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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
SCHEDULE 13E-4
ISSUER TENDER OFFER STATEMENT
(Pursuant to Section 13(e) of the Securities Exchange Act of 1934)
SUBMICRON SYSTEMS CORPORATION
(Name of Issuer)
SUBMICRON SYSTEMS CORPORATION
(Name of Person(s) Filing Statement)
9% CONVERTIBLE SUBORDINATED NOTES DUE DECEMBER 15, 1997
WARRANTS TO PURCHASE COMMON STOCK
(Title of Class of Securities)
NOT APPLICABLE
------------------------
(CUSIP Number of Class of Securities)
MR. DAVID F. LEVY
PRESIDENT
SUBMICRON SYSTEMS CORPORATION
6620 GRANT WAY
ALLENTOWN, PA 18106
(610) 391-9200
(Name, Address and Telephone Number of Person Authorized to Receive Notice and
Communications on Behalf of Person(s) Filing Statement)
COPY TO:
RICHARD J. BUSIS, ESQUIRE
COZEN AND O'CONNOR
1900 MARKET STREET
PHILADELPHIA, PA 19103
(215) 665-2000
JULY 8, 1996
(Date Tender Offer First Published, Sent or Given to Security Holders)
CALCULATION OF FILING FEE
<TABLE>
<CAPTION>
TRANSACTION VALUATION* AMOUNT OF FILING FEE
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<S> <C>
$21,161,250 $4,233
</TABLE>
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* For purpose of calculation of a filing fee only. The amount of the filing fee
equals 1/50 of 1% of the value of the securities to be exchanged. There is no
public market for the securities to be exchanged. Accordingly, the transaction
value is based upon the market value of the Common Stock offered in exchange
therefor, based on the closing price of the Common Stock on the Nasdaq
National Market as of July 3, 1996.
/ /Check box if any part of the fee is offset as provided by Rule 0-11(a)(2) and
identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the form or
schedule and the date of its filing.
<TABLE>
<S> <C>
Amount previously paid: N/A Filing party: N/A
Form or registration No.: N/A Date filed: N/A
</TABLE>
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ITEM 1. SECURITY AND ISSUER
(a) The name of the issuer is SubMicron Systems Corporation, a Delaware
corporation (the "Company"), which has its principal executive offices at 6620
Grant Way, Allentown, Pennsylvania 18106 (telephone number 610-391-9200).
(b) This Schedule relates to the offer by the Company to exchange 135
shares of its Common Stock, $.0001 par value, (the "Common Stock"), for each
Unit comprised of (i) $1,000 principal amount of 9% Convertible Subordinated
Notes Due December 15, 1997 (the "Notes") issued by the Company and (ii)
Warrants to purchase 60 shares of Common Stock (the "Warrants"), upon the terms
and subject to the conditions set forth in the Offering Circular dated July 8,
1996 (the "Offering Circular") and related Letter of Transmittal, copies of
which are attached hereto as Exhibits (a)(1) and (a)(2), respectively. There are
outstanding 19,000 Units, comprised of $19 million principal amount of Notes and
Warrants to purchase 1,140,000 shares of Common Stock. The information set forth
under "The Exchange Offer -- Terms of the Exchange Offer" and "Interest of
Certain Persons in the Transaction" in the Offering Circular is incorporated
herein by reference.
(c) There is no established trading market for the Notes and Warrants
separately or as Units. The Common Stock is listed for trading on the Nasdaq
National Market under the symbol "SUBM." The information set forth under "Price
Range of Common Stock" in the Offering Circular is incorporated herein by
reference.
(d) Not applicable.
ITEM 2. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION
(a) See Item 1(b) above.
(b) Not applicable.
ITEM 3. PURPOSE OF TENDER OFFER AND PLANS OR PROPOSALS OF THE ISSUER OR
AFFILIATE
The information set forth under "Summary of Offering Circular -- Purposes
and Effects of the Exchange Offer," "Purposes and Effects of the Exchange Offer"
and "The Exchange Offer" (and the subheadings thereunder) in the Offering
Circular is incorporated herein by reference. The Company will retire and does
not have any plans to reissue any Notes or Warrants acquired pursuant to the
Exchange Offer.
(a) The information set forth under "Summary of Offering
Circular -- Purposes and Effects of the Exchange Offer," "Purposes and Effects
of the Exchange Offer," and "The Exchange Offer" (and the subheadings
thereunder) in the Offering Circular is incorporated herein by reference.
(b) -- (j) Not applicable.
ITEM 4. INTEREST IN SECURITIES OF THE ISSUER
Neither the Company, nor to the knowledge of the Company, any person
referred to in Instruction C to this Schedule or any subsidiary or associate of
any such person, including any director or executive officer of any such
subsidiary, has effected any transaction in the Notes or Warrants separately or
as a Unit during the 40 business days prior to the date hereof. The information
set forth under "Transactions and Agreements Concerning the Common Stock" in the
Offering Circular is incorporated herein by reference.
ITEM 5. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO THE ISSUER'S SECURITIES
Not applicable.
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ITEM 6. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED
No person has been retained to make solicitations or recommendations with
respect to the Exchange Offer. The information set forth under "The Exchange
Offer -- Solicitation of Tenders; Fees" and "The Exchange Offer -- Exchange
Agent" in the Offering Circular is incorporated herein by reference.
ITEM 7. FINANCIAL INFORMATION
(a) -- (b) The information set forth under "Selected Financial and Pro
Forma Information" and "Capitalization and Book Value per Share" in the Offering
Circular and the information set forth in the Company's Annual Report on Form
10-K for the year ended December 31, 1995, Quarterly Report on Form 10-Q for the
quarter ended March 31, 1996 and Current Report on Form 8-K dated March 26,
1996, as amended, which are attached to the Offering Circular as Exhibits A, B
and D, respectively, are incorporated herein by reference.
ITEM 8. ADDITIONAL INFORMATION
(a) -- (d) Not applicable.
(e) Additional information is contained in the Offering Circular and the
Exhibits thereto and Letter of Transmittal, which are attached hereto as
Exhibits (a)(1) and (a)(2), respectively, and incorporated herein by reference.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS
(a)(1) Offering Circular dated July 8, 1996.
(a)(2) Form of Letter of Transmittal dated July 8, 1996.
(a)(3) Form of Notice of Guaranteed Delivery dated July 8, 1996.
(a)(4) Form of Letter to Holders of Notes and Warrants from the President
of the Company.
(a)(5) Press Release dated July 8, 1996.
(b) Not applicable.
(c) Not applicable.
(d) Not applicable.
(e) Not applicable.
(f) Not applicable.
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SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
SUBMICRON SYSTEMS CORPORATION
Dated: July 8, 1996
By: /s/ David F. Levy
------------------------------------
David F. Levy,
President
3
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EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- --------------------------------------------------------------------- ------------
<S> <C> <C>
(a)(1) Offering Circular dated July 8, 1996.................................
(a)(2) Form of Letter of Transmittal dated July 8, 1996.....................
(a)(3) Form of Notice of Guaranteed Delivery dated July 8, 1996.............
(a)(4) Form of Letter to Holders of Notes and Warrants from the President of
the Company..........................................................
(a)(5) Press Release dated July 8, 1996.....................................
</TABLE>
<PAGE> 1
OFFERING CIRCULAR
SUBMICRON SYSTEMS CORPORATION
OFFER TO EXCHANGE
9% CONVERTIBLE SUBORDINATED NOTES DUE DECEMBER 15, 1997
AND WARRANTS TO PURCHASE SHARES OF COMMON STOCK
FOR SHARES OF THE COMPANY'S COMMON STOCK
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON AUGUST 5, 1996
(THE "EXPIRATION DATE"), UNLESS EXTENDED.
SubMicron Systems Corporation (the "Company") hereby offers, upon the terms
and subject to conditions set forth herein and in the accompanying Letter of
Transmittal (which together constitute the "Exchange Offer"), to exchange 135
shares of its Common Stock, $.0001 par value (the "Common Stock"), for each Unit
held by the recipient of this Exchange Offer, each Unit consisting of (i) $1,000
principal amount of the Company's 9% Convertible Subordinated Notes due December
15, 1997 (the "Notes"), and (ii) Warrants to purchase 60 shares of Common Stock
(the "Warrants"). Interest accrued but not paid on the Notes to the Expiration
Date will be paid in cash upon acceptance of the Units for exchange.
The Exchange Offer is conditioned upon, among other things, the valid
tender for exchange of not less than 11,400 Units (60% of the Units issued),
which tender has not been withdrawn. The Exchange Offer is also subject to
certain other conditions. See "The Exchange Offer -- Conditions of the Exchange
Offer" for other conditions. Holders of Notes and Warrants not tendered for
exchange pursuant to the Exchange Offer will continue to have all of the
existing rights granted in the Notes and Warrants. However, holders of Notes
tendered for exchange, by executing the Letter of Transmittal accompanying this
Offering Circular, will consent to the waiver of the applicability of any
anti-dilution provisions in the Notes which might be triggered as a result of
the Exchange Offer. See "Consent to Waiver of Anti-Dilution Provisions of Notes
with Respect to Exchange Offer."
The Common Stock is included in the Nasdaq National Market under the symbol
"SUBM." There is no active trading market for the Units, the Notes or the
Warrants. The Exchange Offer is being made by the Company in reliance on the
exemption from the registration requirements of the Securities Act of 1933 (the
"Securities Act") afforded by Section 3(a)(9) thereof. However, shares of Common
Stock issued in connection with the Units have been registered for resale by the
holders of the Units. Accordingly, any holder of Units who tenders Units in the
Exchange Offer will be able to sell the Common Stock issued in exchange therefor
as set forth under "Transferability of Common Stock." On July 3, 1996, the last
full day of trading prior to the public announcement of the commencement of the
Exchange Offer, the last reported sale price of the Common Stock on the Nasdaq
National Market was $8.25 per share. Holders of the Units are urged to obtain
current market quotations for the Common Stock.
The Company expressly reserves the right to extend the period of the
Exchange Offer, to terminate the Exchange Offer or to otherwise amend the
Exchange Offer in any respect, subject to the terms set forth in this Offering
Circular. See "The Exchange Offer -- Extension of Exchange Offer Period;
Termination; Amendments."
NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS MAKES ANY RECOMMENDATION TO ANY
HOLDER OF UNITS AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING ANY
UNITS. EACH HOLDER OF UNITS MUST MAKE HIS OWN DECISION AS TO
WHETHER TO ACCEPT THE EXCHANGE OFFER, AND IF SO, HOW MANY UNITS
TO TENDER.
For a discussion of certain risks in connection with the Exchange Offer,
see "Risk Factors" commencing on page 7.
------------------------
THIS TRANSACTION AND THE SECURITIES OFFERED HEREBY HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
OFFERING CIRCULAR. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The Exchange Agent for the Exchange Offer is:
American Stock Transfer & Trust Company.
The date of this Offering Circular is July 8, 1996
<PAGE> 2
This Offering Circular does not constitute an offer or solicitation by the
Company or any other person for the exchange of any securities other than the
securities covered by this Offering Circular. The Exchange Offer is not being
made to, and tenders will not be accepted from or on behalf of, holders of Notes
and Warrants in any jurisdiction in which the making of the Exchange Offer or
acceptance thereof would not be in compliance with the laws of such
jurisdiction. However, the Company may, in its sole discretion, take such action
as it may deem necessary to make the Exchange Offer in any such jurisdiction and
to extend the Exchange Offer to holders of Notes and Warrants in such
jurisdiction.
No person has been authorized to make any recommendation on behalf of the
Company as to whether holders of Notes and Warrants should tender their Notes
and Warrants pursuant to the Exchange Offer.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THE EXCHANGE OFFER OTHER THAN THOSE CONTAINED
HEREIN OR IN THE LETTER OF TRANSMITTAL. IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY.
THE DELIVERY OF THIS OFFERING CIRCULAR AT ANY TIME DOES NOT IMPLY THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
The Company is making the Exchange Offer in reliance on the exemption from
the registration requirements of the Securities Act afforded by Section 3(a)(9)
thereof. The Company therefore will not pay any commission or remuneration to
any broker, dealer, salesman or other person for soliciting tenders of Units.
Regular employees of the Company may solicit exchanges from the holders of the
Units, but such employees will not receive additional compensation therefor.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the year ended December 31,
1995, its Quarterly Report on Form 10-Q for the quarter ended March 31, 1996,
its Notice of the Annual Meeting of Stockholders and Proxy Statement dated May
1, 1996 and its Current Report on Form 8-K dated March 26, 1996, as amended, all
of which have been filed by the Company with the Securities and Exchange
Commission, are attached to this Offering Circular as Exhibits A, B, C and D,
respectively, and are incorporated herein by this reference.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, DC 20549; and at its regional offices located at 7
World Trade Center, 13th Floor, New York, New York 10048 and 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials can be
obtained from the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, DC 20549 at prescribed rates. The Company has filed with the
Commission a statement on Schedule 13e-4 that contains additional information
with respect to the Exchange Offer. Such Schedule may be examined and copies may
be obtained at the same places and in the same manner as set forth above (except
that such Schedule may not be available in the regional offices of the
Commission).
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.................................... 1
AVAILABLE INFORMATION.............................................................. 1
SUMMARY OF OFFERING CIRCULAR....................................................... 3
The Company...................................................................... 3
Recent Developments.............................................................. 3
Purposes and Effects of the Exchange Offer....................................... 3
The Exchange Offer............................................................... 4
RISK FACTORS....................................................................... 7
PURPOSES AND EFFECTS OF THE EXCHANGE OFFER......................................... 11
SELECTED FINANCIAL AND PRO FORMA INFORMATION....................................... 12
CAPITALIZATION AND BOOK VALUE PER SHARE............................................ 17
PRICE RANGE OF COMMON STOCK........................................................ 18
DIVIDEND POLICY.................................................................... 18
THE EXCHANGE OFFER................................................................. 19
Terms of the Exchange Offer...................................................... 19
Acceptance Not Mandatory......................................................... 19
Procedure for Exchange........................................................... 19
Withdrawal Rights................................................................ 21
Acceptance of Units for Exchange................................................. 21
Accrued Interest................................................................. 22
Conditions of the Exchange Offer................................................. 22
Extension of Exchange Offer Period; Termination; Amendments...................... 23
Solicitation of Tenders; Fees.................................................... 24
Exchange Agent................................................................... 25
CONSENT TO WAIVER OF ANTI-DILUTION PROVISIONS OF NOTES WITH RESPECT TO EXCHANGE 25
OFFER............................................................................
TRANSFERABILITY OF COMMON STOCK.................................................... 25
INTEREST OF CERTAIN PERSONS IN THE TRANSACTION..................................... 26
TRANSACTIONS AND AGREEMENTS CONCERNING THE COMMON STOCK............................ 26
CERTAIN FEDERAL INCOME TAX CONSEQUENCES............................................ 26
DESCRIPTION OF NOTES............................................................... 27
General.......................................................................... 27
Principal and Interest........................................................... 27
Subordination.................................................................... 27
Conversion Rights................................................................ 27
Redemption....................................................................... 28
Sinking Fund..................................................................... 28
Events of Default................................................................ 28
Modification of the Notes........................................................ 29
DESCRIPTION OF WARRANTS............................................................ 29
DESCRIPTION OF CAPITAL STOCK....................................................... 29
General.......................................................................... 29
Common Stock..................................................................... 29
Preferred Stock.................................................................. 29
</TABLE>
EXHIBITS
EXHIBIT A -- Annual Report on Form 10-K for the year ended December 31, 1995
EXHIBIT B -- Quarterly Report on Form 10-Q for the quarter ended March 31, 1996
EXHIBIT C -- Notice of Annual Meeting of Stockholders and Proxy Statement dated
May 1, 1996
EXHIBIT D -- Current Report on Form 8-K dated March 26, 1996, as amended
2
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SUMMARY OF OFFERING CIRCULAR
The following summary is qualified in its entirety by reference to the more
detailed information, exhibits and financial statements, including the notes
thereto, appearing elsewhere herein. Please read this Offering Circular in its
entirety.
THE COMPANY
SubMicron Systems Corporation (together with its subsidiaries, the
"Company") designs and manufactures advanced automated chemical processing
systems for use in the production of high-performance semiconductor wafers (the
basic component of semiconductor devices) and integrated circuits. The Company's
primary products, known as "automated wet stations," perform precise and highly
controlled chemical processing of the silicon wafer onto which semiconductor
devices are fabricated and interconnected as well as perform certain cleaning
and film removal steps during the integrated circuit manufacturing cycle. The
Company operates in North America, Europe and Asia and provides full equipment
support and advanced process assistance to semiconductor manufacturers
worldwide.
For a more detailed description of the Company's business, see the
Company's Annual Report on Form 10-K for the year ended December 31, 1995
attached as Exhibit A hereto.
The Company is a Delaware corporation with its principal executive offices
located at 6620 Grant Way, Allentown, PA 18106, and its telephone number is
610-391-9200.
RECENT DEVELOPMENTS
On March 26, 1996, the Company acquired Imtec Acculine, Inc. ("Imtec"),
located in Sunnyvale, California, through the merger of a subsidiary of the
Company with and into Imtec. Pursuant to the merger, the Company issued an
aggregate of 575,000 shares of its Common Stock in exchange for the stock of
Imtec. As a result of the merger, Imtec became a wholly-owned subsidiary of the
Company.
Imtec's principal business is designing, developing, testing, manufacturing
and marketing temperature regulated baths for the semiconductor market and
related industries. Prior to the merger, the Company was a significant customer
of Imtec.
PURPOSES AND EFFECTS OF THE EXCHANGE OFFER
In December 1995, the Company completed a private placement to
approximately 30 accredited investors of $19 million principal amount of Notes
and Warrants to purchase 1,140,000 shares of Common Stock. The Notes are
convertible into shares of Common Stock at a conversion price of $11.64 per
share, subject to adjustment in certain instances. The Warrants are exercisable
to purchase shares of Common Stock at $14 per share.
In the several months following the closing of the private placement,
certain of the investors expressed disappointment that the Notes and the value
underlying the Warrants did not offer an immediate market return above the yield
of the Notes and indicated a desire to gain some liquidity from their
investment. During this period, the Company also was in the process of reviewing
ways to reduce its expenses, paying particular attention to the quarterly
interest costs associated with the Notes of $427,500, the amortization of the
discount on the Notes over a two-year period with a quarterly noncash charge to
earnings of $313,500, and the quarterly noncash charge for amortization of
deferred debt issuance costs of $213,000. Moreover, if not converted, the Notes
will have to be repaid in December 1997 and will be classified in the Company's
1996 year-end financial statements as a short-term obligation.
For the following reasons, the Company has decided to offer to exchange
shares of its Common Stock for the Notes and Warrants pursuant to the terms of
the Exchange Offer as set forth in this Offering Memorandum: (i) the
consummation of the Exchange Offer will substantially reduce or eliminate
(depending on the amount of Notes and Warrants accepted for exchange) the cash
interest payments on the Notes and
3
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the noncash amortization charges related to the discount on the Notes and
deferred debt issuance costs; and (ii) the Exchange Offer will result in a
substantial reduction in the leverage of the Company. The Company will, however,
recognize a one-time noncash operating charge in the quarter in which the
Exchange Offer is consummated based on (i) the fair market value of the
additional shares of Common Stock (49.1 shares) issued above the 85.9 shares of
Common Stock currently issuable upon conversion of $1,000 principal amount of
Notes (at a conversion price of $11.64 per share), plus (ii) the transaction
costs for the Exchange Offer, less (iii) the fair market value of the Warrants
exchanged.
Under the terms and subject to the conditions of the Exchange Offer,
tendering holders of Notes and Warrants will receive 135 shares of Common Stock
in exchange for each Unit where each Unit consists of (i) $1,000 principal
amount of Notes (such $1,000 principal amount bearing 9% interest per year
payable in cash and being convertible currently into 85.9 shares of Common Stock
at a conversion price of $11.64 per share, subject to adjustment), plus (ii)
Warrants to purchase 60 shares of Common Stock at $14 per share.
Holders of Notes and Warrants who do not tender and those who tender will
have the following relative rights in securities held with respect to each Unit:
<TABLE>
<CAPTION>
HOLDERS NOT TENDERING HOLDERS TENDERING
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<S> <C> <C>
Securities.................... $1,000 principal amount of 135 shares of Common Stock
Notes and Warrants to Purchase
60 Shares of Common Stock
Conversion of Notes........... Convertible into 85.9 shares Not applicable (will have
of Common Stock, subject to received 135 shares of Common
adjustment Stock)
Exercise of Warrants.......... Warrants exercisable at $14 Not applicable (will have
per share received 135 shares of Common
Stock)
Interest/Dividends............ Interest payable at the rate Dividends payable only when,
of 9% per annum on the Notes as and if declared by the
Company's Board of Directors
</TABLE>
There is no active trading market in the Notes or Warrants. The Common
Stock is traded on the Nasdaq Stock Market.
THE EXCHANGE OFFER
<TABLE>
<S> <C>
Exchange Ratio..................... 135 shares of Common Stock for each Unit, each Unit
consisting of $1,000 principal amount of Notes and
Warrants to purchase 60 shares of Common Stock.
Expiration Date.................... 5:00 p.m., New York City time, on August 5, 1996, unless
extended.
Minimum Amount to be Tendered...... The Company is not required to accept any Units tendered
for exchange in the Exchange Offer unless an aggregate
of 11,400 Units (equal to 60% of the outstanding Units)
are tendered and not withdrawn.
Acceptance of All Units............ Subject to the conditions of the Exchange Offer, the
Company intends to accept all Units duly tendered and
not withdrawn. If all Units are duly tendered and
accepted for exchange, a total of 2,565,000 shares of
Common Stock will be issued pursuant to the Exchange
Offer.
</TABLE>
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<TABLE>
<S> <C>
Withdrawal Rights.................. Tenders of Units pursuant to the Exchange Offer may be
withdrawn at any time until the Expiration Date and if
not yet accepted for exchange, after the expiration of
40 business days from the commencement of the Exchange
Offer. See "The Exchange Offer -- Withdrawal Rights."
How to Tender...................... A holder of Units wishing to accept the Exchange Offer
must complete the accompanying Letter of Transmittal and
forward it with the Notes and Warrants and any other
required documents to the Exchange Agent. Letters of
Transmittal and Notes and Warrants should not be sent to
the Company. See "The Exchange Offer -- Procedure for
Exchange."
Acceptance of Tenders and Issuance
of Common Stock.................. Subject to satisfaction of the terms and conditions of
the Exchange Offer, the Company will deliver shares of
Common Stock in exchange for Units accepted for exchange
as soon as practicable after the Expiration Date. See
"The Exchange Offer -- Acceptance of Units for
Exchange."
Accrued Interest................... Interest accrued on the Notes accepted for exchange from
June 15, 1996 until the Expiration Date shall be paid in
cash upon acceptance of the Notes for exchange. Interest
on Notes accepted for exchange will cease to accrue as
of the Expiration Date.
Conditions of the Exchange Offer... The Exchange Offer is subject to a number of conditions.
See "The Exchange Offer -- Conditions of the Exchange
Offer." In particular, the Exchange Offer may be
withdrawn by the Company if less than 11,400 Units are
properly tendered and not withdrawn pursuant to the
Exchange Offer.
Consent to Waiver of Anti-Dilution
Provisions for Exchange Offer.... Each holder who properly tenders Notes for exchange
pursuant to the Exchange Offer shall, by signing the
Letter of Transmittal as indicated therein, consent to
the waiver of the applicability of any anti-dilution
provisions in the Notes which might cause an adjustment
to the Conversion Price of the Notes or the number of
shares of Common Stock issuable upon conversion of the
Notes as the result of the Exchange Offer. Such waiver
will be effective provided that holders of at least 51%
of the aggregate principal amount of the Notes
outstanding sign such consent. See "Consent to Waiver of
Anti-Dilution Provisions of Notes with Respect to
Exchange Offer."
Certain Income Tax Consequences.... For a discussion of certain federal income tax
consequences, see "Certain Federal Income Tax
Consequences."
Risk Factors....................... Recipients of the Exchange Offer should consider
carefully the information set forth under the caption
"Risk Factors," and all other information set forth in
this Offering Circular.
Listing and Trading of
Securities....................... The Common Stock is included in the Nasdaq National
Market under the symbol "SUBM." There is no public
trading market for the Units, the Notes or the Warrants.
</TABLE>
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<TABLE>
<S> <C>
Transferability of Common Stock.... The Company has registered the shares of Common Stock
underlying the Notes and Warrants. Accordingly, upon
consummation of the Exchange Offer, the shares issued in
the Exchange Offer will be registered for resale by the
holders thereof. See "Transferability of Common Stock."
Market Price for Common Stock...... On July 3, 1996, the last reported sale price of the
Common Stock, as reported by Nasdaq, was $8.25 per
share.
Units Outstanding.................. There are 19,000 Units outstanding, comprised of an
aggregate of $19 million principal amount of Notes and
Warrants to purchase 1,140,000 shares of Common Stock.
Common Stock Outstanding........... As of June 15, 1996, there were 16,724,994 shares of
Common Stock outstanding.
Exchange Agent..................... American Stock Transfer & Trust Company.
</TABLE>
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<PAGE> 8
RISK FACTORS
Investment in the Company's securities involves certain elements of risk.
The Common Stock included in the Exchange Offer involves different risks than
those risks associated with the Notes and Warrants. Holders of the Notes and
Warrants should consider carefully, among other things, the differences between
the Common Stock and the Notes and Warrants before making any decision to
exchange their Notes and Warrants for shares of Common Stock. Holders of the
Notes and Warrants who exchange their Notes and Warrants for Common Stock will
no longer be entitled to any of the rights and privileges of the Notes and
Warrants, including, but not limited to: (i) the right to quarterly interest
payments on the Notes; (ii) the priority of the Notes over the Common Stock upon
the liquidation of the Company; and (iii) certain anti-dilution protection
provided in the Notes (except as described under "Consent to Waiver of
Anti-Dilution Provisions of Notes with Respect to Exchange Offer").
In addition to the risk factors associated with the differences between the
Notes and Warrants and the Common Stock and the other information contained in
this Offering Circular, holders of the Notes and Warrants should also consider
carefully the following risk factors in evaluating the Company and its business
before making any decision to exchange the Notes and Warrants for shares of
Common Stock.
Product Concentration. Approximately 62% of the Company's net sales during
1995 were from sales of its automated wet stations. Should sales of automated
wet stations decline, the Company's results of operations would be materially
adversely affected. The ability of the Company to diversify its operations
through the modification and enhancement of its existing system or through the
introduction of new products is dependent upon the success of the Company's
continuing research and development activities. No assurance can be given that
the Company will be successful in its development efforts or that any new
products or improvements will achieve sustained market acceptance.
Quarterly Fluctuations. The Company's results of operations have varied
significantly from quarter to quarter. Although the Company was profitable for
1995 as a whole, the Company recognized losses during the second and third
quarters of 1995 of $2,212,000 and $343,000, respectively. These fluctuations,
which are likely to continue, are a result of several factors, including in
particular the relatively high price of the Company's products in relation to
quarterly sales, the lead time required to manufacture such products and the
Company's accounting method of recognizing revenue from a system sale at the
time of title transfer, which ordinarily occurs at the time of shipment.
Consequently, delays in the shipment of even one or two systems could have a
significant impact on the results of operations for a particular quarter.
Accordingly, quarterly results are likely to fluctuate and the results for any
fiscal quarter may not be indicative of results for future fiscal quarters.
In addition, the Company will record a one-time noncash operating charge on
its statement of operations in the quarter in which the Exchange Offer is
consummated. The charge will be based on (i) the fair market value of the
additional shares of Common Stock (49.1 shares) issued above the 85.9 shares of
Common Stock currently issuable upon conversion of $1,000 principal amount of
Notes (at a Conversion Price of $11.64 per share), plus (ii) the transaction
costs for the Exchange Offer, less (iii) the fair market value of the Warrants
exchanged. Since the amount of such charge will be based on the value of the
Common Stock on the Expiration Date, the amount of the charge is not currently
determinable. For a calculation of such charge based on certain assumptions
specified therein, see "Selected Financial and Pro Forma Information."
Significant Capital Requirements. In recent years the Company has been
substantially dependent upon borrowings and cash flow from operations to finance
its operations. The Company currently has a credit facility, which is subject to
renewal in August 1997, under which the Company can borrow up to $30 million
based on a borrowing base formula tied to qualified receivables. As of March 31,
1996, approximately $16 million was drawn down under the credit facility and the
borrowing base was approximately $25 million. The Company believes that the
funds available under its credit facility, together with cash flow from
operations, will be sufficient to finance the Company's growth for the immediate
future. However, there can be no assurances that as the Company continues to
grow, additional financing will not be necessary and that, if needed, additional
financing will be available on acceptable terms, or at all. Any inability to
obtain additional financing could have a material adverse effect on the Company.
7
<PAGE> 9
Customer Concentration. Sales of the Company's products to a single
customer accounted for 11% of the Company's total sales for 1995, and sales to
two different customers accounted for 15% and 13%, respectively, of the
Company's total sales for 1994. Sales of the Company's products to three
customers accounted for 43% of total sales for the three months ended March 31,
1996. Accounts receivable for the two largest customers represented 22% of
consolidated receivables as of March 31, 1996 and 48% of consolidated
receivables as of December 31, 1995. There is no indication that customer
concentration will decrease in the foreseeable future. In the event any of these
or other significant customers cancel or delay orders or are unable to make
payment, the Company's operating results and financial condition could be
materially adversely affected.
Competition and Technological Change. The development of semiconductor
manufacturing equipment is characterized by rapidly advancing technology, and
the Company encounters intense competition in the development and marketing of
its products, particularly from several major Japanese companies. Many of the
Company's competitors have substantially greater financial resources than the
Company. The future success of the Company will depend in large part upon its
ability to keep pace with advancing semiconductor manufacturing technology and
industry standards. In this regard, rapid changes have occurred, and are likely
to continue to occur, as semiconductor devices become more sophisticated. To
remain competitive, the Company will have to demonstrate its ability to produce
sufficiently sophisticated and reliable manufacturing equipment at competitive
prices. There can be no assurance that the Company's products or development
efforts will not be rendered obsolete by research efforts and technological
advances made by others.
Risks Associated with Acquisitions. The Company has pursued and intends to
continue to pursue acquisitions as a key component of its growth strategy.
Certain risks are inherent in an acquisition strategy, such as increasing
leverage, diversion of management time and attention and combining disparate
company cultures and facilities, which could adversely affect the Company's
operating results. The success of any completed acquisition will depend in part
on the Company's ability to integrate effectively the acquired business into the
Company's other operations. The process of integrating such acquired businesses
may involve unforeseen difficulties and may utilize a substantial portion of the
Company's financial and other resources. No assurance can be given that
additional suitable acquisition candidates will be identified, financed and
purchased on acceptable terms, or, if completed, will be successful.
Exchange Offer is a Taxable Transaction. The exchange of Notes and
Warrants for shares of Common Stock pursuant to the Exchange Offer is a taxable
transaction. The amount of any gain or loss recognized by holders of Notes and
Warrants will depend on the value of the shares of Common Stock received, which
will be based on the value of the Common Stock on the Expiration Date. See
"Certain Federal Income Tax Consequences."
Fluctuations in the Semiconductor Market. The semiconductor industry is
subject to short-term market fluctuations and is susceptible to periodic
downturns or shipment delays, which often have an exaggerated effect on
manufacturers of semiconductor production equipment. The Company, however, has
historically targeted its products to advanced future generation manufacturers
which, to date, have been less sensitive to short-term market fluctuations.
There can be no assurances, however, that the Company will not be materially
adversely affected by such fluctuations in the future. The future operations of
the Company may, therefore, be dependent in large part on the level of market
demand for advanced integrated circuit devices, particularly more sophisticated
devices, and the resulting capital expenditures of semiconductor manufacturing
companies purchasing fabrication products. The semiconductor industry reportedly
has begun to experience a softening of demand which could lead to reduced future
sales and pricing pressures.
Lack of Patent Protection. Although the Company has certain patents and
has applied for other patents with respect to certain of its products, there can
be no assurance that all of the Company's proprietary technology will be
effectively protected by patents. Despite the protection provided by such
patents, it may be possible for competitors to copy one or more aspect of the
Company's products or obtain information that the Company regards as
proprietary. Furthermore, there can be no assurance that others will not
independently develop products similar to those sold by the Company. Although
the Company believes that the products sold by it do not infringe upon the
patents or violate proprietary rights of others, it is possible that such an
infringement or violation may occur. In the event the products sold by the
Company are deemed to infringe
8
<PAGE> 10
upon the patents or proprietary rights of others, the Company could be required
to modify its products or obtain a license for the manufacture or sale of such
products. There can be no assurance that, in such an event, the Company would be
able to do so in a timely manner, upon acceptable terms and conditions, or at
all, and the failure to do any of the foregoing could have a material adverse
effect upon the Company. In addition, the Company could become liable for
damages in the event its products were deemed to infringe upon the patents or
proprietary rights of others, which could also have a material adverse effect on
the Company. Moreover, there can be no assurance that the Company will have the
financial or other resources necessary to enforce or defend a patent
infringement or a proprietary rights violation action.
Security Interests; Restrictive Covenants. The Company has granted
security interests with respect to substantially all of its assets to secure its
indebtedness under its current credit facility. In the event a secured lender
exercises its rights upon the occurrence of an event of default, such secured
lender could declare the Company's indebtedness to be immediately due and
payable and foreclose on the assets securing the defaulted indebtedness.
Moreover, to the extent that substantially all of the Company's assets continue
to be pledged to secure outstanding indebtedness, such assets will not be
available to secure additional indebtedness. The Company's credit facility
restricts the ability of the Company to incur additional indebtedness. In
addition, the Company will be required to repay in December 1997 any Notes that
are not exchanged in the Exchange Offer or converted prior to such date.
Reliance on Key Executives and Employees. The Company is dependent upon
the continued services and management experience of David F. Levy, President and
Chief Executive Officer, James S. Molinaro, President of SubMicron Systems,
Inc., the Company's principal operating subsidiary, and John P. Traub, President
of Systems Chemistry Incorporated. The loss of the services of any of these
executives might have a material adverse effect upon the Company. The Company
carries key person life insurance policies in the face amount of $1,500,000 on
each of Messrs. Levy and Molinaro. The Company has entered into employment
agreements with Messrs. Levy, Molinaro and Traub which have an initial five-year
term expiring in 1998 (as to Messrs. Levy and Molinaro) and in 2000 (as to Mr.
Traub), each of which is automatically renewable at the end of such term for an
additional year and each year thereafter unless either party to the respective
agreements gives notice of nonrenewal.
The ability of the Company to compete successfully in the future will also
depend in large part on its ability to recruit and maintain a technically
competent research and development staff. Competition for qualified research and
development employees is intense. There can be no assurance that the Company
will be able to retain existing employees or that it will be able to find,
attract and retain qualified personnel on acceptable terms.
Control by Certain Stockholders. At June 15, 1996, David F. Levy and James
S. Molinaro beneficially owned approximately 22% of the outstanding shares of
Common Stock. Accordingly, Messrs. Levy and Molinaro are able to have
substantial influence in the election of the Company's Board of Directors and
thereby the policies of the Company. Messrs. Levy and Molinaro have entered into
an agreement that provides for all of their shares of Common Stock to be voted
at their joint direction. In the event that Messrs. Levy and Molinaro are unable
to agree on how to vote their shares, they are to appoint a special voting
trustee to break the deadlock. If Messrs. Levy and Molinaro are unable to agree
on the designation of a special voting trustee, the shares subject to the
agreement will be voted in accordance with the vote of the majority of shares of
Common Stock not subject to the agreement.
Shares Eligible for Future Sale. At June 15, 1996, the Company had
outstanding a total of 16,724,994 shares of Common Stock and outstanding
warrants and options entitling the holders thereof to purchase an aggregate of
2,110,968 additional shares (other than the Warrants which are part of the
Units). All outstanding shares are, and all shares issuable upon the exercise of
options and warrants (as well as upon conversion of any Notes or exercise of any
Warrants not exchanged pursuant to the Exchange Offer) will be, available for
resale in the public market without restriction, with the exception of an
aggregate of 3,789,754 outstanding shares held by affiliates of the Company and
793,750 shares issuable upon the exercise of options or warrants held by such
affiliates. If the outstanding options and warrants are exercised, the
stockholders of the Company will be subject to additional dilution.
9
<PAGE> 11
Under Rule 144 promulgated under the Act, affiliates of the Company are
permitted to sell, every three months, in ordinary brokerage transactions or in
transactions directly with a market maker an amount equal to the greater of one
percent of the Company's outstanding Common Stock or the average weekly trading
volume during the four calendar weeks prior to the sale.
The sale of any substantial number of these shares could have an adverse
effect on the future market price of the Common Stock.
No Dividends. The Company does not anticipate paying any cash dividends in
the foreseeable future as earnings, if any, will be retained to finance the
Company's operations and to expand its business. Moreover, under the Company's
credit facility, the Company is restricted in its ability to declare dividends.
Potential Anti-Takeover Effects of Delaware Law; Classified Board; Possible
Issuances of Preferred Stock. Certain provisions of Delaware law could delay or
impede the removal of incumbent directors and could make more difficult a
merger, tender offer or proxy contest involving the Company, even if such events
could be beneficial to the interests of stockholders. Such provisions could
limit the price that certain investors might be willing to pay in the future for
shares of Common Stock. In addition, the Company's Certificate of Incorporation
provides that the Company's Board of Directors is to be composed of three
classes, with staggered three-year terms, each class to contain as nearly as
possible one-third of the whole number of members of the Company's Board. The
Company's stock option plans each provide for immediate vesting of all then
outstanding options upon the occurrence of a "change of control" of the Company
(as defined therein). The existence of a classified board, as well as these
option vesting provisions, may reduce the Company's vulnerability to takeovers
by other corporations or persons which, in the judgment of the Company's Board,
may not be in the best interests of the Company's stockholders. However, the
effect of a classified board and such accelerated option vesting provisions may
also serve to entrench the Company's Board. Moreover, shares of preferred stock
may be issued by the Company's Board without stockholder approval on such terms
as the Company's Board may determine. The rights of the holders of Common Stock
will be subject to, and may be adversely affected by, the rights of the holders
of any preferred stock that may be issued in the future. Although the ability to
issue preferred stock may provide flexibility in connection with possible
acquisitions and other corporate purposes, such issuance may make it more
difficult for a third party to acquire, or may discourage a third party from
acquiring, a majority of the voting stock of the Company. The Company has no
current plans to issue any shares of preferred stock.
