made available to the Corporation's executives and for which Executive qualifies. B. Executive shall accrue paid vacation benefits during the Employment Period at the rate at which he accrued such benefits immediately prior to the date of this Agreement and may take his accrued vacation at such times as are mutually convenient to Executive and the Corporation. 6. DEATH OR DISABILITY. Upon Executive's death or Disability during ------------------- the Employment Period, the employment relationship created pursuant to this Agreement shall immediately terminate, and no further compensation shall become payable to Executive pursuant to Paragraph 3. However, Trikon Limited shall pay Executive or his estate (i) any unpaid base salary earned under Paragraph 3 for services rendered through the date of his death or Disability, (ii) the value of all accrued and unused vacation benefits based upon Executive's most recent level of base salary and (iii) any other incentive compensation which becomes due and payable for the calendar year of the Executive's death or Disability, pro-rated in amount for the portion of the year completed prior to Executive's death or Disability. In addition, Trikon Limited shall remain liable for payment of the Bonus to the Executive or his estate, and such Bonus shall be paid when due and payable in accordance with the terms and conditions of Paragraph 3.B. 7. NON-COMPETITION. --------------- A. During the Employment Period, Executive shall not directly or indirectly own, manage, operate, join, control or participate in the ownership, management, operation or control of, or be employed by or connected in any manner with, any enterprise which is engaged in the semiconductor equipment manufacturing industry; provided, however, that such restriction shall not apply -------- to (i) any investment representing an interest of less than two percent (2%) of an outstanding class of publicly-traded securities of any corporation or other enterprise or (ii) his professorial duties at Cambridge University. B. During the Employment Period and for an additional two (2)-year period thereafter, Executive shall not, directly or indirectly, (i) encourage or solicit any of the Corporation's employees to leave the Corporation's employ for any reason or interfere in any other manner with employment relationships at the time existing between the Corporation and its current or prospective employees; or (ii) solicit the business of any licensor, licensee or customer of the Corporation, induce any of the Corporation's licensors, licensees or customers to terminate their existing business relationships with the Corporation or interfere in any other manner with any existing business relationship between the Corporation and any licensor, licensee, customer or other third party. Executive hereby acknowledges that monetary damages may not be sufficient to compensate the Corporation for any economic loss which may be incurred by reason of his breach of the foregoing restrictive covenants. Accordingly, in the event of any such breach, the Corporation shall, in addition to the termination of this Agreement and any remedies available to the Corporation at law, be entitled to obtain equitable relief in the form of an injunction precluding Executive from continuing such breach. 8. PROPRIETARY INFORMATION AND OWNERSHIP RIGHTS. Executive shall -------------------------------------------- sign the Corporation's Proprietary Information and Inventions Agreement in substantially the form attached hereto as Exhibit A (the "Proprietary --------- Information and Inventions Agreement"), and nothing in this Agreement shall be deemed to modify or affect Executive's duties and obligations under that other agreement. 10. TERMINATION OF EMPLOYMENT. ------------------------- A. The Corporation, acting by majority vote of the Board, may terminate Executive's employment under this Agreement at any time for any reason, with or without cause, by giving at least thirty (30) days prior written notice of such termination to the Executive. However, such thirty (30)-day notice requirement shall not apply to the termination of Executive's employment for Cause under Paragraph C below. The Corporation may, at the time such termination notice is given to Executive, immediately relieve Executive of some or all of his duties hereunder. B. Executive may terminate his employment under this Agreement at any time by giving the Corporation at least thirty (30) days prior written notice of such termination. C. The Corporation, acting by majority vote of the Board, may at any time, upon written notice, terminate the Executive's employment with the Corporation hereunder for Cause. Such termination shall be effective immediately upon such notice. D. Upon the termination of Executive's employment for any reason during the Employment Period, Executive shall be paid all salary and unused vacation earned through the date of such termination. In addition, upon termination of Executive's employment by the Corporation for any reason other than Cause prior to the date three years after the date of this Agreement (the "Severance Date"), Executive shall be paid an amount equal to the Executive's salary (as of the date of termination) from the date of termination through the Severance Date, such amount to be payable in regular installments in accordance with Trikon Limited's payroll practices for salaried employees. Upon termination of Executive's employment for any reason, Executive shall remain entitled to the Bonus which shall be paid by Trikon Limited when due and payable in accordance with the terms and conditions of Paragraph 3.B. PART THREE -- MISCELLANEOUS PROVISIONS 11. SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall ---------------------- inure to the benefit of, and shall be binding upon, the Corporation, its successors and assigns, Trikon Limited, its successors and assigns, and the Executive, the personal representative of his estate and his heirs and legatees; provided, however, that this Agreement shall not be assignable by the Company or Trikon Limited without the written consent of Executive. 