10
<PAGE> 12
PURPOSES AND EFFECTS OF THE EXCHANGE OFFER
On December 13, 1995, the Company completed a private placement to
approximately 30 accredited investors pursuant to Regulation D under the
Securities Act of $19 million principal amount of Notes and Warrants to purchase
1,140,000 shares of Common Stock. The Notes are convertible into shares of
Common Stock, at a conversion price of $11.64 per share, subject to adjustment
in certain instances. The Warrants are exercisable to purchase shares of Common
Stock at $14 per share.
The Warrants were valued at $2,508,000 and, accordingly, this amount was
recorded as a discount on the Notes and is being amortized over the term of the
Notes, resulting in a quarterly noncash charge to the Company's earnings of
$313,500. In addition, holders of the Notes and Warrants are recognizing a
comparable amount as income for federal income tax purposes.
In the several months following the closing of the sale of the Notes and
Warrants, certain of the investors expressed disappointment that the Notes and
the value underlying the Warrants did not offer an immediate market return above
the yield of the Notes and indicated a desire to gain some liquidity from their
investment. During this period, the Company began to review ways to reduce its
expenses, paying particular attention to the quarterly interest costs associated
with the Notes of $427,500, the amortization of the discount on the Notes over a
two-year period with a quarterly noncash charge to earnings of $313,500, and the
quarterly noncash charge for amortization of deferred debt issuance costs of
$213,000. Moreover, if not converted, the Notes will have to be repaid in
December 1997 and will be classified in the Company's 1996 year-end financial
statements as a short-term obligation.
For the following reasons, the Company has decided to offer to exchange
shares of its Common Stock for the Notes and Warrants pursuant to the terms of
the Exchange Offer as set forth in this Offering Memorandum: (i) the
consummation of the Exchange Offer will substantially reduce or eliminate
(depending on the amount of Notes and Warrants accepted for exchange) the cash
interest payments on the Notes and the noncash amortization charges related to
the discount on the Notes and the deferred debt issuance costs; and (ii) the
Exchange Offer will result in a substantial reduction in the leverage of the
Company. The Company will, however, recognize a one-time noncash operating
charge in the quarter in which the Exchange Offer is consummated based on (i)
the fair market value of the additional shares of Common Stock (49.1 shares)
issued above the 85.9 shares of Common Stock currently issuable upon conversion
of $1,000 principal amount of Notes (at a Conversion Price of $11.64 per share),
plus (ii) the transaction costs for the Exchange Offer, less (iii) the fair
market value of the Warrants exchanged. The Company will retire any Notes and
Warrants accepted for exchange and has no present plans to reissue such
securities.
11
<PAGE> 13
SELECTED FINANCIAL AND PRO FORMA INFORMATION
The following table shows the pro forma effects the Exchange Offer would
have had on the Company for the year ended December 31, 1995 and at and for the
three months ended March 31, 1996 if the specified percentages of the Notes and
Warrants had been exchanged on such date or on the first day of said periods,
based on the assumptions set forth below:
SUBMICRON SYSTEMS CORPORATION
PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA 100% PRO PRO FORMA
60% PRO FORMA ASSUMING 60% FORMA ASSUMING 100%
HISTORICAL ADJUSTMENTS(1) EXCHANGE ADJUSTMENTS(1) EXCHANGE
------------ ------------- ------------ -------------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents............ $ 8,859,048 $ -- $ 8,859,048 $ -- $ 8,859,048
Accounts receivable,
net.................... 39,814,411 -- 39,814,411 -- 39,814,411
Inventories, net.......... 42,811,138 -- 42,811,138 -- 42,811,138
Prepaids and other........ 4,035,344 -- 4,035,344 -- 4,035,344
Refundable income taxes... -- 372,572 372,572 963,889 963,889
Deferred income taxes..... 1,886,323 -- 1,886,323 -- 1,886,323
------------ ------------- ------------ -------------- -------------
Total current assets... 97,406,264 372,572 97,778,836 963,889 98,370,153
Property and equipment,
net....................... 12,951,974 -- 12,951,974 -- 12,951,974
Goodwill, net............... 1,854,895 -- 1,854,895 -- 1,854,895
Intangibles and other,
net....................... 4,713,304 (895,337) 3,817,967 (1,492,229) 3,221,075
------------ ------------- ------------ -------------- -------------
$116,926,437 $ (522,765) $116,403,672 $ (528,340) $ 116,398,097
=========== =========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Lines of credit........... $ 15,900,000 $ -- $ 15,900,000 $ -- $ 15,900,000
Current portion of
long-term debt......... 1,089,720 -- 1,089,720 -- 1,089,720
Accounts payable.......... 18,162,502 -- 18,162,502 -- 18,162,502
Accrued expenses and
other.................. 9,152,958 400,000 9,552,958 400,000 9,552,958
Deferred revenues......... 4,433,388 -- 4,433,388 -- 4,433,388
Income taxes payable...... 674,403 (674,403) -- (674,403) --
------------ ------------- ------------ -------------- -------------
Total current
liabilities.......... 49,412,971 (274,403) 49,138,568 (274,403) 49,138,568
------------ ------------- ------------ -------------- -------------
Deferred income taxes....... 628,073 -- 628,073 -- 628,073
------------ ------------- ------------ -------------- -------------
Deferred revenues........... 103,209 -- 103,209 -- 103,209
------------ ------------- ------------ -------------- -------------
Long-term debt.............. 18,936,963 (10,114,650) 8,822,313 (16,857,750) 2,079,213
------------ ------------- ------------ -------------- -------------
Commitments and
contingencies
Stockholders' equity:
Preferred stock........... -- -- -- -- --
Common stock.............. 1,658 154 1,812 257 1,915
Additional
paid-in-capital........ 39,490,949 12,576,012 52,066,961 20,960,020 60,450,969
Retained earnings......... 8,553,154 (2,709,878) 5,843,276 (4,356,464) 4,196,690
Deferred compensation..... (140,025) -- (140,025) -- (140,025)
Notes receivable.......... (60,515) -- (60,515) -- (60,515)
------------ ------------- ------------ -------------- -------------
Total stockholders'
equity............... 47,845,221 9,866,288 57,711,509 16,603,813 64,449,034
------------ ------------- ------------ -------------- -------------
$116,926,437 $ (522,765) $116,403,672 $ (528,340) $ 116,398,097
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
12
<PAGE> 14
SUBMICRON SYSTEMS CORPORATION
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
60% PRO PRO FORMA 100% PRO ASSUMING
FORMA ASSUMING 60% FORMA 100%
HISTORICAL ADJUSTMENTS EXCHANGE ADJUSTMENTS EXCHANGE
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
System sales, net...... $ 92,294,150 $ -- $ 92,294,150 $ -- $ 92,294,150
Services and other
sales................ 30,773,804 -- 30,773,804 -- 30,773,804
------------ ------------ ------------ ------------ ------------
Total net
sales...... 123,067,954 -- 123,067,954 -- 123,067,954
------------ ------------ ------------ ------------ ------------
Cost of system sales... 63,666,000 -- 63,666,000 -- 63,666,000
Cost of service and
other sales.......... 20,685,736 -- 20,685,736 -- 20,685,736
------------ ------------ ------------ ------------ ------------
Total cost of
sales...... 84,351,736 -- 84,351,736 -- 84,351,736
------------ ------------ ------------ ------------ ------------
Gross
profit..... 38,716,218 -- 38,716,218 -- 38,716,218
Selling, general and
administrative....... 29,108,739 -- 29,108,739 -- 29,108,739
Research and
development.......... 5,678,517 -- 5,678,517 -- 5,678,517
------------ ------------ ------------ ------------ ------------
Operating
income..... 3,928,962 -- 3,928,962 -- 3,928,962
------------ ------------ ------------ ------------ ------------
Other income (expense):
Interest income...... 399,911 -- 399,911 -- 399,911
Interest expense..... (1,840,182) 118,950(1) (1,721,232) 198,250(1) (1,641,932)
Other, net........... 2,698,220 -- 2,698,220 -- 2,698,220
------------ ------------ ------------ ------------ ------------
Total other
income..... 1,257,949 118,950 1,376,899 198,250 1,456,199
------------ ------------ ------------ ------------ ------------
Income before income
taxes................ 5,186,911 118,950 5,305,861 198,250 5,385,161
Income tax provision... 1,497,689 47,580(2) 1,545,269 79,300(2) 1,576,989
------------ ------------ ------------ ------------ ------------
Net income... $ 3,689,222 $ 71,370 3,760,592 $ 118,950 $ 3,808,172
============ ============ ============ ============ ============
Net income per Common
share................ $ 0.23 $ 0.23(3) $ 0.23(3)
============ ============ ============
Weighted Average number
of shares of Common
stock outstanding.... 16,159,687 64,125(3) 16,223,812 106,875(3) 16,266,562
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
13
<PAGE> 15
SUBMICRON SYSTEMS CORPORATION
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
60% PRO PRO FORMA 100% PRO ASSUMING
FORMA ASSUMING 60% FORMA 100%
HISTORICAL ADJUSTMENTS EXCHANGE ADJUSTMENTS EXCHANGE
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
System sales, net...... $ 39,422,070 $ -- $ 39,422,070 $ -- $ 39,422,070
Services and other
sales................ 5,431,839 -- 5,431,839 -- 5,431,839
------------ ------------ ------------ ------------ ------------
Total net
sales...... 44,853,909 -- 44,853,909 -- 44,853,909
------------ ------------ ------------ ------------ ------------
Cost of system sales... 26,436,182 -- 26,436,182 -- 26,436,182
Cost of service and
other sales.......... 4,112,386 -- 4,112,386 -- 4,112,386
------------ ------------ ------------ ------------ ------------
Total cost of
sales...... 30,548,568 -- 30,548,568 -- 30,548,568
------------ ------------ ------------ ------------ ------------
Gross
profit..... 14,305,341 -- 14,305,341 -- 14,305,341
Selling, general and
administrative....... 9,455,292 -- 9,455,292 -- 9,455,292
Research and
development.......... 1,844,963 -- 1,844,963 -- 1,844,963
------------ ------------ ------------ ------------ ------------
Operating
income..... 3,005,086 -- 3,005,086 -- 3,005,086
------------ ------------ ------------ ------------ ------------
Other income (expense):
Interest income...... 168,200 -- 168,200 -- 168,200
Interest expense..... (1,022,968) 527,612(1) (495,356) 879,354(1) (143,614)
Other, net........... 80,661 -- 80,661 -- 80,661
------------ ------------ ------------ ------------ ------------
Total other
income
(expense)... (774,107) 527,612 (246,495) 879,354 105,247
------------ ------------ ------------ ------------ ------------
Income before income
taxes................ 2,230,979 527,612 2,758,591 879,354 3,110,333
Income tax provision... 780,843 211,045(2) 991,888 351,742(2) 1,132,585
------------ ------------ ------------ ------------ ------------
Net income........ $ 1,450,136 $ 316,567 $ 1,766,703 $ 527,612 $ 1,977,748
============ ============ ============ ============ ============
Net income per Common
share................ $ 0.09 $ 0.10(3) $ 0.10(3)
============ ============ ============
Weighted Average number
of shares of Common
stock outstanding.... 16,943,961 1,539,000(3) 18,482,961 2,565,000(3) 19,508,961
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
14
<PAGE> 16
SUBMICRON SYSTEMS CORPORATION
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The pro forma consolidated balance sheet as of March 31, 1996, and the pro
forma consolidated statements of operations for the year ended December 31, 1995
and three months ended March 31, 1996, give effect to the Exchange Offer
assuming a minimum exchange of 60% of the Units and a maximum exchange of 100%
of the Units. Each Unit is exchangeable for 135 shares of Common Stock. The pro
forma adjustments assume a fair market market value of $8.25 per share of Common
Stock issuable pursuant to the Exchange Offer and a $2,100,000 assumed fair
market value for the Warrants exchanged. The actual adjustments to be recorded
will be based on the fair market value of the Common Stock issuable and Warrants
to be exchanged as of the Expiration Date.
PRO FORMA CONSOLIDATED BALANCE SHEET ADJUSTMENTS:
(1) The pro forma balance sheet adjustments to record the Exchange Offer at
the assumed exchange levels are as follows:
<TABLE>
<CAPTION>
60% 100%
EXCHANGE EXCHANGE
----------- -----------
<S> <C> <C>
Subordinated notes (long-term debt)(a)...................... $10,114,650 $16,857,750
Debt conversion expense (retained earnings)(b).............. 3,756,853 5,994,756
Warrants outstanding (additional paid-in capital)(c)........ 1,260,000 2,100,000
Refundable income taxes(d).................................. 372,572 963,889
Income taxes payable(d)..................................... 674,403 674,403
Common stock(e)........................................ (154) (257)
Additional paid-in capital(d)(e)....................... (13,836,012) (23,060,020)
Deferred debt costs (intangibles)(f)................... (895,337) (1,492,229)
Accrued expenses(g).................................... (400,000) (400,000)
Income tax expense (retained earnings)(d).............. (1,046,975) (1,638,292)
</TABLE>
- ---------------
(a) Represents a reduction in long-term debt for the carrying value of the Notes
exchanged.
(b) Computed based on the incremental shares of Common Stock issuable upon the
Exchange Offer compared to the number of shares of Common Stock that would
have been issued had the current conversion price of $11.64 per share been
in effect, multiplied by the assumed fair market value per share of the
Common Stock issuable as of the Expiration Date, plus transaction costs
estimated at $400,000 and less the assumed fair market value of the Warrants
to be exchanged.
(c) Represents the assumed current fair market value of the Warrants to be
exchanged as part of the Exchange Offer.
(d) Tax benefit of the debt conversion expense recorded for financial reporting
purposes.
(e) Represents the Common Stock issuable upon the exchange.
(f) Write-off of unamortized deferred debt costs incurred in connection with the
issuance of the Units in December 1995.
(g) Represents the estimated transaction costs to be incurred in connection with
the Exchange Offer.
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS ADJUSTMENTS:
(1) Reflects the reduction of interest expense for elimination of (i) the
9% interest on the Notes, (ii) amortization of the debt discount and (iii)
amortization of the deferred debt financing costs for the periods presented as
if the Exchange Offer had occurred as of December 13, 1995 for the pro forma
consolidated statement of operations for the year ended December 31, 1995 and as
of January 1, 1996 for the pro forma consolidated statement of operations for
the three months ended March 31, 1996.
15
<PAGE> 17
Based on the assumptions outlined in the introduction to the notes to pro
forma consolidated financial statements, the Company will record a pre-tax debt
conversion charge to operations in the third quarter of 1996 of approximately
$3,757,000 and $5,995,000 assuming 60% and 100% of the Units are exchanged,
respectively, upon consummation of the exchange. The Company will record an
income tax benefit of approximately $1,047,000 and $1,638,000 based on such
assumptions, respectively. This net charge will reduce net income per Common
share by $.15 assuming 18,111,894 outstanding shares (60% conversion) and by
$.23 assuming 19,137,894 outstanding shares (100% conversion) in 1996.
(2) Represents the income tax benefit from the pro forma adjustments to
reduce interest expense at an effective income tax rate of 40%.
(3) Net income per Common share reflects the Common Stock issuable pursuant
to the Exchange Offer but does not reflect the debt conversion expense which
will be recorded in the period that the exchange is consummated.
RATIO OF EARNINGS TO FIXED CHARGES:
Earnings are defined as income before income taxes and fixed charges. Fixed
charges are defined as interest expense and a portion of rental expense
representing the interest factor which the Company estimates to be one-third of
rentals. The historical ratio of earnings to fixed charges was 2.97x for the
three months ended March 31, 1996. The pro forma ratio is 5.70x and 14.19x
assuming an exchange of 60% and 100%, respectively. The historical ratio of
earnings to fixed charges for 1995 is not meaningful as the Notes were issued
during December 1995.
16
<PAGE> 18
CAPITALIZATION AND BOOK VALUE PER SHARE
The following table sets forth the capitalization and the book value per
share of the Company at March 31, 1996 and as adjusted to give effect to the
Exchange Offer (assuming 60% and 100% of the Units, respectively, are
exchanged):
<TABLE>
<CAPTION>
MARCH 31, 1996
---------------------------------------------
AS
ADJUSTED,
60% AS ADJUSTED,
HISTORICAL EXCHANGE 100% EXCHANGE
----------- ----------- -------------
<S> <C> <C> <C>
Long-term debt:
9% Convertible subordinated notes................ $16,857,750 $ 6,743,100 $ --
Other long-term debt............................. 2,079,213 2,079,213 2,079,213
------------ ------------ ------------
Total Long-Term Debt..................... 18,936,963 8,822,313 2,079,213
------------ ------------ ------------
Stockholders' equity:
Preferred stock, $.01 par value, 5,000 shares
authorized, none issued and outstanding....... -- -- --
Common stock, $.0001 par value, 100,000,000
shares authorized, 16,572,894 issued and
outstanding (actual) 18,111,894 and 19,137,894
shares outstanding (as adjusted).............. 1,658 1,812 1,915
Additional paid-in capital....................... 39,490,949 52,066,961 60,450,969
Retained earnings................................ 8,553,154 5,843,276 4,196,690
Deferred compensation............................ (140,025) (140,025) (140,025)
Notes receivable................................. (60,515) (60,515) (60,515)
------------ ------------ ------------
Total stockholders' equity............... 47,845,221 57,711,509 64,449,034
------------ ------------ ------------
Total capitalization..................... $66,782,184 $66,533,822 $66,528,247
============ ============ ============
Book value per share(1)............................ $ 2.89 $ 3.19 $ 3.37
============ ============ ============
</TABLE>
- ------------------------
(1) The historical book value per share at December 31, 1995 was $2.78.
17
<PAGE> 19
PRICE RANGE OF COMMON STOCK
The Common Stock is traded on the Nasdaq National Market under the symbol
"SUBM." The following table sets forth the high and low closing sales price of
the Common Stock for the periods indicated, as reported by Nasdaq:
<TABLE>
<CAPTION>
QUARTER ENDED HIGH LOW
----------------------------------------------- ---- ---
<S> <C> <C>
1994:
March 31..................................... $ 7 5/8 $ 5 5/8
June 30...................................... 6 1/8 3 5/8
September 30................................. 6 1/4 4
December 31.................................. 6 3/4 4 1/2
1995:
March 31..................................... 7 3/16 4 1/8
June 30...................................... 12 6 3/4
September 30................................. 14 8 3/8
December 31.................................. 11 7/8 9 3/8
1996:
March 31..................................... 11 1/4 8 3/8
June 30...................................... 10 11/16 7 7/8
September 30 (to July 3)..................... 8 7/8 8 1/4
</TABLE>
DIVIDEND POLICY
The Company has not paid any dividends on its Common Stock. The Company
presently intends to retain any earnings to finance growth and, therefore, does
not anticipate paying dividends on the Common Stock in the foreseeable future.
In addition, the Company's revolving credit arrangement with a bank places
restrictions on the payment of dividends.
18
<PAGE> 20
THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER
The Company hereby offers, upon the terms and subject to the conditions set
forth in this Offering Circular and in the accompanying Letter of Transmittal,
to exchange 135 shares of Common Stock for each Unit, each Unit consisting of
$1,000 principal amount of Notes and Warrants to purchase 60 shares of Common
Stock, that is validly deposited and tendered and not withdrawn prior to the
Expiration Date. Interest accrued on the Notes through the Expiration Date will
be paid in cash upon acceptance of the Notes for exchange. Interest on Notes
tendered and accepted for exchange which are not withdrawn as permitted will
cease to accrue on the Expiration Date.
The Exchange Offer is subject to a number of conditions. See "The Exchange
Offer -- Conditions of the Exchange Offer." There are 19,000 Units outstanding.
The Exchange Offer is being made for any and all Units and is subject to, among
other things, a minimum of 11,400 Units (60% of the Units) being tendered and
not withdrawn. The Company reserves the right to terminate or amend the Exchange
Offer at any time on or prior to the Expiration Date upon the occurrence of any
of such conditions.
The Exchange Offer expires at 5:00 p.m., New York City time, on August 5,
1996 unless the Company, in its sole discretion, extends the period of time
which the Exchange Offer is open, in which event the "Expiration Date" shall
mean the latest time and date to which the Exchange Offer is extended. Only
Notes and Warrants validly deposited and tendered prior to the Expiration Date
will be eligible for exchange. See "The Exchange Offer -- Extension of Exchange
Offer Period; Termination; Amendments."
ACCEPTANCE NOT MANDATORY
Each holder of the Units is free to exchange or not exchange his Units
pursuant to the Exchange Offer and may tender all or a portion of his Notes and
Warrants by properly completing and delivering a Letter of Transmittal, together
with the Notes and Warrants being exchanged, in Units of $1,000 principal amount
of Notes and Warrants to purchase 60 shares of Common Stock, and any other
required documents to the Exchange Agent. Holders of the Notes and Warrants not
deposited and tendered for exchange pursuant to the Exchange Offer will continue
to have all of the existing rights and preferences of the Notes and Warrants,
including (i) the right to quarterly interest payments on the Notes, (ii) the
right to convert the Notes into shares of Common Stock at $11.64 per share,
subject to future adjustment upon the occurrence of certain events, (iii) the
right to exercise the Warrants in accordance with their terms at $14 per share,
(iv) the priority of the Notes over the Common Stock upon the liquidation of the
Company, and (v) certain anti-dilution protection provided in the Notes.
However, in the event the Exchange Offer proceeds, holders of at least 51% of
the aggregate principal amount of the Notes will have consented to waive the
anti-dilution provisions of the Notes with respect to the Exchange Offer.
Accordingly, there will be no adjustment to the Conversion Price or number of
shares which will be issued upon conversion of the Notes as a result of the
Exchange Offer. See "Consent to Waiver of Anti-Dilution Provisions of Notes with
Respect to Exchange Offer"; "Description of Notes"; "Description of Warrants";
and "Description of Capital Stock."
PROCEDURE FOR EXCHANGE
Any holder of Notes and Warrants desiring to deposit and tender all or any
portion of his Notes and Warrants must deliver the Notes and Warrants, in Units
of $1,000 principal amount of Notes and Warrants to purchase 60 shares of Common
Stock, together with a properly completed and duly executed Letter of
Transmittal with any required signature guarantees and any other required
documents to the Exchange Agent. Such Notes, Warrants and other documents must
be received by the Exchange Agent, on or prior to the Expiration Date of the
Exchange Offer at the address specified below under "The Exchange Offer --
Exchange Agent." LETTERS OF TRANSMITTAL AND THE NOTES AND WARRANTS SHOULD NOT BE
SENT TO THE COMPANY. Signatures on Letters of Transmittal must be guaranteed by
a firm that is a member of a recognized Medallion Program approved by The
Securities Transfer Association, Inc. (an "Eligible Institution") except
signatures on Letters of Transmittal need not be guaranteed by an Eligible
19
<PAGE> 21
Institution provided that the Notes and the Warrants deposited and tendered
pursuant thereto are deposited and tendered (i) by a registered holder of the
Note and the Warrants who has not completed either the box entitled "Special
Issuance Instructions" or the box entitled "Special Mailing Instructions" on the
Letter of Transmittal or (ii) for the account of an Eligible Institution. If the
Notes and Warrants are registered in the name of a person other than the signer
of the Letter of Transmittal, the Notes and the Warrants must be endorsed by, or
be accompanied by a written instrument or instruments of transfer or exchange in
form satisfactory to the Company duly executed by, the registered holder, with
signatures thereon guaranteed as set forth above. Delivery of Notes and Warrants
may not be effected through Book Entry Transfer, and must in any case be
received by the Exchange Agent prior to the Expiration Date or the guaranteed
delivery procedure described below must be complied with.
The Notes and the Warrants will be accepted for exchange only in whole
Units of $1,000 principal amount of Notes and Warrants to purchase 60 shares of
Common Stock. If a holder of the Notes and Warrants depositing such securities
specifies a principal amount of Notes or number of Warrants to be exchanged
which is not an integral multiple of a Unit, such holder will be deemed to have
tendered the highest number of whole Units (i.e., $1,000 principal amount of
Notes and Warrants to purchase 60 shares of Common Stock) which is not greater
than the principal amount of Notes and number of Warrants tendered.
Holders of the Notes and Warrants exchanging their Notes and Warrants are
required under federal income tax law to provide the Exchange Agent with a
correct Taxpayer Identification Number on Substitute Form W-9 which is included,
together with instructions, in the Letter of Transmittal. Failure to complete
properly such information may result in the rejection of such holder's deposit
and tender. Should such requirement be waived by the Company, failure to
complete and return the Substitute Form W-9 to the Exchange Agent may subject
the holder to backup withholding on dividends on the Common Stock that might be
payable in the future.
The method of delivery of the Notes and Warrants and all other required
documents is at the election and risk of the holder but if sent by mail,
registered mail with return receipt requested, or overnight delivery service, in
each case properly insured, is recommended.
If a holder desires to tender his Notes and Warrants and such holder's
Notes and Warrants are not immediately available or time will not permit such
holder's Letter of Transmittal, Notes, Warrants and any other required documents
to reach the Exchange Agent before the Expiration Date of the Exchange Offer,
such holder's tender may be effected if:
(i) such tender is made through an Eligible Institution; and
(ii) prior to the Expiration Date, the Exchange Agent has received
from such Eligible Institution a duly executed Notice of Guaranteed
Delivery setting forth the name and address of the holder of such Notes and
Warrants and the principal amount of Notes and number of Warrants tendered
and stating that the tender is being made thereby and guaranteeing that,
within five Nasdaq trading days after the date of such Notice, the Letter
of Transmittal, together with the Notes and Warrants and any other
documents required by the Letter of Transmittal, will be deposited by such
Eligible Institution with the Exchange Agent; and
(iii) such Letter of Transmittal and Notes and Warrants, in proper
form for transfer, and other required documents are received by the
Exchange Agent within five Nasdaq trading days after the date of such
Notice.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted
by telegram, facsimile transmission, telex or letter to the Exchange Agent and
must include a guaranty by an Eligible Institution in a form acceptable to the
Exchange Agent.
The acceptance by a holder of the Notes and Warrants of the Exchange Offer
pursuant to one of the procedures set forth above will constitute a binding
agreement between the holder and the Company in accordance with the terms and
subject to the conditions set forth herein and in the accompanying Letter of
Transmittal.
20
<PAGE> 22
All questions as to the form of all documents and the validity (including
time of receipt) and acceptance of all tenders will be determined by the
Company, in its sole discretion, which determination shall be final and binding.
The Company reserves the absolute right to reject any and all tenders not in
proper form or the acceptance of which would, in the opinion of the Company's
counsel, be unlawful. The Company also reserves the absolute right to waive any
of the conditions of the Exchange Offer or any defect or irregularity in the
deposit and tender of Notes and Warrants. The Company's interpretation of the
terms and conditions of the Exchange Offer (including the Letter of Transmittal
and the instructions thereto) will be final. No deposit and tender of the Notes
and Warrants will be deemed to have been properly made until all defects and
irregularities have been cured or waived. Neither the Company, the Exchange
Agent nor any other person shall be under any duty to give notification of any
defects or irregularities in tenders, and none of them shall incur any liability
for failure to give such annunciation.
WITHDRAWAL RIGHTS
Tenders of Units pursuant to the Exchange Offer may be withdrawn at any
time prior to the Expiration Date, and unless theretofore accepted for exchange
as provided in the Exchange Offer, may also be withdrawn after 11:59 P.M., New
York City time, on September 3, 1996 (such date and time being the expiration of
40 business days from the commencement of the Exchange Offer). If the Company
extends the period of time during which the Exchange Offer is open, is delayed
in accepting for exchange Units or is unable to accept for exchange or exchange
Units for Common Stock pursuant to the Exchange Offer for any reason, then,
without prejudice to the Company's rights under the Exchange Offer, the Exchange
Agent may, on behalf of the Company, retain all Units tendered, and such Units
may not be withdrawn except as otherwise provided hereunder, subject to Rule
13e-4(f)(5) under the Exchange Act, which provides that the issuer making the
tender offer shall either pay the consideration offered, or return the tendered
securities, promptly after the termination or withdrawal of the tender offer.
To be effective, a written, telegraphic, telex or facsimile transmission
notice of withdrawal must be received by the Exchange Agent on a timely basis at
its address specified under "The Exchange Offer -- Exchange Agent." Any notice
of withdrawal must specify the name of the person having tendered the Units to
be withdrawn, the name(s) in which the Notes and Warrants are registered, if
different from that of the depositing and tendering holder, and the number of
Units to be withdrawn. If the Notes and the Warrants have been physically
delivered to the Exchange Agent, then prior to the release of such Notes and
Warrants, the tendering holder must get a written notice of withdrawal with the
signature on such notice of withdrawal guaranteed by an Eligible Institution.
All questions as to validity, form and eligibility (including time of receipt)
of notices of withdrawal will be determined by the Company, in its sole
discretion, which determination shall be final and binding. Withdrawals may not
be rescinded, and any Notes and Warrants effectively withdrawn will be deemed
not to have been duly deposited and tendered for purposes of the Exchange Offer.
However, withdrawn Units may be retendered by following one of the procedures
described in "The Exchange Offer -- Procedure for Exchange" at any time prior to
the Expiration Date.
None of the Company, the Exchange Agent, nor any other person will be under
any duty to give notification of any defects or irregularities in any notice of
withdrawal or incur any liability for failure to give such notification.
ACCEPTANCE OF UNITS FOR EXCHANGE
Upon the terms and subject to the conditions of the Exchange Offer, the
acceptance for exchange of Notes and Warrants validly deposited and tendered and
not withdrawn will be made promptly after the Expiration Date. For purposes of
the Exchange Offer, the Company shall be deemed to have accepted for exchange
validly tendered Notes and Warrants when, as and if the Company has given oral
or written notice thereof to the Exchange Agent. The Exchange Agent will act as
agent for the tendering holders for the purposes of receiving Common Stock from
the Company and transmitting such securities to such holders. If the Company
should extend the Exchange Offer or be delayed in consummation of the Exchange
Offer for any reason, then, without prejudice to the Company's rights under the
Exchange Offer, the Exchange Agent acting on behalf of the Company may retain
tendered Notes and Warrants, and such Notes and Warrants may not be
21
<PAGE> 23
withdrawn, subject to the withdrawal rights of tendering holders set forth above
under "The Exchange Offer -- Withdrawal Rights." Tendered Notes and Warrants not
accepted for exchange by the Company because of an invalid tender, the
termination of the Exchange Offer or for any other reason, will be returned
without expense to the tendering holders as promptly as practicable following
the expiration or termination of the Exchange Offer.
Delivery of Common Stock in exchange for Notes and Warrants tendered
pursuant to the Exchange Offer will be made by the Company to the Exchange
Agent, as agent for the tendering holders, only after receipt by the Exchange
Agent of such Notes and Warrants, a properly completed and duly executed Letter
of Transmittal (or facsimile thereof) and any other required documents.
ACCRUED INTEREST
Interest is payable on the Notes quarterly on March 15, June 15, September
15 and December 15 of each year so long as they are outstanding. Interest
accrued from June 15, 1996 through the Expiration Date will be paid upon the
Notes accepted for exchange upon such acceptance. Interest on Notes accepted for
exchange will cease to accrue as of the Expiration Date.
CONDITIONS OF THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, the Company
shall not be required to accept for exchange or exchange any Notes and Warrants
tendered, and may terminate or amend the Exchange Offer or may postpone (subject
to the requirements of the Exchange Act for prompt exchange or return of the
Notes and Warrants) the acceptance for exchange of, and exchange of, Notes and
Warrants tendered, if at any time on or after July 5, 1996 and before acceptance
for exchange or exchange of any such Units (whether or not any Units have
theretofore been accepted for exchange or exchanged pursuant to the Exchange
Offer) any of the following shall have occurred:
(i) less than 11,400 Units (60% of the Units outstanding) are properly
tendered and not withdrawn prior to the Expiration Date;
(ii) there shall have been threatened, instituted or pending any
action or proceeding by any government or governmental, regulatory or
administrative agency or authority or tribunal or any other person,
domestic or foreign, or before any court, authority, agency or tribunal
which (a) challenges the making of the Exchange Offer, the acquisition of
some or all of the Notes and Warrants pursuant to the Exchange Offer or
otherwise relates in any manner to the Exchange Offer; or (b) in the
Company's sole judgment, could materially affect the business, condition
(financial or other), income, operations or prospects of the Company and
its subsidiaries, taken as a whole, or otherwise materially impair in any
way the contemplated future conduct of the business of the Company or any
of its subsidiaries or materially impair the Exchange Offer's contemplated
benefits to the Company;
(iii) there shall have been any action threatened, pending or taken,
or approval withheld, or any statute, rule, regulation, judgment, order or
injunction threatened, proposed, sought, promulgated, enacted, entered,
amended, enforced or deemed to be applicable to the Exchange Offer or the
Company or any of its subsidiaries, by any court or any authority, agency
or tribunal which, in the Company's sole judgment, would or might directly
or indirectly (a) make the acceptance for exchange or exchange of some or
all of the Notes and Warrants for shares of Common Stock illegal or
otherwise restrict or prohibit consummation of the Exchange Offer; (b)
delay or restrict the ability of the Company, or render the Company unable,
to accept for exchange or exchange some or all of the Notes and Warrants
for shares of Common Stock; (c) materially impair the contemplated benefits
of the Exchange Offer to the Company, or (d) materially affect the
business, condition (financial or other), income, operations or prospects
of the Company and its subsidiaries, taken as a whole, or otherwise
materially impair in any way the contemplated future conduct of the
business of the Company or any of its subsidiaries;
(iv) (a) any general suspension of trading in, or limitation on prices
for, securities on any national securities exchange or in the
over-the-counter market, (b) the declaration of a banking moratorium or
22
<PAGE> 24
any suspension of payments in respect of banks in the United States, (c)
the commencement of a war, armed hostilities or other international or
national calamity directly or indirectly involving the United States, (d)
any limitation (whether or not mandatory) by any governmental, regulatory
or administrative agency or authority on, or any event which, in the
Company's sole judgment, might affect, the extension of credit by banks or
other lending institutions in the United States, (e) any significant change
in the market price of the Common Stock, or any change in the general
political, market, economic or financial conditions in the United States or
abroad that could, in the sole judgment of the Company, have a material
adverse effect on the Company's business, operations or prospects or the
trading in the Common Stock or the Exchange Offer's contemplated benefits
to the Company or (f) in the case of any of the foregoing existing at the
time of the commencement of the Exchange Offer, a material acceleration or
worsening thereof;
(v) any tender or exchange offer with respect to some or all of the
Common Stock or the Notes or Warrants (other than the Exchange Offer), or a
merger, acquisition or other business combination proposal for the Company,
shall have been proposed, announced or made by any person or entity;
(vi) any change shall occur or be threatened in the business,
condition (financial or other), income, operations, Common Stock ownership,
or prospects of the Company and its subsidiaries, taken as a whole, which,
in the sole judgment of the Company, is or may be material to the Company;
or
(vii) (a) any person, entity or "group" (as that term is used in
Section 13(d)(3) of the Exchange Act) shall have acquired, or proposed to
acquire, beneficial ownership of shares of Common Stock entitled to more
than 5% of the aggregate votes entitled to be cast by all shares of Common
Stock then outstanding (other than a person, entity or group which had
publicly disclosed such ownership in a Schedule 13D or 13G (or an amendment
thereto) on file with the Commission prior to July 5, 1996) or (ii) any new
group shall have been formed which beneficially owns shares of Common Stock
entitled to more than 5% of the aggregate votes entitled to be cast by all
shares of Common Stock then outstanding;
and, in the sole opinion of the Company, in any such case and regardless of the
circumstances (including any action or omission to act by the Company) giving
rise to such condition, such event makes it inadvisable to proceed with the
Exchange Offer or with such acceptance for exchange or exchange.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances (including any action or
inaction by the Company) giving rise to any such condition and any such
condition may be waived by the Company, in whole or in part, at any time and
from time to time in its sole discretion. The Company's failure at any time to
exercise any of the foregoing rights shall not be deemed a waiver of any such
right; the waiver of any such right with respect to particular facts and
circumstances shall not be deemed a waiver with respect to any other facts or
circumstances; and each such right shall be deemed an ongoing right which may be
asserted at any time and from time to time. Any determination by the Company
concerning the events described above will be final and binding on all parties.
EXTENSION OF EXCHANGE OFFER PERIOD; TERMINATION; AMENDMENTS
The Company expressly reserves the right, in its sole discretion, at any
time or from time to time, to extend the period of time during which the
Exchange Offer is open by giving oral or written notice of such extension to the
Exchange Agent. During any such extension, all Notes and Warrants previously
tendered and not exchanged or withdrawn will remain subject to the Exchange
Offer, except to the extent that such Notes and Warrants may be withdrawn as set
forth in "The Exchange Offer -- Withdrawal Rights." The Company also expressly
reserves the right, in its sole discretion, to terminate the Exchange Offer and
not accept for exchange or exchange any Notes and Warrants not theretofore
accepted for exchange or exchanged or, subject to applicable law, to postpone
the exchange of Notes and Warrants for Common Stock upon the occurrence of any
of the conditions specified in "The Exchange Offer -- Conditions of the Exchange
Offer" hereof by giving oral or written notice of such termination or
postponement to the Exchange Agent and making a public announcement thereof. The
Company's reservation of the right to delay exchange of Notes and Warrants which
it has accepted for payment is limited by Rule 13e-4(f)(5) promulgated under the
Exchange Act, which requires that the Company must pay the consideration offered
or return the Notes and Warrants
23
<PAGE> 25
tendered promptly after termination or withdrawal of a tender offer. Subject to
compliance with applicable law, the Company further reserves the right, in its
sole discretion, to amend the Exchange Offer in any respect. Amendments to the
Exchange Offer may be made at any time or from time to time effected by public
announcement thereof, such announcement, in the case of any extension, to be
issued no later than 9:00 a.m., New York City time, on the next business day
after the previously scheduled Expiration Date. Any public announcement made
pursuant to the Exchange Offer will be disseminated promptly to holders in a
manner reasonably designed to inform holders of such change. Without limiting
the manner in which the Company may choose to make a public announcement, except
as required by applicable law, the Company shall have no obligation to publish,
advertise or otherwise communicate any such public announcement other than by
making a release to the Dow Jones News Service.
If the Company materially changes the terms of the Exchange Offer or the
information concerning the Exchange Offer, the Company will extend the Exchange
Offer to the extent required by Rules 13e-4(d)(2) and 13e-4(e)(2) promulgated
under the Exchange Act. These rules provide that the minimum period during which
an offer must remain open following material changes in the terms of the offer
or information concerning the offer (other than a change in consideration
offered or a change in percentage of securities sought) will depend on the facts
and circumstances, including the relative materiality of such terms or
information. The Commission has stated that as a general rule, it is of the view
that an offer should remain open for a minimum of five business days from the
date that notice of such a material change is first published, sent or given. If
(i) the Company increases or decreases the consideration offered for the Units
pursuant to the Exchange Offer and (ii) the Exchange Offer is scheduled to
expire at any time earlier than the expiration of a period ending on the tenth
business day from, and including, the date that notice of such increase or
decrease is first published, sent or given, the Exchange Offer will be extended
until the expiration of such period of ten business days.
SOLICITATION OF TENDERS; FEES
The Company is making the Exchange Offer in reliance on the exemption from
the registration requirements of the Securities Act, afforded by Section 3(a)(9)
thereof. The Company, therefore, has not retained, and will not pay any
commission or other remuneration to, any broker, dealer, salesman or other
person for soliciting tenders of the Notes and Warrants. However, regular
employees of the Company (who will not be additionally compensated therefor) may
solicit tenders and will answer inquiries concerning the Exchange Offer.
The Company has retained Alex. Brown & Sons Incorporated ("Alex. Brown"),
an investment banking firm, to advise the Company as to certain terms of the
Exchange Offer. Alex. Brown has not been retained to render and has not
rendered, an opinion as to the fairness of the Exchange Offer to the holders of
the Company's various securities or to solicit exchanges. Alex. Brown will
receive a customary fee for such services. Such fee is payable regardless of
whether the Company proceeds with the Exchange Offer or, if it does, the number
of Units exchanged. In addition, the Company has agreed to indemnify Alex. Brown
against certain liabilities and expenses, including liabilities under the
federal securities laws.
24
<PAGE> 26
EXCHANGE AGENT
American Stock Transfer & Trust Company has been appointed as Exchange
Agent for the Exchange Offer. The Company will pay the Exchange Agent reasonable
and customary compensation for its services in connection with the Exchange
Offer, will reimburse the Exchange Agent for its reasonable out-of-pocket
expenses, and will indemnify the Exchange Agent against certain liabilities and
expenses in connection therewith, including liabilities under the federal
securities laws. All correspondence in connection with the Exchange Offer and
the Letter of Transmittal should be addressed to the Exchange Agent as follows:
AMERICAN STOCK TRANSFER & TRUST COMPANY
BY MAIL, OVERNIGHT COURIER OR HAND DELIVERY TO:
AMERICAN STOCK TRANSFER & TRUST COMPANY
40 WALL STREET
NEW YORK, NY 10005
BY FACSIMILE TRANSMISSION (FOR ELIGIBLE INSTITUTIONS ONLY):
718-234-5001
TO CONFIRM FACSIMILE TRANSMISSION CALL:
718-921-8237
CONSENT TO WAIVER OF ANTI-DILUTION PROVISIONS OF NOTES
WITH RESPECT TO EXCHANGE OFFER
The Notes contain anti-dilution provisions that adjust the Conversion Price
at which the Notes are converted into shares of Common Stock and, therefore, the
number of shares of Common Stock issuable upon conversion of the Notes.
Depending on the price of a share of Common Stock on the Expiration Date,
issuance of Common Stock pursuant to the Exchange Offer could cause an
adjustment to the Conversion Price and the number of shares issuable upon
subsequent conversion of any Notes that are not tendered for exchange.
Accordingly, as part of the Exchange Offer, each person who tenders Notes to be
exchanged, by signing the Letter of Transmittal, shall consent to waive any
anti-dilution adjustments with respect to the Conversion Price or the number of
shares of Common Stock issuable upon conversion of the Notes as a result of the
Exchange Offer. To be effective, such a consent must be signed by holders of at
least 51% of the aggregate principal amount of the Notes outstanding.
Accordingly, in the event the Exchange Offer proceeds, holders of more than such
amount of Notes will have consented and, consequently, there will be no
adjustment to the Conversion Price of the Notes or the number of shares of
Common Stock issuable upon conversion of the Notes as a result of the Exchange
Offer. Except as set forth above, the anti-dilution provisions of any Notes
remaining outstanding after the Exchange Offer shall not be affected.
TRANSFERABILITY OF COMMON STOCK
The issuance of shares of Common Stock upon exchange of the Units is exempt
from the registration requirements of the Securities Act, by reason of Section
3(a)(9) thereof. Pursuant to a Registration Statement on Form S-3, the Company
has registered the shares of Common Stock underlying the Notes and Warrants.
Accordingly, upon consummation of the Exchange Offer, the shares issued in the
Exchange Offer will be registered for resale by the holders thereof pursuant to
such Registration Statement. Persons who receive Common Stock in the Exchange
Offer will be required to deliver a copy of the Prospectus forming part of such
Registration Statement in accordance with the rules and regulations of the
Commission to each purchaser of such shares. Copies of the Prospectus can be
obtained from the Company by contacting the Secretary, SubMicron Systems
Corporation, 6620 Grant Way, Allentown, PA 18106, telephone 610-391-9200.
25
<PAGE> 27
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTION
Barry W. Ridings, a member of the Company's Board of Directors and a
managing director of Alex. Brown, holds $100,000 principal amount of Notes and
6,000 Warrants. Mr. Ridings is eligible to participate in the Exchange Offer
upon the same terms and subject to the same conditions as any other holder of
Notes and Warrants.
TRANSACTIONS AND AGREEMENTS CONCERNING THE COMMON STOCK
During the 40 business days preceding the date hereof, David F. Levy and
James S. Molinaro, directors and/or executive officers of the Company, each sold
shares of Common Stock in the open market on the dates, in the amounts and at
the price per share as set forth below:
<TABLE>
<CAPTION>
PRICE
DATE SHARES PER SHARE
- -------- ------- ---------
<S> <C> <C>
5/13/96 12,500 $9 1/8
5/14/96 12,500 9 1/4
5/14/96 5,000 9 1/8
5/15/96 20,000 9 1/8
5/16/96 12,500 9 3/8
5/17/96 7,500 9 3/8
5/20/96 30,000 9 3/8
</TABLE>
Except as set forth above, during the forty business days preceding the
date hereof, neither the Company nor, to its knowledge, any of its subsidiaries,
executive officers or directors or any associate of such officer or director has
engaged in any transaction involving the Common Stock or the Notes or Warrants.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The exchange of Notes and Warrants for shares of Common Stock will be a
taxable event for federal income tax purposes. A holder will recognize taxable
gain (or loss) equal to the amount by which the fair market value of the Common
Stock received for the Notes and Warrants, respectively, exceeds (or is less
than) the holder's adjusted tax basis in the Notes and Warrants. The fair market
value of the Common Stock received will depend on the price of the Common Stock
on the Expiration Date, and, accordingly is not presently determinable. A
holder's basis in the Notes and Warrants, if held from the date of original
issuance, is the original purchase price (i.e., $1,000 per Unit) plus the amount
of the original issue discount on the Notes which was includible in income by
such holder through the Expiration Date. The taxable gain (or loss) will be
characterized as a short-term capital gain (or loss) if the Notes and the
Warrants are capital assets in the hands of a holder. In addition to the amount
of the original issue discount recognized in 1995, a holder will also recognize
taxable income attributable to the portion of the original issue discount on the
Notes which accrued from January 1, 1996 to the Expiration Date under applicable
Internal Revenue Code rules governing the current inclusion in income of
original issue discount. The accrued interest to be paid to a holder upon the
exchange will also be recognized as taxable interest income.
Holders should consult their tax advisors concerning the specific tax
consequences to them of the Exchange Offer, including state and local tax
consequences.
26
<PAGE> 28
DESCRIPTION OF NOTES
GENERAL
The Notes are designated as 9% Convertible Subordinated Notes due December
15, 1997. The description of the Notes provided in this Offering Circular is of
a summary nature, does not purport to be complete and is qualified in its
entirety by reference to the Notes.
PRINCIPAL AND INTEREST
Interest on the Notes accrues from the date of issuance and is payable
quarterly on March 15, June 15, September 15 and December 15 of each year at a
rate of 9% per annum, commencing March 15, 1996, until payment of principal has
been made or duly provided for, to the persons who are registered holders of
Notes at the close of business on the March 1, June 1, September 1 and December
1 next preceding the interest payment date. Interest will be computed on the
basis of a 360-day year of twelve 30-day months. The Company may pay principal
and interest by check and may mail an interest check to a holder's registered
address. Payment of the full amount of principal will be due and payable on
December 15, 1997, unless the Notes are redeemed or converted earlier in
accordance with the provisions of the Notes. Holders must surrender their Notes
to the payment agent to collect principal payments.
SUBORDINATION
To the extent provided in the Notes, the indebtedness, including interest,
evidenced by the Notes, is subordinate and subject in right of payment to the
prior payment when due in full of all Senior Indebtedness. Senior Indebtedness
is defined to include the principal of and premium, if any, bank fees, charges
and expenses and interest on (i) indebtedness (other than the Notes), whether or
not secured and whether heretofore or hereafter created, occurred or assumed,
(a) for borrowed money or (b) in connection with the acquisition by the Company
or a subsidiary of any business, properties or assets or (ii) any refundings,
renewals, extensions, replacements or deferrals of any such indebtedness, in the
case of (i) and (ii) above for the payment of which the Company or a subsidiary
of the Company is liable directly or indirectly by guarantee or otherwise,
unless the terms of the instrument evidencing such indebtedness specifically
provides that such indebtedness is not superior in right of payment to the
Notes. The Notes do not restrict the Company from incurring additional Senior
Indebtedness and most other indebtedness. However, the Company may not sell
unsecured notes unless they are junior in right of payment to the Notes.
CONVERSION RIGHTS
The Notes may be converted by the holders at their principal amount into
Common Stock of the Company at any time prior to maturity or redemption, at a
conversion price initially equal to $11.75 per share of Common Stock (the
"Conversion Price"), subject to adjustment upon the occurrence of certain
events, except that the right to convert Notes which are called for redemption
terminates on the date fixed for redemption. The Conversion Price is subject to
adjustment upon the occurrence of any of the following events: (i) the
subdivision, combination, reclassification or capital reorganization of the
Common Stock; (ii) the payment of dividends or other distributions on the Common
Stock in shares of Common Stock; or (iii) the issuance of shares of Common Stock
and Common Stock equivalents after December 13, 1995 at a price lower than the
Conversion Price (other than with respect to options or warrants or pursuant to
grants under the Company's stock plans outstanding or existing as of December
13, 1995, respectively). No adjustment of the Conversion Price is required to be
made until cumulative adjustments otherwise required to be made amount to 1% or
more of the Conversion Price last adjusted. As a result of the acquisition of
Imtec described under "Summary of Offering Circular -- Recent Developments," the
Conversion Price for the Notes is currently $11.64. Fractional shares of Common
Stock will not be issued upon conversion, but cash adjustment will be paid in
lieu thereof, based upon the closing sale price on the last business day prior
to the date of conversion. Interest will accrue on Notes through the day
immediately preceding the date of conversion and will be paid to a holder when
his shares of Common Stock are delivered, except that if the conversion occurs
between the record date with respect to any interest payment and the next
succeeding interest payment date,
27
<PAGE> 29
the Noteholder shall receive the full quarterly interest payment, which shall be
adjusted as described below. If a Note is surrendered for conversion during the
period from the close of business on any record date for the payment of interest
on the Notes to the opening of business on the interest payment date (except in
the case of Notes or portions thereof which have been called for redemption on a
redemption date within such period), it must be accompanied by payment by check
or other method acceptable to the Company of an amount equal to interest payable
from the date of conversion to the interest payment date; provided, however,
that no such payment need be made if there shall exist at the time of conversion
a default in the payment of interest on the Notes. No payment or adjustment
shall be made for dividends on securities issued upon conversion. In the case of
Notes called for redemption, conversion rights will expire on the close of
business on the redemption date.
REDEMPTION
The Notes may be redeemed, at the option of the Company, in whole or in
part, at any time, on at least 30 days' notice to the Noteholders at their last
registered addresses, at a redemption price equal to 100% of the principal
amount, together with accrued interest to the date fixed for redemption,
provided (i) the closing bid price for the Common Stock has been at least 150%
of the Conversion Price for a period of at least thirty consecutive trading days
ending within five days of the giving of the notice of redemption and (ii) the
shares of Common Stock issuable upon conversion of the Notes have been
registered under the Securities Act.
SINKING FUND
No sinking fund is required by the terms of the Notes.
EVENTS OF DEFAULT
Events of Default are defined in the Notes as being in addition to certain
bankruptcy and covenant defaults: (i) default in payment of any interest
installment or payment of principal under the Notes; (ii) payment default on the
Company's principal line of credit (after the expiration of any applicable grace
periods); (iii) if a registration statement covering the shares (the
"Registration Shares") issuable upon conversion of the Notes and exercise of the
Warrants is not declared effective by the Commission by June 30, 1996 (such a
Registration Statement has been declared effective), or thereafter not
maintained effective (subject to certain blackout periods) until such stock is
saleable under Rule 144(k) of the Securities Act or a successor provision (a
"Registration Default"); and (iv) if the Company has earnings per share less
than $.20 for fiscal years 1995 or 1996. Events of Default do not occur until
the end of a five-day grace period during which such conditions may be
satisfied, in which event no Event of Default shall be deemed to have occurred.
The Notes provide that, if an Event of Default specified therein (other
than an Event of Default in (iv) above with respect to the Company's earnings
per share, for which no adjustment in interest rate shall apply) will have
occurred and be continuing, the interest rate payable on the Notes shall
increase to 16% during the continuance of such Event of Default. In addition,
upon the first occurrence of an Event of Default specified in (i)-(iv) above,
the Conversion Price will be adjusted to equal 80% of the average of the closing
bid price (the "Reference Price") of the Common Stock during the ten trading
days beginning five trading days before the occurrence of such Event of Default
(if at the time of such Event of Default the Registration Shares are registered
or can be publicly sold pursuant to Rule 144 under the Securities Act) or, if
not so registered or publicly saleable, during the ten trading days beginning
five trading days before the date the Registration Shares first become
registered or can be publicly sold pursuant to Rule 144 under the Securities
Act. In either case, the Conversion Price will only be adjusted if the Reference
Price is lower than the then current Conversion Price (the lower of the then
current Conversion Price and the Reference Price being the "Adjustment Price").
The Conversion Price is subject to further downward adjustment in an amount
equal to 2% of the Adjustment Price for each 30-day period during which a
Registration Default continues. Except with respect to an Event of Default on
the payment of principal of the Notes, the Conversion Price will not be lower
than $4.50 per share as a result of an Event of Default. Adjustment in the
Conversion Price as a result of an Event of Default shall only occur one time.
28
<PAGE> 30
MODIFICATION OF THE NOTES
The Notes contain provisions permitting the Company, with the consent of
the holders of a majority in principal amount of the outstanding Notes, to amend
the Notes adding any provisions to or changing, eliminating or waiving any of
the provisions of the Notes or modifying the rights of the holders of Notes,
except that no such amendment may (i) extend the fixed maturity of any Note, or
reduce the principal amount thereof, or reduce the rate or extend the time for
payment of interest thereon, without the consent of the holder of each Note so
affected; (ii) modify the provisions of the Notes with respect to the
subordination of the Notes in a manner adverse to the holders or alter the
provisions in respect of the right to convert the Notes, without the consent of
the holders of all of the outstanding Notes; or (iii) reduce the aforesaid
percentage of Notes, the consent of the holders of which is required for any
amendment, without the consent of the holders of all of the outstanding Notes.
DESCRIPTION OF WARRANTS
Each Warrant may be exercised from time to time, in whole or in part, until
5:00 p.m, New York City time, on December 12, 2000 (the "Warrant Expiration
Date"). Each Warrant entitles its holder to purchase one share of Common Stock
at $14.00 per share at any time or from time to time until the Warrant
Expiration Date. The number of shares purchased and the exercise price are
subject to adjustments in the event of a subdivision, combination,
reclassification or capital reorganization of the Common Stock.
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company is authorized to issue 100,000,000 shares of Common Stock, par
value $.0001 per share, and 5,000 shares of Preferred Stock, par value $.01 per
share. As of June 15, 1996, 16,724,994 shares of Common Stock were outstanding.
No shares of Preferred Stock are currently outstanding.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held of
record on all matters to be voted on by stockholders. There is no cumulative
voting with respect to the election of directors, with the result that the
holders of more than 50% of the shares voted for the election of directors can
elect all of the directors. The holders of Common Stock are entitled to receive
dividends when, as and if declared by the Board of Directors out of funds
legally available therefor. In the event of liquidation, dissolution or winding
up of the Company, the holders of Common Stock are entitled to share ratably in
all assets remaining available for distribution to them after payment of
liabilities and after provision has been made for each class of stock, if any,
having preference over the Common Stock. Holders of shares of Common Stock, as
such, have no conversion, preemptive or other subscription rights, and there are
no redemption provisions applicable to the Common Stock. All of the outstanding
shares of Common Stock are fully paid and nonassessable.
PREFERRED STOCK
The Company's Certificate of Incorporation authorizes the issuance of 5,000
shares of a "blank check" preferred stock (the "Preferred Stock") with such
designations, rights and preferences as may be determined from time to time by
the Company's Board. Accordingly, the Board is empowered, without stockholder
approval, to issue Preferred Stock with dividend, liquidation, conversion,
voting or other rights which could adversely affect the voting power or other
rights of the holders of Common Stock. The Preferred Stock could be utilized,
under certain circumstances, as a method of discouraging, delaying or preventing
a change in control of the Company.
29
<PAGE> 31
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM 10-K
(MARK ONE)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995.
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 0-19507
SubMicron Systems Corporation
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3607944
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification no.)
6330 Hedgewood Drive, #150, Allentown, Pennsylvania 18106
- --------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (610) 391-9200
--------------
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.0001 par value
- --------------------------------------------------------------------------------
(Title of Class)
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if the disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this form 10-K. (x )
Based on the closing sales price of March 1, 1996, the aggregate market value of
the voting stock held by nonaffiliates of the Registrant was $111,145,763.
The number of shares outstanding of the Registrant's Common Stock was 15,993,752
at March 1, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
Part III - Portions of the Registrant's definitive Proxy Statement with respect
to the Registrant's 1996 Annual Meeting of Stockholders, to be filed no later
than 120 days after the end of the Registrant's fiscal year.
<PAGE> 32
PART I
ITEM 1. BUSINESS
General
SubMicron Systems Corporation (the "Company" or "SubMicron"), through
its subsidiaries, designs and manufactures and markets automated chemical
processing and delivery systems for use in the production of semiconductor
wafers and integrated circuits. The Company operates primarily through three
subsidiaries.
SubMicron Systems, Inc. (SSI)
SSI designs, manufactures and markets advanced manufacturing equipment
to the semiconductor industry. The equipment, automated chemical processing
systems, is used by both silicon wafer providers and manufacturers of high
performance and advanced technology semiconductor chips. Stringent processing
specifications require the removal and elimination of microscopic contaminants
and particles as small as 0.1 microns, approximately 1/2500th the diameter of a
human hair. A semiconductor chip is a miniature electronic circuit commonly
referred to as an "integrated circuit" which is manufactured using
single-crystal silicon as the primary base material. The Company's products,
known as "automated wet stations," perform precise and highly controlled
chemical processing of the bare silicon wafers for which semiconductor devices
are fabricated and interconnected and perform certain cleaning and film removal
steps during the integrated circuit manufacturing cycle, including oxides,
photoresists, and other films at various stages of the cycle. The systems are
modular in design, allowing SSI to configure a system to a customer's
specifications and provide the customer with the flexibility to reconfigure or
extend the systems to meet its future needs.
Universal Plastics, Inc.(UP)
UP manufactures a broad line of wet chemistry processing equipment to
the semiconductor and related electronics industries. The UP products generally
contain less complex automated transfer and processing than the SSI product
line, and in many cases the transfer is accomplished manually by the user. The
utilization of UP's systems extends beyond the semiconductor sector to include
such applications as circuit boards, parts cleaning, plating, and substrates of
other electronic devices. The systems are typically utilized in research and
development, and pilot line applications as well as volume manufacturing.
Systems Chemistry Incorporated (Systems Chemistry)
Systems Chemistry, acquired by SubMicron in February 1995, provides
automated chemical distribution and management systems to the semiconductor,
flat-panel display, recording head and related industries. The systems control
and dispense high purity acid, caustic, oxidizer, and solvent chemicals
throughout a factory, typically from bulk chemical storage to point-of-use
locations. Delivery methods vary with individual installations and customer
specifications and have included the three basic industry methodologies of
pumping, vacuum/pressure, and pump/pressure. Advanced control capabilities
provide the customer with improved chemical quality, lower emissions, reduced
consumption, special mixing techniques and safety. Systems Chemistry also offers
chemical waste collection and the ability to interface with chemical
reprocessors.
Recent Developments
In March 1996, the Company acquired Imtec Acculine, Inc. ("Imtec"), a
Sunnyvale, California company. Imtec's principal business is designing,
developing, testing, manufacturing and marketing temperate baths and high
resolution photo plates for the semiconductor market and related industries. The
Company acquired all the outstanding stock of Imtec in exchange for 575,000
shares of Common stock. The transaction will be accounted for as a pooling of
interests and, accordingly, historical financial data in future reports will be
restated to include Imtec.
2
<PAGE> 33
Industry Background
The need for new processes and systems capable of manufacturing silicon
wafers and high performance electronic devices with increasingly complex
circuits has increased the demand for new semiconductor production equipment.
Since 1980, the semiconductor industry has met the growing demand for Dynamic
Random Access Memory ("DRAM") by providing integrated circuits with smaller
circuit designs and increased memory capacity. With the successive development
of the 64KB, 256KB, 1MB, 4MB, and 16MB DRAMs, feature sizes of the circuits have
declined from a size greater than 2.0 microns to 0.5 micron for a 16MB DRAM. At
the same time, the size of the wafers has increased from four inches (100mm) in
diameter to eight inches (200mm) in diameter, with the next increment, twelve
inches (300mm) in diameter, in the planning and development phase.
Silicon wafers are transformed into semiconductor chips in a
specialized production facility known as a wafer fabrication line. Integrated
circuit manufacturing involves a complex series of repetitive process steps to
transform a raw silicon wafer into an integrated circuit. The number of steps
involved in the manufacture of DRAMs has increased from approximately 60 process
steps for the 64KB (64 thousand bits) circuit to over 250 process steps for the
16MB (16 million bits) circuit. A critical part of the fabrication process is
the cleaning of the wafers to remove particles, oxides and metal contamination
which, if not removed, can render a circuit inoperable, particularly if the size
of the contaminant particle is larger than the geometry of the integrated
circuitry. As the circuits on DRAMs have become smaller, with feature sizes for
1MB to 16MB DRAMs less than 1.0 micron, the tolerance levels for contaminants on
the wafer surface have declined significantly in order to maintain commercially
acceptable yields.
Wafer and Semiconductor Device Fabrication
The basic component in the manufacture of semiconductor devices is a
thin, circular crystalline wafer, typically 100mm to 200mm in diameter, composed
of silicon or another semiconductor material. During the fabrication process,
several layers of conductive or dielectric materials are sequentially grown or
deposited on the wafer surface through a series of thermal or chemical
procedures. Production occurs in a controlled environment known as a "clean
room," which is a manufacturing facility separated from the outside environment
and employing specialized filters designed to reduce the number of particulates
in the air within the facility. Each layer undergoes a series of processes to
etch and strip away a portion of the layer, leaving the desired integrated
circuit pattern. The wafers are ultimately separated into individual integrated
circuits or discrete components and are then packaged, assembled and tested.
The typical integrated circuit fabrication process takes between eight
and twelve weeks. The primary stages of this process are discussed below. The
typical "base" silicon wafer fabrication process takes between three and six
weeks.
Cleaning. The wafer surface must be cleaned and prepared to begin the
fabrication process of an integrated circuit. As the integrated circuits'
geometry becomes smaller and more complex, the reduction of organic, metal and
particle contamination of the wafer becomes a critical factor in wafer
processing. Specific contaminants are organic, oxide films and metals. These
contaminants can destroy individual circuits and must be removed prior to the
growth or deposit of subsequent layers on the wafer. Contamination removal is
also required prior to high-temperature operations so that the contamination is
not diffused into the wafer during such operations. The wafer must also be
cleaned at various other stages in the fabrication process to continue to remove
contaminants and particulates.
Cleaning is generally performed by exposing the wafer to various
chemicals in a liquid or vapor state through immersion of the wafer into a
process tank filled with chemicals or vapors. SSI's products are designed to
perform these functions throughout the integrated circuit fabrication process.
In addition to contamination from particles left over from the various steps in
the fabrication process, such as etching, or stripping, contaminants may also be
introduced from the equipment and chemicals utilized in the manufacturing
process.
3
<PAGE> 34
SSI has designed its automated wet stations to reduce the level of
contamination to which the wafer is exposed during operation of its equipment.
SSI's "rear-mounted" system has two-axis robots which permit the front of the
system to be closed off to the outside environment, thereby reducing particulate
contamination. The Company's GAMA-1(TM) is a self contained system, and
therefore, not exposed to the outside environment. Both types of equipment are
assembled in a clean room, which reduces the risk of equipment contamination
during assembly.
Layering. After initial cleaning and wafer surface preparation, a thin
film of either conductive or dielectric material is grown or deposited on the
water surface. Depending upon its particular electrical properties, a layer
functions as an insulator, semiconductor or conductor.
Photolithography. After the film layer is deposited on the wafer, it is
covered with photoresist, a light sensitive material. Integrated circuit
patterns are then projected onto the photoresist by exposing it to an energy
source. Chemical changes occur in the portion of the photoresist exposed to the
energy source. These changes result in a transfer of the image of the desired
circuit onto the wafer. After a circuit pattern has been imprinted, the image on
the film is developed, which creates protected and unprotected areas.
Etching. The next step in the fabrication process is etching, a process
by which a layer of film on the surface of a semiconductor chip is removed using
chemicals. During etching, the unprotected areas of the patterned film are
removed with chemicals to leave the desired circuit pattern. The etching can be
accomplished with either a wet chemistry process, using liquid chemicals, or a
dry chemistry (typically plasma) process, using chemical gases. The circuit is
then electrically charged, or doped, through the implantation of ions.
Stripping. After the surface has been electrically charged, the wafer
is stripped of the photoresist with either a wet chemistry or a dry chemistry
process.
These operations are repeated numerous times during the fabrication
process depending upon the type and complexity of the semiconductor device. A
finished integrated circuit consists of a number of film layers which together
form thousands of extremely small electronic components that combine to perform
the desired electrical functions. Each step in the fabrication process requires
precision and must be rigorously controlled to attain commercially acceptable
yields and cost performance.
Products
Automated Wet Stations. SubMicron's primary business is the design and
manufacture of automated wet stations, accounting for approximately 62% of
SubMicron's net sales for the year ended December 31, 1995. A wet station
consists of an interconnected series of chemical processing modules, each
programmed to apply specific chemicals, gases or vapors to the wafer surface to
remove particles and other contaminants or to etch or strip the wafer. Wafers
are processed in the wet station primarily by immersing the wafer in a chemical
bath or by placing the wafer into a vapor chamber. Other modules in a system are
used to rinse and dry the wafer. Wafers are transported from module to module by
a robotic arm. The robot and specific chemical or vapor used with each module,
including the chemical or vapor concentration and temperature, are controlled by
a computer and customized software included with each system.
SubMicron's automated systems are designed to minimize the level of
contaminants introduced into the fabrication process by reducing both the
contamination level of its components and the chemicals used in its systems and
the degree of operator interaction necessary for operation. Each system is based
on a standardized modular design which allows reconfiguration of the system to
meet particular customer needs and specifications in a relatively short period
of time. The modular design also provides flexibility to reconfigure or expand
the system as integrated circuits become more complex and processing
requirements change.
In 1994, SubMicron introduced a new generation of its automated wet
station, called GAMA-1(TM), designed to achieve the future industry requirements
for fabrication of silicon wafers of up to 300mm and device features size of
0.25/0.35 microns, which are required for 64MB DRAM's. First production
deliveries began in 1995.
4
<PAGE> 35
GAMA-1(TM) is designed to provide lower operating costs and reduced
emissions compared to other cleaning systems. The GAMA-1(TM) incorporates the
following features:
Exhaust Emissions: GAMA-1(TM) utilizes a proprietary Class 1
mini-environment which emitts less exhaust emission compared
to current conventional systems. This makes the tool
environmentally friendly compared to other tools.
Point-of-Use Concentration Control: Each chemical bath
incorporates a point-of-use concentration control In-Site
Chemical Efficiency (ICE) unit which extends the useful
chemical life compared to conventional systems, thus reducing
chemical consumption and waste.
Semi-Cassetteless: Typical wet stations utilize a cassette to
hold the silicon wafers, which requires the equipment and
chemical tanks to perform the cleaning process on the cassette
as well as the wafers. A semi-cassetteless system reduces the
cleaning load by reducing the size of tanks and the volume of
the chemical required.
Smaller Size: The GAMA-1(TM) station incorporates chemical
dispense and mix units which in the past have been remote,
therefore allowing the station to be smaller than typical wet
stations.
To further reduce the level of contaminants introduced into the
fabrication process by its automated wet stations, SSI assembles and packages
all of its automated wet station systems in a Class 10 clean room (fewer than
ten particles per cubic foot of air per minute contained in the air circulating
through the clean room). In addition, system assemblers wear particle-free clean
room clothing, and component parts are made of materials which minimize
contaminant emission.
SSI's systems also offer the following features, many of which are sold
separately as additions to or replacements for existing systems:
Class 1 Robot. SubMicron has a patent application pending for its
Class 1, two-axis, rear-mounted robot which has been designed
specifically for use with the wet station to reduce contamination
levels. The two-axis design of SubMicron's robot has fewer moving
parts and a more condensed range of motion than five-axis robots,
thereby reducing the number of contaminants emitted through movement
and generally producing a more reliable system. In addition, the
rear-mounted configuration of SubMicron's robots permits the front of
the wet station to be enclosed, thereby reducing the exposure of
wafers to human and environmental contamination during operation.
Megasonic Cleaning System (Phaser). SubMicron's high frequency/high
power energy cleaning system (the "Phaser") uses a high frequency
energy wave to remove particle contamination from a batch of wafers
immersed in a chemical bath. This process, also known as megasonic
cleaning, is designed to assist in the removal of contaminants from
the wafer surface which generally cannot be removed by standard spray
wafer processing. The Phaser is operated by an electronic controller
and possesses transducer assemblies capable of operating (from a
single power supply) at a frequency range of .75 Mhz to 1.2 Mhz and
emitting over 1600 watts per transducer utilized in a wet station.
There are patent applications pending for portions of the megasonic
cleaning system. The Phaser may be used in both UP and SSI wet
benches, and is also available as an OEM subsystem for incorporation
or retrofit into other wet benches.
Point-of-Use Chemical Generation System (POUCG). This patented system
mixes liquid chemicals at the point of use (the particular tank in the
wet station) by injecting specific gases into purified water contained
5
<PAGE> 36
in station processing tanks. Many semiconductor manufacturing
facilities supply chemicals to processing tanks from a central plant
system often located hundreds of feet from the processing tanks.
Because chemicals can be transported from a central plant system with
fewer contaminants in a gaseous compared to a liquid state, the POUCG
system is generally able to produce purer chemicals for application in
processing tanks than those distributed in liquid form from a central
plant system. Furthermore, this system reduces the need to utilize
certain commercially prepared liquid chemicals which typically are not
at the purity levels attained by the chemicals generated by SubMicron's
system. This technology has been transferred to Systems Chemistry to
complement its product offerings.
Point-of-Use Chemical Concentration System (ICE, In-site Chemical
Efficiency). The concentration of chemicals utilized in process tanks,
whether supplied in liquid form from a central plant system or
generated from gas at the point-of-use, diminish over time. SubMicron's
system continuously monitors the chemical concentration in the process
tanks and injects chemical gases into processing tank solutions as
necessary in order to maintain chemical concentration. The system's
ability to replenish depleting chemicals reduces the need to replace
chemicals, resulting in lower customer chemical usage and disposal
costs. SubMicron has patented a portion of this system.
High-Temperature Recirculation/Filtration System. The continuous
recirculation and filtration of the chemicals in a tank provides an
alternative to conventional, stagnant process solutions which require
more frequent chemical changes. Although this product has a higher
initial cost than conventional recirculation systems, the Company
believes the system is generally less expensive to operate than
conventional systems because it reduces chemical consumption,
contamination and disposal costs.
Sulfuric Ozone Injection and Recirculation System. This system, for
which SubMicron has received a patent, is designed for continuous
sulfuric filtration and solution oxidation. The system has certain
advantages over conventional liquid oxidized solutions, including the
reduction of the contaminants and chemical consumption and disposal,
the minimization of sulfuric dilution, the extension of sulfuric bath
life and the elimination of certain metal cleaning process steps.
Chemical Mix/Bulk Dispense System. This system offers precise mass
ratio mixing and high purity recirculation and filtration for
dispensing chemicals utilized in the cleaning, stripping and etching of
wafers.
All Teflon Recirculation/Filtration System. This product offers a
high-purity process recirculation and filtration system for chemicals
utilized in SSI's process tanks. The system features a pneumatic pump
surge suppressor designed to extend pump and filter life and to provide
continuous flow and standard aspirated draining of the entire wet
station system.
Turbo DI Water Rinse. SubMicron's Turbo DI (Deionized) Water Rinse is a
processing tank utilized for combination quick-dump/spray/high-flow
cascade rinsing and gas injection. SubMicron has received a patent for
this processing tank's design. The design allows for uniform chemical
application to wafer surfaces, and the tank may be programmed for
continuous variable temperature liquid injection.
Cluster Tool Dry Cleaning System (Primaxx(TM) product line).
SubMicron's current automated chemical process systems make primary use
of liquid (wet) chemical processing. SubMicron believes that as
semiconductor devices become more complex, the industry will move
towards single wafer processing and that gas (dry) processing
techniques will be employed in more phases of the fabrication process.
Several companies are utilizing dry chemical vapor deposition (CVD)
techniques to deposit layers on single wafers for subsequent process
applications. These CVD techniques are most effective when performed in
a nonatmospheric (vacuum) environment. In order to maintain a vacuum as
wafers proceed through the fabrication process, a standard industry
interface, called MESC, has been established which permits processing
tools to be connected to each other so that wafers may be transferred
between processing steps without being exposed to atmospheric or human
contact. The MESC interface provides the means for tools to be
clustered together, thereby taking up less space in a fabrication line.
Moreover, cluster tools are completely closed to the outside
environment and do not need to be kept in clean room conditions.
6
<PAGE> 37
In order to successfully perform dry CVD processing, the wafer must
first be cleaned. Wet stations, which use liquid chemicals in atmospheric
conditions, permit oxidation contamination and therefore cannot be used in the
cluster module. Primaxx(TM) has been designed to remove certain contaminants as
well as moisture in a vacuum, and permits vacuum wafer transfer to the CVD
reactor thereby preventing oxidation contamination. SubMicron has obtained a
patent relating to the dry cluster cleaning tool and has proprietary processes
used in connection with the dry cluster cleaning tool.
Accordingly, SubMicron is expending a significant portion of its
research and development efforts in the area of dry processing. It has provided
a research grant through December 1996 to Pennsylvania State University to
evaluate, in conjunction with SubMicron, the Primaxx(TM) technology for further
use in the semiconductor manufacturing industry.
SubMicron does not believe that dry cluster tools will replace the need
for its automated wet station. Dry cluster cleaning tools remove moisture,
organics, oxides and metals from single wafer surfaces but generally not bulk
volumes, and are not capable of removing particles. SubMicron's wet stations,
which remove particle contamination with the aid of acoustical energy in liquid
chemical processing tanks (acoustical energy cannot be transmitted in a
vacuum/gas environment) will still be needed to prepare the wafer surface prior
to cluster tool processing and for other processing steps which do not utilize
dry technology.
The Company has also developed an extension of Primaxx(TM) to perform
etching. Primaxx2F(TM) is designed to deposit on the wafer, by CVD process,
uniform layers of ferroelectric materials used in advanced applications, such as
non-volatile memory devices.
Research and Development
The market for semiconductor manufacturing equipment is characterized
by rapid technological change and product innovation. SubMicron believes that
continued and timely development of new products and enhancements to existing
products are necessary for it to maintain its competitive position. Accordingly,
SubMicron is committed to an active research and development program and
regularly consults with customers, industry groups and academic institutions to
determine the changing needs of the industry.
SubMicron's research and development programs are primarily focused on
devising methods for producing cleaner wafer surfaces required for smaller
geometry integrated circuits, increasing process control and flexibility through
monitoring and software management systems, and further developing robotic
automation in the clean room for single wafer processing. The Company believes
that evolving technological challenges in the manufacturing process of advanced
semiconductor devices present significant opportunities.
SubMicron maintains a 2,300 square foot Class 1 Applications Laboratory
in a portion of its Allentown facility. The Applications Lab provides the
Company's customers with the ability to process their wafers on the Company's
equipment. The equipment in the Applications Lab includes a GAMA-1(TM) station,
a Primaxx2(TM) module, a semi-automatic wet station and a rear-mount station.
The Applications Lab also contains equipment for analytical process performance
data on the quality of the Company's equipment. This capability includes defect
analysis for particles and ionics as well as oxide uniformity analysis. The
Applications Lab also provides a test facility for the Company's future
products. SubMicron maintains a research and development process engineering
staff of 52 and is devoting substantial resources to research and product
development programs, including existing product enhancement.