13. NOTICES. ------- A. Any and all notices, demands or other communications required or desired to be given hereunder by any party shall be in writing and shall be validly given or made to another party if served either personally or if deposited in the local post, certified or registered mail, postage prepaid, return receipt requested. If such notice, demand or other communication shall be served personally, service shall be conclusively deemed made at the time of such personal service. If such notice, demand or other communication is given by local post, such notice shall be conclusively deemed given forty-eight (48) hours after the deposit thereof in the mail, addressed to the party to whom such notice, demand or other communication is to be given as hereinafter set forth: To the Corporation: Trikon Technologies, Inc. Ringland Way Newport, Gwent NP6 2TA UNITED KINGDOM Attention: President With a copy to: Michael J. Kennedy, Esq. Brobeck, Phleger & Harrison LLP Spear Street Tower One Market San Francisco, CA 94105 To Trikon Limited: Trikon Technologies Limited Ringland Way Newport, Gwent NP6 2TA UNITED KINGDOM Attention: President To Executive: Christopher Dobson Elberton Manor Elberton Bristol BS35 3AA UNITED KINGDOM With a copy to: Rory Greiss, Esq. Kaye, Scholer, Fierman, Hays & Handler, LLP 425 Park Avenue New York, NY 10022-3598 B. Any party hereto may change its address for the purpose of receiving notices, demands and other communications as herein provided by a written notice given in the manner aforesaid to the other party hereto. 14. GOVERNING DOCUMENT. This Agreement, together with (i) the ------------------ Proprietary Information and Inventions Agreement, and (ii) the Incentive Award Agreement, constitutes the entire agreement and understanding of the Corporation, Trikon Limited and Executive with respect to the terms and conditions of Executive's employment with the Corporation, including the compensation payable to him, and supersedes all prior and contemporaneous written or verbal agreements and understandings among Executive, the Corporation and Trikon Limited relating to such subject matter. This Agreement may only be amended by written instrument signed by Executive and an authorized officer of the Corporation and Trikon Limited. Any and all prior agreements, understandings or representations relating to the Executive's employment with the Corporation are hereby terminated and cancelled in their entirety and are of no further force or effect. 15. GOVERNING LAW. The provisions of this letter agreement will be ------------- construed and interpreted under the laws of California applicable to agreements executed and to be wholly performed within California, except to the extent any law of the United Kingdom is mandatorily applicable. If any provision of this Agreement as applied to any party or to any circumstance should be adjudged by a court of competent jurisdiction to be void or unenforceable for any reason, the invalidity of that provision shall in no way affect (to the maximum extent permissible by law) the application of such provision under circumstances different from those adjudicated by the court, the application of any other provision of this Agreement, or the enforceability or invalidity of this Agreement as a whole. Should any provision of this Agreement become or be deemed invalid, illegal or unenforceable in any jurisdiction by reason of the scope, extent or duration of its coverage, then such provision shall be deemed amended to the extent necessary to conform to applicable law so as to be valid and enforceable or, if such provision cannot be so amended without materially altering the intention of the parties, then such provision will be stricken and the remainder of this Agreement shall continue in full force and effect. 16. REMEDIES. All rights and remedies provided pursuant to this -------- Agreement or by law shall be cumulative, and no such right or remedy shall be exclusive of any other. A party may pursue any one or more rights or remedies hereunder or may seek damages or specific performance in the event of another party's breach hereunder or may pursue any other remedy by law or equity, whether or not stated in this Agreement. 17. COUNTERPARTS. This Agreement may be executed in more than one ------------ counterpart, each of which shall be deemed an original, but all of which together shall constitute but one and the same instrument. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year written above. TRIKON TECHNOLOGIES, INC. By: ---------------------------------- Title: ------------------------------- TRIKON TECHNOLOGIES LIMITED By: ---------------------------------- Title: ------------------------------- ------------------------------------- CHRISTOPHER D. DOBSON, EXECUTIVE EXHIBIT A PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT EX-10.2 3 LETTER AGREEMENT, DATED 05/14/98 EXHIBIT 10.2 TRIKON TECHNOLOGIES, INC. RINGLAND WAY NEWPORT, GWENT NP6 2TA UNITED KINGDOM May 14, 1998 Dear Chris: It is my pleasure to inform you that the Board of Directors has recently approved two special awards for you which are partially designed to encourage you to continue in the Company's service. The first award is a restricted stock award which will vest upon your continued service following the restructuring of the Company. The second award will entitle you to receive a special cash bonus in the event the Company is acquired during your period of service. The bonus amount will be based upon the price at which the Company is acquired. The terms and conditions of each of your incentive awards are summarized below. All capitalized terms which appear in this letter agreement have the meanings indicated for those terms in the definitional section which follows: PART ONE -- DEFINITIONS For purposes of this letter agreement, the following definitions shall apply: ACQUISITION shall mean any of the following transactions pursuant to which assets or securities of the Company are acquired for consideration paid in cash, securities or other property: (i) any merger or consolidation in which securities possessing more than fifty percent (50%) of the total combined voting power of the Company's outstanding securities are transferred to person or persons different from the persons holding those securities immediately prior to the merger or consolidation, or (ii) the sale, transfer or other disposition of all or substantially all (more than eighty