In addition to the research and development activities SubMicron
conducts on its own behalf, SubMicron occasionally performs research and
development for customers. Such efforts are funded by the customer.
Expenditures for research and development are charged to expense as
incurred. During fiscal 1995, 1994 and 1993 research and development
expenditures totaled $5,678,517, $3,356,513 and $2,058,751, respectively.
7
<PAGE> 38
Marketing, Sales and Service
SubMicron markets and sells its products for use in both new
fabrication lines and as replacement systems or components for existing
fabrication lines. Potential customers for SubMicron's products include advanced
semiconductor manufacturers worldwide. Geographically, four principal markets
exist: Japan; the United States; Europe; and the Far East.
In 1995, approximately 55% of the Company's net sales were to major
chip manufacturers in the United States and, therefore, the Company has directed
the majority of its sales and marketing efforts in the U.S. SubMicron sells its
products in the United States through a combination of a direct sales force and
manufacturer's representatives.
SubMicron is increasing its marketing effort in Europe and the Far
East. SubMicron has a sales office in France and a subsidiary in Singapore.
SubMicron also has a joint venture agreement with a Japanese company, whereby
SubMicron has given exclusive manufacturing and distribution rights in Japan for
one of its products, this Japanese company in exchange for exclusive
manufacturing and distribution, in the United States, for one of the Japanese
company's products. The Company believes this agreement has enhanced its ability
to penetrate the Japanese market.
SubMicron has experienced and expects to continue to experience
variations in its customer mix. The timing of an order for SubMicron's products
is primarily dependent upon the customer's expansion program, replacement needs
or requirements to improve semiconductor device fabrication productivity and
yields. Consequently, a customer that places significant orders in one year may
not necessarily place significant orders in subsequent years.
Due to the substantial operational and financial commitments made by a
customer to SubMicron's systems, SubMicron believes that its ability to provide
prompt and effective field support is critical to its marketing efforts.
SubMicron employs 140 full-time field service engineers to assist and train its
customers in performing preventative maintenance and to service SubMicron's
equipment. For certain large domestic and international orders, SubMicron
provides full-time on-site technical support and maintenance for the first year.
After the first year, SubMicron offers maintenance contracts whereby one or more
employee of SubMicron will work full-time at the customer's facility and provide
service, maintenance and/or training for customer's personnel on a fee basis.
SubMicron typically provides its customers with a one-year parts and labor
warranty on products, which generally begins two months after delivery of a
product. In an attempt to reduce the cost of such warranties, SubMicron
generally requires its vendors to provide a comparable parts warranty on the
component parts not manufactured by SubMicron.
Sales to two customers of SubMicron accounted for 12% and 8%,
respectively, of total sales for 1995. For information regarding sales outside
the United States see Note 12 of the Company's notes to consolidated financial
statements.
Backlog
SubMicron schedules production of its systems based upon order backlog.
SubMicron includes in its backlog only those customer orders for which it has
accepted purchase orders and assigned shipment dates within the next
twelve-month period. As of March 31, 1996 and 1995, SubMicron's backlog was
approximately $127,500,000 and $106,500,000, respectively. Because of possible
changes in delivery schedules and cancellations of orders, SubMicron's backlog
at any particular date is not necessarily representative of actual sales for any
succeeding period.
8
<PAGE> 39
Manufacturing and Assembly
SubMicron performs a performance/cost analysis of each component of its
products and manufactures only those component parts for which it believes there
is a functional, quality or major cost advantage. Other components are purchased
from third-party vendors. Many of these purchased items are standard products,
although certain parts are made to SubMicron's specifications. Accordingly,
SubMicron's manufacturing activities consist primarily of assembling and testing
components and subassemblies and integrating them into a finished system.
SubMicron believes that this method allows it to achieve relatively flexible,
low-overhead in its manufacturing capacity.
SubMicron assembles its automated wet systems in a Class 10 clean room
environment which is similar to the clean rooms used by many semiconductor
manufacturers for wafer fabrication. Universal Plastics and Systems Chemistry
also assemble and test their finished products in clean rooms. This procedure is
intended to reduce the amount of particulate and other contaminants in its
system, thereby improving yield for its customers. Following assembly, the
completed system is packaged in a clean room environment to maintain clean room
standards prior to shipment.
SubMicron attempts to maintain minimal inventory and to order component
part supplies only as needed to manufacture a system for which a purchase order
has been received. This approach subjects SubMicron to the risk that a component
part or supply will be unavailable. SubMicron has attempted to reduce this risk
by maintaining multiple approved vendors of component parts and supplies
necessary for the manufacture of its systems and attempting to forecast
requirements. To date, SubMicron has not experienced any material delay in the
manufacture of its products caused by the inability to obtain a component parts
or supplies, although there can be no assurance that SubMicron will not
experience any such delays in the future.
Competition
The semiconductor equipment manufacturing industry is highly
competitive. The principal competitive factors in the industry are the quality,
performance, reliability, price and operating cost of the processing equipment.
SubMicron believes that its products compare favorably in such areas with its
competitors. Additional competitive advantages include service and support.
There can be no assurance that levels of competition in SubMicron's particular
product markets will not intensify or that SubMicron's technological advantages
may not be reduced or lost as a result of technological advances by competitors
or changes in semiconductor processing technology. Many of SubMicron's
competitors have greater financial resources than SubMicron.
The primary competition to SubMicron's automated wet station chemical
processing equipment is from Japanese companies, principally DaiNippon Screen
Manufacturing Co., Ltd., Sugai Chemical Industry Co., and Sankyo Engineering
Co., Ltd. SubMicron also competes with a number of non-Japanese companies,
including Santa Clara Plastics Manufacturing Co., a U.S. company. In addition,
SubMicron faces competition from a number of domestic companies which supply
manual wet station chemical processing equipment at a price significantly lower
than the price of SubMicron's automated system. SubMicron believes that the
combination of SSI, UP and Systems Chemistry provides its customers a
complementary product line and the option to purchase a variety of equipment
from a single supplier.
Patents and Trademarks
SubMicron holds sixteen United States patents, has one allowed United
States patent application and has several patent applications pending in the
United States covering various features of its products and products under
development. SubMicron currently has nine foreign patents and one patent
application pending outside of the United States. Although SubMicron believes
that the protection of its proprietary technologies and products is important,
it believes that patent protection is of less significance in its industry than
such factors as innovative skills, technical expertise and the ability to adapt
quickly to changes in the marketplace. SubMicron attempts to protect its
proprietary information through non-disclosure agreements with its key
employees.
9
<PAGE> 40
Employees
At December 31, 1995, the Company had 681 full time employees, of whom
303 were engaged in manufacturing, 140 were engaged in field service, 42 were
engaged in research and development, 81 were engaged in engineering, 43 were
engaged in sales and marketing and 72 held general and administration positions.
SubMicron is not subject to any collective bargaining agreements and
management believes that its relationship with its employees is good.
Company History
Trinity Capital Enterprises Corp. (Trinity) was formed in March 1991 to
serve as a vehicle to effect a merger, exchange of capital stock, asset
acquisition or other similar business combination with an operating business. On
August 31, 1993, SSI merged into a subsidiary of Trinity, and Trinity changed
its name to SubMicron Systems Corporation (the Company). Under the terms of the
merger, Trinity issued a total of 5,666,440 shares of its Common stock in
exchange for all outstanding chares of SSI Common stock. For financial reporting
purposes, the acquisition was treated as a recapitalization of SSI with SSI as
the acquirer (revers merger).
In May 1994, the Company assumed the net liabilities of DiPiero, Inc.
(d/b/a Universal Plastics) of approximately $2,270,000. For financial reporting
purposes, the acquisition was accounted for as a purchase. In February 1995, the
Company acquired all of the outstanding stock of Systems Chemistry for 3,400,000
shares of Common stock. The transaction has been accounted for as a pooling of
interest and, accordingly, historical financial data has been restated to
include SysChem.
ITEM 2. PROPERTIES
SubMicron's headquarters and the principal manufacturing and design
facilities of SSI occupy approximately 90,000 square feet of three separate
buildings outside Allentown, Pennsylvania. The lease for these facilities
expires in January 1998. The current monthly rental expense, including expenses,
is approximately $58,125. In February 1996, the Company entered into an
agreement to purchase a 35,000 square foot facility outside Allentown,
Pennsylvania for $1,825,000. The facility will be used to provide additional
office space and as a training facility for the Company. As part of the
agreement the Company entered into a lease with the current landlord beginning
April 15, 1996, with monthly rental payments of $25,000 until the closing of the
sale agreement. If the purchase agreement is terminated prior to closing, the
Company will automatically enter into a seven year lease of the same facility
with monthly rental expense ranging from $21,565 to $23,453, with rental
adjustments on the second and fourth anniversary on the lease agreement. Closing
of the purchase agreement is expected to take place by the third quarter of
1996.
UP occupies 26,340 square feet of a building in Santa Clara, California
with current monthly rental expense of $14,700. Systems Chemistry occupies
41,000 square feet of a building in Santa Clara, California with current monthly
rental expense of $33,800. The Company's Singapore subsidiary occupies 700
square feet of office space in downtown Singapore. SubMicron also leases four
sales offices, two in Texas, one in California and one in France. The Company's
facilities, together with the new facility, are expected to be adequate to
support its planned growth.
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to lawsuits arising, from time to time, in the
ordinary course of its business. In the opinion of management, the ultimate
resolutions of such matters will not have a material impact on SubMicron's
financial position, liquidity or results of operations.
In 1994, the Company filed a lawsuit against a competitor for patent
infringement and unfair trade practices. The matter was resolved and settled in
1995 resulting in net proceeds to the Company of approximately $2,700,000. See
Note 13 of Notes to Consolidated Financial Statements.
10
<PAGE> 41
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this report.
Item A. Executive Officers of the Registrant
<TABLE>
<CAPTION>
Name Age Positions with the Company
- ---- --- --------------------------
<S> <C> <C>
David F. Levy 51 Chairman of the Board and Chief Executive Officer
Daniel G. Hajjar 57 Chief Operating Officer
R.G. Holmes 48 Chief Financial Officer and Treasurer
</TABLE>
Mr. Levy, the founder of SSI, was SSI's Chairman of the Board,
President and Chief Executive Officer from its inception in October 1988 until
the Merger. He assumed these positions with the Company upon consummation of the
Merger. In addition, Mr. Levy was Treasurer of the Company from the date of the
Merger until December 1995. Prior to his founding of SSI, Mr. Levy was Vice
President--Automation Division of Dexon from February 1988 to November 1988 and
Vice President, Sales and Marketing of Dexon, from November 1985 to February
1988. From 1983 to 1985, Mr. Levy was Vice President of Sales and Marketing for
Micro Air Systems and from 1978 to 1982, he was head of the Manufacturing
Systems and Procedures Group for Signetics Corporation. Mr. Levy has a BS degree
in Mechanical Engineering from Pontifica Universidade Catolica and an MBA from
John F. Kennedy University of Orinda, California.
Daniel G. Hajjar has been Chief Operating Officer since September 1995,
and was Vice President, Business Operations from 1993 to such time. From 1985 to
1993, Mr. Hajjar held a number of management positions in Operations, Business
Development and Engineering with Matrix Integrated Systems, Inc., most recently
as Vice President of Operations. Prior thereto, Mr. Hajjar was in operations
management with GCA Corp., and President/CEO of Trans-International Trading,
Inc. Mr. Hajjar holds a BS degree in Industrial Technology from Northeastern
University.
R.G. Holmes has been Chief Financial Officer since July 1995 and
Treasurer since December 1995. From 1987 to 1994, Mr. Holmes was Vice President
Finance and Chief Financial Officer of Celgene Corporation. From 1982 to 1987 he
held senior management positions in corporate planning and finance with Ziyad,
Inc. Mr. Holmes holds a BS degree in Industrial Engineering from Lehigh
University and an MBA from Harvard University.
11
<PAGE> 42
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the Nasdaq National Market
under the symbol "SUBM." The following table sets forth for the periods
indicated the closing price range of the Common stock as furnished by Nasdaq.
Common Stock
<TABLE>
<CAPTION>
Quarter Ended High Low
- ------------- ---- ---
<S> <C> <C>
March 31, 1994 $ 7-5/8 $ 5-5/8
June 30, 1994 7-1/8 3-5/8
September 30, 1994 6-1/4 4
December 31, 1994 6-3/4 4-1/2
March 31, 1995 7-3/16 4-1/8
June 30, 1995 12 6-3/4
September 30, 1995 14 8-3/8
December 31, 1995 11-7/8 9-3/8
</TABLE>
At March 1, 1996, there were 782 record holders of the Company's Common
stock. The Company has not paid any dividends on its Common stock. The Company
presently intends to retain its earnings to finance growth and, therefore, does
not anticipate paying dividends on its Common stock in the foreseeable future.
In addition, the Company's revolving credit arrangement with a bank places
restrictions on the payment of dividends.
12
<PAGE> 43
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------------------------
1995 1994(1) 1993(1) 1992(1) 1991(1)
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net Sales $117,704,954 $ 80,680,675 $ 52,572,211 $ 30,236,990 $ 22,705,015
Cost of sales 82,031,636 55,298,706 34,744,381 20,823,705 15,669,713
------------ ------------ ------------ ------------ ------------
Gross profit 35,673,318 25,381,969 17,827,830 9,413,285 7,035,302
Selling, general and
administrative 26,843,740 19,448,493 11,246,442 6,528,465 4,152,790
Research and development 5,678,517 3,356,513 2,058,751 1,574,063 1,233,674
Special charges -- -- 787,423 396,938 --
------------ ------------ ------------ ------------ ------------
Operating Income 3,151,061 2,576,963 3,735,214 913,819 1,648,838
Other income (expense), net 1,208,949 51,968 (262,558) (260,834) (47,562)
------------ ------------ ------------ ------------ ------------
Income before income taxes
and cumulative effect
of accounting change 4,360,010 2,628,931 3,472,656 652,985 1,601,276
Income taxes 1,150,291 1,047,495 949,051 (346,000) 120,000
------------ ------------ ------------ ------------ ------------
Income before cumulative
effect of accounting
change 3,209,719 1,581,436 2,523,605 998,985 1,481,276
------------ ------------ ------------ ------------ ------------
Cumulative effect of
accounting change -- -- 440,000 -- --
------------ ------------ ------------ ------------ ------------
Net Income $ 3,209,719 $ 1,581,436 $ 2,963,605 $ 998,985 $ 1,481,276
============ ============ ============ ============ ============
Net Income from continuing
operations per
Common share $ 0.21 $ 0.10 $ -- $ -- $ --
============ ============ ============ ============
PRO FORMA INCOME DATA
(UNAUDITED):
Income before income taxes $ -- $ -- $ 3,472,656 $ 652,985 $ 1,601,276
Pro forma income taxes -- -- 1,638,4332 (195,043)2 419,9852
------------ ------------ ------------ ------------ ------------
Pro forma net income from
continuing operations $ -- $ -- $ 1,834,223 $ 848,028 $ 1,181,291
============ ============ ============ ============ ============
Pro forma net income from
operations per
Common share $ -- $ -- $ 0.12 $ 0.06 $ 0.09
============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Total assets $117,134,690 $ 57,524,400 $ 46,338,714 $ 15,474,755 $ 8,577,347
Long-term debt $ 18,908,737 $ 2,389,781 $ 1,607,497 $ 1,882,606 $ 15,968
Working capital $ 45,103,083 $ 22,687,435 $ 26,266,979 $ 1,723,123 $ 810,786
Stockholders' equity $ 43,909,027 $ 30,174,305 $ 27,601,442 $ 1,810,372 $ 1,616,230
</TABLE>
(1) In February 1995, the Company acquired all of the outstanding stock of
Systems Chemistry in exchange for 3,400,000 shares of Common stock. The
transaction was accounted for as a pooling of interests and, accordingly,
historical financial data has been restated to include Systems Chemistry.
(2) Effective January 1, 1990 and through the date of the Merger, SSI was an S
Corporation under the Internal Revenue Code and was not subject to federal (and
some state) corporate income taxes. On August 31, 1994, SSI terminated its S
Corporation election as a result of the Merger. The pro forma tax provisions for
1993, 1992 and 1991 reflect the appropriate tax provisions as if the Company and
its subsidiaries had been a C Corporation for all periods presented. See Note 14
of the Notes to Consolidated Financial Statements.
13
<PAGE> 44
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
SubMicron, through its subsidiaries, designs, manufactures and markets
automated chemical processing and delivery systems for use in the production of
semiconductor wafers and integrated circuits. Revenue related to system sales is
recognized at the time of title transfer, which ordinarily occurs at the time of
shipment. Revenue related to service activities and sale of items from inventory
is recognized when the service has been performed or when the items are shipped.
Revenue from construction services is recognized on a percentage-of-completion
basis. SubMicron's results of operations have varied significantly from quarter
to quarter. These fluctuations, which are likely to continue, are a result of
several factors including, in particular, the relatively high price of
SubMicron's products in relation to quarterly sales and the lead time to
manufacture such products. Accordingly, quarterly results are likely to
fluctuate and the results for any fiscal quarter may not be indicative of the
results for future fiscal quarters.
Cost of systems sold consists of materials, labor and related expenses
associated with the production of a system and are charged to expense when the
revenue related to the system is recognized. Cost of other sales consists
primarily of resale goods which includes only the cost of materials as no parts
or labor are incurred as "added costs" to resale items. Cost of service includes
labor and related expenses on service contracts.
In February 1995, the Company acquired all of the outstanding stock of
Systems Chemistry in exchange for 3,400,000 shares of Common stock. The
transaction was accounted for as a pooling of interests and, accordingly,
historical financial data has been restated to include Systems Chemistry.
The following table sets forth, for the periods indicated, the
percentage of net sales represented by certain items in the Company's
consolidated statements of operations.
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Total net sales 100.0% 100.0% 100.0%
Total cost of sales 69.7 68.5 66.1
------ ------ ------
Gross Profit 30.3 31.5 33.9
------ ------ ------
Operating Expenses:
Selling, general and administrative 22.8 24.2 21.4
Research and development 4.8 4.2 3.9
Special charges -- -- 1.5
------ ------ ------
Total operating expenses 27.6 28.4 26.8
------ ------ ------
Operating Income 2.7 3.1 7.1
Other income (expense), net 1.0 -- (0.5)
------ ------ ------
Income before income taxes and cumulative
effect of accounting change 3.7 3.1 6.6
Income taxes (pro forma for 1993) 1.0 1.2 3.1
------ ------ ------
Income before cumulative effect of
accounting change 2.7 1.9 3.5
Cumulative effect of accounting change -- -- 0.8
------ ------ ------
Net income 2.7% 1.9% 4.3%
====== ====== ======
</TABLE>
14
<PAGE> 45
RESULTS OF OPERATIONS
Year ended December 31, 1995 Compared to the Year ended December 31, 1994
Total net sales in 1995 were $117,704,954, a 46% increase over 1994
total net sales of $80,680,675. The increase was primarily attributable to an
increase in demand for the Company's products. Systems sales increased to
$91,198,150 for the year ended December 31, 1995, as compared to $67,626,813 for
the year ended December 31, 1994, an increase of 35%. The increase in demand for
the Company's products also contributed to the increase in the Company's service
and other sales. Service and other sales increased to $26,506,804 for the year
ended December 31, 1995 as compared to $13,053,862 for the year ended December
31, 1994, an increase of 103%.
Gross profit increased 41% to $35,673,318 in 1995 compared to gross
profit of $25,381,969 in 1994. Gross profit as a percentage of sales decreased
to 30% of sales for the year ended December 31, 1995 compared to 31% of sales
for the year ended December 31, 1994. The decrease in the gross profit
percentage for the year ended December 31, 1995 is due primarily to introductory
pricing and certain cost overruns in the startup production for GAMA-1(TM) units
in the second quarter of 1995.
Selling, general and administrative expenses were $26,843,740 for the
year ended December 31, 1995, a 38% increase over the selling, general and
administrative expenses for the year ended December 31, 1994 of $19,448,493. The
increase is primarily attributable to an increase in commission expense and the
hiring of additional sales personnel to accommodate the growth in sales in the
year ended December 1995 as compared to the year ended December 1994. Selling,
general and administrative expenses, as a percentage of sales, decreased 1% to
23% for the year ended December 31, 1995 as compared to 24% for the year ended
December 31, 1994. The decrease as a percentage of sales is attributable to the
significant increase in 1995 sales and the relatively high portion of fixed
costs included in selling, general and administrative expenses.
Research and development expenses increased 69% to $5,678,517 for the
year ended December 31, 1995 from $3,356,513 for the year ended December 31,
1994. Research and development expenses, as a percentage of sales, were 5% for
the year ended December 31, 1995 and 4% of sales for the year ended December 31,
1994. The increase in research and development expense is primarily attributable
to the hiring of additional personnel to support an increase in the amount of
research and development projects and the expansion of the applications
laboratory.
Other income and expense consist of interest income on the Company's
investments offset by interest charges on the Company's lines of credit and term
note. Other income for the year ended December 31, 1995, includes amounts
collected from the favorable determination of a lawsuit. The amount is shown net
of legal fees incurred in connection with the suit.
The effective tax rate decreased to 26% in 1995 from 40% in 1994,
primarily due tax benefits received from the use of a foreign sales corporation.
Year ended December 31, 1994 Compared to the Year ended December 31, 1993
Total net sales grew to $80,680,675 for the year ended December 31,
1994 as compared to $52,572,211 for the year ended December 31, 1993. The
increase was due primarily to increased sales of the Company's principal
product, the automated wet station.
Gross profit in 1994 as a percentage of sales decreased 3% to 31% as
compared to 34% for the year ended December 31, 1993, due primarily to costs
incurred to correct product design problems encountered at specific customer
sites in the fourth quarter of 1994.
Selling, general and administrative expenses increased to $19,448,493
during the year ended December 31, 1994, as compared to $11,246,442, for the
year ended December 31, 1993, an increase of 73%. The increase was primarily due
to an increase in the amount of sales commissions and royalties, the hiring of
additional management personnel, and an increase in legal and professional fees.
Selling, general and administrative expenses, as a percentage of sales, were
24%, and 21% for the years ended December 31, 1994, and 1993, respectively.
15
<PAGE> 46
Research and development expenses increased 63% for the year ended
December 31, 1994, to $3,356,513, from $2,058,751, for the year ended December
31, 1993 primarily as a result of increased spending associated with the
Company's applications lab. The applications laboratory is used to develop new
cleaning processes and to demonstrate SubMicron's automated wafer cleaning tool.
Research and development expenses were essentially unchanged at 4% of sales for
the years ended December 31, 1994 and 1993.
The special charge in 1993 represents a non-cash, one-time charge
related to inducement to convert certain of the Company's debt resulting from
the acquisition of the Company's operating business.
Other income and expense, consists principally of interest on
SubMicron's line of credit partially offset by interest income earned on excess
funds.
The pro forma effective tax rate decreased from 47% in 1993 to 40% in
1994, primarily due to debt inducement costs incurred in 1993 which were not
deductible for tax purposes.
LIQUIDITY AND CAPITAL RESOURCES
Working capital increased approximately $22,400,000 to $45,100,000 as
of December 31, 1995, from $22,700,000 as of December 31, 1994. The increase is
primarily due to increases in accounts receivable and inventories.
SubMicron's cash provided by (or used in) operating activities varies
significantly between periods. Differences between periods are primarily due to
the timing of shipments and cash receipts. For the year ended December 31, 1995,
SubMicron used approximately $20,300,000 in cash flows from operating
activities. Net income, and depreciation and amortization expenses totaled
approximately $5,900,000. Accounts receivable and inventories increased by
approximately $46,100,000. Additionally, the Company experienced an increase of
approximately $22,400,000 in accounts payable, deferred revenue and accrued
expenses offset by a decrease in accrued income taxes of $500,000. Accounts
receivable were approximately $45,500,000 at December 31, 1995 as compared to
approximately $19,600,000 at December 31, 1994. Fixed asset additions were
approximately $5,700,000 for the year ended December 31, 1995.
In November 1995, the Company received approximately $6,000,000 in net
proceeds from the sale of approximately 700,000 shares of Common stock in a
private placement. In December 1995, the Company issued $19,000,000 principal
amount 9% convertible subordinated notes and warrants to purchase 1,140,000
shares of Common Stock. The notes were recorded at $16,492,000, net of the
estimated fair value ascribed to the warrants of $2,508,000. The warrants are
exercisable at $14 per share and expire in December 2000. The debt discount is
being amortized over the two year term of the debt with 127,000 amortized in
1995. The notes are convertible into shares of Common stock at $13.02 per share,
subject to adjustment. At the Company's option, the notes are redeemable if the
price of a share of Common stock is equal to or greater than 150% of the
conversion price for a period of 30 consecutive trading days.
In February 1996, the Company replaced its lines of credit with a $30,000,000
credit facility including letters of credit up to a maximum of $5,000,000.
SubMicron used the credit facility to refinance its existing bank debt and to
provide working capital. Borrowings under the credit facility bear interest at
Libor (6.5% at December 31, 1995) and are secured by substantially all of the
assets of the Company. The Company's credit facility replaced all other credit
facilities at the Company's subsidiaries. SubMicron's borrowings under its prior
credit facilities were approximately $15,900,000 at December 31, 1995. The
borrowed funds were used to finance inventory purchases and the increase in
accounts receivable. The credit facility is subject to renewal in August, 1997.
The new credit facility includes certain financial and other covenants including
limitations on capital expenditures, restrictions on payment of dividends and
the maintenance of certain ratios.
Management of SubMicron has budgeted approximately $9,000,000 for
capital expenditures in 1996 to finance the maintenance and expansion of the
production and office facilities.
16
<PAGE> 47
The Company believes that future results of operations will be
influenced by a number of factors, including general economic conditions, timely
new product introductions, the volume, mix and timing of orders received and
numerous other factors. The Company anticipates continued sales growth although
the semiconductor industry reportedly has begun to experience a softening of
demand which could lead to reduced future sales and pricing pressures.
SubMicron believes that with the funds available under its credit
facility, it will have sufficient funds to finance the Company's growth
activities, to the extent that cash generated from operations is not adequate.
SubMicron currently has the ability to finance large orders, expand its office
facilities, and increase spending on research and development.
Inflation has not significantly affected SubMicron's financial position
or operations. Inflation will have the general effect of increasing the
Company's operating expenses. A substantial portion of the SubMicron's
indebtedness bears interest that fluctuates with the prime rate and LIBOR. No
assurance can be given that the prime rate of interest or LIBOR will not
fluctuate significantly, either or both of which could have an adverse effect on
SubMicron's operations.
17
<PAGE> 48
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULE
<TABLE>
<CAPTION>
Index to Consolidated Financial Statements and Supplemental Schedule Page
----
<S> <C>
Report of Independent Public Accountants 19
Consolidated Balance Sheets at December 31, 1995 and 1994 20
Consolidated Statements of Operations for the Years Ended
December 31, 1995, 1994 and 1993 21
Consolidated Statements of Stockholders' Equity (Deficit)
for the Years Ended December 31, 1995, 1994 and 1993 22 and 23
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995, 1994 and 1993 24
Notes to Consolidated Financial Statements 25 - 35
Report of Independent Public Accountants
on Supplemental Schedule 42
Supplemental Schedule 43
</TABLE>
18
<PAGE> 49
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To SubMicron Systems Corporation:
We have audited the accompanying consolidated balance sheets of SubMicron
Systems Corporation (a Delaware Corporation) and subsidiaries as of December 31,
1995, and 1994, and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for each of the three years in the
period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. We did not audit the
financial statements of Systems Chemistry, Incorporated (for the year ended May
31, 1994), a company acquired during 1995 in a transaction accounted for as a
pooling of interest, as discussed in Note 1. Such statements are included in the
consolidated financial statements of SubMicron Systems Corporation for the year
ended December 31, 1993, and reflect total revenues of 32% of the related
consolidated totals. These statements were audited by other auditors whose
report has been furnished to us and our opinion, insofar as it relates to
amounts included for Systems Chemistry, Inc., is based solely upon the report of
the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of SubMicron Systems Corporation and subsidiaries as of
December 31, 1995 and 1994, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
Philadelphia, PA
March ____, 1996
19
<PAGE> 50
SUBMICRON SYSTEMS CORPORATION
CONSOLIDATED BALANCE SHEETS (NOTE 1)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
ASSETS 1995 1994
--------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 15,614,303 $ 12,092,258
Accounts receivable, net 45,461,427 19,600,436
Inventories 33,142,107 12,859,434
Prepaids and other 2,695,559 946,955
Deferred income taxes 1,772,123 1,876,406
------------- -------------
Total current assets 98,685,519 47,375,489
Property and equipment, net 12,519,656 6,980,004
Goodwill, net 1,911,677 2,138,106
Intangibles and other assets, net 4,017,838 1,030,801
------------- -------------
$ 117,134,690 $ 57,524,400
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Lines of credit $ 15,934,000 $ 8,700,000
Current portion of long-term debt 1,183,413 1,126,742
Accounts payable 25,102,181 8,447,493
Accrued expenses and other 8,747,401 5,373,758
Deferred revenues 2,615,441 103,209
Income taxes payable -- 936,852
------------- -------------
Total current liabilities 53,582,436 24,688,054
------------- -------------
Deferred income taxes 628,073 65,843
------------- -------------
Deferred revenues 106,417 206,417
------------- -------------
Long-term debt 18,908,737 2,389,781
------------- -------------
Commitments and contingencies (Note 11)
Stockholders' equity:
Preferred stock, $.0001 par value, 5,000 shares
authorized, none issued and outstanding -- --
Common stock, $.0001 par value, 100,000,000
shares authorized, 15,987,796 and 14,786,985
shares issued and outstanding 1,599 1,478
Additional paid-in capital 39,204,683 29,103,339
Retained earnings 5,007,516 1,797,797
Deferred compensation (224,034) (560,084)
Notes receivable (80,737) (168,225)
------------- -------------
Total stockholders' equity 43,909,027 30,174,305
------------- -------------
$ 117,134,690 $ 57,524,400
============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
20
<PAGE> 51
SUBMICRON SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (NOTE 1)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Systems sales ........................... $ 91,198,150 $ 67,626,813 $ 47,096,593
Service and other sales ................. 26,506,804 13,053,862 5,475,618
------------- ------------- -------------
Total net sales ................ 117,704,954 80,680,675 52,572,211
------------- ------------- -------------
Cost of systems sales ................... 62,925,000 45,738,080 31,085,619
Cost of service and other sales ......... 19,106,636 9,560,626 3,658,762
------------- ------------- -------------
Total cost of sales ............ 82,031,636 55,298,706 34,744,381
------------- ------------- -------------
Gross profit ............ 35,673,318 25,381,969 17,827,830
------------- ------------- -------------
Selling, general and administrative ..... 26,843,740 19,448,493 11,246,442
Research and development ................ 5,678,517 3,356,513 2,058,751
Special charges ......................... - - 787,423
------------- ------------- -------------
Total operating expense ........ 32,522,257 22,805,006 14,092,616
Operating income ........ 3,151,061 2,576,963 3,735,214
------------- ------------- -------------
Other income (expense):
Interest income ...................... 336,911 404,717 106,544
Interest expense and other ........... (1,826,182) (352,749) (369,102)
Other income ......................... 2,698,220 - -
------------- ------------- -------------
Total other income (expense) ... 1,208,949 51,968 (262,558)
------------- ------------- -------------
Income before income taxes and cumulative
effect of accounting change .......... 4,360,010 2,628,931 3,472,656
Income taxes ............................ 1,150,291 1,047,495 949,051
------------- ------------- -------------
Income before cumulative effect of
accounting change .................... 3,209,719 1,581,436 2,523,605
Cumulative effect of accounting change .. - - 440,000
------------- ------------- -------------
Net income .............................. $ 3,209,719 $ 1,581,436 $ 2,963,605
============= ============= =============
Net income per Common share ............. $ 0.21 $ 0.10 $ -
============= ============= =============
PRO FORMA INCOME DATA (UNAUDITED)
Income before income taxes and cumulative
effect of accounting change .......... $ - $ - $ 3,472,656
Pro forma income taxes .................. - - (1,638,433)
Cumulative effect of accounting change .. - - 440,000
------------- ------------- -------------
Pro forma net income .................... $ - $ - $ 2,274,223
============= ============= =============
Pro forma net income per Common share ... $ - $ - $ 0.15
============= ============= =============
Weighted average number of shares of
Common stock outstanding ............. 15,584,687 15,137,339 15,080,703
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
21
<PAGE> 52
SUBMICRON SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY (DEFICIT) (NOTE 1)
<TABLE>
<CAPTION>
Additional Retained
Preferred Stock Common Stock Paid-in Earnings
Shares Amount Shares Amount Capital (Deficit)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992,
as previously reported - $ -- 4,702,066 $ 470 $ 427,976 $ (507,996)
Adjustments for Systems
Chemistry pooling of
interest - -- 2,793,106 279 3,064,761 (1,175,118)
-----------------------------------------------------------------------------
Balance, December 1992,
as adjusted - -- 7,495,172 749 3,492,737 (1,683,114)
Distribution to stockholders - -- -- -- -- (1,239,209)
Net income (through
August 31, 1993) - -- -- -- -- 1,067,046
Transfer of accumulated
deficit of SubMicron
Systems Inc. to additional
paid-in capital upon
conversion from
S Corporation to
C Corporation - -- -- -- (680,159) 680,159
Conversion of debt to
Preferred stock then to
Common stock - -- 870,756 87 1,739,870 --
Issuance of Common shares
to debt holder - -- 93,618 9 787,414 --
Issuance of Common stock
upon merger with Trinity - -- 3,048,000 305 6,321,919 --
Issuance of Common stock
upon conversion of debt - -- 400,000 40 1,999,960 --
Issuance of Common stock
upon exercise of Class A
and B warrants - -- 2,416,857 242 13,631,175 --
Exercise of stock options - -- 930 -- 2,223 --
Exercise of Systems
Chemistry stock options - -- 153,469 15 68,040 --
Grant of stock options below
fair market value - -- -- -- 1,008,150 --
Amortization of deferred
compensation - -- -- -- -- --
Net income (from
September 1, 1993) - -- -- -- -- 1,896,559
Systems Chemistry fiscal
year conversion - -- -- -- -- (505,080)
------------------------------------------------------------------------------
Balance, December 31, 1993 - $ -- 14,478,802 $ 1,447 $ 28,371,329 $ 216,361
<CAPTION>
Deferred Notes
Compensation Receivable Total
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, December 31, 1992,
as previously reported $ -- $ -- $ (79,550)
Adjustments for Systems
Chemistry pooling of
interest -- -- 1,889,922
---------------------------------------------------
Balance, December 1992,
as adjusted -- -- 1,810,372
Distribution to stockholders -- -- (1,239,209)
Net income (through
August 31, 1993) -- -- 1,067,046
Transfer of accumulated
deficit of SubMicron
Systems Inc. to additional
paid-in capital upon
conversion from
S Corporation to
C Corporation -- -- --
Conversion of debt to
Preferred stock then to
Common stock -- -- 1,739,957
Issuance of Common shares
to debt holder -- -- 787,423
Issuance of Common stock
upon merger with Trinity -- -- 6,322,224
Issuance of Common stock
upon conversion of debt -- -- 2,000,000
Issuance of Common stock
upon exercise of Class A
and B warrants -- -- 13,631,417
Exercise of stock options -- -- 2,223
Exercise of Systems
Chemistry stock options -- (46,755) 21,300
Grant of stock options below
fair market value (1,008,150) -- --
Amortization of deferred
compensation 67,210 -- 67,210
Net income (from
September 1, 1993) -- -- 1,896,559
Systems Chemistry fiscal
year conversion -- -- (505,080)
---------------------------------------------------
Balance, December 31, 1993 $ (940,940) $(46,755) $ 27,601,442
</TABLE>
(continued)
The accompanying notes are an integral part of these statements.
22
<PAGE> 53
SUBMICRON SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY (DEFICIT) (NOTE 1)
<TABLE>
<CAPTION>
Additional Retained
Preferred Stock Common Stock Paid-in Earnings
Shares Amount Shares Amount Capital (Deficit)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 - $ - 14,478,802 $ 1,447 $28,371,329 $ 216,361
Exercise of stock options - - 55,364 6 122,333 -
Exercise of Systems
Chemistry stock options - - 94,529 9 42,193 -
Sale of Systems Chemistry
Common stock - - 73,290 7 112,493 -
Exercise of warrants - - 5,000 1 24,999 -
Issuance of Common shares
upon litigation settlement - - 80,000 8 429,992 -
Amortization of deferred
compensation - - - - - -
Net income - - - - - 1,581,436
-----------------------------------------------------------------------------
Balance, December 31, 1994 - - 14,786,985 1,478 29,103,339 1,797,797
Exercise of stock options
and warrants - - 147,050 15 461,245 -
Exercise of Systems
Chemistry stock options - - 285,606 29 336,703 -
Tax benefit on nonqualified
stock option exercises - - - - 440,386 -
Payment of notes receivable - - - - - -
Issuance of Common stock - - 697,498 70 5,985,812 -
Issuance of Common stock
under employee stock
purchase plan - - 70,657 7 369,198 -
Value ascribed to warrants
issued with convertible
debt - - - - 2,508,000 -
Amortization of deferred
compensation - - - - - -
Net income - - - - - 3,209,719
-----------------------------------------------------------------------------
Balance, December 31, 1995 - $ - 15,987,796 $ 1,599 $39,204,683 $ 5,007,516
=============================================================================
<CAPTION>
Deferred Notes
Compensation Receivable Total
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, December 31, 1993 $ (940,940) $ (46,755) $27,601,442
Exercise of stock options - - 122,339
Exercise of Systems
Chemistry stock options - (8,970) 33,232
Sale of Systems Chemistry
Common stock - (112,500) -
Exercise of warrants - - 25,000
Issuance of Common shares
upon litigation settlement - - 430,000
Amortization of deferred
compensation 380,856 - 380,856
Net income - - 1,581,436
-----------------------------------------------
Balance, December 31, 1994 (560,084) (168,225) 30,174,305
Exercise of stock options
and warrants - - 461,260
Exercise of Systems
Chemistry stock options - (270,932) 65,800
Tax benefit on nonqualified
stock option exercises - - 440,386
Payment of notes receivable - 358,420 358,420
Issuance of Common stock - - 5,985,882
Issuance of Common stock
under employee stock
purchase plan - - 369,205
Value ascribed to warrants
issued with convertible
debt - - 2,508,000
Amortization of deferred
compensation 336,050 - 336,050
Net income - - 3,209,719
-----------------------------------------------
Balance, December 31, 1995 $ (224,034) $ (80,737) $43,909,027
===============================================
</TABLE>
The accompanying notes are an integral part of these statements.