percent (80%) of the fair market value of the total assets) of the Company's assets in liquidation or dissolution of the Company, or (iii) the direct sale by the Company's stockholders of securities possessing more than fifty percent (50%) of the total combined voting power of the Company's outstanding securities to person or persons different from the persons holding those securities immediately prior to such sale. May 14, 1998 Page 2 ACQUISITION PROCEEDS shall mean the following items of consideration (in cash, securities or other property) paid by the acquiring person or persons in effecting the Acquisition less fees and expenses associated with the Acquisition: (i) the aggregate amount of consideration (valued at fair market value) payable to the holders of the Company's outstanding equity securities in acquisition of their stockholder interests, to the extent the Acquisition is effected by a merger or consolidation or by the direct purchase of the Company's outstanding securities, or (ii) the aggregate amount of consideration (valued at fair market value) paid to the Company in acquiring the Company's assets, to the extent the Acquisition is effected by the purchase of all or substantially all of the Company's assets. No liability of the Company assumed or discharged by the acquiring person or persons in the Acquisition (other than the liability for your bonus award under this letter agreement) shall be taken into account in determining the amount of Acquisition Proceeds. However, the Acquisition Proceeds shall include any and all Earn-Out Payments made after the effective date of the Acquisition. BOARD shall mean the Company's Board of Directors. COMMON STOCK shall mean shares of the Company's common stock, no par value per share. COMPANY shall mean Trikon Technologies, Inc., a California corporation. DISABILITY shall mean your inability, by reason of any physical or mental injury or illness, to substantially perform the services required of you hereunder for a period in excess of ninety (90) consecutive days, and you shall be deemed to have terminated employment by reason of Disability on the last day of such ninety (90) day period. EARN-OUT shall mean any portion of the Acquisition Proceeds which is not determinable at the time of the Acquisition by reason of any earn-out provision or other contingent pay-out feature based upon the financial performance of the Company following the effective date of such Acquisition. EARN-OUT PAYMENT shall mean the portion of the Acquisition Proceeds which becomes payable pursuant to the Earn-Out on one or more dates following the effective date of the Acquisition. EXCHANGE OFFER shall mean the following formal offers, collectively, made by the Company: (i) the offer to exchange each $1,000 principal amount of its 7-l/8% Convertible Subordinated Notes due October 15, 2001 (the "Notes"), into (a) 262.7339 shares of Common Stock, (b) 34.7826 shares of Series G Preferred Stock and (c) 0.3393 shares of Series I Preferred Stock; (ii) the solicitation of the conversion of each share of Series G Preferred Stock into one May 14, 1998 Page 3 share of Common Stock in exchange for a conversion payment of 1.1251 shares of Common Stock and 0.0027 shares of Series I Preferred Stock; and (iii) the offer to exchange each warrant to purchase its Common Stock issued in connection with the issuance of its Series G Preferred Stock into one share of its Common Stock. SERVICE shall mean your performance of services for the Company (or any successor entity) as (i) an employee, (ii) a non-employee member of the Board or (iii) an independent consultant. Includes all of your efforts devoted to the Company's research and development projects and other matters at Cambridge University and elsewhere. SERIES I PREFERRED STOCK shall mean shares of series I preferred stock, no par value per share. TERMINATION FOR CAUSE shall mean the Company's termination of your Service for (i) any material breach of Section 7 of the Employment Agreement between you, the Company and Trikon Technologies Limited and (ii) any other intentional misconduct by you adversely affecting the pecuniary interests of the Company in a material manner. PART TWO -- RESTRICTED STOCK AWARD You are hereby awarded 5,015,811 shares of Common Stock and 6,476.995 shares of Series I Preferred Stock, subject to the terms and conditions of this Part Two. The date of issuance of such shares shall be as of May 24, 1998. All shares of Common Stock and Series I Preferred Stock hereby awarded to you, and all shares of Common Stock issuable upon conversion of Series I Preferred Stock awarded hereby, shall hereinafter be referred to as "Restricted Stock." You will have full stockholder rights with respect to all the shares of Restricted Stock (including voting, dividend and liquidation rights). However, the shares will be unvested when issued and will vest upon the earlier to occur of the following events (the "Vesting Events"): (i) the expiration of the five (5)-year period measured from the closing date of the Exchange Offer, (ii) the consummation of an Acquisition. If prior to a Vesting Event (i) you voluntarily cease Service or (ii) you are subject to Termination for Cause (each, a "Forfeiture Event"), the Restricted Stock is subject to immediate forfeiture to the Company upon payment of $0.001 per share of Common Stock and $1.00 per share of Series I Preferred Stock (the "Repurchase Price"). Cessation of Service by you due to death or Disability shall not constitute a Forfeiture Event. For purposes of determining whether you have voluntarily ceased Service during the first two years following the closing date, you will be deemed to have voluntarily ceased Service if during either of such years you provide less than 750 hours of Service and your employment has not been terminated by the Company prior to such time. May 14, 1998 Page 4 Accordingly, should a Forfeiture Event occur prior to the occurrence of a Vesting Event, you will cease to have any further stockholder rights (including voting, dividend or liquidation rights) with respect to the Restricted Stock issued or issuable to you hereunder. The Company will hold the stock certificate for those shares in escrow on your behalf until you vest in those shares. During such period, the Company will