23
<PAGE> 54
SUBMICRON SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (NOTE 1)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ......................................... $ 3,209,719 $ 1,581,436 $ 2,963,605
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization ...................... 2,648,791 1,540,305 753,408
Provision for valuation allowances and
loss contingency ................................. 76,541 700,000 -
Amortization of deferred compensation .............. 336,050 380,856 67,210
Deferred income taxes .............................. 666,513 (806,948) (228,525)
Loss on the disposal of fixed assets ............... - 39,070 -
Debt inducement costs .............................. - - 787,423
Accrued interest on subordinated convertible notes . - - 39,627
Amortization of note discount ...................... 127,000 - 34,916
Cumulative effect of accounting change ............. - - (440,000)
Changes in assets and liabilities:
Increase in accounts receivable .................. (25,860,991) (8,537,713) (5,466,646)
Increase in inventories .......................... (20,359,214) (8,258,693) (3,758,005)
Increase in prepaid expenses and other ........... (1,748,604) (451,046) (71,804)
Increase in other assets ......................... (1,363,918) (277,741) -
Increase in accounts payable ..................... 16,654,688 2,214,201 2,015,965
Increase in accrued expenses ..................... 3,373,643 1,598,793 1,815,334
Increase (Decrease) in deferred revenues ......... 2,412,232 (3,265,152) 1,329,170
(Decrease) Increase in accrued income taxes ...... (496,466) (179,893) 766,576
------------ ------------ ------------
Net cash provided by (used in)
operating activities ....................... (20,324,016) (13,722,525) 608,254
------------ ------------ ------------
Cash flows from investing activities:
Capital expenditures ............................... (5,719,051) (3,192,275) (2,120,888)
Purchase of intangible assets ...................... (181,265) (517,472) (122,556)
Merger with Trinity (cash received) ................ - - 7,177,223
Merger related costs and expenses .................. - - (515,290)
------------ ------------ ------------
Net cash provided by (used in)
investing activities ........................... (5,900,316) (3,709,747) 4,418,489
------------ ------------ ------------
Cash flows from financing activities:
Net borrowings (payments) on lines of credit ....... 7,234,000 8,387,083 (1,751,917)
Proceeds from sales-leaseback ...................... - 1,890,375 -
Proceeds from issuance of convertible debt ......... 19,000,000 - 3,500,000
Deferred debt issuance costs ....................... (1,593,913) - -
Proceeds from term notes ........................... 4,031,547 - -
Collection on notes receivable ..................... 358,420 - -
Proceeds from exercise of stock options and warrants 527,060 180,571 13,633,640
Proceeds from sale of Common stock ................. 6,355,087 - 30,026
Principal payments on long-term debt and
capital lease obligations ........................ (6,165,824) (667,487) (83,797)
Distributions paid to stockholders ................. - - (1,609,209)
------------ ------------ ------------
Net cash provided by financing activities .......... 29,746,377 9,790,542 13,718,743
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents .. 3,522,045 (7,641,730) 18,745,486
Net change in cash due to Systems Chemistry fiscal
year conversion .................................... - - (43,369)
Cash and cash equivalents, beginning of year .......... 12,092,258 19,733,988 1,031,871
------------ ------------ ------------
Cash and cash equivalents, end of year ................ $ 15,614,303 $ 12,092,258 $ 19,733,988
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
24
<PAGE> 55
SUBMICRON SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BACKGROUND:
SubMicron Systems, Inc. (SSI) designs, manufactures and markets advanced
chemical processing systems used in the fabrication of semiconductors. On August
31, 1993, SSI merged into a subsidiary of Trinity Capital Enterprise Corp.
(Trinity), a publicly held Delaware corporation, and Trinity changed its name to
SubMicron Systems Corporation (the Company). Under the terms of the merger,
Trinity issued a total of 5,666,440 shares of its Common stock in exchange for
all outstanding shares of SSI Common stock.
Prior to the merger, Trinity arranged for $2,000,000 of bridge financing for SSI
which was exchanged for 400,000 shares of the Company's Common stock upon
consummation of the merger. In connection with the merger, the holders of SSI
subordinated convertible notes with a face value of $2,000,000, exchanged the
notes to exercise warrants to purchase 166,667 shares of SSI's Class A Preferred
stock. The Preferred stock was then immediately converted into a like number of
Common shares. In addition to the 870,756 Common shares of the Company held
after the merger, the holders of the convertible notes were issued 93,618 Common
shares of the Company and warrants to purchase 63,760 Common shares at $6 per
share as an inducement to convert the notes and approve the merger. The fair
value of the 93,618 Common shares and the 63,760 warrants as of the date of the
merger was $787,423, which was charged to expense and recorded as a special
charge in the 1993 statement of operations.
The merger resulted in both a change in the majority equity ownership and
management of Trinity and the cessation of Trinity's business prior to the
merger. For financial reporting purposes, the acquisition has been treated as a
recapitalization of SSI with SSI as the acquirer (reverse merger). The Common
stock and additional paid-in capital accounts have been retroactively restated
to reflect the change in par value and conversion ratio used in the merger. The
historical financial statements prior to August 1993 are those of SSI and the
merged assets and liabilities of Trinity are included in the consolidated
financial statements at their carryover book value. Pro forma information is not
presented since the combination is not considered a business combination for
financial reporting purposes.
In May 1994, the Company assumed the net liabilities of DiPiero, Inc. (d/b/a
Universal Plastics) of approximately $2,270,000. For financial reporting
purposes, the acquisition was accounted for as a purchase. In February 1995, the
Company acquired all of the outstanding stock of Systems Chemistry Incorporated
(SysChem) for 3,400,000 shares of Common stock. The transaction has been
accounted for as a pooling of interest and, accordingly, historical financial
data has been restated to include SysChem (see Note 3).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries: SSI, SubMicron Systems Investment Corporation,
SMICRON(S) PTE., LTD. (a Singapore Corporation), SubMicron Wet Process Stations,
Inc. (Universal Plastics), SysChem (see Note 3) and SubMicron Systems
International Ltd. All significant intercompany accounts and transactions have
been eliminated in consolidation.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
25
<PAGE> 56
Cash and Cash Equivalents
The Company considers highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents. Cash equivalents at
December 31, 1995 and 1994, generally consist of weekly and overnight repurchase
agreements.
The Company adopted Statement of Financial Accounting Standards No. 115
"Accounting for Certain Investments in Debt and Equity Securities" (SFAS No.
115), effective January 1, 1994. The adoption of SFAS No. 115 had no effect on
the Company's financial position or results of operations.
Inventories
Inventories consist principally of raw materials and work-in-process and are
stated at the lower of cost (first-in, first-out basis) or market. Inventories
include purchased parts, labor and overhead.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided using the
straight-line method over the estimated useful lives of the related assets,
ranging from three to fifteen years. Amortization of assets under capital leases
and leasehold improvements is determined using the straight-line method over the
shorter of the lease term or the economic life of the asset, ranging from three
to five years. Gains and losses on disposal are recognized in the year of the
disposition. Expenditures for repairs and maintenance are charged to expense as
incurred, and significant renewals and betterments are capitalized.
Goodwill
Goodwill represents the excess of liabilities assumed over the estimated fair
value of assets acquired for the acquisition of DiPiero, Inc. Goodwill of
approximately $2,270,000 is being amortized on a straight-line basis over ten
years and is presented net of accumulated amortization of $359,922 and $132,492
at December 31, 1995 and 1994, respectively. The Company determines impairments
to goodwill based upon management's estimate of undiscounted future cash flows
over the remaining useful life of the asset. If the amount of such estimated
undiscounted future cash flows is less than the net book value of the related
asset, the asset is written down to the amount of the discounted cash flows. No
write-downs of goodwill were made in 1995 and 1994.
Intangible assets
Intangible assets consist of patent, trademark and deferred financing costs.
Patents and trademarks are stated at cost and amortized using the straight-line
method over five years. Deferred financing costs consist of fees incurred as
part of the issuance of 9% convertible subordinated notes (see Note 10) and are
being amortized over the two year term of the notes. The Company determines
impairments of intangible assets based upon management's estimate of
undiscounted future cash flows over the remaining useful life of the asset. If
the amount of such estimated undiscounted future cash flows is less than the net
book value of the related asset, the asset is written down to the amount of the
discounted cash flows. No write-downs of intangible assets were made in 1995,
1994 and 1993.
Revenue recognition
Revenue related to system sales is recognized at the time of title transfer,
which ordinarily occurs at the time of shipment. From time to time, customers
request delayed shipment, usually because of construction or other scheduling
problems at their facilities. If the Company's substantial performance
obligations otherwise have been fulfilled, revenue on such delayed shipment
transactions generally is recognized upon acceptance of goods by the customer at
the Company's facility. Revenue related to service activities and sale of items
from inventory is recognized when the service has been performed or when the
items are shipped. Revenue from construction services is recognized on a
percentage-of-completion basis.
26
<PAGE> 57
Warranty and installation
The Company generally provides its customers with a warranty on systems for a
14-month period commencing upon shipment. A provision for the estimated cost of
warranty and installation is recorded when the related revenue is recognized.
Research and development
Research and development costs are charged to expense as incurred.
Income taxes
Prior to August 31, 1993, SSI elected to be taxed under Subchapter S of the
Internal Revenue Code. Under such election, federal and certain state taxes on
the net income of SSI were payable by the individual shareholders. The
Subchapter S election was terminated as a result of the Trinity merger discussed
in Note 1, and SSI became a C Corporation. Pro forma financial information for
1993 has been included in the statements of operations to reflect the
appropriate tax provisions as if the Company and its subsidiaries had been taxed
as a C Corporation for the entire period.
The Company files a consolidated federal tax return and separate state tax
returns. Certain income and expense items are recorded for financial reporting
purposes in different time periods than for income tax purposes. Provisions for
current and deferred taxes are made in recognition of the temporary differences
and are computed in accordance with Statement of Financial Accounting Standards
No. 109 (SFAS No. 109).
SysChem adopted the provisions of SFAS No. 109 effective June 1, 1993. Included
in the Company's consolidated statements of operations for 1993 is the
cumulative effect of an accounting change of $440,000 as a result of adopting
SFAS No. 109.
Earnings per share and unaudited pro forma earnings per share
Earnings per share and unaudited pro forma earnings per share are based on the
weighted average number of shares of Common stock and Common stock equivalents
(dilutive stock options and warrants using the treasury stock method)
outstanding during the year. All share and per share amounts have been adjusted
retroactively to give effect to the Trinity merger discussed in Note 1 and the
acquisition of SysChem discussed in Note 3.
Reclassification
Certain prior year amounts have been reclassified to conform with current year
presentations.
3. ACQUISITIONS:
On February 28, 1995, the Company acquired SysChem, a Santa Clara, California
manufacturer of advanced ultra-high purity chemical distribution systems for the
semiconductor and other industries. The Company acquired all the outstanding
stock of SysChem in exchange for 3,400,000 shares of Common stock. The
transaction was accounted for as a pooling of interests and, accordingly,
historical financial data has been restated to include SysChem. The Company's
statement of operations for the year ended December 31, 1993 has been combined
with the SysChem statement of operations for the year ended May 31, 1994. In
order to conform SysChem's fiscal year to the Company's fiscal year, the
consolidated statements of operations for the year ended December 31, 1993
include five months (January through May 1994) for SysChem which are also
included in the consolidated statement of operations for the year ended December
31, 1994. Accordingly, an adjustment has been made in 1993 to retained earnings
for the duplication of net income of $505,080 for this five-month period. Other
results of operations for this five-month period of SysChem include net sales of
$9,354,715, income before taxes of $786,080 and income taxes of $281,000.
On May 31, 1994, SSI established SubMicron Wet Process Stations, Inc. (SPSI), a
California corporation, to effect the acquisition of DiPiero, Inc. (d/b/a
Universal Plastics). SPSI assumed the net liabilities of DiPiero, Inc. of
27
<PAGE> 58
approximately $2,270,000. For financial reporting purposes, the acquisition was
accounted for as a purchase. The assets and liabilities acquired were included
in the balance sheet of the Company at their estimated fair market values on the
date of the acquisition. The amount of liabilities assumed in excess of the
asset acquired was recorded as goodwill. The consolidated results of operations
and cash flows include SPSI from May 31, 1994, through December 31, 1994, and
for the year ended December 31, 1995. The Company's unaudited pro forma results
of operations for 1993 and 1994 would not be materially different assuming that
the acquisition occurred as of the beginning of 1993.
4. ACCOUNTS RECEIVABLE:
<TABLE>
<CAPTION>
December 31,
-------------------------------
1995 1994
---- ----
<S> <C> <C>
Billed ............................................. $ 41,579,907 $ 20,008,436
Unbilled ........................................... 4,316,520 27,000
------------ ------------
45,896,427 20,035,436
Allowance for doubtful accounts..................... (435,000) (435,000)
------------ ------------
$ 45,461,427 $ 19,600,436
============ ============
5. INVENTORIES:
December 31,
-------------------------------
1995 1994
---- ----
Raw materials ...................................... $ 19,675,003 $ 9,322,543
Work in progress ................................... 14,184,637 4,177,883
------------ ------------
33,859,640 13,500,426
Excess and obsolescence reserve..................... (717,533) (640,992)
------------ ------------
$ 33,142,107 $ 12,859,434
============ ============
6. PROPERTY AND EQUIPMENT:
December 31,
-------------------------------
1995 1994
---- ----
Production equipment ............................... $ 6,774,347 $ 4,038,269
Office furniture, equipment and leasehold
improvements ................................... 5,947,765 2,964,792
Equipment under capital leases ..................... 4,425,122 2,334,218
------------ ------------
17,147,234 9,337,279
Less - Accumulated depreciation and amortization.... (4,627,578) (2,357,275)
------------ ------------
$ 12,519,656 $ 6,980,004
============ ============
Accumulated amortization on equipment under capital leases was $445,074 and
$112,241 at December 31, 1995 and 1994, respectively.
7. INTANGIBLES AND OTHER ASSETS:
December 31,
-------------------------------
1995 1994
---- ----
Patent filing costs and trademarks.................. $ 857,109 $ 675,844
Deferred financing costs ........................... 1,593,913 10,639
Security deposits .................................. 493,640 394,910
Restricted cash .................................... 625,000 -
Other .............................................. 764,121 113,294
----------- -----------
4,333,783 1,194,687
Less - Accumulated amortization .................... (315,945) (163,886)
----------- -----------
$ 4,017,838 $ 1,030,801
=========== ===========
</TABLE>
At December 31, 1995, the Company had $625,000 in a restricted cash account at a
bank in accordance with a contractual agreement with a customer.
8. LINES OF CREDIT:
In September 1994, the Company amended and restated its line of credit with a
bank. The amendment increased the
28
<PAGE> 59
Company's revolving credit commitment from $4,500,000 to $10,000,000. Borrowings
under the credit line bore interest at the bank's prime rate or LIBOR plus 100
basis points (6.5% at December 31, 1994) and were secured by substantially all
of the assets of the Company. The amended credit agreement also provided for a
foreign facility with a forward limit of $5,000,000 and a daily settlement limit
of $1,000,000. Also, in September 1994, the Company established a $2,000,000
line of credit with a bank to finance the operations of SPSI. Borrowings under
this line of credit bore interest at the bank's prime rate (8.5% at December 31,
1994). The maximum amount borrowed under these lines was approximately
$8,700,000 in 1994 and $3,000,000 in 1993, while the average amount outstanding
was $5,350,000 and $1,029,000, respectively. The weighted average interest rate
during 1994 and 1993 was approximately 8.1% and 7.4%, respectively.
On November 30, 1995, two of the Company's subsidiaries borrowed $11,500,000
from a bank under a short term facility which replaced the lines of credit. This
note was guaranteed by the Company and secured by substantially all of the
assets of the Company's principal operating subsidiaries. The note was payable
on demand and scheduled to be repaid no later than February 28, 1996. The note
bore interest at the bank's prime rate (8.5% at December 31, 1995). The maximum
amount borrowed under all credit facilities in 1995 was $15,934,000, while the
average amount outstanding was approximately $14,216,000. The weighted average
interest rate during 1995 was approximately 6.5%.
In February 1996, the Company replaced the $11,500,000 note with a $30,000,000
credit facility. The Company used the credit facility to refinance its existing
lines of credit of $15,934,000 at December 31, 1995, and to provide working
capital. Borrowings under the credit facility bear interest at LIBOR or prime
and are secured by substantially all of the assets of the Company. This credit
facility replaced all other credit facilities of the Company and its
subsidiaries. The credit facility is subject to renewal in August 1997 and
includes certain financial and other covenants, including a limitation on
capital expenditures, restrictions on payment of dividends and the maintenance
of certain financial ratios.
9. ACCRUED EXPENSES AND OTHER:
<TABLE>
<CAPTION>
December 31,
-------------------------------
1995 1994
---- ----
<S> <C> <C>
Warranty and installation costs..................... $2,332,556 $1,493,183
Commissions ........................................ 2,219,092 1,838,874
Other .............................................. 4,195,753 2,041,701
---------- ----------
$8,747,401 $5,373,758
========== ==========
10. LONG-TERM DEBT:
December 31,
-------------------------------
1995 1994
---- ----
9% Convertible subordinate notes, face value of
$19,000,000 (net of unamortized discount of
$2,381,000) with warrants to purchase 1,140,000
shares of Common stock. Interest is payable
quarterly in arrears and principal is due in
December 1997 ................................. $ 16,619,000 $ -
Various capital lease obligations with interest
from 5% to 14%, payable monthly with varying
maturities through October 2000 ................ 3,441,603 2,063,602
Term note payable to a bank due in monthly
principal and interest (8.75%) payments
of $1,109 through August 1999, collateralized by
a vehicle ...................................... 31,547 -
Term note payable to bank, repaid in December 1995 . - 1,375,000
Term note payable to bank, repaid in November 1995 . - 77,921
------------ ------------
20,092,150 3,516,523
Current Portion .................................... (1,183,413) (1,126,742)
------------ ------------
$ 18,908,737 $ 2,389,781
============ ============
</TABLE>
The following is a schedule of aggregate long-term debt maturities and future
minimum capital lease payments at December 31, 1995:
29
<PAGE> 60
<TABLE>
<CAPTION>
Long-Term Capital
Debt Leases
------------ ------------
<S> <C> <C>
1996 .............................. $ 10,980 $ 1,419,584
1997 .............................. 19,014,081 1,209,748
1998 .............................. 6,486 529,211
1999 .............................. - 512,495
2000 .............................. - 267,051
------------ ------------
Total minimum payments ................ 19,031,547 3,938,089
Less - Unamortized Discount ............ (2,381,000) -
Less - Amount representing interest .... - (496,486)
------------ ------------
Present value of minimum lease payments. $ 16,650,547 $ 3,441,603
============ ============
</TABLE>
In December 1995, the Company issued $19,000,000 principal amount of 9%
convertible subordinated notes with warrants to purchase 1,140,000 shares of
Common stock. The notes were recorded at $16,492,000, net of the estimated fair
value ascribed to the warrants of $2,508,000. Amortization of the debt discount
was $127,000 in 1995. The warrants are exercisable at $14 per share and expire
in December 2000. The debt discount is being amortized over the two-year term of
the debt. The 9% convertible subordinated notes are convertible into shares of
Common stock at $13.02, subject to adjustment. At the Company's option, the
notes are redeemable if the Common stock price is equal to or greater than 150%
of the conversion price for a period of 30 consecutive trading days.
In December 1994, the Company entered into a sale-leaseback agreement for three
application processing units that were installed into the Company's new
applications laboratory. The lease is a capital lease and the units were
transferred from inventory to property and equipment at their cost of
approximately $1,890,000.
11. COMMITMENTS AND CONTINGENCIES:
In 1993, the Company entered into five-year employment agreements with two key
executives, subject to automatic extensions for an additional year. The Company
is obligated to continue to pay the executives' salary for a period of three
years or five years, depending on which of the following occurs: the sale of the
Company, upon termination of employment by the Company without cause (as
defined), or termination of the employee for good reason (as defined).
The Company leases its office and production facility and several vehicles under
long-term non-cancelable operating leases which expire at various dates through
2000. Rent expense was approximately $1106,420, $654,000 and $682,000 in 1995,
1994 and 1993, respectively. Minimum annual payments for the operating leases
for each of the next five years are as follows:
<TABLE>
<S> <C>
1996 ............ $ 1,313,242
1997 ............ 1,240,885
1998 ............ 1,206,247
1999 ............ 1,106,885
2000 ............ 917,567
-----------
$ 5,784,826
===========
</TABLE>
On July 14, 1992, an action was commenced against SSI for patent infringement.
The complaint alleged that SSI infringed on three of the plaintiff's patents
embodying their megasonic cleaning apparatus and method. On March 31, 1995, the
Company and the plaintiff reached a settlement whereby the Company obtained a
license to use the patented technology. The Company can utilize this technology
for sale of replacement parts only for units that are already in the market. The
Company agreed to a paid-up licensing fee of $2,000,000. The licensing fee is
being charged to expense based on the number of parts shipped as a percentage of
total estimated parts to be shipped. Charges of approximately $107,000 and
$1,000,000 were recorded in the statement of operations based on the units
shipped through December 31, 1995 and 1994, respectively. Management will
continue to evaluate the total estimated units to be shipped and adjust the
prepaid licensing fee accordingly.
The Company is subject to claims, from time to time, arising in the ordinary
course of business. Other claims, although presently unasserted, may also be
raised in the future based on decisions made and certain actions taken and the
reporting thereof. Management believes the ultimate resolution of all such
claims will not have a material
30
<PAGE> 61
adverse effect on its financial position and results of operations.
12. CUSTOMER AND GEOGRAPHIC INFORMATION:
The Company's operations are conducted in one business segment and sales are
primarily made to customers in the business of manufacturing semiconductors.
Sales are made on an international basis and foreign sales (Europe and Far East)
were 45%, 32% and 20% of net sales in 1995, 1994 and 1993, respectively. Sales
to foreign customers are transacted in U.S. dollars.
The following table summarizes significant customers with sales in excess of 10%
of total net sales for the years ended December 31, 1995, 1994 and 1993.
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Customer A .................................................................. 10%
Customer B ............................................... 15%
Customer C ............................................... 13%
Customer D ............................... 12%
---- --- ---
12% 28% 10%
==== === ===
</TABLE>
At December 31, 1995, approximately 48% of the Company's accounts receivable
were due from three customers.
13. SPECIAL CHARGES AND OTHER INCOME:
Other income consists of a settlement of litigation related to unfair trade
practices. In 1995, the Company recorded the settlement of approximately
$2,700,000, which is net of legal fees incurred.
In 1993, SSI recorded a noncash one-time charge of $787,423 related to
inducement to convert certain of the Company's debt resulting from the
acquisition of the Company's operating business (see Note 1).
14. INCOME TAXES AND UNAUDITED PRO FORMA INCOME TAXES:
The Company terminated its S Corporation election upon the consummation of the
merger with Trinity as discussed in Note 1. Accordingly, no provision was made
for income taxes prior to August 31, 1993. The Company's income tax provisions
for 1995 and 1994 and unaudited pro forma income tax provision as if the Company
and its subsidiaries had been taxed as a C Corporation for 1993 are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Federal
Current .......................... $ 387,022 $ 1,317,140 $ 1,179,296
Deferred ......................... 464,399 (690,931) 61,143
----------- ----------- -----------
Total ........................ 851,421 626,209 1,240,439
----------- ----------- -----------
State
Current .......................... 96,756 537,303 376,465
Deferred ......................... 202,114 (116,017) 21,529
----------- ----------- -----------
Total ........................ 298,870 421,286 397,994
----------- ----------- -----------
$ 1,150,291 $ 1,047,495 $ 1,638,433
=========== =========== ===========
</TABLE>
The following is a reconciliation of the statutory federal income tax provision
to the tax provision for 1995 and 1994 and pro forma tax provision for 1993:
31
<PAGE> 62
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------
% of % of % of
Pretax Pretax Pretax
1995 Income 1994 Income 1993 Income
---- ------ ---- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C>
Statutory income tax .......... $ 1,482,403 34.0% $ 893,837 34.0% $ 1,180,703 34.0%
State income taxes, net of
federal benefit .......... 320,022 7.3 185,622 7.0 220,173 6.3
Effect of foreign sales corp .. (402,280) (9.2) - - - -
Other nondeductible costs ..... 159,232 3.7 92,493 3.5 - -
Research and development credit (100,000) (2.3) (95,000) (3.6) (111,007) (3.2)
Nondeductible debt inducement
costs .................... - - - - 322,843 9.3
Other ......................... (309,086) (7.1) (29,457) (1.1) 25,721 0.8
----------- ---- ----------- ---- ----------- ----
$ 1,150,291 26.4% $ 1,047,495 39.8% $ 1,638,433 47.2%
=========== ==== =========== ==== =========== ====
</TABLE>
Upon the consummation of the merger with Trinity, the Company terminated its
Subchapter S election and became a C Corporation. Accordingly, the Company
recorded deferred taxes for the cumulative temporary differences between the
basis of its assets and liabilities for financial reporting and tax purposes in
accordance with Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes." A deferred tax asset of approximately $300,000 was recorded
as an income tax benefit in the 1993 statement of operations. The net deferred
taxes consist of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1995 1994
------------ ----------
<S> <C> <C>
Gross current deferred tax assets ................... $ 1,772,123 $1,876,406
Gross noncurrent deferred tax liabilities ........... (628,073) (65,843)
------------ ----------
Net deferrred tax assets ........................ $ 1,144,050 $1,810,563
============ ==========
</TABLE>
The tax effect of significant temporary differences representing deferred tax
assets and liabilities is as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------
1995 1994
---- ----
<S> <C> <C>
Warranty and installation reserve .................. $ 933,022 $ 597,273
Allowance for doubtful accounts .................... 174,000 174,000
Allowance for excess and obsolete inventories ...... 287,013 260,866
Accrued licensing fees ............................. 99,993 99,993
Deferred compensation .............................. 313,633 179,226
Uniform inventory capitalization ................... 153,560 96,760
Depreciation and intangible amortization ........... 38,301 41,136
Salary and benefit accruals ........................ 169,997 357,727
Gain on litigation settlement ...................... (1,080,000) -
Other 54,531 3,582
------------ -----------
$ 1,144,050 $1,810,563
============ ==========
</TABLE>
The Company has recorded a deferred tax asset of $1,772,123 as of December 31,
1995. The realization of this asset is dependent on the generation of sufficient
future taxable income. Although realization is not assured, management believes
it is more likely than not that all of the deferred tax asset will be realized
and, therefore, no valuation allowance has been recorded.
The income tax benefit related to the exercise of nonqualified stock options
reduces taxes currently payable and is credited to additional paid-in capital.
Additional paid-in capital increased by $440,386 in 1995 as a result of this tax
benefit.
15. RELATED-PARTY TRANSACTIONS:
In October 1995, the Company borrowed $4,000,000 from two officers who are also
stockholders of the Company
32
<PAGE> 63
for working capital purposes. The entire borrowing, plus interest of $135,514,
was repaid by the Company in December 1995.
The Company has a tax indemnification agreement with its stockholders, effective
for January 1, 1990, through August 31, 1993, which provided for distributions
to be made by the Company for payment of personal tax liabilities imposed on the
stockholders as a result of the Company's S Corporation status.
Upon consummation of the Trinity merger (see Note 1), the Company's S
Corporation status terminated. The Company paid a cash distribution of
$1,239,209 to its stockholders in order to fund (i) a distribution of
undistributed S Corporation retained earnings previously taxed and (ii) the
stockholders' federal and state income tax liability arising from January 1,
1993, through the date of the consummation of the merger.
16. STOCK OPTIONS AND WARRANTS:
In 1995, the Company adopted a Stock Option Plan for Non-Employee Directors,
subject to approval at the Company's 1996 annual meeting of stockholders. Under
the Plan, non-employee directors of the Company are granted options to purchase
5,000 shares of the Company's Common Stock upon appointment to the Board and
thereafter receive annual option grants for 3,000 shares per year. Pursuant to
the Plan, and subject to stockholder approval on June 16, 1996, each of the
Company's three non-employee directors will be granted options to purchase 5,000
shares of Common stock at the closing price of the Company's Common stock on
such date.
The Company's Amended and Restated 1991 Stock Option Plan provides for both
incentive and nonqualified stock options to be granted to officers, employees,
consultants and advisors. Under the plan, options may be granted for the
purchase of up to 1,500,000 shares of Common stock, subject to adjustments for
stock dividends, stock splits, a recapitalization or certain other adjustments.
The number of options to be granted and the option prices are determined by the
Board of Directors or the stock option plan committee in accordance with the
terms of the plan. The exercise price of incentive stock options granted under
the plan must be a least equal to the fair market value of such shares on the
date of grant and the maximum exercise period is ten years. The Company also has
an Executive Option Plan that provides for the issuance of up to 588,495 shares
of Common stock.
Summary information with respect to options under the plans, is as follows:
<TABLE>
<CAPTION>
Amended and Restated Executive
1991 Stock Option Plan Stock Option Plan
-------------------------------------------------------------------
Outstanding Option Outstanding Option
Outstanding Options Options Prices Options Prices
------------------- ------- ------ ------- ------
<S> <C> <C> <C> <C>
Balance, December 31, 1992 - - 52,245 $ .57
Granted 168,476 $ 2.39 - $6.00 536,250 6.00
Exercised (930) 2.39 - -
------- ------------- ------- ------------
Balance, December 31, 1993 167,546 2.39 - 6.00 588,495 .57 - 6.00
Granted 190,000 4.50 - 6.00 - -
Exercised (49,864) 2.39 (5,500) 0.57
Canceled (40,000) 4.50 - 7.75 - -
------- ------------- ------- -------------
Balance, December 31, 1994 267,682 2.39 - 6.00 582,995 .57 - 6.00
Granted 646,000 4.06 - 11.13 - -
Exercised (65,305) 2.39 - 6.00 (46,745) .57
Canceled (10,209) 2.39 - 4.50 - -
------- ------------- ------- -------------
Balance, December 31, 1995 838,168 $2.39 - $11.13 536,250 $ 6.00
======= ============== ======= =============
</TABLE>
33
<PAGE> 64
At December 31, 1995, there were 678,815 exercisable options under the Amended
and Restated 1991 Stock Option Plan and 536,250 exercisable options under the
Executive Stock Option Plan.
For options granted below fair market value, the Company recognizes as deferred
compensation the difference between the aggregate fair market value of the
Common stock issuable upon exercise of the options over the aggregate price of
such options. Deferred compensation of $1,008,150 was recognized in 1993
relating to 536,250 stock options issued under the Executive Stock Option Plan.
The deferred compensation is being amortized over the vesting period of the
options, and $336,050, $380,856 and $67,210 was charged to expense in 1995, 1994
and 1993, respectively.
In December 1995, the Company issued $19,000,000 principal amount 9% convertible
subordinate notes (see Note 10) with warrants to purchase 1,140,000 shares of
Common stock. The warrants are exercisable at $14 per share and expire in
December 2000.
In August 1993, the Company issued warrants to purchase 150,000 shares of Common
stock at $5 per share and 63,750 shares at $6 per share (see Note 1). Warrants
to purchase 35,000 and 5,000 shares at $5 per share were exercised in 1995 and
1994, respectively, and the remaining warrants are exercisable through August
1998.
17. PREFERRED STOCK:
The Company has authorized 5,000 shares of Preferred stock, $.0001 par value per
share. The Board of Directors can designate and issue from time to time one or
more classes or series of Preferred stock and may fix and determine the relative
rights, preferences and limitations of each class or series so authorized.
18. BENEFIT PLANS:
The Company maintains a defined contribution savings and investment retirement
plan (the Plan) under section 401(k) of the Internal Revenue Code whereby all
employees are eligible to participate after completing six months of service.
Participants in the Plan may contribute from 1% to 15% of their compensation
each year. The Company does not make matching contributions and does not
maintain any other pension or postretirement benefit plans.
In 1994, the Company established an employee stock purchase plan whereby up to
300,000 shares of Common stock can be purchased by employees. Purchases are made
each June 30 and December 31 at a price equal to the lower of 85% of the fair
market value of the stock on the first day or the last day of the six-month
period. Purchases are limited as defined in the plan. The plan is available to
all eligible employees of the Company and its subsidiaries who are not
beneficial owners of 5% or more of the outstanding Common stock. During 1995,
70,657 shares were purchased under the plan.
19. SUBSEQUENT EVENTS:
In February 1996, the Company entered into an agreement to purchase a 35,000
square foot facility in Allentown, Pennsylvania, for $1,825,000. The facility
will be used for additional office space and to provide a training facility for
the Company. As part of the agreement, the Company entered into a lease with the
current landlord beginning April 15, 1996, with monthly rental payments of
$25,000 until the closing of the sale agreement. If the agreement of sale is
terminated prior to closing, the Company will automatically enter into a
seven-year lease of the facility. The lease term provides for monthly rental
expense ranging from $21,565 to $23,453, with rental adjustments on the second
and fourth anniversary of the lease agreement. Closing of the purchase and sale
agreement is expected to take place by the third quarter of 1996.
In March 1996, the Company acquired Imtec Acculine, Inc. (Imtec), a Sunnyvale,
California company. Imtec's
34
<PAGE> 65
principal business is designing, developing, testing, manufacturing and
marketing temperate baths and high resolution photo plates for the semiconductor
market and related industries. The Company acquired all the outstanding stock of
Imtec in exchange for 575,000 shares of Common stock. The transaction will be
accounted as a pooling of interests and, accordingly, historical financial data
in future reports will be restated to include Imtec. The following unaudited pro
forma data summarizes the combined results of operations of the Company and
Imtec as though the merger had occurred on January 1, 1993. The 1995, 1994 and
1993 unaudited pro forma data includes the results of operations for the 12
months ended December 31, 1995, 1994 and 1993 for the Company and Imtec.
<TABLE>
<CAPTION>
Unaudited Pro Forma (000's)
-----------------------------------
1995 1994 1993
-------- ------- -------
<S> <C> <C> <C>
Net Sales $125,500 $87,718 $58,600
Net Income $ 3,787 $ 1,973 $ 2,754
Earnings per share $ .23 $ .13 $ .18
</TABLE>
20. SUPPLEMENTAL CASH FLOWS DISCLOSURES:
Cash paid for interest was $2,014,000, $365,000 and $375,000 in 1995, 1994 and
1993, respectively. Cash paid for taxes was $1,038,000 in 1995, 1,985,000 in
1994 and $657,000 in 1993.
During 1994, 80,000 shares of Common stock totaling $430,000 were issued upon
the settlement of litigation. In 1993, additional Common stock was issued upon
the conversion of $3,741,537 of long-term debt and accrued interest thereon.
During 1995 and 1994, capital lease obligations of $2,090,904 and $1,890,375
were incurred when the Company entered into a lease for equipment.
35
<PAGE> 66
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
This information will be contained in the Company's definitive proxy
statement with respect to the Company's 1996 Annual Meeting of Stockholders, to
be filed with the Securities and Exchange Commission within 120 days following
the end of the Company's fiscal year, and is hereby incorporated by reference
thereto.
ITEM 11. EXECUTIVE COMPENSATION
This information will be contained in the Company's definitive Proxy
Statement with respect to the Company's 1996 Annual Meeting of Stockholders, to
be filed with the Securities and Exchange Commission within 120 days following
the end of the Company's fiscal year and is hereby incorporated by reference
thereto.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This information will be contained in the Company's definitive Proxy
Statement with respect to the Company's 1996 Annual Meeting of Stockholders,
to be filed with the Securities and Exchange Commission within 120 days
following the end of the Company's fiscal year, and is hereby incorporated by
reference thereto.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
This information will be contained in the Company's definitive Proxy
Statement with respect to the Company's 1996 Annual Meeting of Stockholders, to
be filed with the Securities and Exchange Commission within 120 days following
the end of the Company's fiscal year, and is hereby incorporated by reference
thereto.
36
<PAGE> 67
ITEM 14. EXHIBITS, FINANCIAL STATEMENT
SCHEDULES, AND REPORTS ON FORM 8-K
Page
(a)(1) The following financial statements are included in Part II Item 8:
Report of Independent Public Accountants
Financial Statements;
Consolidated Balance Sheets at December 31, 1995 and 1994
Consolidated Statements of Operations for the Years Ended
December 31, 1995, 1994 and 1993
Consolidated Statements of Stockholders' Equity (Deficit)
for the Years Ended December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements
(2) The following financial schedule is submitted herewith:
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because they are not
applicable or the required information is shown in the
consolidated financial statements or notes thereto.
(3) Exhibits included herein:
2.1 Agreement and Plan of Merger dated April 27, 1993, among
SubMicron Systems Corporation (formerly Trinity) (the
"Company"), SubMicron Systems, Inc. ("SubMicron"), and David
Levy and James Molinaro (1)
2.2 Agreement and Plan of Merger dated January 13, 1995, among the
Company, SysChem Acquisition Corp. and Systems Chemistry
Incorporated (2)
2.3 Agreement and Plan of Merger dated March 21, 1996, among the
Company, SubImtec Acquisition Corp., Imtec Acculine, Inc. and
the sole shareholder of Imtec (5)
3.1 The Company's Certificate of Incorporation (1)
3.2 The Company's By-Laws (1)
4.1 Warrant Agreement dated September 19, 1991 between the Company
and GKN Securities Corp. (1)
4.2 Form of 9% Convertible Subordinated Promissory Note due
December 15, 1997
4.3 Form of Warrant to Purchase Common Stock
9.1 Voting Agreement between David F. Levy and James S. Molinaro (1)
10.1 Amended and Restated 1991 Stock Option Plan (3)(4)
37
<PAGE> 68
10.2 Executive Stock Option Plan (1)(3)
10.3 1994 Employee Stock Purchase Plan (3)(4)
10.4 1995 Stock Option Plan for Non-Employee Directors (3)
10.5 Employment Agreement between the Company and David F.
Levy (1)(3)
10.6 Employment Agreement between the Company and James S.
Molinaro (1)(3)
10.7 Lease Agreement, as amended, dated as of January 16, 1992,
between Rouse and Associates ("Rouse") and SSI, as amended by
Letter Agreement dated February 13, 1992, between Realprop
Management, Inc., (an affiliate of Rouse) and SubMicron (1)
10.8 Credit Agreement, dated February 27, 1996, among the Company,
certain subsidiaries of the Company and CoreStates Bank, N.A.,
as Agent, and the several Lenders parties thereto, including
form of Revolving Credit Note and Security Agreement
10.9 Tax Indemnification Agreement dated May 22, 1992, among
SubMicron, David F. Levy and James S. Molinaro (1)
10.10 Agreement, dated April 27, 1993, among SubMicron, David Levy,
James Molinaro and Edison Venture Fund II, L.P. and Edison
Venture Fund II-PA, L.P. (1)
10.11 Indemnity Agreement, dated as of April 1992, by and among
SubMicron, David Levy and James Molinaro (1)
10.12 Agreements of Sale and Purchase, dated February 23, 1996,
between D&M Properties and the Company.
21 List of Subsidiaries.
23 Consent of Arthur Andersen LLP
- ------------------
(1) Incorporated by reference to an Exhibit filed as part of the Company's
Registration Statement on Form S-4, File No. 33-64500.
(2) Incorporated by reference to an Exhibit filed as part of the Company's
Current Report on Form 8-K dated February 28, 1995.
(3) Constitutes a compensatory plan or arrangement required to be filed
as an exhibit to this Form.
(4) Incorporated by reference to an Exhibit filed as part of the Company's
Annual Report on Form 10-K for the year ended December 31, 1994.
(5) Incorporated by reference to an Exhibit filed as part of the Company's
Current Report on Form 8-K dated March 26, 1996.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the fourth quarter of 1995.
38
<PAGE> 69
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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:
SUBMICRON SYSTEMS CORPORATION
By: /s/David F. Levy
---------------------------
David F. Levy, President
Date: April 12, 1996
Pursuant to the requirements to the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Capacity Date
- --------- -------- ----
<S> <C> <C>
/s/David F. Levy President and Director April 12, 1996
- ----------------------------------- (Principal Executive Officer)
David F. Levy
/s/R. G. Holmes Chief Financial Officer April 12, 1996
- ----------------------------------- (Principal Financial and
R. G. Holmes Accounting Officer)
/s/James S. Molinaro Director April 12, 1996
- -----------------------------------
James S. Molinaro
/s/John H. Martinson Director April 12, 1996
- -----------------------------------
John H. Martinson
/s/Barry W. Ridings Director April 12, 1996
- -----------------------------------
Barry W. Ridings
/s/John P. Traub Director April 12, 1996
- -----------------------------------
John P. Traub
/s/Leonard R. Weisberg Director April 12, 1996
- -----------------------------------
Leonard R. Weisberg
</TABLE>
39
<PAGE> 70
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT PAGE
<S> <C> <C>
2.1 Agreement and Plan of Merger dated April 27, 1993, among
SubMicron Systems Corporation (formerly Trinity) (the
Company"), SubMicron Systems, Inc. ("SubMicron"), and
David Levy and James Molinaro (1)
2.2 Agreement and Plan of Merger dated January 13, 1995, among
the Company, SysChem Acquisition Corp. and Systems Chemistry Incorporated (2)
2.3 Agreement and Plan of Merger dated March 21, 1996, among the
Company, SubImtec Acquisition Corp., Imtec Acculine, Inc. and
the sole shareholder of Imtec (5)
3.1 The Company's Certificate of Incorporation (1)
3.2 The Company's By-Laws (1)
4.1 Warrant Agreement dated September 19, 1991 between the
Company and GKN Securities Corp. (1)
4.2 Form of 9% Convertible Subordinated Promissory Note due
December 15, 1997
4.3 Form of Warrant to Purchase Common Stock
9.1 Voting Agreement between David F. Levy and James S.
Molinaro (1)
10.1 Amended and Restated 1991 Stock Option Plan (3)(4)
10.2 Executive Stock Option Plan (1)(3)
10.3 1994 Employee Stock Purchase Plan (3)(4)
10.4 1995 Stock Option Plan for Non-Employee Directors (3)
10.5 Employment Agreement between the Company and David F.
Levy (1)(3)
10.6 Employment Agreement between the Company and James S.
Molinaro (1)(3)
10.7 Lease Agreement, as amended, dated as of January 16, 1992,
between Rouse and Associates ("Rouse") and SSI, as amended
by Letter Agreement dated February 13, 1992, between Realprop
Management, Inc., (an affiliate of Rouse) and SubMicron (1)
</TABLE>
40
<PAGE> 71
<TABLE>
<S> <C>
10.8 Credit Agreement, dated February 27, 1996, among the
Company, certain subsidiaries of the Company and CoreStates
Bank, N.A., as Agent, and the several Lenders parties thereto,
including form of Revolving Credit Note
10.9 Tax Indemnification Agreement dated May 22, 1992, among
SubMicron, David F. Levy and James S. Molinaro (1)
10.10 Agreement, dated April 27, 1993, among SubMicron,
David Levy, James Molinaro and Edison Venture
Fund II, L.P. and Edison Venture Fund II-PA, L.P. (1)
10.11 Indemnity Agreement, dated as of April 1992, by and among
SubMicron, David Levy and James Molinaro (1)
10.12 Agreements of Sale and Purchase, dated February 23, 1996, between
D&M Properties and the Company.
21 List of Subsidiaries.
23 Consent of Arthur Andersen LLP
</TABLE>
- --------------
(1) Incorporated by reference to an Exhibit filed as part of the
Company's Registration Statement on Form S-4, File No. 33-64500.
(2) Incorporated by reference to an Exhibit filed as part of the
Company's Current Report on Form 8-K dated February 28, 1995.
(3) Constitutes a compensatory plan or arrangement required to be filed
as an exhibit to this Form.
(4) Incorporated by reference to an Exhibit filed as part of the
Company's Annual Report on Form 10-K for the year ended
December 31, 1994.
(5) Incorporated by reference to an Exhibit filed as part of the
Company's Current Report on Form 8-K dated March 26, 1996.
41
<PAGE> 72
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance at
Beginning Charged to Costs Other Balance at
Description of Period and Expenses Accounts Deductions End of Period
----------- --------- ---------------- -------- ---------- -------------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED
DECEMBER 31, 1995:
Allowances for doubtful
accounts receivable ... $435,000 $ - $ - $ - $435,000
======== ========= ===== ========= ========
FOR THE YEAR ENDED
DECEMBER 31, 1994
Allowances for doubtful
accounts receivable ... $100,000 $ 500,000 $ - $ 165,000 $435,000
======== ========= ===== ========= ========
FOR THE YEAR ENDED
DECEMBER 31, 1993
Allowances for doubtful
accounts receivable ... $ 70,000 $ 30,000 $ - $ - $100,000
======== ========= ===== ========= ========
</TABLE>
42
<PAGE> 73
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended March 31, 1996
--------------------------------------------
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the Transition period from to
----------------------- ---------------------
Commission File Number: 0-19507
-------------------------------------------------------
SUBMICRON SYSTEMS CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3607944
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6330 Hedgewood Drive #150, Allentown, Pennsylvania 18106
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (610) 391-9200
-----------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
(X) Yes ( ) No
APPLICABLE ONLY TO CORPORATE ISSUERS:
There were 16,573,141 shares of Common stock outstanding, $.0001 par value, as
of April 17, 1996.
1
<PAGE> 74
SUBMICRON SYSTEMS CORPORATION
INDEX
Part I - Financial Information
<TABLE>
<CAPTION>
Item 1: Financial Statements Page
<S> <C>
Consolidated Balance Sheets at
March 31, 1996 and December 31, 1995 3
Consolidated Statements of Operations
for the three months ended March 31, 1996
and March 31, 1995 4
Consolidated Statements of Cash Flows for the
three months ended March 31, 1996 and
March 31, 1995. 5
Notes to Consolidated Financial Statements 6-7
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-9
Part II - Other Information N/A
</TABLE>
2
<PAGE> 75
SUBMICRON SYSTEMS CORPORATION
CONSOLIDATED BALANCE SHEETS (NOTE 2)
(unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
------------- -------------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 8,859,048 $ 16,010,303
Accounts receivable, net 39,814,411 46,618,559
Inventories, net 42,811,138 34,132,007
Prepaids and other 4,035,344 2,735,961
Deferred income taxes 1,886,323 1,886,323
------------- -------------
Total current assets 97,406,264 101,383,153
Property and equipment, net 12,951,974 12,630,656
Goodwill, net 1,854,895 1,911,677
Intangibles and other, net 4,713,304 4,022,838
------------- -------------
$ 116,926,437 $ 119,948,324
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Lines of credit $ 15,900,000 $ 16,250,000
Current portion of long-term debt 1,089,720 1,183,413
Accounts payable 18,162,502 25,299,313
Accrued expenses and other 9,152,958 8,934,401
Deferred revenues 4,433,388 2,615,441
Income taxes payable 674,403 -
------------- -------------
Total current liabilities 49,412,971 54,282,568
------------- -------------
Deferred income taxes 628,073 628,073
------------- -------------
Deferred revenues 103,209 106,417
------------- -------------
Long-term debt 18,936,963 18,908,737
------------- -------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.0001 par value, 5,000 shares
authorized, none issued and outstanding - -
Common stock, $.0001 par value, 100,000,000
shares authorized, 16,572,894 and 16,562,796
shares issued and outstanding 1,658 1,657
Additional paid-in capital 39,490,949 39,222,625
Retained earnings 8,553,154 7,103,018
Deferred compensation (140,025) (224,034)
Notes receivable (60,515) (80,737)
------------- -------------
Total stockholders' equity 47,845,221 46,022,529
------------- -------------
$ 116,926,437 $ 119,948,324
============= =============
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE> 76
SUBMICRON SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (NOTE 2)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1996 1995
------------ ------------
<S> <C> <C>
System sales, net $ 39,422,070 $ 19,493,205
Service and other sales 5,431,839 1,564,853
------------ ------------
Total net sales 44,853,909 21,058,058
------------ ------------
Cost of system sales 26,436,182 13,505,562
Cost of service and other sales 4,112,386 492,837
------------ ------------
Total cost of sales 30,548,568 13,998,399
------------ ------------
Gross profit 14,305,341 7,059,659
Selling, general and administrative 9,455,292 5,623,091
Research and development 1,844,963 819,574
------------ ------------
Operating income 3,005,086 616,994
------------ ------------
Other income (expense):
Interest income 168,200 124,327
Interest expense (1,022,968) (161,410)
Other, net 80,661 (8,370)
------------ ------------
Total other expense (774,107) (45,453)
------------ ------------
Income before income taxes 2,230,979 571,541
Income tax provision 780,843 232,048
------------ ------------
Net income $ 1,450,136 $ 339,493
============ ============
Net income per Common share $ 0.09 $ 0.02
============ ============
Weighted average number of
shares of Common stock outstanding 16,943,961 15,701,652
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE> 77
SUBMICRON SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (NOTE 2)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1996 1995
------------ ------------
<S> <C> <C>
Cash flows used in operating activities:
Net income $ 1,450,136 $ 339,493
Adjustments to reconcile net income to
net cash used in operating activities
Depreciation and amortization 1,070,961 673,214
Provision for valuation allowances and
loss contingency 336,363 -
Deferred tax provision (benefit) - 85,668
Amortization of deferred compensation 84,009 84,012
Amortization of note discount 238,750 -
Changes in assets and liabilities:
Decrease in accounts receivable 6,642,785 246,592
Increase in inventories (8,854,131) (5,306,566)
Increase in prepaid expenses and other (1,299,383) (523,280)
Decrease (Increase) in other assets (438,660) 48,932
(Decrease) Increase in accounts payable (7,136,811) 2,898,692
(Decrease) Increase in accrued expenses and other 218,557 (835,870)
Increase in deferred revenues 1,814,739 271,178
(Decrease) Increase in income taxes payable 674,403 (866,611)
------------ ------------
Net cash used in operating activities (5,198,282) (2,884,546)
------------ ------------
Cash flows used in investing activities:
Capital expenditures (1,241,410) (809,884)
Purchase of intangible assets (55,759) (34,419)
Net cash used in investing activities (1,297,169) (844,303)
------------ ------------
Cash flows provided by (used in) financing activities:
Net borrowings (payments) under lines of credit (350,000) 2,556,672
Proceeds from exercise of options and warrants 48,324 6,611
Collection on notes receivable 20,222 -
Principal payments under capital lease obligations
and long-term debt (374,350) (307,966)
------------ ------------
Net cash provided by (used in) financing activities (655,804) 2,255,317
------------ ------------
Net decrease in cash and cash equivalents (7,151,255) (1,473,532)
Cash and cash equivalents at beginning of period 16,010,303 12,559,258
------------ ------------
Cash and cash equivalents at end of period $ 8,859,048 $ 11,085,726
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE> 78
SUBMICRON SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
The accompanying unaudited consolidated financial statements have been prepared
in conformity with generally accepted accounting principles. The interim
financial information, while unaudited, reflects all normal recurring
adjustments which are, in the opinion of management, necessary for a fair
presentation of the interim financial statements. The results for the three
months ended March 31, 1996 are not necessarily indicative of results expected
for the full year. These financial statements should be read in conjunction with
the audited financial statements and the notes thereto included in the SubMicron
Systems Corporation Annual Report on Form 10-K for the year ended December 31,
1995.
2. ACQUISITION:
In March 1996, the Company acquired Imtec Acculine, Inc. (Imtec), a Sunnyvale,
California company. Imtec's principal business is designing, developing,
testing, manufacturing and marketing temperature regulated baths and high
resolution photo plates for the semiconductor market and related industries. The
Company acquired all the outstanding stock of Imtec in exchange for 575,000
shares of Common stock. The transaction was accounted for as a pooling of
interests and therefore, the consolidated results of operations for three months
ended March 31, 1996 include Imtec's results of operations for the period then
ended. Additionally, the consolidated balance sheets of SSC and subsidiaries as
of December 31, 1995 and the results of operations for the three months ended
March 31, 1995 have been restated to include Imtec historical financial
information.
3. INVENTORIES:
Inventories are stated at the lower of cost (specific identification) or market
and consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Raw materials $ 23,128,650 $ 20,230,903
Work-in-process 20,575,021 14,618,637
------------ ------------
43,703,671 34,849,540
Excess and obsolescence reserve (892,533) (717,533)
------------ ------------
$ 42,811,138 $ 34,132,007
============ ============
</TABLE>
4. CUSTOMER INFORMATION:
Sales of the Company's products to three customers accounted for 42.5% of total
sales for the three months ended March 31, 1996, and sales to three different
customers accounted for 41% of total sales for the three months ended March 31,
1995. Accounts receivable for the two largest customers in 1996 represents 22%
of consolidated receivables as of March 31, 1996.
6
<PAGE> 79
5. LINES OF CREDIT:
In February 1996, the Company replaced it's $11,500,000 note with a $30,000,000
credit facility. The Company used the credit facility to refinance its existing
lines of credit and to provide working capital. Borrowings under the line of
credit bear interest at LIBOR or prime and are secured by substantially all of
the assets of the Company. This credit facility replaced all other credit
facilities of the Company and its subsidiaries. The credit facility is subject
to renewal in August 1997 and includes certain financial and other covenant
including a limitation on capital expenditures, restriction on payment of
dividends and the maintenance of certain financial ratios.
6. INCOME TAXES:
The Company accounts for income taxes under Financial Accounting Standards No.
109. As of March 31, 1996, the components of the Company's net deferred income
tax asset are approximately as follows:
<TABLE>
<S> <C>
Financial statement reserves $ 1,494,000
Uniform capitalization 154,000
Gain on litigation settlement (1,100,000)
Deferred compensation 314,000
Other 396,000
-----------
$ 1,258,000
===========
</TABLE>
No valuation allowance has been provided for deferred tax assets.
7
<PAGE> 80
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Net Sales
Net sales increased 113% for the three month period ended March 31, 1996, as
compared to the same period in the prior year. Sales increased as a result of
continued demand for SubMicron's advanced wafer cleaning and chemical management
systems. Management believes that sales will continue to improve over the
remainder of the year as compared to the prior year.
Gross Profit
The gross margin was 32% for the three months ended March 31, 1996, as compared
to a gross margin of 34% for the comparable period in the prior year. First
quarter gross margin decreased primarily as the result of a low margin project
at one of the Company's California subsidiaries. Gross margins may vary
significantly from quarter to quarter based upon product mix.
Selling, General and Administrative
Selling, general and administrative expense was 21% of net sales for the three
month period ended March 31,1996, as compared to 27% for the comparable period
in the prior year. The decrease as a percentage of sales is the result of a
significant growth in sales coupled with a reduction of selling expenses through
the use of the Company's internal sales force as opposed to using outside sales
representatives.
Research and Development
Research and development expenses were 4% of net sales for the three month
period ended March 31, 1996 and March 31, 1995, respectively.
Other Income (Expense), Net
Other expense, net was approximately $774,000 for the three period ended March
31, 1996, as compared to other expense of approximately $45,000 for the prior
year comparable period. Other expense for the three months ended March 31, 1996,
is due primarily to interest and other charges associated with the Company's
convertible debt issued in December 1995.
Future Operating Results
The Company's future results will depend on its ability to maintain sales growth
of its existing products and to successfully introduce new products to its
customers in the semiconductor industry. Due to the inherent risk in the timing
of the development and testing of new products, the Company's operating results
may fluctuate, especially when measured on a quarterly basis. The Company's
results will also be affected by the condition of the semiconductor industry, as
well as the general economy.
8
<PAGE> 81
LIQUIDITY AND CAPITAL RESOURCES
In February 1996, the Company replaced it's $11,500,000 note with a $30,000,000
credit facility. The Company used the credit facility to refinance its existing
lines of credit and to provide working capital. Borrowings under the line of
credit bear interest at LIBOR or prime and are secured by substantially all of
the assets of the Company. This credit facility replaced all other credit
facilities of the company and its subsidiaries. The credit facility is subject
to renewal in August 1997 and includes certain financial and other covenants
including a limitation on capital expenditures, restriction on payment of
dividends and the maintenance of certain financial ratios.
Cash provided by (or used in) operating activities varies significantly between
periods. Differences between periods are primarily due to timing of shipments,
cash receipts and inventory purchasing.
Cash and cash equivalents decreased by approximately $7,200,000 during the three
month period ended March 31, 1996, to approximately $8,900,000. Cash used in
operations totaled approximately $5,200,000 for the three months ended March 31,
1996, which was largely due to an increase inventory. Inventory balances of
$42,800,000 at March 31, 1996 are up approximately $8,700,000 from the December
31, 1995 balance of $34,100,000 due primarily to increased material purchased to
prepare for second and third quarter 1996 shipments. Accounts receivable
decreased approximately $6,800,000 from $46,600,000 at December 31, 1995 to
$39,800,000 at March 31, 1996. Accounts payable decreased $7,100,000 from
December 31, 1995 to approximately $18,200,000 at March 31, 1996.
SubMicron believes that with the funds available under its credit facility, it
will have sufficient funds to finance the Company's near term growth activities.
9
<PAGE> 82
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this
amendment has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date included.
SUBMICRON SYSTEMS CORPORATION
Dated: May 14, 1996 By: /s/ David F. Levy
-------------------------------------
David F. Levy
President & CEO
Dated: May 14, 1996 /s/R. G. Holmes
--------------------------------------
R. G. Holmes
Chief Financial Officer
10
<PAGE> 83
SUBMICRON SYSTEMS CORPORATION
6330 HEDGEWOOD DRIVE #150
ALLENTOWN, PA 18106
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON FRIDAY, JUNE 7, 1996
The Annual Meeting of Stockholders of SubMicron Systems Corporation (the
"Company") will be held on Friday, June 7, 1996, at 11:00 a.m., at the Holiday
Inn Conference Center, Rt. 100 & I-78, Fogelsville, Pennsylvania, for the
following purposes:
1. To elect two directors to hold office until the 1999 Annual Meeting of
Stockholders.
2. To approve the Company's 1995 Stock Option Plan for Non-Employee
Directors.
3. To ratify the appointment of Arthur Andersen LLP as the Company's
independent accountants for 1996.
4. To transact such other business as may properly come before the meeting.
The Board of Directors has fixed the close of business on April 17, 1996 as
the record date for the meeting. Only stockholders of record at that time are
entitled to notice of and to vote at the meeting and any adjournment or
postponement thereof.
The enclosed proxy is solicited by the Board of Directors of the Company.
Reference is made to the attached proxy statement for further information with
respect to the business to be transacted at the meeting.
You are cordially invited to attend the meeting in person. The Board of
Directors urges you to sign, date and return the enclosed proxy promptly. The
return of the enclosed proxy will not affect your right to vote in person if you
choose to attend the meeting.
R.G. Holmes
Secretary
May 1, 1996
<PAGE> 84
SUBMICRON SYSTEMS CORPORATION
6330 HEDGEWOOD DRIVE #150
ALLENTOWN, PA 18106
-------------------------
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
JUNE 7, 1996
-------------------------
This proxy statement is furnished in connection with the solicitation of
proxies by the Board of Directors of SubMicron Systems Corporation (the
"Company") for use at the Company's Annual Meeting of Stockholders which will be
held on the date, at the time and place, and for the purposes set forth in the
foregoing notice. This proxy statement, the foregoing notice and the enclosed
proxy card are first being sent to stockholders on or about May 1, 1996.
The Board of Directors does not intend to bring any matter before the
meeting except those as specifically indicated in the notice and does not know
of anyone else who intends to do so. If any other matters properly come before
the meeting, however, the persons named in the enclosed proxy, or their duly
constituted substitutes acting at the meeting, will be authorized to vote or
otherwise act thereon in accordance with their judgment on such matters.
When your proxy card is returned properly signed prior to voting at the
meeting, the shares represented thereby will be voted in accordance with the
instructions marked thereon. If your proxy card is signed and returned without
specifying choices, the shares will be voted as recommended by the directors.
Any proxy may be revoked at any time prior to its exercise by notifying the
Secretary in writing, by delivering a duly executed proxy bearing a later date,
or by attending the meeting and voting in person.
VOTING SECURITIES AND SECURITY OWNERSHIP
OUTSTANDING SHARES AND VOTING RIGHTS
At the close of business on April 17, 1996, the record date fixed for the
determination of stockholders entitled to notice of and to vote at the meeting,
16,573,141 shares of the Company's Common Stock (the "Common Stock") were
outstanding and entitled to vote. Only the record holders of the Common Stock on
the record date will be entitled to vote. There are no other classes of voting
securities outstanding. The presence at the meeting, in person or by proxy, of
holders of a majority of the outstanding shares will constitute a quorum. Each
share of Common Stock is entitled to one vote; there are no cumulative voting
rights with respect to the election of directors.
Abstentions and broker non-voters are counted for purposes of determining
whether a quorum is present at the meeting. Abstentions will be counted in
tabulations of votes cast on the matters to be voted on, whereas broker
non-votes will not be counted for purposes of determining whether a proposal has
been approved. Other than the election of directors, which requires a plurality
of the votes cast, each matter to be submitted to the stockholders requires the
affirmative vote of a majority of the votes cast at the meeting. Accordingly,
except with respect to the election of directors, an abstention has the effect
of a negative vote.
SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership as of April 17, 1996 of (i) each person who was known to
the Company to be the beneficial owner of more than 5% of the Common Stock, (ii)
each director, (iii) each of the Named Executives (as hereinafter defined) and
(iv) all
<PAGE> 85
the directors and executive officers as a group. Each of the stockholders named
below has sole voting and investment power with respect to such shares, unless
otherwise indicated.
<TABLE>
<CAPTION>
COMMON STOCK
-----------------------
NUMBER OF
NAME OF BENEFICIAL OWNER SHARES(1) PERCENT
--------------------------------------------------------------- --------- -------
<S> <C> <C>
David F. Levy(2)............................................... 4,388,500(3) 25.7%
James S. Molinaro(2)........................................... 4,388,500(3) 25.7
John H. Martinson.............................................. 63,750(4) *
Barry W. Ridings............................................... 48,000 *
John P. Traub.................................................. 60,807(5) *
Leonard R. Weisberg............................................ 20,655(6) *
Daniel G. Hajjar............................................... 41,792(7) *
R. G. Holmes................................................... -- --
Arnaldo Jagle.................................................. 50,429(8) *
All executive officers and directors
as a group (8 persons)....................................... 4,623,504(9) 26.9
</TABLE>
- ---------------
* Less than 1 percent.
(1) With respect to each stockholder, includes any shares issuable upon exercise
of any options or warrants held by such stockholder that are or will become
exercisable within sixty days of the record date.
(2) The address of Messrs. Levy and Molinaro is 6330 Hedgewood Drive, #150,
Allentown, PA 18106.
(3) Consists of shares over which the stockholder has power to direct the voting
on the election of directors pursuant to the Voting Agreement (as defined
below). Includes 1,955,500 shares owned by each of Messrs. Levy and Mr.
Molinaro. Also includes options to purchase 243,750 and 233,750 shares of
Common Stock held by Messrs. Levy and Molinaro, respectively.
(4) Consists of warrants to purchase 63,750 shares of Common Stock held by
Edison Venture Fund II, L.P. and Edison Venture Fund II-PA, L.P. Mr.
Martinson is the managing partner of Edison Partners II, L.P. which is the
sole general partner of Edison Venture Fund II, L.P. and Edison Venture Fund
II-PA, L.P.
(5) Includes options to purchase 50,000 shares of Common Stock.
(6) Includes options to purchase 10,000 shares of Common Stock.
(7) Includes options to purchase 32,500 shares of Common Stock.
(8) Includes options to purchase 500 shares of Common Stock.
(9) Includes options and warrants to purchase an aggregate of 633,750 shares of
Common Stock.
2
<PAGE> 86
ELECTION OF DIRECTORS
(ITEM 1 ON PROXY CARD)
At the meeting, the stockholders will elect two Class A directors to hold
office until the 1999 Annual Meeting of Stockholders and until their respective
successors have been duly elected and qualified. The Board of Directors is
divided into three classes serving staggered three-year terms, the term of one
class of directors to expire each year. The term of the present Class A
Directors expires at the 1996 Annual Meeting of Stockholders. The Board of
Directors has nominated David F. Levy and Leonard R. Weisberg to serve as such
directors. Messrs. Levy and Weisberg are currently serving as Class A Directors
and have indicated a willingness to continue serving as directors. Unless
contrary instructions are given, the shares represented by a properly executed
proxy will be voted "FOR" the election of Messrs. Levy and Weisberg. Should Mr.
Levy or Mr. Weisberg become unavailable to accept election as a director, the
persons named in the enclosed proxy will vote the shares which they represent
for the election of such other person as the Board of Directors may recommend.
With the exception of Mr. Ridings and Mr. Traub, all of the current
directors were appointed in connection with the merger of a subsidiary of the
Company with SubMicron Systems, Inc., a Pennsylvania corporation ("SubMicron"),
which was approved by the stockholders of the Company on August 31, 1993 (the
"Merger"). In conjunction with the Merger, all of the Company's directors prior
to the Merger (with the exception of Mr. Ridings) resigned, the Board of
Directors was classified as described above and the executive officers and
directors of SubMicron became the executive officers and directors of the
Company.
Messrs. Levy and Molinaro (the "SubMicron Principals") have entered into a
voting agreement (the "Voting Agreement") that provides for all their shares of
Common Stock to be voted at their joint direction. In the event the SubMicron
Principals are unable to agree on how to vote their shares, they will appoint a
special voting trustee to break the deadlock. If they are unable to agree on the
designation of a special voting trustee, their shares will be voted in
accordance with the vote of the majority of shares of Common Stock not subject
to the Voting Agreement. The Voting Agreement will terminate on the earliest to
occur of August 31, 2003, the death or incapacity of either of the SubMicron
Principals, or the date on which either of the SubMicron Principals no longer
holds any Common Stock.
The current members of the Board of Directors, including the nominees for
Class A Directors, together with certain information about them, are set forth
below:
<TABLE>
<CAPTION>
DIRECTOR TERM POSITIONS WITH
NAME AGE SINCE EXPIRES THE COMPANY
- ----------------------------------- ---- -------- ------- -------------------------------
<S> <C> <C> <C> <C>
Class A Directors
David F. Levy...................... 51 1993(1) 1996 Chairman of the Board, Chief
Executive Officer and Director
Leonard R. Weisberg................ 66 1993(1) 1996 Director
Class B Directors
James S. Molinaro.................. 34 1993(1) 1998 President of SubMicron Systems,
Inc. and Director
Barry W. Ridings................... 44 1991 1998 Director
Class C Directors
John H. Martinson.................. 47 1993(1) 1997 Director
John P. Traub...................... 49 1995 1997 President of Systems Chemistry
and Director
</TABLE>
- ---------------
(1) Messrs. Levy and Weisberg were directors of SubMicron from 1988 until the
Merger, Mr. Molinaro was a director of SubMicron from 1989 until the Merger
and Mr. Martinson was a director of SubMicron from 1992 until the Merger.
3
<PAGE> 87
Mr. Levy, the founder of SubMicron, was SubMicron's Chairman of the Board,
President and Chief Executive Officer from its inception in 1988 until the
Merger. He assumed these positions with the Company upon consummation of the
Merger. In addition, Mr. Levy was Treasurer of the Company from the Merger until
December 1995. Prior to his founding of SubMicron, Mr. Levy was Vice
President -- Automation Division of Dexon, Inc., a semiconductor equipment
manufacturer, from February 1988 to November 1988 and Vice President, Sales and
Marketing of Dexon, from November 1985 to February 1988. From 1983 to 1985, Mr.
Levy was Vice President of Sales and Marketing for Micro Air Systems and from
1978 to 1982, he was head of the Manufacturing Systems and Procedures Group for
Signetics Corporation. Mr. Levy has a B.S. degree in Mechanical Engineering from
Pontifica Universidade Catolica and an MBA from John F. Kennedy University of
Orinda, California.
Mr. Weisberg was a director of SubMicron from its inception until the
Merger and became a director of the Company upon consummation of the Merger. Mr.
Weisberg was Vice President, Research and Engineering for Honeywell Inc. from
1980 until his retirement at the end of 1994. Prior to joining Honeywell, Mr.
Weisberg served as Director of Electronics and Physical Sciences in the Office
of the Secretary of Defense of the United States Department of Defense.
Previously, Mr. Weisberg was Vice President and Director of the Central Research
Laboratory of Itek Corporation and was Director of the Semiconductor Device
Research Laboratory of RCA Laboratories. Mr. Weisberg has a B.A. in Physics from
Clark University and an M.A. in Physics from Columbia University. Mr. Weisberg
also serves as director of XLI Corporation.
Mr. Molinaro was Vice President, Chief Operating Officer and Secretary of
SubMicron from January 1989 until the Merger. He assumed these positions with
the Company upon consummation of the Merger and held such positions until
December 1995. As part of a reorganization of the Company's corporate structure,
in December 1995, Mr. Molinaro became the President of SubMicron, the Company's
principal operating subsidiary, in lieu of his positions with the Company. Mr.
Molinaro has served as a director of SubMicron since 1989 and as a director of
the Company since the Merger. During November and December 1988, Mr. Molinaro
served as a consultant to Dexon and from June 1986 to November 1988, Mr.
Molinaro served as Director of Research and Development for Dexon. From 1983 to
June 1986, Mr. Molinaro was Manager of Research and Development and Engineering
for ATR Corporation. Mr. Molinaro has a B.S. degree in Mechanical Engineering
from Pennsylvania State University.
Mr. Ridings has been a director of the Company since its inception and was
a director of SubMicron from March 1993 until the Merger. Since March 1990, Mr.
Ridings has been a Managing Director for Alex. Brown & Sons. From June 1986 to
March 1990, Mr. Ridings was a Managing Director for Drexel Burnham Lambert,
investment bankers. Mr. Ridings is also a director of Noodle Kidoodle, Inc., New
Valley Corporation, Norex America, Inc., Telemundo Group, Inc. and TransCor
Waste Services Inc. Mr. Ridings received an M.B.A. from Cornell University.
Mr. Martinson was a director of SubMicron from September 1992 until the
Merger and became a director of the Company upon consummation of the Merger.
Since 1986, Mr. Martinson has been the Managing Partner of Edison Venture Fund,
a private venture capital fund. Mr. Martinson is also a director of Dendrite
International, Inc., Nobell Educational Dynamics, Inc. and a number of private
companies.
Mr. Traub has been a director of the Company since the acquisition of
Systems Chemistry Incorporated by the Company in 1995. Mr. Traub has been
President and Chief Executive Officer of Systems Chemistry since 1989 and was
Chairman of the Board of Systems Chemistry from 1993 until its acquisition by
the Company.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During 1995, the Board of Directors held five formal meetings. The Board
has an Audit Committee and a Compensation Committee and in 1996 established a
Nominating Committee. The Audit Committee, which held one formal meeting during
1995, reviews the Company's internal controls and handles matters relating to
the Company's independent auditors. The Compensation Committee, which held five
meetings during 1995, considers and determines compensation issues involving the
Company's executive officers and oversees the compensation of other employees of
the Company. The Compensation Committee also administers the
4
<PAGE> 88
Company's Amended and Restated 1991 Stock Option Plan, the 1993 Executive Stock
Option Plan and the Employee Stock Purchase Plan. Messrs. Weisberg and Ridings
are members of the Compensation Committee and the Stock Option Committee, and
Messrs. Ridings and Martinson are members of the Audit Committee. During 1996,
the Board established a Nominating Committee to assist the Board in finding
qualified individuals to serve as directors. The Nominating Committee will
review background information on candidates, make recommendations to the Board
regarding such candidates and review and make recommendations to the Board for
any candidates that may be proposed by stockholders. Messrs. Levy, Martinson and
Ridings are members of the Nominating Committee.
Mr. Molinaro attended fewer than 75% of the aggregate of the total number
of meetings of the Board of Directors and meetings held by all committees of the
Board of Directors on which he served.
COMPENSATION OF DIRECTORS
Each director who is not an officer or employee of the Company or its
subsidiaries receives $1,500 for each meeting of the Board he attends. In
addition, if the Formula Plan (as hereinafter defined) is approved by the
Company's stockholders, each non-employee director will receive grants of
options as prescribed by the Formula Plan, which is described below.
APPROVAL OF SUBMICRON SYSTEMS CORPORATION
1995 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
(ITEM 2 ON PROXY CARD)
The Company's Board of Directors has adopted, subject to the approval of
the Company's stockholders, the Submicron Systems Corporation 1995 Stock Option
Plan for Non-Employee Directors (the "Formula Plan"). The Formula Plan is
designed to assist the Company in attracting, retaining and compensating highly
qualified individuals who are not employees of the Company for service as
members of the Board and to provide them with a proprietary interest in the
Company's Common Stock. The Board believes the Formula Plan will be beneficial
to the Company and its stockholders by allowing non-employee directors to have a
personal financial stake in the Company, in addition to underscoring their
common interest with stockholders in increasing the value of the Common Stock
over the long term.
The material features of the Stock Purchase Plan are as follows:
- OPTION GRANTS. The Formula Plan provides for a grant of an option to
purchase 5,000 shares of Common Stock to each Non-Employee Director (as
hereinafter defined) at the later of the adoption of the Formula Plan or the
commencement of his or her service as a director. In addition, the Formula Plan
provides for annual grants. Beginning with the Company's 1996 annual meeting of
stockholders, each person who is a Non-Employee Director on the day following
the Company's annual meeting of stockholders, and who has been a Non-Employee
Director for at least three months prior to such grant date, shall receive an
option to purchase 3,000 shares of Common Stock. In the event the Company does
not hold its annual meeting of stockholders by June 30 in any year, the grant
for such year shall be made on June 30 of such year. A Non-Employee Director
shall not receive an annual grant of options with respect to the first annual
grant date after his or her election as a director if such director received an
initial grant of 5,000 shares pursuant to the Formula Plan within nine months of
such annual grant date.
- NUMBER OF SHARES. The aggregate maximum number of shares that may be
issued under the Formula Plan is 200,000, subject to adjustment upon the
occurrence of a stock dividend, stock split, recapitalization or certain other
capital adjustments. Shares subject to options that terminate unexercised will
be available for future option grants under the Formula Plan. The closing price
for a share of Common Stock on April 17, 1996 was $7.875 as reported by the
Nasdaq National Market.
- EXERCISE PRICE. The exercise price for options granted under the Formula
Plan will be the fair market value of a share of Common Stock on the date of
grant, which generally will be the last reported sale price thereof on such
date.
5
<PAGE> 89
- ELIGIBILITY. The Formula Plan is available to "Non-Employee Directors,"
who are defined as members of the Board of Directors who are not, and have not
been for a period of three months prior to the date of a grant thereunder,
employees of the Company or any of its subsidiaries.
- VESTING. Except as described below, each option granted under the
Formula Plan shall vest and become exercisable eleven months after the date of
grant. Upon termination of service of a Non-Employee Director as a member of the
Board by reason of death, disability, resignation after reaching age 65 or
removal from the Board without cause, all outstanding options under the Formula
Plan granted to such Non-Employee Director as of the termination of service
shall vest and become exercisable. In the event of a Change of Control, all
options then outstanding under the Formula Plan shall vest and become
exercisable.