take all actions necessary to allow you to exercise your full stockholder rights, including voting your shares and receiving dividends. However, those shares will be immediately cancelled by the Company upon a Forfeiture Event prior to a Vesting Event and payment of the Repurchase Price. At your election, you may transfer up to twenty percent (20%) of the shares of Restricted Stock to other members of the Company's senior management, subject to forfeiture as set forth above. The individuals to whom shares of Restricted Stock are transferred will vest in the shares of Restricted Stock transferred to them at the same time you vest in your remaining shares. No other transfers of your restricted shares will be permitted. PART THREE -- SPECIAL ACQUISITION BONUS Provided that you are not subject to Termination for Cause and you do not voluntarily cease Service (which shall not include cessation of Service due to death or Disability) prior to the date of an Acquisition that results in Acquisition Proceeds of not less than $250 million, you will receive a special bonus in an amount equal to a specified percentage of those Acquisition Proceeds (the "Bonus Percentage"). The applicable Bonus Percentage shall be based upon the amount of the Acquisition Proceeds and shall be determined in accordance with the table below.
ACQUISITION PROCEEDS BONUS PERCENTAGE --------------------------------------------------------------------- At Least $250 Million 0.5% At Least $260 Million 1.0% At Least $270 Million 2.0% At Least $280 Million 2.5% $300 Million or More 3.0%
Your bonus will be paid in cash upon receipt of Acquisition Proceeds by the Company or other stockholders, as applicable, by wire transfer or immediately available funds to an account designated by you. However, should all or any portion of the Acquisition Proceeds be paid in the form of freely- tradable securities, then the payment of your bonus amount may, in the Board's sole discretion, be made in whole or in part in those securities. To the extent any portion of the Acquisition Proceeds is to be paid in the form of a promissory note or other debt security, a portion of the bonus amount due to you will be paid in the form of a participating interest in that promissory note or other debt security in the same proportion as the principal amount of such note or debt security bears to the total amount of the Acquisition Proceeds. The amount of your participating interest in the promissory note or other debt security will only be paid to the you as and when the note or debt security is paid down. May 14, 1998 Page 5 Should any portion of the Acquisition Proceeds become payable after the Acquisition pursuant to an Earn-Out feature, then the applicable Bonus Percentage shall be applied separately to the Acquisition Proceeds paid at the time of the Acquisition and to each subsequent Earn-Out Payment as follows: * The Bonus Percentage applied at the time the initial Acquisition Proceeds are paid shall be based upon the fixed and determinable amount of the Acquisition Proceeds at that time. * As each subsequent Earn-Out Payment is made, that payment will be aggregated with all other Acquisition Proceeds paid to date, and the Bonus Percentage shall be based on that aggregate amount. If the applicable Bonus Percentage increases as a result of any Earn-Out Payment, the resulting deficiency in the bonus amounts paid to date to you by reason of the application of the lower Bonus Percentage to one or more earlier payments made to you will be immediately corrected. Accordingly, the total bonus amount due you pursuant to this letter agreement will be equal to the product of (i) the highest Bonus Percentage to which you become entitled by reason of all the Earn-Out Payments made in connection with the Acquisition and (ii) the total Acquisition Proceeds, including the Earn-Out Payments, realized in the Acquisition. The bonus to which you become entitled on the basis of the Acquisition Proceeds paid at the time of the Acquisition will be paid to you within thirty (30) days after the effective date of the Acquisition, and the bonus attributable to any subsequent Earn-Out Payment will be paid to you within thirty (30) days after the date of each such Earn-Out Payment. Very truly yours, EX-10.3 4 EMPLOYMENT AGREEMENT, DATED 05/28/98 EXHIBIT 10.3 EMPLOYMENT AGREEMENT -------------------- EMPLOYMENT AGREEMENT made as of the 28th day of May, 1998 by and among Trikon Technologies, Inc., a California corporation (the "Corporation"), Trikon Technologies Limited, a corporation ("Trikon Limited") organized under the laws of the United Kingdom and a wholly owned subsidiary of the Corporation, and THOMAS MC KEE ("Executive"). WHEREAS, the Corporation, Trikon Limited and Executive wish to enter into a formal employment contract which will govern the terms and conditions applicable to Executive's employment with the Corporation. NOW, THEREFORE, the parties hereto agree as follows: PART ONE -- DEFINITIONS For purposes of this Agreement, the following definitions shall be in effect: Board shall mean the Corporation's Board of Directors. ----- Cause shall mean the termination of Executive's employment by the ----- Corporation by reason of (i) a material breach of his obligations under Paragraph 8, 9 or 10 of this Agreement, (ii) any other intentional misconduct on his part adversely affecting the pecuniary interests of the Corporation in a material manner, (iii) Executive's material dereliction of the major duties, functions and responsibilities of his executive position after written warning from the Board Corporation or (iv) a material breach by Executive of any of Executive's fiduciary obligations as an officer of the Corporation. Disability shall mean the Executive's inability, by reason of any ---------- physical or mental injury or illness, to perform substantially the services required of him hereunder for a period in excess of ninety (90) consecutive days, and Executive shall be deemed to have terminated employment by reason of Disability on the last day of such ninety (90)-day period. Employment Period shall mean the period of Executive's employment ----------------- with the Corporation set forth in Paragraph 2. Required Documentation for reimbursable expenses shall mean ---------------------- vouchers, receipts