A "Change of Control" shall be deemed to have occurred upon the earliest to
occur of the following events: (a) the date the stockholders of the Company (or
the Board of Directors, if stockholder action is not required) approve a plan or
other arrangement pursuant to which the Company will be dissolved or liquidated;
(b) the date the stockholders of the Company (or the Board of Directors, if
stockholder action is not required) approve a definitive agreement to sell or
otherwise dispose of substantially all of the assets of the Company; (c) the
date the stockholders of the Company (or the Board of Directors, if stockholder
action is not required) and the stockholders of the other constituent
corporation (or its board of directors if stockholder action is not required)
have approved a definitive agreement to merge or consolidate the Company with or
into such other corporation other than, in either case, a merger or
consolidation of the Company in which holders of shares of Common Stock
immediately prior to the merger or consolidation will have at least a majority
of the voting power of the surviving corporation's voting securities immediately
after the merger or consolidation, which voting securities are to be held in the
same proportion as such holders' ownership of Common Stock immediately before
the merger or consolidation; (d) the date any entity, person or group, within
the meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act (other
than (i) the Company or any of its subsidiaries or any employee benefit plan (or
related trust) sponsored or maintained by the Company or any of its
subsidiaries, or (ii) any other person who, as of January 1, 1995, shall have
been the beneficial owner (within the meaning of Rule 13d-3 promulgated under
the Exchange Act) of more than 30% of outstanding shares of Common Stock), shall
have become the beneficial owner of, or shall have obtained voting control over,
more than 30% of the outstanding shares of Common Stock; or (e) the first day
after the date this Plan is effective when directors are elected such that a
majority of the Board of Directors shall have been members of the Board of
Directors for less than two years, unless the nomination for election of each
new director who was not a director at the beginning of such two-year period was
approved by a vote of at least two-thirds of the directors then still in office
who were directors at the beginning of such period.
- ADMINISTRATION. The Plan will be administered by a Committee appointed
by the Board and consisting of directors who are not eligible to participate in
the Formula Plan. The Committee will be authorized to interpret the Formula
Plan, establish and amend rules relating to the Plan and make other
determinations necessary or advisable for the administration of the Plan, but
will have no discretion with respect to the selection of directors to receive
options, the number of shares subject to the Plan or to each grant or the
exercise price for shares subject to option. The Committee will also have no
authority to increase materially the benefits under the Formula Plan.
The Committee may terminate the Plan at any time or amend it in whole or in
part, except that the provision specifying amounts, pricing and timing of grants
may not be amended more than once every six months, other than to comply with
specified changes in applicable law. In addition, any amendment that (a)
increases the number of shares subject to the Formula Plan or to any option or
(b) would require stockholder approval under Rule 16b-3 under the Exchange Act,
may not be implemented without stockholder approval.
- TERMINATION OF OPTIONS. Options shall terminate on the earliest of (a)
the expiration of five years from the date of grant, (b) three months from the
date the optionee's service as a member of the Board of Directors ceases for any
reason other than death, disability, voluntary resignation after age 65 or
removal from the Board without cause, (c) expiration of one year from the date
of termination of service on the Board by
6
<PAGE> 90
reason of death, disability, voluntary resignation after reaching age 65 or
removal from the Board without cause, and (d) the date of removal from the Board
with cause.
- TERM OF FORMULA PLAN. No options may be granted under the Formula Plan
after June 15, 2005.
- CERTAIN FEDERAL INCOME TAX CONSIDERATIONS. The options granted under the
Formula Plan will be non-statutory options not intended to qualify under Section
422 of the Internal Revenue Code. The grant of options will not result in
taxable income to the director or a tax deduction for the Company. A director
will recognize ordinary income in the year in which the option is exercised, in
an amount equal to the excess of the fair market value of the shares over the
exercise price of the option, and the Company will be allowed a deduction in
that amount. Upon disposition of the shares, a director will recognize long-term
or short-term capital gain or loss, depending upon the length of time the shares
were held prior to disposition, equal to the difference between the amount
realized on disposition and the basis in the shares (which basis ordinarily is
the fair market value of the shares on the date the option was exercised).
- FORMULA PLAN BENEFITS. The following table summarizes the options
granted under the Formula Plan since its adoption by the Board of Directors. All
such grants are contingent upon stockholder approval of the Formula Plan.
<TABLE>
<CAPTION>
NUMBER OF SHARES
SUBJECT TO
NAME AND POSITION OPTION
------------------------------------------------------------- ----------------
<S> <C>
Nonemployee Director Group (3 persons)....................... 15,000
</TABLE>
The affirmative vote of the holders of a majority of the Common Stock
voting at the meeting in person or by proxy is required to approve the Formula
Plan. THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR" APPROVAL OF THE FORMULA
PLAN.
RATIFICATION OF THE APPOINTMENT
OF INDEPENDENT PUBLIC ACCOUNTANTS
(ITEM 3 ON PROXY CARD)
Subject to stockholder ratification, the Board of Directors, upon
recommendation of the Audit Committee, has reappointed Arthur Andersen LLP,
which served as the Company's independent public accountants for the last fiscal
year, to serve as the Company's independent public accountants for the current
fiscal year. If the stockholders do not ratify this appointment by the
affirmative vote of a majority of the shares of Common Stock voted at the
meeting, other independent public accountants will be considered by the Board
upon recommendation of the Audit Committee.
A representative of Arthur Andersen LLP is expected to be present at the
meeting. Such representative will have the opportunity to make a statement if he
desires to do so and will be available to respond to appropriate questions.
The affirmative vote of the holders of a majority of the Common Stock
voting at the meeting in person or by proxy is required to ratify the
appointment of Arthur Andersen LLP. THE BOARD OF DIRECTORS RECOMMENDS VOTING
"FOR" RATIFICATION OF THE APPOINTMENT OF ARTHUR ANDERSEN.
7
<PAGE> 91
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth, for the Company's last three fiscal years,
the cash compensation paid by the Company, and prior to the Merger, SubMicron,
as well as certain other compensation paid or accrued for those years to David
F. Levy, the Company's Chief Executive Officer, to each of the Company's two
other executive officers and to two employees who were executive officers during
a portion of 1995 (collectively, the "Named Executives"):
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION
------------------------------------ AWARDS
OTHER ANNUAL ------------ ALL OTHER
NAME AND FISCAL SALARY BONUS COMPENSATION OPTIONS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) ($)(1) (#) ($)
- ------------------------------- ------ ------- ------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
David F. Levy,................. 1995 340,000 46,320 -- 55,000 --
Chairman of the Board, 1994 300,000 -- -- -- --
President and Chief Executive 1993 265,200 -- -- 268,125 --
Officer
R. G. Holmes,(2)............... 1995 75,000 -- -- 20,000 --
Chief Financial Officer and
Treasurer
Daniel G. Hajjar,.............. 1995 150,000 -- -- 40,000 --
Chief Operating Officer
James S. Molinaro,............. 1995 340,000 46,320 -- 45,000 --
President, SubMicron 1994 300,000 -- -- -- --
1993 265,200 -- -- 268,125 --
Arnaldo Jagle,................. 1995 120,000 -- -- 2,000 --
Vice President-Finance, 1994 120,000 -- -- -- --
SubMicron 1993 108,000 9,000 -- 52,245(4) --
</TABLE>
- ---------------
(1) None of the Named Executives received any other annual compensation not
categorized as salary or bonus except for perquisites and other personal
benefits which in the aggregate did not exceed the lesser of $50,000 or 10%
of the total annual salary and bonus reported for such Named Executive.
(2) Mr. Holmes joined the Company in June 1995 and is currently being
compensated at an annualized base salary of $150,000.
(3) Messrs. Molinaro and Jagle were executive officers of the Company at the
beginning, but not the end, of 1995.
(4) Pursuant to the Merger, Mr. Jagle's options to purchase 10,000 shares of
SubMicron Common Stock were exchanged (at the conversion ratio for the
Merger) into options to purchase 52,245 shares of the Company's Common Stock
at an exercise price of $.57 per share.
8
<PAGE> 92
STOCK OPTION GRANTS
The following table contains information concerning grants of stock options
under the Company's 1991 Stock Option Plan to the Chief Executive Officer and to
each of the other Named Executives. The Company does not have any plan pursuant
to which stock appreciation rights ("SARs") may be granted.
OPTION GRANTS IN 1995
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
------------------------------------------------- ANNUAL RATES OF
NUMBER OF % OF TOTAL STOCK PRICE
SECURITIES OPTIONS APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM(1)
OPTIONS EMPLOYEES IN PRICE EXPIRATION --------------------
NAME GRANTED(#) 1995 ($/SH) DATE 5% 10%
- ------------------------------- ---------- ------------ -------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
David F. Levy.................. 25,000(2) 3.9 7.875 5/9/05 104,875 288,625
20,000(3) 3.1 10.125 6/16/05 112,300 302,700
10,000(4) 1.6 11.00 10/4/05 61,600 165,300
R.G. Holmes.................... 20,000(5) 3.1 10.375 6/29/05 115,300 310,700
Daniel G. Hajjar............... 40,000(6) 6.2 4.125 1/30/05 73,800 223,400
James S. Molinaro.............. 25,000(2) 3.9 7.875 5/9/05 104,875 288,625
10,000(3) 1.6 10.125 6/16/05 56,150 151,350
10,000(4) 1.6 11.00 10/4/05 61,600 165,300
Arnaldo Jagle.................. 2,000(5) .3 4.125 1/30/05 3,690 11,170
</TABLE>
- ---------------
(1) Illustrates the value that might be realized upon exercise of options
immediately prior to the expiration of their term, assuming specified
compounded rates of appreciation on the Common Stock over the term of the
options. Assumed rates of appreciation are not necessarily indicative of
future stock performance.
(2) Option fully vested on date of grant.
(3) Option vests on first anniversary of date of grant.
(4) Option vests six months from date of grant.
(5) Option vests in four equal annual installments beginning on the first
anniversary of the date of grant.
(6) Options to purchase 20,000 shares of Common Stock were fully vested on the
date of grant. Remaining options vest in two equal annual installments
beginning on the first anniversary of the date of grant.
STOCK OPTION EXERCISES AND HOLDINGS
The following table sets forth certain information regarding the stock
options exercised by each of the Named Executives during 1995 and the value of
options held by each of the Named Executives at December 31, 1995.
AGGREGATED OPTION EXERCISES IN 1995
AND OPTION VALUES AT DECEMBER 31, 1995
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT AT DECEMBER 31, 1995 ($)(1)
SHARES VALUE DECEMBER 31, 1995 (#)
ACQUIRED ON REALIZED --------------------------- ---------------------------
NAME EXERCISE (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------ ------------ -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
David F. Levy................. -- -- 203,750 119,375 640,781 301,641
R. G. Holmes.................. -- -- -- 20,000 -- --
Daniel G. Hajjar.............. -- -- 22,500 25,000 118,438 130,623
James S. Molinaro............. -- -- 203,750 109,375 640,781 301,641
Arnaldo Jagle................. -- -- -- 2,000 -- 10,625
</TABLE>
- ---------------
(1) The value of unexercised in-the-money options is based on the difference
between the last sale price of the Common Stock on the Nasdaq National
Market on December 29, 1995 ($9.375) and the exercise price of the options,
multiplied by the number of options.
9
<PAGE> 93
EMPLOYMENT CONTRACTS
David F. Levy and James S. Molinaro have each entered into an employment
agreement with the Company which provides for each of them to earn a base salary
of $265,200, which base salary may be increased or decreased from time to time
in the sole discretion of the Company's Board. In no event, however, may such
base salary be less than $240,000 per annum. As discussed under the report of
the Compensation Committee, for fiscal 1995, the base salaries of Messrs. Levy
and Molinaro were fixed at $340,000. The employment agreements for Messrs. Levy
and Molinaro have an initial five-year term expiring in August 1998 that is
automatically renewable at the end of such term for an additional year and each
year thereafter unless either party to the respective agreements gives notice of
nonrenewal. In addition, Messrs. Levy and Molinaro are each eligible to
participate in any bonus or profit sharing plan adopted by the Company and will
be afforded the use of a leased automobile, inclusive of maintenance and
insurance costs, during the term of his employment.
In the event the Company should terminate the employment of either Messrs.
Levy or Molinaro without cause or if either of them should terminate his
employment because of a material breach by the Company of his employment
agreement, Messrs. Levy or Molinaro, as the case may be, will be entitled to
receive a severance benefit equal to his then annual base salary for a period of
three years. However, if such termination follows a merger or sale of all or
substantially all of the Company's assets, Messrs. Levy and Molinaro, as the
case may be, will be entitled to receive a severance benefit equal to his then
annual base salary for a period of five years.
10
<PAGE> 94
STOCK PERFORMANCE GRAPH
The following graph compares the yearly percentage change in the cumulative
total stockholder return on the Common Stock from the commencement of public
trading of the Common Stock on September 12, 1991 through December 31, 1995, the
cumulative total return on the CRSP Total Return Index for The Nasdaq National
Market (US Companies) and the H&Q Technology Index during such period. The
comparison assumes $100 was invested on September 12, 1991 in Common Stock and
in each of the foregoing indices and assumes the reinvestment of any dividends.
Prior to the Merger on August 31, 1993, the Common Stock was traded in the
over-the-counter market on the Nasdaq Small-Cap System under the symbol TICO.
Since September 1, 1993, the Common Stock has been traded under the symbol SUBM.
From September 1, 1993 to December 20, 1993, the Common Stock was traded on the
Nasdaq Small-Cap System, and since December 21, 1993, the Common Stock has been
included in the Nasdaq National Market.
<TABLE>
<CAPTION>
Measurement Period SubMicron H&Q Tech- Nasdaq Stock
(Fiscal Year Covered) Systems nology Market-U.S.
<S> <C> <C> <C>
9/12/91 100.00 100.00 100.00
Sep-91 74.47 98.50 103.09
91.49 103.23 106.50
90.43 99.84 102.92
Dec-91 87.23 113.32 115.49
137.24 119.94 122.25
185.11 125.00 125.02
Mar-92 169.16 117.09 119.12
154.26 114.36 114.01
119.15 114.27 115.49
Jun-92 94.69 107.39 110.98
85.11 112.39 114.91
91.49 108.00 111.40
Sep-92 97.87 111.97 115.54
102.13 117.76 120.09
82.98 125.45 129.64
Dec-92 78.72 130.34 134.42
124.48 135.86 138.24
106.38 127.06 133.09
Mar-93 106.38 128.44 136.94
107.46 121.17 131.09
104.26 132.12 138.92
Jun-93 114.89 131.20 139.57
132.99 124.54 139.73
136.17 131.16 146.96
Sep-93 157.45 133.54 151.33
134.04 137.20 154.73
100.00 138.96 150.12
Dec-93 96.82 142.24 154.30
120.22 150.63 158.99
114.89 152.38 157.50
Mar-94 117.02 143.53 147.81
76.60 140.66 145.90
76.60 141.51 146.25
Jun-94 72.34 133.12 140.90
78.72 138.16 143.79
88.81 151.99 152.96
Sep-94 98.94 151.87 152.57
</TABLE>
11
<PAGE> 95
<TABLE>
<S> <C> <C> <C>
103.20 162.61 155.57
89.36 161.46 150.41
Dec-94 84.05 165.10 150.83
72.34 164.35 151.63
95.62 176.68 159.64
Mar-95 117.02 183.76 164.37
142.55 195.43 169.55
178.72 201.22 173.93
Jun-95 187.23 222.92 188.02
148.94 242.24 201.84
200.00 246.84 205.92
Sep-95 204.26 253.86 210.68
187.23 257.12 209.47
170.21 255.67 214.40
Dec-95 159.57 247.90 213.30
</TABLE>
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors (the "Committee"),
consisting entirely of nonemployee directors, approves all general policies
under which compensation is paid. The Committee determines the compensation of
David F. Levy, the Company's Chief Executive Officer, as well as the Company's
other executive officers. The Committee has delegated to Mr. Levy responsibility
for making recommendations to the Committee with respect to compensation for the
Company's nonexecutive officers. The Committee has final approval, however, for
compensation of all of the Company's officers. The Committee also administers
the Stock Option Plan, the Stock Purchase Plan and the Executive Stock Option
Plan.
Upon consummation of the Merger, Mr. Levy entered into an employment
agreement with the Company which was negotiated with the Company prior to the
Merger. The Committee fixed the Chief Executive Officer's annual salary for 1995
at $340,000, an increase of approximately 13% from 1994. The Committee relied on
a number of factors in setting the 1995 base salary, including the Company's
growth and performance, the efforts of Mr. Levy and compensation at other
companies.
The Committee determined that as the Company continues to grow and since
the two principal stockholders of the Company, Messrs. Levy and Molinaro, made a
transition from majority owners to minority stockholders, it was appropriate to
review the Company's executive compensation practices. Accordingly, during 1995,
the Committee retained Watson Wyatt, an executive compensation consulting firm,
to review the
12
<PAGE> 96
Company's executive compensation practices. Wyatt reviewed the compensation
practices of a group of companies whose products and revenues are generally
comparable to those of the Company. Wyatt found that the base salary of the
Company's Chief Executive Officer was on the higher end of the scale and that
the annual incentives were lower than average. In addition, Wyatt found that the
grant of stock options or other forms of equity compensation was substantially
below average. Accordingly, the consultant recommended that on a comparative
basis, base salaries should increase at a lower rate than annual incentives. In
addition, it was recommended that stock options be granted annually to Mr. Levy
and other executive officers of the Company.
The Committee has determined to follow Wyatt's recommendations that in the
future an increasing percentage of executive compensation, including in
particular of the Chief Executive Officer, should be tied to performance. The
annual incentives will be based on measures of the Company's performance, such
as revenue, profit and earnings per share. The incentives will have a
"minimum-target-maximum" structure, with no bonus paid for any component for
which the minimum is not met and with challenging target and maximum bonuses
representing an increased percentage of base salary. In addition, to provide
longer term incentives and to help further align the interests of management
with the Company's stockholders, grants of stock options will also be an
important part of executive compensation.
Based on the report and the previously established base salaries for 1995,
the Committee established annual incentives for Mr. Levy and other executive
officers of the Company tied to various measures of the Company's performance.
For 1995, Messrs. Levy and Molinaro were eligible to receive a bonus of (i) up
to 10% of their salary based on the Company's 1995 net revenues, (ii) up to 24%
of their salary based on the Company's gross profit, (iii) up to 24% of their
salary based on the Company's 1995 earnings per share and (iv) a discretionary
bonus of up to 10% of their salary based on their individual performance and
efforts. For 1995, the target bonus was 34% of base salary and the maximum bonus
was 58% of base salary. In addition, Mr. Levy was granted options to purchase
55,000 shares of Common Stock.
The Committee fully implemented the recommendations of the consultant with
respect to 1996 executive compensation.
<TABLE>
<S> <C>
COMPENSATION COMMITTEE:
Barry W. Ridings
Leonard R. Weisberg
</TABLE>
CERTAIN TRANSACTIONS
In October 1995, the Company borrowed $2,000,000 from each of David Levy
and James Molinaro for working capital purposes. The loans bore interest at a
rate equal to the effective cost to Messrs. Levy and Molinaro of their borrowing
the funds made available to the Company. The loans, together with aggregate
interest of $135,514, were repaid in December 1995.
On January 31, 1990, SubMicron entered into a Tax Indemnification Agreement
with its stockholders which provided for distributions to be made by SubMicron
for payment of personal tax liabilities imposed on the stockholders as a result
of SubMicron's S Corporation status.
SOLICITATION OF PROXIES
The Company will bear the cost of the solicitation of the Board of
Directors' proxies for the meeting, including the cost of preparing, assembling
and mailing proxy materials, the handling and tabulation of proxies received,
and charges of brokerage houses and other institutions, nominees and fiduciaries
in forwarding such materials to beneficial owners. In addition to the mailing of
the proxy materials, such solicitation may be made in person or by telephone,
telegraph or telecopy by directors, officers or regular employees of the
Company, or by a professional proxy solicitation organization engaged by the
Company.
13
<PAGE> 97
STOCKHOLDER PROPOSALS
Stockholder proposals intended to be presented at the 1997 Annual Meeting
of Stockholders must be received by the Secretary of the Company at the address
appearing on the first page of this Proxy Statement not later than January 2,
1997 in order to be considered for inclusion in the Company's proxy statement
and form of proxy relating to that meeting.
14
<PAGE> 98
<TABLE>
<CAPTION>
Measurement Period SubMicron H&Q Tech- Nasdaq Stock
(Fiscal Year Covered) Systems nology Market-U.S.
<S> <C> <C> <C>
9/12/91 100.00 100.00 100.00
Sep-91 74.47 98.50 103.09
91.49 103.23 106.50
90.43 99.84 102.92
Dec-91 87.23 113.32 115.49
137.24 119.94 122.25
185.11 125.00 125.02
Mar-92 169.16 117.09 119.12
154.26 114.36 114.01
119.15 114.27 115.49
Jun-92 94.69 107.39 110.98
85.11 112.39 114.91
91.49 108.00 111.40
Sep-92 97.87 111.97 115.54
102.13 117.76 120.09
82.98 125.45 129.64
Dec-92 78.72 130.34 134.42
124.48 135.86 138.24
106.38 127.06 133.09
Mar-93 106.38 128.44 136.94
107.46 121.17 131.09
104.26 132.12 138.92
Jun-93 114.89 131.20 139.57
132.99 124.54 139.73
136.17 131.16 146.96
Sep-93 157.45 133.54 151.33
134.04 137.20 154.73
100.00 138.96 150.12
Dec-93 96.82 142.24 154.30
120.22 150.63 158.99
114.89 152.38 157.50
Mar-94 117.02 143.53 147.81
76.60 140.66 145.90
76.60 141.51 146.25
Jun-94 72.34 133.12 140.90
78.72 138.16 143.79
88.81 151.99 152.96
Sep-94 98.94 151.87 152.57
103.20 162.61 155.57
89.36 161.46 150.41
Dec-94 84.05 165.10 150.83
72.34 164.35 151.63
95.62 176.68 159.64
Mar-95 117.02 183.76 164.37
142.55 195.43 169.55
178.72 201.22 173.93
Jun-95 187.23 222.92 188.02
148.94 242.24 201.84
200.00 246.84 205.92
Sep-95 204.26 253.86 210.68
187.23 257.12 209.47
170.21 255.67 214.40
Dec-95 159.57 247.90 213.30
</TABLE>
<PAGE> 99
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) March 26, 1996
--------------
SubMicron Systems Corporation
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 0-19507 13-3607944
- --------------- ----------------------- ------------------
(State or other (Commission File Number) (IRS employer
jurisdiction of identification
incorporation) no.)
6330 Hedgewood Drive, No. 150, Allentown, PA 18106
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (610) 391-9200
--------------
<PAGE> 100
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
Effective March 26, 1996, SubMicron Systems Corporation (the
"Company") acquired Imtec Acculine, Inc. ("Imtec") through the merger of
SubImtec Acquisition Corporation, a wholly-owned subsidiary of the Company
("Newco"), with and into Imtec (the "Merger"). The Merger occurred pursuant to
an Agreement and Plan of Reorganization dated March 21, 1996, by and among the
Company, Newco, Imtec and the sole shareholder of Imtec. Pursuant to the
Merger, the Company issued an aggregate of 575,000 shares of its Common Stock
in exchange for the stock of Imtec. As a result of the Merger, Imtec became a
wholly-owned subsidiary of the Company.
Imtec is a manufacturer of heated chemical quartz tanks used in the
processing of silicon wafers and other substrates and is located in Sunnyvale,
California. Prior to the Merger, the Company was a significant customer of
Imtec.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION
AND EXHIBITS.
(a) Financial Statements of Imtec.
It is impractical to provide such financial statements at the
time of the filing of this Current Report on Form 8-K. The required financial
statements will be filed on or before June 9, 1996.
(b) Pro Forma Financial Information.
It is impractical to provide such pro forma financial
information at the time of the filing this Current Report on Form 8-K. The
required pro forma financial information will be filed on or before June 9,
1996.
(c) Exhibits.
2 Agreement and Plan of Reorganization dated March 21,
1996 by and among the Company, Newco, Imtec and the sole shareholder of Imtec.
- 2 -
<PAGE> 101
SIGNATURE
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 hereunto duly authorized.
SUBMICRON SYSTEMS CORPORATION
Date: April 3, 1996 By: /s/ R.G. Holmes
------------------------
R.G. Holmes, Chief
Financial Officer
- 3 -
<PAGE> 102
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 8-K/A
AMENDMENT NO. 1 TO CURRENT REPORT
Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) March 26, 1996
----------------------------
SubMicron Systems Corporation
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 0-19507 13-3607944
- --------------------- --------------------------- ------------------------
(State or other (Commission File Number) (IRS employer
jurisdiction of identification no.)
Incorporation)
6330 Hedgewood Drive, No. 150, Allentown, PA 18106
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (610) 391-9200
------------------------
<PAGE> 103
Item 7 of the Current Report on Form 8-K dated March 26, 1996 of SubMicron
Systems Corporation (the "Company") is hereby amended and restated in its
entirety to read as follows:
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS
(a) Financial Statements of Business Acquired.
Imtec Acculine, Inc.
Independent Auditors' Report
Balance Sheets as of December 31, 1995 and 1994
Statements of Operations for the years ended December 31, 1995,
1994 and 1993
Statements of Shareholders' Equity for the years ended December
31, 1995, 1994 and 1993
Statements of Cash Flows for the years ended December 31, 1995,
1994 and 1993
Notes to Financial Statements
(b) Pro Forma Financial Information.
SubMicron Systems Corporation and Subsidiaries
Pro Forma condensed combined Balance Sheets as of December 31,
1995
Pro Forma condensed combined Statements of Income for the year
ended December 31, 1995
Notes to Pro Forma condensed combined Financial Statements
(c) Exhibits.
2 Stock Agreement and Plan of Merger dated March 26, 1996 by
and among the Company, SubImtec Acquisition Corporation and
Imtec Acculine, Inc. (incorporated by reference to the
Company's Current Report on Form 8-K dated March 26, 1996)
23.1 Consent of Ireland, San Filippo & Company, Independent
Auditors
2
<PAGE> 104
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Amendment to be signed on its behalf by the
undersigned hereunto duly authorized.
SUBMICRON SYSTEMS CORPORATION
Date: June 7, 1996 By: \s\ R.G. Holmes
-------------------
Name: R.G. HOLMES
Title: CHIEF FINANCIAL OFFICER
3
<PAGE> 105
SUBMICRON SYSTEMS CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
(Unaudited)
The accompanying Pro Forma Condensed Combined Balance Sheet as of December 31,
1995 and the related Pro Forma Condensed Combined Statement of Income for the
year then ended, give effect to the acquisition (the "Acquisition") of Imtec
Acculine, Inc. by SubMicron Systems Corporation and Subsidiaries (SubMicron or
the Company), as if this transaction had occurred as of December 31, 1995 in
the case of the Pro Forma Condensed Combined Balance Sheet or as of January 1,
1995 in the case of the Pro Forma Condensed Combined Statement of Income for
the year ended December 31, 1995.
The Company's Pro Forma Condensed Combined Financial Statements have been
prepared by management and should be read in conjunction with the historical
financial statements of SubMicron and Imtec. The Pro Forma Condensed Combined
Financial Statements are based on certain assumptions and preliminary estimates
which are subject to change. These statements do not purport to be indicative
of the financial position or results of operations that might have occurred,
nor are they indicative of future results.
5
<PAGE> 106
SUBMICRON SYSTEMS CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED BALANCE SHEET
December 31, 1995
(unaudited)
<TABLE>
<CAPTION>
Historical Pro Forma
-------------------------------- -------------------------------------
SubMicron Imtec Adjustments Combined
---------------- ------------ ------------------- ---------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 15,614,303 $ 396,000 $ 16,010,303
Accounts receivable, net 45,461,427 1,467,000 $ (309,868)(c) 46,618,559
Inventories 33,142,107 1,158,000 (168,100)(b) 34,132,007
Prepaids and other 2,695,559 17,000 23,602(b) 2,736,161
Deferred income taxes 1,772,123 114,000 1,886,123
--------------- --------------- --------------- ---------------
Total current assets 98,685,519 3,152,000 (454,366) 101,383,153
Property and equipment, net 12,519,656 111,000 12,630,656
Goodwill 1,911,677 0 1,911,677
Other assets 4,017,838 5,000 4,022,838
--------------- --------------- --------------- ---------------
Total assets $ 117,134,690 $ 3,268,000 $ (454,366) $ 119,948,324
============== ============== ============== ==============
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Line of credit 15,934,000 316,000 16,250,000
Current portion of long-
term debt 1,183,413 0 1,183,413
Accounts payable 25,102,181 507,000 (309,868)(c) 25,299,313
Deferred revenue 2,615,441 0 2,615,441
Accrued expenses and other 8,747,401 187,000 8,934,401
Income taxes payable 0 47,000 (47,000)(b) 0
--------------- --------------- --------------- ---------------
Total current liabilities 53,582,436 1,057,000 (356,868) 54,282,568
Long-term debt, net of current 18,908,737 0 18,908,737
maturities
Deferred income taxes 628,073 0 628,073
Deferred revenues 106,417 0 106,417
--------------- --------------- --------------- ---------------
Total liabilities 73,225,663 1,057,000 (356,868) 73,925,795
--------------- --------------- --------------- ---------------
Stockholders' equity:
Preferred Stock $.0001 par value
5000 shares authorized
None issued and outstanding 0 0 0 0
Common stock $.0001 par value 1,599 18,000 (17,942)(a) 1,657
100,000,000 shares authorized
16,562,796 shares issued and
outstanding
Additional paid-in capital 39,204,683 17,942(a) 39,222,625
Retained earnings 5,007,516 2,193,000 (97,498)(b) 7,103,018
Deferred compensation (224,034) 0 (224,034)
Notes receivable (80,737) (80,737)
--------------- --------------- --------------- ---------------
Total stockholders' equity 43,909,027 2,211,000 (97,498) 46,022,529
--------------- --------------- --------------- ---------------
Total liabilities & stock-
holders' equity $ 117,134,690 $ 3,268,000 $ (454,366) $ 119,948,324
============== ============== ============== ==============
</TABLE>
6
<PAGE> 107
SUBMICRON SYSTEMS CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
For The Year Ended December 31, 1995
(unaudited)
<TABLE>
<CAPTION>
Historical Pro Forma
----------------------------------- -----------------------------------
SubMicron Imtec Adjustments Combined
-------------- ---------------- ---------------- --------------
<S> <C> <C> <C> <C>
Net equipment sales $ 92,294,150 $ 0 $ $ 92,294,150
Net sales, other 25,410,804 7,797,000 (2,434,000)(b) 30,773,804
-------------- ---------------- --------------- --------------
Total net sales 117,704,954 7,797,000 (2,434,000) 123,067,954
-------------- ---------------- --------------- --------------
Cost of equipment sales 63,666,000 63,666,000
Cost of sales, other 18,365,636 4,586,000 (2,265,900)(b) 20,685,736
-------------- ---------------- --------------- --------------
Total cost of sales 82,031,636 4,586,000 (2,265,900) 84,351,736
-------------- ---------------- --------------- --------------
Gross Profit 35,673,318 3,211,000 (168,100) 38,716,218
Selling, general and administrative 26,843,739 2,265,000 29,108,739
Research and development 5,678,517 0 5,678,517
-------------- ---------------- --------------- --------------
Operating income 3,151,062 946,000 (168,100) 3,928,962
-------------- ---------------- ---------------- --------------
Other income (expense):
Interest income 336,911 63,000 399,911
Interest expense (1,826,182) (14,000) (1,840,182)
Other, net 2,698,220 0 0 2,698,220
-------------- ---------------- --------------- --------------
Total, other 1,208,949 49,000 1,257,949
-------------- ---------------- --------------- --------------
Income before provision
for income taxes 4,360,011 995,000 (168,100) 5,186,911
Provision for income taxes 1,150,291 418,000 (70,602)(b) 1,497,689
-------------- ---------------- --------------- --------------
Net income $ 3,209,720 $ 577,000 $ (97,498) $ 3,689,222
============= =============== ============== =============
Net Income
per Common Share $0.21 $0.23
============== ==============
Weighted Average Number
of Common Shares
Outstanding 15,584,687 16,159,687
============== ==============
</TABLE>
7
<PAGE> 108
SUBMICRON SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO PRO FORMA CONSENSED COMBINED FINANCIAL STATEMENTS
(Unaudited)
1. HISTORICAL
The historical balances represent the financial position and results of
operations for each company and were derived from the respective financial
statements for the indicated period.
2. ACQUISITION OF IMTEC ACCULINE INC.
On March 26, 1996, the Company acquired Imtec Acculine, Inc. ("Imtec"), a
Sunnyvale, California corporation. Imtec's principal business is designing,
developing, testing, manufacturing and marketing temperate regulated baths
and high resolution photo plates for the semiconductor market and related
industries. The Company acquired all the outstanding stock of Imtec in
exchange for 575,000 shares of its Common stock. The transaction will be
accounted for as a pooling of interests and accordingly, historical financial
data in future reports will be restated to include Imtec.
The following pro forma adjustments are reflected as if the merger had
occurred as of December 31, 1995 in the case of the Pro Forma Condensed
Combined Balance Sheet or as of January 1, 1995 in the case of the Pro Forma
Condensed Combined Statement of Income for the year ended December 31, 1995.
PRO FORMA CONDENSED COMBINED BALANCE SHEET
(a) To reclassify Imtec equity
(b) To eliminate intercompany profit in inventory and related tax effects
(c) To eliminate intercompany payable/receivable
PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
(b) To eliminate intercompany sales, cost of sales, intercompany profit in
inventory and related tax effects
8
<PAGE> 109
IMTEC ACCULINE, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1994 AND 1995
9
<PAGE> 110
REPORT OF IRELAND, SAN FILIPPO & COMPANY, INDEPENDENT AUDITORS
The Board of Director and Shareholders
Imtec Acculine, Inc.
We have audited the accompanying balance sheets of Imtec Acculine, Inc. (a
California Corporation) as of December 31, 1993, 1994 and 1995, and the related
statements of operations, shareholder's equity and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Imtec Acculine, Inc. at
December 31, 1993, 1994 and 1995, and the results of its operations and its
cash flows for each of the years then ended, in conformity with generally
accepted accounting principles.
IRELAND, SAN FILIPPO & COMPANY
Palo Alto, California
February 23, 1996
10
<PAGE> 111
IMTEC ACCULINE, INC.
-------------
BALANCE SHEET
(In thousands, except share amounts)
ASSETS
<TABLE>
<CAPTION>
December 31,
---------------------------------------------
1993 1994 1995
------------ ------------- -----------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 312 $ 467 $ 396
Accounts receivable, net 685 1,010 1,467
Inventories 899 797 1,158
Other 59 80 131
------------ ----------- -----------
Total current assets 1,955 2,354 3,152
Property and equipment, net 147 138 111
Other assets 4 5 5
------------ ----------- -----------
$ 2,106 $ 2,497 $ 3,268
============ =========== ===========
</TABLE>
LIABILITIES AND SHAREHOLDER'S EQUITY
<TABLE>
<S> <C> <C> <C>
Liabilities:
Accounts payable $ 519 $ 468 $ 507
Accrued salary and employee benefits 122 95 154
Other accrued liabilities 8 18 33
Income taxes payable 61 268 47
Notes payable 214 14 316
------------ ----------- -----------
Total liabilities, all current 924 863 1,057
------------ ----------- -----------
Shareholder's equity:
Common stock, no par value, 1,000,000
shares authorized: 360,000 shares issued
and outstanding at December 31, 1993,
1994 and 1995, respectively 18 18 18
Retained earnings 1,164 1,616 2,193
------------ ----------- -----------
Total shareholder's equity 1,182 1,634 2,211
------------ ----------- -----------
2,106 2,497 3,268
============ =========== ===========
</TABLE>
11
<PAGE> 112
IMTEC ACCULINE, INC.
-------------
STATEMENT OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------
1993 1994 1995
------------ ------------ -----------
<S> <C> <C> <C>
Revenues $ 6,028 $ 7,038 $ 7,797
Costs and expenses:
Cost of revenues 4,088 4,183 4,586
Selling, general and administrative 1,614 2,017 2,265
------------ ----------- -----------
Total costs and expenses 5,702 6,200 6,851
------------ ----------- -----------
Income from Operations 326 838 946
Interest expense (22) (11) (14)
Interest income and other, net 26 31 63
------------ ----------- -----------
Income before tax provision 330 858 995
Tax provision 100 406 418
------------ ----------- -----------
Net Income $ 230 $ 452 $ 577
============ =========== ===========
</TABLE>
12
<PAGE> 113
IMTEC ACCULINE, INC.
-------------
STATEMENT OF SHAREHOLDER'S EQUITY
(In thousands, except share amounts)
<TABLE>
<CAPTION>
Total
Common Retained Shareholder's
Stock Earnings Equity
----------- ------------ -----------
<S> <C> <C> <C>
Balance at December 31, 1992 $ 18 $ 934 $ 952
Net Income - 230 230
----------- ------------ -----------
Balance at December 31, 1993 18 1,164 1,182
Net Income - 452 452
----------- ------------ -----------
Balance at December 31, 1994 18 1,616 1,634
Net Income - 577 577
----------- ------------ -----------
Balance at December 31, 1995 $ 18 $ 2,193 $ 2,211
=========== ============ ===========
</TABLE>
13
<PAGE> 114
IMTEC ACCULINE, INC.
-------------
STATEMENT OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
Operating activities:
Net income $ 230 $ 452 $ 577
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 40 39 38
Deferred income taxes (15) (26) (43)
Changes in operating assets and
liabilities:
Accounts receivable (152) (325) (457)
Inventories (106) 102 (361)
Other current assets (5) 6 (8)
Accounts payable 258 (50) 39
Accrued salary and employee
benefits 35 (19) 80
Income taxes payable 64 208 (227)
------------ ----------- -----------
Net cash provided by (used in)
operating activities: 349 385 (362)
Investing activities:
Property and equipment (73) (29) (11)
Other assets - (1) -
------------ ----------- -----------
Net cash used in investing activities (73) (30) (11)
Financing activities:
Proceeds from (principal payments on)
notes payable 17 (10) (3)
Proceeds from (payments on) line of
credit, net (30) (190) 305
------------ ----------- -----------
Net cash provided by (used in)
financing activities (13) (200) 302
Net increase (decrease) in cash and
cash equivalents 263 155 (71)
Cash and cash equivalents, beginning
of period 49 312 467
------------ ----------- -----------
Cash and cash equivalents, end of period $ 312 $ 467 $ 396
============ =========== ===========
Supplemental disclosure of cash flow
information:
Cash paid for interest $ 22 $ 11 $ 14
============ =========== ===========
Cash paid for taxes $ 51 $ 222 $ 687
============ =========== ===========
</TABLE>
14
<PAGE> 115
IMTEC ACCULINE, INC.