and other details of such expenses in the form required by the Corporation sufficient to substantiate a deduction for such expenses under applicable rules and regulations of the taxing authorities (regardless of whether such deduction is actually available for the particular expense). Start Date shall be June 1, 1998, the date the Executive ---------- commences employment with the Corporation as Chief Executive Officer. Trikon Entities shall mean the Corporation, Trikon Limited and --------------- any other majority-owned subsidiary of the Corporation or Trikon Limited. PART TWO -- TERMS AND CONDITIONS OF EMPLOYMENT 1. DUTIES AND RESPONSIBILITIES. --------------------------- A. Executive shall serve as the Chief Executive Officer of the Corporation and shall in such capacity report directly to the Board. As Chief Executive Officer, Executive shall have primary responsibility for the formulation, implementation and execution of strategic policies relating to the Corporation's business operations, financial objectives and market growth and shall accordingly have overall responsibility for the formulation of the business plan for each fiscal year to be submitted for Board approval. Executive shall be appointed to the Board on his Start Date, and the Corporation shall use its best efforts to maintain him on the Board throughout the Employment Period by taking all action necessary to nominate him for re-election to such position at each shareholders meeting at which Board members are to be elected. Executive shall also perform such executive duties and functions for Trikon Limited, including service as an executive officer, as the Board may reasonably request of him. B. During the Employment Period, Executive shall perform in good faith and to the best of his ability all services which may be reasonably required of Executive hereunder and to be available to render such services at all reasonable times and places in accordance with such reasonable directives and requests made by the Corporation acting by majority vote of the Board. C. Executive shall, during the Employment Period, devote his full time, ability, energy and skill to the performance of his duties and responsibilities hereunder. Executive shall be based at the Corporation's principal offices in Newport, Gwent, United Kingdom, but may be required to travel to other geographic locations in connection with the performance of his executive duties hereunder. 2. PERIOD OF EMPLOYMENT. Executive's employment with the -------------------- Corporation shall be governed by the provisions of this Agreement for the period commencing June 1, 1998 and continuing through December 31, 1999, unless sooner terminated in accordance with the provisions of Paragraph 11 of this Agreement. Should Executive's employment pursuant to this Agreement otherwise continue through December 31, 1999, then this Agreement shall automatically be renewed from calendar year to calendar year thereafter, until either Executive or the Corporation elects to terminate this Agreement as of the start of any subsequent calendar year by providing not less than thirty (30) days prior written notice to the other party. The period during which Executive's employment continues in effect hereunder shall constitute the Employment Period. 3. CASH COMPENSATION. ----------------- A. BASE SALARY. The Corporation shall pay Executive a base salary at the annual rate of not less than Three Hundred Forty Thousand U.S. Dollars (U.S. $340,000). Such rate shall be subject to annual review by the Board and may be increased at the Board's discretion. Base salary shall be paid at periodic intervals in accordance with the Corporation's payroll practices for salaried employees. B. BONUS. For each fiscal year of the Corporation during the Employment Period, including the short fiscal period beginning on the Start Date and ending December 31, 1998, Executive shall be entitled to incentive compensation in an amount not to exceed to fifty percent (50%) of his base salary which is to become payable only upon the Corporation's achievement of the financial objectives and performance milestones mutually agreed upon by the Board and Executive for each such year. For the fiscal year ending May 31, 1999, the target bonus shall be One Hundred Seventy Thousand U.S. Dollars (U.S. $170,000) to become payable upon the Corporation's achievement of the financial objectives and performance milestones mutually agreed upon by the Board and the Executive within sixty (60) days after the Start Date. C. DELEGATION. The Corporation's obligation to pay the cash compensation to which Executive becomes entitled pursuant to this Paragraph 3 may, in the Board's discretion, be delegated in whole or in part to Trikon Limited in connection with the assignment to him of any duties or functions to be performed for Trikon Limited. D. WITHHOLDING. The Corporation or Trikon Limited shall deduct and withhold from the compensation payable to Executive hereunder any and all applicable withholding taxes and any other amounts required to be deducted or withheld by the Corporation under applicable statutes, regulations, ordinances or orders governing the withholding or deduction of amounts otherwise payable as compensation or wages to employees. 4. EQUITY COMPENSATION. -------------------- A. On the Start Date, Executive shall be granted a stock option to acquire shares of the Corporation's common stock (the "Common Stock") under the Corporation's 1991 Stock Option Plan (the "Plan"). The option will cover 1,872,430 shares of Common Stock (representing two percent (2%) of the Corporation's currently outstanding equity securities on a fully-diluted basis). The exercise price per share will be the closing selling price per share of Common Stock on the Start Date, as reported on the Nasdaq National Market. B. The option will have a term of seven (7) years, subject to earlier termination upon Executive's termination of employment with the Corporation. The option will be immediately exercisable for ten percent (10%) of the option shares and will become exercisable for the remaining shares in a series of four (4) successive equal annual installments upon Executive's completion of each year of employment over the four year period measured from the Start Date. No additional shares will become exercisable after Executive's termination of employment with the Corporation for any reason. C. The remaining terms and provisions of the option will be governed by the applicable provisions of the Plan. 5. EXPENSE REIMBURSEMENT. Executive shall be entitled to reimbursement --------------------- from the Corporation, in accordance with the Corporation's reimbursement policies as in effect from time to time, for all reasonable business expenses incurred by Executive in the performance of his duties hereunder, provided -------- Executive furnishes the Corporation with the Required Documentation for those expenses. 6. FRINGE BENEFITS --------------- A. EMPLOYEE BENEFIT PROGRAMS. Executive shall, throughout the Employment Period, be eligible to participate in all employee benefit programs and other executive perquisites which are made available to the Corporation's executives and for which Executive qualifies, including health care coverage. B. VACATION. Executive shall accrue paid vacation benefits during the Employment Period at the rate of five (5) full weeks per calendar year to be pro-rated on the basis of six and one-quarter (6 1/4) days per calendar quarter. Executive may take his accrued vacation at such times as are mutually convenient to Executive and the Corporation. C. AUTOMOBILE. The Corporation shall provide an automobile for Executive's business and personal use and shall reimburse Executive for all reasonable expenses incurred in the operation and maintenance of such vehicle, including insurance, fuel, maintenance and repair costs, provided Executive -------- furnishes the Corporation with the Required Documentation for those expenses. D. HOUSING ACCOMMODATIONS. The Corporation shall reimburse Executive for his housing costs in the United Kingdom in an amount not to exceed One Thousand Pounds Sterling ((Pounds)1,000.00) per month during the Employment Period, provided Executive furnishes the Corporation with the Required -------- Documentation for those costs. E. RELOCATION PAYMENT. Upon the commencement of his employment under this Agreement, the Company shall pay Executive the cash sum of Twenty Five Thousand U.S. Dollars (U.S. $25,000.00) to cover any and all costs or expenses incurred by him in connection with his relocation to the United Kingdom. Should Executive's employment be terminated for Cause, Executive must repay such cash sum to Corporation within five (5) business days after such termination. 7. DEATH OR DISABILITY. ------------------- A. Upon Executive's death or Disability during the Employment Period, the employment relationship created pursuant to this Agreement shall immediately terminate, and no further cash compensation shall become payable to Executive pursuant to Paragraph 3. However, the Corporation shall pay Executive or his estate (i) any unpaid base salary earned under Paragraph 3 for services rendered through the date of his death or Disability, (ii) the value of all accrued and unused vacation benefits based upon Executive's most recent level of base salary and (iii) any other incentive compensation which becomes due and payable for the fiscal year of the Executive's death or Disability, pro-rated in amount for the portion of the year completed prior to Executive's death or Disability. B. The stock option granted to Executive under Paragraph 4 shall not become exercisable for any additional shares of Common Stock following the termination of the employment relationship by reason of Executive's death or disability. However, to the extent that the option is exercisable for any shares of Common Stock at the time of Executive's death, the option may be exercised for those shares, at any time before the expiration or sooner termination of that option, by the executors or administrators of Executive's estate or by persons to whom the option is transferred pursuant to Executive's will or in accordance with the laws of inheritance. 8. RESTRICTIVE COVENANTS. During the Employment Period: --------------------- (i) Executive shall devote Executive's full time and energy solely and exclusively to the performance of Executive's duties described herein, except during periods of illness or vacation. (ii) Executive shall not directly or indirectly provide services to any person, firm or other entity except the Corporation, unless otherwise authorized by the Board in writing. (iii) Executive shall not render any services of any kind or character for his own account or for any other person, firm or entity without first obtaining the Board's written consent. However, Executive shall have the right to perform such incidental services as are necessary in connection with (a) Executive's private passive investments, but only if Executive is not obligated or required to (and shall not in fact) devote any managerial efforts which interfere with the services required to be performed by him hereunder, or (b) Executive's charitable or community activities or participation in trade or professional organizations, but only if such incidental services do not interfere with the performance of Executive's services hereunder. 9. NON-COMPETITION. --------------- A. During the Employment Period, Executive shall not directly or indirectly own, manage, operate, join, control or participate in the ownership, management, operation or control of, or be employed by or connected in any manner with, any enterprise which is engaged in the semiconductor equipment manufacturing industry; provided, however, that such restriction shall not apply -------- to any passive investment representing an interest of less than two percent (2%) of an outstanding class of publicly-traded securities of any corporation or other enterprise. B. During the Employment Period and for an additional two (2)-year period thereafter, Executive shall not, directly or indirectly: (i) encourage or solicit any of the employees of the Trikon Entities to leave the employ of the Trikon Entities for any reason or interfere in any other manner with employment relationships at the time existing between the those employees and the Trikon Entities; or (ii) solicit the business of any licensor, licensee or customer of the Trikon Entities, induce any licensor, licensee or customer of the Trikon Entities to terminate their existing business relationships with the Trikon Entities or interfere in any other manner with any existing business relationship between any licensor, licensee, customer or other third party and the Trikon Entities. Executive hereby acknowledges that monetary damages may not be sufficient to compensate the Trikon Entities for any economic loss which may be incurred by reason of his breach of the foregoing restrictive covenants. Accordingly, in the event of any such breach, the Trikon Entities shall, in addition to the termination of this Agreement and any remedies available to the Trikon Entities at law, be entitled to obtain equitable relief in the form of an injunction precluding Executive from continuing such breach. 10. PROPRIETARY INFORMATION. ----------------------- A. Executive hereby acknowledges that the Trikon Entities may, from time to time during the Employment Period, disclose to Executive confidential information pertaining to the business and affairs, technology, research and development projects and customer base of the Trikon Entities, including (without limitation) financial information concerning customers and prospective business opportunities. All information and data, whether or not in writing, of a private or confidential nature concerning the business, technology or financial affairs of the Trikon Entities and their clients (collectively, "Proprietary Information") is and shall remain the sole and exclusive property of the Trikon Entities. By way of illustration, but not limitation, Proprietary Information shall include all trade secrets, research and development projects, financial records, business plans, personnel data, computer programs and customer lists and accounts relating to the business operations, technology or financial affairs of the Trikon Entities, other similar items indicating the source of the revenue of the Trikon Entities, all information pertaining to the salaries, duties and performance ratings of the employees of the Trikon Entities and all financial information relating to the customers of the Trikon Entities and their proposed or contemplated business transactions. B. Executive shall not, at any time during or after such Employment Period, disclose to any third party or directly or indirectly make use of any such Proprietary Information, other than in connection with the business and affairs of the Trikon Entities. C. All files, letters, memoranda, reports, records, data or other written, reproduced or other tangible manifestations of the Proprietary Information, whether created by Executive or others, to which the Executive has access during the Employment Period shall be used by Executive only in the performance of his duties hereunder. All such materials (whether written, printed or otherwise reproduced or recorded) shall be returned by Executive to the Corporation immediately upon the termination of the Employment Period or upon any earlier request by any of the Trikon Entities, without Executive retaining any copies, notes or excerpts thereof. D. Executive's obligation not to disclose or use Proprietary Information shall also extend to any and all information, records, trade secrets, data and other tangible property of the customers of the Trikon Entities or any other third parties who may have disclosed or entrusted the same to the Trikon Entities or Executive in connection with the Corporation's business operations. E. Executive's obligations under this Paragraph 10 shall continue in effect after the termination of his employment with the Corporation, whatever the reason or reasons for such termination, and the Corporation shall have the right to communicate with any future or prospective employer of Executive concerning Executive's continuing obligations under this Paragraph 10. F. Upon the request of one or more of the Trikon Entities at any time during the Employment Period, Executive shall sign a Proprietary Information and Inventions Agreement, in form and substance mutually acceptable to Executive and the Trikon Entities. 11. TERMINATION OF EMPLOYMENT. ------------------------- A. The Corporation, acting by majority vote of the Board, may terminate Executive's employment under this Agreement at any time for any reason, with or without cause, by giving at least thirty (30) days prior written notice of such termination to the Executive. However, such thirty (30)-day notice requirement shall not apply to the termination of Executive's employment for Cause under Paragraph C below. The Corporation may, at the time such termination notice is given to Executive, immediately relieve Executive of some or all of his duties hereunder. B. Executive may terminate his employment under this Agreement at any time by giving the Corporation at least thirty (30) days prior written notice of such termination. C. The Corporation, acting by majority vote of the Board, may at any time, upon written notice, terminate the Executive's employment with the Corporation hereunder for Cause. Such termination shall be effective immediately upon such notice. D. Upon the termination of Executive's employment for any reason during the Employment Period, Executive shall be paid (i) any unpaid base salary earned under Paragraph 3 for services rendered through the date of his death or Disability and (ii) the value of all accrued and unused vacation benefits based upon Executive's most recent level of base salary. If Executive is involuntarily terminated by the Corporation other than for Cause, Executive shall also be entitled to the special severance benefits provided under Paragraph 12. 12. BENEFIT ENTITLEMENT. Executive shall be entitled to receive the ------------------- following severance benefits in the event his employment with the Corporation is involuntarily terminated other than for Cause: (a) Salary Continuation. Executive shall receive salary ------------------- continuation payments, at the monthly rate of base salary in effect for him under Paragraph 3 at the time of his involuntary termination, for a period of twelve (12) months. Such salary continuation payments shall be made at semi-monthly intervals on the 15th and last day of each calendar month and shall be subject to all applicable withholding requirements as set forth in Paragraph 3.D. (b) Incentive Compensation. Executive shall be entitled ---------------------- fifty percent (50%) of the dollar amount of any incentive compensation which would have actually become payable to him on the basis of the Corporation's financial performance for the fiscal year in which his employment is involuntarily terminated, had he continued in employ through the end of that fiscal year. Payment shall be made within ninety (90) days after the close of such fiscal year. (c) Health Care Coverage. Continued health care coverage -------------------- under the Corporation's medical plan shall be provided, without charge, to Executive and his eligible dependents until the earlier of (i) the expiration of ------- the six (6)-month period measured from the effective date of his involuntary termination or (ii) the first date on which Executive is covered under another employer's health benefit program without exclusion for any pre-existing medical condition. PART THREE -- MISCELLANEOUS PROVISIONS 13. SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall ---------------------- inure to the benefit of, and shall be binding upon, (i) the Corporation, Trikon Limited and their respective successors and assigns and (ii) the Executive, the personal representative of his estate and his heirs and legatees. 14. NOTICES. ------- A. Any and all notices, demands or other communications required or desired to be given hereunder by any party shall be in writing and shall be validly given or made to another party if served either personally or if deposited in the local post, certified or registered mail, postage prepaid, return receipt requested. If such notice, demand or other communication shall be served personally, service shall be conclusively deemed made at the time of such personal service. If such notice, demand or other communication is given by local post, such notice shall be conclusively deemed given forty-eight (48) hours after the deposit thereof in the mail, addressed to the party to whom such notice, demand or other communication is to be given as hereinafter set forth: To the Corporation: Trikon Technologies, Inc. Ringland Way Newport, Gwent NP6 2TA UNITED KINGDOM Attention: President With a copy to: Michael J. Kennedy, Esq. Brobeck, Phleger & Harrison LLP Spear Street Tower One Market San Francisco, CA 94105 To Trikon Limited: Trikon Technologies Limited Ringland Way Newport, Gwent NP6 2TA UNITED KINGDOM Attention: President To Executive: Thomas McKee _____________________ _____________________ _____________________ _____________________ With a copy to: _____________________ _____________________ _____________________ _____________________ _____________________ B. Any party hereto may change its address for the purpose of receiving notices, demands and other communications as herein provided by a written notice given in the manner aforesaid to the other party hereto. 14. GOVERNING DOCUMENT. This Agreement constitutes the entire ------------------ agreement and understanding of the Corporation, Trikon Limited and Executive with respect to the terms and conditions of Executive's employment with the Corporation and Trikon Limited, including the compensation payable to him, and supersedes all prior and contemporaneous written or verbal agreements and understandings among Executive, the Corporation and Trikon Limited relating to such subject matter. This Agreement may only be amended by written instrument signed by Executive and an authorized officer of the Corporation and Trikon Limited. Any and all prior agreements, understandings or representations relating to the Executive's employment with the Corporation or Trikon Limited are hereby terminated and cancelled in their entirety and are of no further force or effect. 15. GOVERNING LAW. This Agreement shall be construed and interpreted ------------- under the laws of the State of California applicable to agreements executed and to be wholly performed within the State of California, except to the extent any law of the United Kingdom is mandatorily applicable. If any provision of this Agreement as applied to any party or to any circumstance should be adjudged by a court of competent jurisdiction to be void or unenforceable for any reason, the invalidity of that provision shall in no way affect (to the maximum extent permissible by law) the application of such provision under circumstances different from those adjudicated by the court, the application of any other provision of this Agreement, or the enforceability or invalidity of this Agreement as a whole. Should any provision of this Agreement become or be deemed invalid, illegal or unenforceable in any jurisdiction by reason of the scope, extent or duration of its coverage, then such provision shall be deemed amended to the extent necessary to conform to applicable law so as to be valid and enforceable or, if such provision cannot be so amended without materially altering the intention of the parties, then such provision will be stricken and the remainder of this Agreement shall continue in full force and effect. 16. REMEDIES. All rights and remedies provided pursuant to this -------- Agreement or by law shall be cumulative, and no such right or remedy shall be exclusive of any other. A party may pursue any one or more rights or remedies hereunder or may seek damages or specific performance in the event of another party's breach hereunder or may pursue any other remedy by law or equity, whether or not stated in this Agreement. 17. COUNTERPARTS. This Agreement may be executed in more than one ------------ counterpart, each of which shall be deemed an original, but all of which together shall constitute but one and the same instrument. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year written above. TRIKON TECHNOLOGIES, INC. By: Title: TRIKON TECHNOLOGIES LIMITED By: Title: ------------------------------------------------ THOMAS MCKEE, EXECUTIVE EX-27 5 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CONTAINED IN THE FORM 10-Q FOR THE PERIOD ENDING JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 13,405 0 12,026 (2,566) 18,961 44,476 25,718 (4,757) 69,477 25,577 4,147 0 57,426 170,104 193,823 69,477 8,292 8,292 6,546 16,181 0 0 (948) (8,837) 0 0 0 20,293 0 11,456 0.23 0.22
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