-------------
NOTES TO FINANCIAL STATEMENTS
(Information as of December 31, 1993, 1994 and 1995)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Imtec Acculine, Inc. (the "Company") was incorporated under the laws of the
State of California on April 6, 1972 under the name Imtec Products, Inc. In
March of 1995, the Company changes its name to Imtec Acculine, Inc. for better
recognition in its marketplace. The accompanying consolidated financial
statements for 1993 and 1994 include Imtec Acculine, Inc. (formerly known as
Imtec Products, Inc.) and its former wholly owned subsidiary, Imtec Acculine,
Inc.
The Company's principal business is designing, developing, testing,
manufacturing and marketing temperature regulated baths and high resolution
photo plates for the semiconductor market and related industries.
Principles of consolidation
The consolidated financial statements for 1993 and 1994 include the accounts of
the Company and its wholly-owned subsidiary. All significant intercompany
accounts and transactions have been eliminated in consolidation.
Cash equivalents
For financial statement purposes, the Company considers all highly liquid debt
instruments purchased with a maturity at date of purchase of less than three
months to be cash equivalents.
Inventories
Inventories are stated at weighted-average cost.
Property and equipment
Property and equipment are carried at cost less accumulated depreciation.
Depreciation and amortization have been provided on a straight-line basis over
the following estimated useful lives:
<TABLE>
<S> <C>
Equipment 2 to 7 years
Furniture and fixtures 3 to 7 years
Leasehold improvements Estimated useful life or lease term, whichever is shorter
</TABLE>
Revenue recognition
Revenue from product sales in generally recorded at the time of shipment.
15
<PAGE> 116
IMTEC ACCULINE, INC.
-------------
NOTES TO FINANCIAL STATEMENTS
(Information as of December 31, 1993, 1994 and 1995)
Concentration of credit risk
Financial instruments which potentially subject the Company to concentration of
credit risk consist principally of investments in cash equivalents and trade
receivables.
Investments in cash equivalents consist of cash on deposit with a bank.
Amounts on deposit exceeded the federally insured limits by approximately
$330,000.
Investments in trade receivables arise from the sale of products to customers
in the semiconductor and related industries. The Company performs ongoing
credit evaluations of its customers' financial condition and generally requires
no collateral.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
2. BANKING ARRANGEMENTS
During 1995, the Company had a revolving line of credit up to a maximum of
$500,000. The line of credit was available for working capital borrowing
subject to eligible accounts receivable with interest at the bank's prime rate
plus 1.25% (9.75% at December 1995). The line was secured by all of the assets
of the Company and expires in July 1996. The outstanding borrowing under this
line of credit at December 31, 1995 totaled $305,000.
Terms of the above bank arrangements required compliance with certain financial
covenants including the maintenance of certain ratios, minimum tangible net
worth and profitability. The Company was in compliance with the above
financial covenants at December 31, 1995.
16
<PAGE> 117
IMTEC ACCULINE, INC.
-------------
NOTES TO FINANCIAL STATEMENTS
(Information as of December 31, 1993, 1994 and 1995)
3. RETIREMENT PLANS
The Company maintains qualified retirement plans for eligible employees. The
Company maintains a money purchase pension plan, contributions to which are
based on a percentage of the employee's wages. Contributions to the plan for
the years ended December 31, 1993, 194 and 1995, were $66,000, $59,000 and
$69,000, respectively.
Effective July 1, 1994, the Company established a 401(K) profit sharing plan
for eligible employees. The plan is designed to provide employees with an
accumulation of funds at retirement. The Company may make contributions to the
plan at the discretion of the Board of Directors. Contributions to the plan
for the years ended December 31, 1994 and 1995 were $15,000 and $41,000,
respectively.
4. TAX PROVISION
The tax provision consists of:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------
1993 1994 1995
----------- ------------ -----------
(in thousands)
<S> <C> <C> <C>
Federal - current $ 75 $ 312 $ 321
State - current 25 94 97
----------- ------------ -----------
$ 100 $ 406 $ 418
=========== ============ ===========
</TABLE>
17
<PAGE> 118
IMTEC ACCULINE, INC.
-------------
NOTES TO FINANCIAL STATEMENTS
(Information as of December 31, 1993, 1994 and 1995)
The tax provision reconciles to the amount computed by multiplying income
before tax provision by the U.S. statutory tax rates as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------
1993 1994 1995
------------ ----------- -----------
(in thousands)
<S> <C> <C> <C>
Provision at statutory rates $ 112 $ 292 $ 338
State taxes, net of federal benefit 17 95 66
Nondeductible (nontaxable) items (5) 11 13
Adjust deferred tax balances for increase
in federal rate (5) - -
Other (19) 8 1
------------ ----------- -----------
$ 100 $ 406 $ 418
============ =========== ===========
</TABLE>
Significant components of the Company's deferred tax assets for federal and
state income taxes as of December 31, 1993, 1994 and 1995, are as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------
1993 1994 1995
------------ ----------- -----------
(in thousands)
<S> <C> <C> <C>
Deferred tax assets:
Bad debt reserve $ 4 $ 4 $ 16
Section 263A inventory adjustment 30 36 50
State taxes 10 32 29
Accrued vacation - - 19
------------ ----------- -----------
44 72 114
Valuation allowance - - -
------------ ----------- -----------
Net deferred tax assets $ 44 $ 72 $ 114
============ =========== ===========
</TABLE>
18
<PAGE> 119
IMTEC ACCULINE, INC.
-------------
NOTES TO FINANCIAL STATEMENTS
(Information as of December 31, 1993, 1994 and 1995)
5. INDUSTRY AND GEOGRAPHIC INFORMATION
The Company operates in a single industry segment. The Company markets its
products in the Unites States and in foreign countries through it sales
personnel and independent sales representatives. The Company's geographic
sales as a percent of net revenues are as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------
1993 1994 1995
----------- ------------ -----------
<S> <C> <C> <C>
United States 89% 94% 85%
Export:
Europe 7% 3% 8%
Asia 4% 3% 7%
----------- ------------ -----------
100% 100% 100%
=========== ============ ===========
</TABLE>
6. MAJOR CUSTOMERS
Revenue from major customers constituting 10% or more of net revenues are as
follows:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------
1993 1994 1995
----------- ------------ --------------
<S> <C> <C> <C>
Customer A 23% 23% 31%
Customer B 25% 18% 14%
Customer C - 14% -
</TABLE>
19
<PAGE> 120
IMTEC ACCULINE, INC.
-------------
NOTES TO FINANCIAL STATEMENTS
(Information as of December 31, 1993, 1994 and 1995)
7. SELECTED BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
December 31,
-------------------------------------------
1993 1994 1995
------------ -------------- -----------
(in thousands)
<S> <C> <C> <C>
Accounts receivable:
Trade accounts receivable $ 694 $ 1,021 $ 1,505
Allowance for doubtful accounts (9) (11) (38)
------------ ----------- -----------
$ 685 $ 1,010 $ 1,467
============ =========== ===========
Inventories:
Raw materials $ 587 $ 516 $ 724
Work-in-process 161 82 202
Finished goods 151 199 232
------------ ----------- -----------
$ 899 $ 797 $ 1,158
============ =========== ===========
Other current assets:
Other receivables $ 12 $ 6 $ 5
Deferred income taxes 44 72 114
Prepaid expenses 3 2 12
------------ ----------- -----------
$ 59 $ 80 $ 131
============ =========== ===========
Property and equipment:
Equipment $ 282 $ 240 $ 264
Furniture and fixtures 113 99 87
Leasehold improvements 56 58 58
Vehicles 46 46 46
------------ ----------- -----------
497 443 455
Accumulated depreciation (350) (305) (344)
------------ ----------- -----------
$ 147 $ 138 $ 111
============ =========== ===========
</TABLE>
20
<PAGE> 121
CONSENT OF IRELAND, SAN FILIPPO & COMPANY
INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements of
SubMicron Systems Corporation on Form S-8 (Nos. 33-71900, 33-91986 and
333-4514) and on Form S-3 (No. 33-79370 and 333-4516) of our report dated
February 23, 1996 on the financial statments of Imtec Acculine, Inc. appearing
in this Amendment No. 1 on Form 8-K/A to the Current Report on Form 8-k of
SubMicron Systems Corporation dated March 26, 1996.
Palo Alto, California
June 10, 1996
<PAGE> 1
LETTER OF TRANSMITTAL
TO EXCHANGE UNITS, EACH CONSISTING OF $1,000 PRINCIPAL AMOUNT
OF 9% CONVERTIBLE SUBORDINATED NOTES DUE DECEMBER 15, 1997
AND WARRANTS TO PURCHASE 60 SHARES OF COMMON STOCK OF
SUBMICRON SYSTEMS CORPORATION
FOR
SHARES OF COMMON STOCK OF SUBMICRON SYSTEMS CORPORATION
AND CONSENT TO WAIVER
OF ANY ANTI-DILUTION ADJUSTMENT
TO THE NOTES AS A RESULT OF EXCHANGE OFFER
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON AUGUST 5, 1996, UNLESS THE EXCHANGE OFFER IS EXTENDED.
THE INSTRUCTION IN THIS LETTER OF TRANSMITTAL SHOULD BE CAREFULLY READ
BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
The Exchange Agent for the Offer is:
AMERICAN STOCK TRANSFER & TRUST COMPANY
as Exchange Agent
on Behalf of SubMicron Systems Corporation
By Mail, Overnight Courier or Hand Delivery to:
American Stock Transfer & Trust Company
40 Wall Street
New York, NY 10005
By Facsimile Transmission (For Eligible Institutions Only):
718-234-5001
To Confirm Facsimile Transmission Call:
718-921-8237
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE TRANSMISSION NUMBER OTHER THAN THE
ONE LISTED ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
If you require additional information, please call the Exchange Agent at
800-937-5449, extension 237.
This Letter of Transmittal is to be used in connection with the delivery of
Units consisting of $1,000 principal amount of 9% Convertible Subordinated Notes
due December 15, 1997 ("Notes") and Warrants to purchase 60 shares of Common
Stock of SubMicron Systems Corporation ("Warrants"). Holders who cannot deliver
the Note and Warrant Certificates and all other documents required hereby to the
Exchange Agent by the Expiration Date (as defined in the Offering Circular
referred to below) must tender such Note and Warrant Certificates pursuant to
the guaranteed delivery procedure set forth under the heading "The Exchange
Offer -- Procedure for Exchange" in the Offering Circular.
<PAGE> 2
- --------------------------------------------------------------------------------
BOX 1 DESCRIPTION OF NOTES AND WARRANTS SURRENDERED
(ALL HOLDERS MUST FURNISH THE INFORMATION REQUESTED BELOW)
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
NAME AND ADDRESS OF REGISTERED HOLDER(S)
(KINDLY INDICATE ADDRESS CORRECTIONS, IF ANY, IN
BOX 4 BELOW TITLED "SPECIAL MAILING INSTRUCTIONS")
------------------------------------------------------------------------------------------------------------------
PRINCIPAL
PRINCIPAL AMOUNT
NOTE NO.(S) (IF AVAILABLE) AMOUNT TENDERED
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
TOTAL
------------------------------------------------------
NUMBER
WARRANT CERTIFICATE NO.(S) OF SHARES NUMBER
(IF AVAILABLE) ISSUABLE TENDERED
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
TOTAL
------------------------------------------------------------------------------------------------------------------
</TABLE>
Unless otherwise indicated, it will be assumed that all Notes and Warrants
delivered to the Exchange Agent are being tendered. SEE INSTRUCTION 3.
/ / Check here if tendered Note(s) and Warrant(s) are being delivered
pursuant to a Notice of Guaranteed Delivery previously sent to the Exchange
Agent and complete the following:
Name(s) of tendering holder(s):
Date of Notice of Guaranteed Delivery: __________, 1996
Name of Institution which Guaranteed Delivery:
Unless you complete Box 2 titled "Special Issuance Instructions," the
certificates representing the shares of Common Stock to which you are entitled
will be registered in the name or names in which the Notes and Warrants
surrendered with this Letter of Transmittal are registered, as stated in Box 1.
Ladies and Gentlemen:
The undersigned hereby tenders to SubMicron Systems Corporation, a Delaware
corporation (the "Company"), the above-described 9% Convertible Subordinated
Notes due December 15, 1997 (the "Notes") and the warrants to purchase shares of
Common Stock of the Company (the "Warrants") pursuant to the Company's offer to
exchange 135 shares of its Common Stock, par value $.0001 per share (the "Common
Stock"), for each Unit consisting of $1,000 principal amount of Notes and
Warrants to purchase 60 shares of Common Stock upon the terms and subject to the
conditions set forth in the Offering Circular dated July 8, 1996 (the "Offering
Circular"), receipt of which is hereby acknowledged, and in this Letter of
Transmittal (which, together with any amendments or supplements thereto or
hereto, collectively constitute the "Exchange Offer").
Upon the terms and subject to the conditions of the Exchange Offer and
effective upon acceptance for exchange of, and delivery of shares of Common
Stock to be issued in exchange for, the Notes and Warrants tendered herewith,
the undersigned hereby tenders, exchanges, sells, assigns and transfers to or
upon the order of the Company and irrevocably constitutes and appoints the
Exchange Agent the true and lawful agent and attorney-in-fact of the undersigned
with respect to the Notes and the Warrants, with full power of substitution
(such power of attorney being deemed to be an irrevocable power coupled with an
interest), to present the Notes and Warrants for transfer on the books of the
Company, including, by delivery of the Notes and Warrants together with all
accompanying evidences of transfer and authenticity, to or upon the order of the
Company and thereby to transfer all right, title and interest to the Company in
the Notes and Warrants so tendered.
2
<PAGE> 3
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, exchange, sell, assign and transfer the
Notes and Warrants described above, that the undersigned has good title thereto
free and clear of all liens, restrictions, charges, encumbrances and any adverse
claims and that when the Notes and Warrants are accepted for exchange by the
Company, the Company will acquire good and unencumbered title thereto, free and
clear of all liens, restrictions, charges and encumbrances and not subject to
any adverse claims. The undersigned will, upon request, execute any additional
documents necessary or desirable to complete the exchange of the Notes and
Warrants surrendered herewith.
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of each of the undersigned, and all obligations of the
undersigned hereunder shall be binding upon the heirs, personal representatives,
successors and assigns of such undersigned.
The undersigned understands that tenders of Notes and Warrants pursuant to
the procedures described in the Offering Circular and the instructions hereto
will constitute a binding agreement between the undersigned and the Company upon
the terms and subject to the conditions of the Exchange Offer. Except as stated
in the Exchange Offer, this tender is irrevocable.
CONSENT TO WAIVER OF ANTI-DILUTION PROVISIONS OF NOTES
WITH RESPECT TO EXCHANGE OFFER
The Conversion Price of the Notes (as defined therein) is subject to
adjustment upon the occurrence of certain events. Depending on the price of a
share of Common Stock on the Expiration Date, the Conversion Price might be
affected by the Exchange Offer. THE UNDERSIGNED, THE REGISTERED HOLDER OF THE
NOTES LISTED IN BOX 1, BY SIGNING THIS LETTER OF TRANSMITTAL IN BOX 5 BELOW,
HEREBY CONSENTS TO THE WAIVER OF THE APPLICABILITY OF ANY ANTI-DILUTION
PROVISIONS IN THE NOTES WHICH MIGHT ADJUST THE CONVERSION PRICE OF THE NOTES OR
THE NUMBER OF SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF THE NOTES AS A
RESULT OF ANY SHARES OF COMMON STOCK ISSUED PURSUANT TO THE EXCHANGE OFFER. IN
THE EVENT HOLDERS OF AT LEAST 51% OF THE AGGREGATE PRINCIPAL AMOUNT OF THE NOTES
OUTSTANDING SO CONSENT, THERE WILL BE NO ADJUSTMENT TO THE CONVERSION PRICE OR
THE NUMBER OF SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF THE NOTES AS A
RESULT OF THE EXCHANGE OFFER.
The undersigned requests that the certificates representing the Common
Stock be issued and delivered to the undersigned at the address appearing in Box
1 unless otherwise indicated in Boxes 2 or 4 below titled, respectively,
"Special Issuance Instructions" or "Special Mailing Instructions."
3
<PAGE> 4
TO CHANGE OWNER'S NAME
If you wish to change the name in which the shares of Common Stock are to
be registered, complete Box 2 below titled "Special Issuance Instructions."
---------------------------------------------------------------
BOX 2 SPECIAL ISSUANCE
INSTRUCTIONS
TO BE COMPLETED ONLY if the certificate for the Common Stock is to be
registered in the name(s) of someone other than the registered holder of
Notes and Warrants as stated in Box 1.
Issue to:
---------------------------------------------------------------
(PLEASE PRINT OR TYPE FULL NAME OF PERSON TO BECOME THE REGISTERED HOLDER
OF THE COMMON STOCK)
Address:
--------------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
(INCLUDE ZIP CODE)
SOCIAL SECURITY OR TAXPAYER IDENTIFICATION NUMBER OF PERSON:
---------------------------------------------------------------
(SEE INSTRUCTION 10)
Note: If you complete this Box, your signature must be guaranteed in Box 3
by an Eligible Institution. (SEE INSTRUCTION 5)
---------------------------------------------------------------
---------------------------------------------------------------
BOX 3 SIGNATURE GUARANTEE
(SEE INSTRUCTION 5)
TO BE COMPLETED ONLY if you have completed Box 2 or Box 4 and as
required by Instruction 5 or Instruction 7.
The undersigned hereby guarantees the signature(s) which appear on
this Letter of Transmittal and the Note(s) and Warrants deposited pursuant
to this Letter of Transmittal.
---------------------------------------------------------------
(NAME OF ELIGIBLE INSTITUTION ISSUING GUARANTEE)
---------------------------------------------------------------
(SIGNATURE OF OFFICER)
---------------------------------------------------------------
(TITLE OF OFFICER SIGNING THIS GUARANTEE)
---------------------------------------------------------------
---------------------------------------------------------------
(ADDRESS OF ELIGIBLE INSTITUTION)
---------------------------------------------------------------
(DATE)
(OTHER THAN SIGNATURE, PLEASE PRINT OR TYPE)
---------------------------------------------------------------
4
<PAGE> 5
SPECIAL MAILING INSTRUCTIONS
If you wish to have the Common Stock sent to an address other than the
record address of the registered holder which appears in Box 1, fill in Box 4
below titled "Special Mailing Instructions." If you wish to change the record
address for the registered holder(s) named in Box 1, enter the new address in
Box 4 below titled "Special Mailing Instructions" and check the small box
immediately below the corrected or new address.
BOX 4 SPECIAL MAILING INSTRUCTIONS
TO BE COMPLETED ONLY if the Common Stock is to be registered in the name of
the registered holder of the Notes and Warrants named in Box 1, BUT IS TO BE
MAILED to a person or an address different from that which appears in Box 1.
Mail to:
Name
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPE)
Address
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(INCLUDE ZIP CODE)
ADDRESS CORRECTION OR NEW RECORD ADDRESS?
/ / Check this box if the above address is intended to be either an address
correction or new record address for the registered holder(s) named in Box 1 and
is to be used for all future shareholder correspondence.
NOTE:If you complete this Box, your signature must be guaranteed in Box 3 by an
Eligible Institution.
(SEE INSTRUCTION 7)
BOX 5 ALL REGISTERED HOLDERS MUST SIGN HERE
This Letter of Transmittal must be signed on the spaces immediately below
by all registered holders exactly as their names appear on the Notes and Warrant
Certificates surrendered herewith. If signing is by an attorney-in-fact,
executor, administrator, trustee, guardian, officer of a corporation, agent or
other person acting in a fiduciary or representative capacity, please set forth
full title and submit evidence (which must be satisfactory to the Exchange
Agent) of the authority to so act. SEE INSTRUCTION 6. THE UNDERSIGNED, AS THE
REGISTERED HOLDER OF THE NOTES DESCRIBED IN BOX 1, HEREBY CONSENTS TO THE WAIVER
OF THE APPLICABILITY OF ANY ANTI-DILUTION PROVISIONS IN THE NOTES WITH RESPECT
TO THE EXCHANGE OFFER.
Signature(s)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Name(s)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(PLEASE TYPE OR PRINT)
Capacity
- --------------------------------------------------------------------------------
Daytime Area Code and Telephone No.
- ----------------------------------------------------------------------
Name of Contact Person
- --------------------------------------------------------------------------------
Date , 1996
- --------------------------------------------------------------------------------
5
<PAGE> 6
IMPORTANT TAX INFORMATION
PLEASE PROVIDE YOUR SOCIAL SECURITY OR OTHER TAXPAYER IDENTIFICATION NUMBER
ON THE SUBSTITUTE FORM W-9 BELOW AND CERTIFY THEREIN THAT YOU ARE NOT SUBJECT TO
BACKUP WITHHOLDING. FAILURE TO DO SO MAY SUBJECT YOU TO BACKUP WITHHOLDING ON
DIVIDENDS ON THE COMMON STOCK THAT MIGHT BE PAYABLE IN THE FUTURE. SEE
INSTRUCTION 10.
<TABLE>
<Caption
- ---------------------------------------------------------------------------------------------------------
PAYER'S NAME: SUBMICRON SYSTEMS CORPORATION
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
SUBSTITUTE PART I -- PLEASE PROVIDE YOUR TIN IN THE BOX AT ----------------------------
FORM W-9 THE RIGHT AND CERTIFY BY SIGNING AND DATING Social Security Number
BELOW OR
----------------------------
Employer Identification
Number
- ---------------------------------------------------------------------------------------------------------
PART II -- Certification -- Under penalties of
perjury, I certify that:
(1) The number shown on this form is my correct
taxpayer identification number (or I am
waiting for a number to be issued to me).
(2) I am not subject to backup withholding
either because (a) I am exempt from backup
withholding, or (b) I have not been
notified by the Internal Revenue Service PART III --
("IRS") that I am subject to backup AWAITING TIN
withholding as a result of a failure to //
report all interest or dividends, or (c) the
IRS has notified me that I am no longer
subject to backup withholding.
-----------------------------------------------------------------------------
CERTIFICATION INSTRUCTIONS -- You must cross out item (2) above if you have
been notified by the IRS that you are currently subject to backup
Department of the Treasury withholding because of underreporting interest or dividends on your tax
Internal Revenue Service return. However, if after being notified by the IRS that you were subject to
Payer's Request for backup withholding you received another notification from the IRS that you
Taxpayer Identification are no longer subject to backup withholding, do not cross out such item (2).
Number (TIN)
- ---------------------------------------------------------------------------------------------------------
</TABLE>
SIGNATURE __________________________________________DATE ________________, 1996
- --------------------------------------------------------------------------------
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN
PART III OF SUBSTITUTE FORM W-9.
- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification
number has not been issued to me, and either (1) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or
(2) I intend to mail or deliver an application in the near future. I
understand that if I do not provide a taxpayer identification number by the
time of payment, 31% of all reportable payments made to me will be withheld,
but that such amounts will be refunded to me if I then provide a Taxpayer
Identification Number within sixty (60) days.
SIGNATURE ________________________________________DATE _________________, 1996
-------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF DIVIDENDS ON THE COMMON STOCK THAT MIGHT BE PAYABLE IN THE
FUTURE. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF
TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL
DETAILS AND FOR FURTHER GUIDANCE ON PROPERLY COMPLETING THE FORM.
6
<PAGE> 7
INSTRUCTIONS
1. EXECUTION AND DELIVERY OF LETTER OF TRANSMITTAL
This Letter of Transmittal should be completed, dated, signed and mailed or
hand delivered to the Exchange Agent, American Stock Transfer & Trust Company,
40 Wall Street, New York, NY 10005, accompanied by the Note and Warrant
Certificates which you desire to tender. Please do not send Note and Warrant
Certificates directly to the Company. Holders who cannot deliver the Note and
Warrant Certificates and all other required documents to the Exchange Agent by
the Expiration Date must tender such Note and Warrant Certificates pursuant to
the guaranteed delivery procedure set forth in the Offering Circular under the
caption "The Exchange Offer -- Procedure for Exchange." Pursuant to such
procedure: (a) such tender must be made by or through an Eligible Institution;
(b) a properly completed and duly executed Notice of Guaranteed Delivery
substantially in the form provided by the Company must be received by the
Exchange Agent by the Expiration Date; and (c) the Note and Warrant
Certificates, as well as a properly completed and duly executed Letter of
Transmittal (or facsimile thereof) and any other documents required by this
Letter of Transmittal must be received by the Exchange Agent within five Nasdaq
trading days after the date of execution of such Notice of Guaranteed Delivery,
all as provided in the Offering Circular under the caption "The Exchange
Offer -- Procedure for Exchange."
THE METHOD OF TRANSMITTING OR DELIVERING THE NOTE AND WARRANT CERTIFICATES
IS AT YOUR OPTION, RISK AND ELECTION, BUT IF YOU SEND THE CERTIFICATES BY MAIL,
IT IS RECOMMENDED THAT THEY BE SENT BY CERTIFIED OR REGISTERED MAIL WITH RETURN
RECEIPT REQUESTED OR BY OVERNIGHT DELIVERY SERVICE AND THAT THEY BE PROPERLY
INSURED FOR THEIR REPLACEMENT VALUE SINCE TITLE TO THE CERTIFICATES SHALL PASS
ONLY UPON DELIVERY TO THE EXCHANGE AGENT. AN ADDRESSED ENVELOPE IS ENCLOSED FOR
YOUR CONVENIENCE. DELIVERY WILL BE DEEMED EFFECTIVE ONLY WHEN ACTUALLY RECEIVED
BY THE EXCHANGE AGENT.
No alternative, conditional or contingent tenders will be accepted and only
whole Units ($1,000 principal amount of Notes and Warrants to purchase 60 shares
of Common Stock) or integral multiples thereof will be accepted for exchange.
2. SIGNATURES
The Letter of Transmittal must be signed by or on behalf of the registered
holder(s) of the Note and Warrant Certificates transmitted. If the Note and
Warrant Certificates are registered in the names of two or more owners, all such
owners must sign. The signature(s) on the Letter of Transmittal must correspond
exactly to the name(s) written on the face of the Note and Warrant Certificates
transmitted. If the Note and Warrant Certificates to be surrendered are
registered in different names or different forms of the same name, it will be
necessary to complete, sign and submit as many separate Letters of Transmittal
as there are different registrations of certificates.
3. PARTIAL TENDERS
If less than all the Notes and Warrants delivered to the Exchange Agent are
to be tendered, fill in the principal amount of Notes and number of Warrants
which are to be tendered in the box "Principal Amount Tendered" and "Number
Tendered," respectively. New Note and Warrant Certificates for the principal
amount of the Note and Warrants not tendered will be sent to the person(s)
signing the Letter of Transmittal as promptly as practicable following the
expiration or termination of the Exchange offer. All Notes and Warrants
delivered to the Exchange Agent will be deemed to have been tendered unless
otherwise indicated.
4. ISSUANCE OF CERTIFICATE FOR COMMON STOCK IN SAME NAME
If the certificate representing the Common Stock is to be issued in the
name of the registered holder(s) set forth on the surrendered Note and Warrant
Certificates and be mailed to the address set forth in Box 1, the
7
<PAGE> 8
surrendered certificates need not be endorsed and no guarantee of the signature
on the Letter of Transmittal is required. Remember, however, that proper
completion of Box 5 titled "All Registered Holders Must Sign Here" and of the
Substitute Form W-9 is still required. For corrections in name and changes in
name not involving changes in ownership, see Instruction 5(b).
5. ISSUANCE OF CERTIFICATE FOR COMMON STOCK IN DIFFERENT NAME
If the certificate representing the Common Stock is to be issued in the
name of someone other than the registered holder(s) of the surrendered Note and
Warrant Certificates, you must follow the guidelines below. Note that in each
circumstance listed below, shareholder(s) must complete Boxes 2 and 5 and the
Substitute Form W-9 and must have their signature(s) guaranteed in Box 3.
(a) Registration in Different Name. In addition to completing Boxes 2
and 5 and the Substitute Form W-9, the Note surrendered must be properly
endorsed and the Form of Assignment at the end of the Warrant Certificate
must be properly completed and executed (or such certificates must be
accompanied by appropriate transfer forms properly executed) by the
registered holder(s) of such Note and Warrant Certificates to the person
who is to receive the Common Stock. The signature(s) of the registered
holder(s) on the applicable transfer or assignment form and in Box 5 must
correspond with the name(s) written upon the face of the Note and Warrant
Certificates in every particular and must be guaranteed in Box 3 by an
Eligible Institution as defined below. An "Eligible Institution" is a firm
that is a member of a recognized Medallion Program approved by The
Securities Transfer Association Inc., which includes most commercial banks,
savings and loan associations and brokerage houses.
(b) Correction of or Change in Name. For a correction of name or for a
change in name which does not involve a change in ownership, proceed as
follows: For a change in name by marriage, etc., the Letter of Transmittal
should be signed, e.g., "Mary Doe, now by marriage Mary Jones." For a
correction in name, the Letter of Transmittal should be signed, e.g.,
"James E. Brown, incorrectly inscribed as J.E. Brown." The signature in
each case must be guaranteed in Box 3, and Box 2, Box 5 and the Substitute
Form W-9 should be completed.
You should consult your own tax advisor as to any possible tax consequences
resulting from the issuance of the certificate for the Common Stock in a name
different from that of the registered holder(s) of the surrendered certificates.
6. SUPPORTING EVIDENCE
In case any Letter of Transmittal, certificate endorsement or stock power
is executed by an agent, attorney, administrator, executor, guardian, trustee or
any person in any other fiduciary or representative capacity, or by an officer
of a corporation on behalf of the corporation, there must be submitted (with the
Letter of Transmittal, surrendered certificates, and/or stock powers)
documentary evidence of appointment and authority to act in such capacity
(including court orders and corporate resolutions where necessary), as well as
evidence of the authority of the person making such execution to assign, sell or
transfer the certificates. Such documentary evidence of authority must be in
form satisfactory to the Exchange Agent.
7. SPECIAL INSTRUCTIONS FOR DELIVERY BY THE EXCHANGE AGENT
The certificate representing the Common Stock will be mailed to the address
of the registered holder(s) as indicated in Box 1 unless instructions to the
contrary are given in Box 4 titled "Special Mailing Instructions." In the event
you complete Box 4, "Special Mailing Instructions," in addition to completing
Box 1, and signing Box 5 and the Substitute W-9 Form, you must also have your
signature guaranteed in Box 3.
8
<PAGE> 9
8. IMPROPER TENDER
Shares of Common Stock will be distributed only if a Letter of Transmittal,
properly completed and signed, is received by the Exchange Agent, together with
the Note and Warrant Certificates that are registered in the name or names which
appear in Box 1 and any other documents required by the Letter of Transmittal.
The Exchange Agent and the Company reserve the absolute right to reject any
or all tenders that are defective or irregular and may request from persons
making such tenders such additional documents as the Exchange Agent and the
Company deem appropriate to correct such defects or irregularities. However, the
Exchange Agent and the Company reserve the right in their discretion to waive
any defect or irregularity in any tender as provided for herein, and upon such
waiver they may treat and receive any such defective or irregular tender as if
no such defect or irregularity had been present. Tenders will not be deemed to
have been made until all defects or irregularities, which have not been waived,
have been cured.
9. LOST CERTIFICATES
In the event the holder of Notes and Warrants is unable to deliver to the
Exchange Agent the Note and Warrant Certificates due to the loss or destruction
of such certificate(s), such fact should be indicated on the face of this Letter
of Transmittal. In such event, the Exchange Agent will forward additional
documentation which the holder must complete in order to surrender such lost or
destroyed certificate(s).
10. FEDERAL TAX INFORMATION
In order to avoid backup withholding on dividends on the Common Stock that
might be payable in the future, the U.S. Treasury Department requires that a
taxpayer identification number be provided on Form W-9 and that you certify that
the taxpayer identification number provided on Form W-9 is correct (or that you
are awaiting a taxpayer identification number) and that (a) you have not been
notified by the Internal Revenue Service that you are subject to backup
withholding as a result of failure to report all interest or dividends or (b)
the Internal Revenue Service has notified you that you are no longer subject to
backup withholding.
Furnish the taxpayer identification number of the person, corporation or
other entity in the name of which the Common Stock is to be registered on the
Substitute Form W-9 included on this Letter of Transmittal. If shares are to be
registered in the name of someone other than the registered holder of the Note
and Warrant Certificates, the persons indicated in Box 2 titled "Special
Issuance Instructions" must complete the Substitute Form W-9. Then complete the
remainder of the Substitute Form W-9 according to the instructions to the Form
W-9. For individuals having a social security number, the taxpayer
identification number is the same as your social security number. For others, a
number will be furnished by the Treasury Department upon request, if you do not
already have a taxpayer identification number. If the Common Stock certificates
are to be registered in more than one name or are not in the name of the actual
owner, consult the enclosed instructions for Form W-9 for additional guidelines
on which number to report.
Failure to complete Substitute Form W-9 properly may subject you to a
penalty and a federal backup withholding tax. If the backup withholding tax
requirements apply to you, the Company may be required to withhold 31% of any
dividend payments that might be made to you in the future.
If you are an exempt shareholder (including, among others, all corporations
and certain foreign individuals), you are not subject to these backup
withholding and reporting requirements. In order for a foreign individual to
qualify as an exempt recipient, that person must submit a statement, signed
under penalties of perjury, attesting to that individual's foreign status. Such
statements can be obtained from the Exchange Agent.
11. WITHDRAWAL RIGHTS
Tendered Notes and Warrants may be withdrawn only pursuant to the
procedures set forth under the caption "The Exchange Offer -- Withdrawal Rights"
in the Offering Circular.
12. INQUIRIES
If you have any questions or need assistance relating to the Letter of
Transmittal, please contact the Exchange Agent at 800-937-5449, extension 237.
Additional copies of the Letter of Transmittal may be obtained from the Exchange
Agent.
9
<PAGE> 10
GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER.--Social Security numbers have nine digits separated by two hyphens:
i.e.000-00-0000. Employer identification numbers have nine digits separated by
only one hyphen: i.e.00-0000000. The table below will help determine the number
to give the payer.
<TABLE>
<CAPTION>
Give the
For this type of account SOCIAL SECURITY number of
- ------------------------ -------------------------
<S> <C>
1. An individual's account The individual
2. Two or more individuals The actual owner of the account or, if combined funds,
(joint account) any one of the individuals(1)
3. Husband and wife The actual owner of the account or, if joint funds,
(joint account) either person(1)
4. Custodian account of a minor The minor(2)
(Uniform Gift to Minors Act)
5. Adult and minor The adult or, if the minor is the only
(joint account) contributor, the minor(1)
6. Account in the name of guardian The ward, minor, or incompetent person(3)
or committee for a designated
ward, minor, or incompetent
person
7. a. The usual revocable The grantor-trustee(1)
savings trust account
(grantor is also trustee)
b. So-called trust account that The actual owner(2)
is not a legal or valid
trust under State law
8. Sole proprietorship account The owner(4)
<CAPTION>
Give the EMPLOYER
For this type of account IDENTIFICATION number of
- ------------------------ -------------------------
<S> <C>
9. A valid trust, estate, or The legal entity (Do not furnish the identifying
pension trust number of the personal representative or trustee
unless the legal entity itself is not designated
in the account title.)(5)
10. Corporate account The corporation
11. Association, club, religious, The organization
charitable, educational or
other tax-exempt organization
account
12. Partnership account The partnership
13. A broker or registered nominee The broker or nominee
14. Account with the Department of The public entity
Agriculture in the name of a
public entity (such as a State or
local government, school
district, or prison) that
receives agricultural program
payments
</TABLE>
- ------------------------
(1) List first and circle the name of the person whose number
you furnish.
(2) Circle the minor's name and furnish the minor's social
security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish
such person's social security number.
(4) You must show your individual name, but you may also
enter your business or "doing business as" name. You may use your social
security number or employer identification number.
(5) List first and circle the name of the legal trust, estate,
or pension trust.
NOTE: If no name is circled when there is more than one name, the
number will be considered to be that of the first name listed.
<PAGE> 11
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or
Form SS-4, Application for Employer Identification Number, at the local office
of the Social Security Administration or the Internal Revenue Service and
apply for a number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include
the following:
- - A corporation.
- - A financial institution.
- - An organization exempt from tax under section 501(a), or an individual
retirement plan, or a custodial account under section 403(b)(7).
- - The United States or any agency or instrumentality thereof.
- - A State, the District of Columbia, a possession of the United States,
or any subdivision or instrumentality thereof.
- - A foreign government, a political subdivision of a foreign government,
or any agency or instrumentality thereof.
- - An international organization or any agency, or instrumentality thereof.
- - A registered dealer in securities or commodities registered in the U.S.
or a possession of the U.S.
- - A real estate investment trust.
- - A common trust fund operated by a bank under section 584(a).
- - An exempt charitable remainder trust, or a nonexempt trust described in
section 4947(a)(1).
- - An entity registered at all times under the Investment Company Act of 1940.
- - A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to
backup withholding include the following:
- - Payments to nonresident aliens subject to withholding under section 1441.
- - Payments to partnerships not engaged in a trade or business in the U.S. and
which have at least one nonresident partner.
- - Payments of patronage dividends where the amount received is not paid in
money.
- - Payments made by certain foreign organizations.
- - Payments made to a nominee.
Payments of interest not generally subject to backup withholding include the
following:
- - Payments of interest on obligations issued by individuals.
NOTE: You may be subject to backup withholding if this interest is $600 or
more and is paid in the course of the payer's trade or business and you have
not provided your correct taxpayer identification number to the payer.
- - Payments of tax-exempt interest (including exempt-interest dividends under
section 852).
- - Payments described in section 6049(b)(5) to non-resident aliens.
- - Payments on tax-free covenant bonds under section 1451.
- - Payments made by certain foreign organizations.
- - Payments made to a nominee.
Exempt payees described above should file Substitute Form W-9 to avoid possible
erroneous backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR
TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM IN PART
II, SIGN AND DATE THE FORM, AND RETURN IT TO THE PAYER.
Certain payments other than interest, dividends, and patronage dividends,
that are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under sections 6041, 6041A(a),
6045, and 6050A.
PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividend,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to IRS. IRS uses the numbers for identification
purposes. Payers must be given the numbers whether or not recipients are
required to file tax returns. Payers must generally withhold 31% of taxable
interest, dividend, and certain other payments to a payee who does not furnish a
taxpayer identification number to a payer. Certain penalties may also apply.
PENALTIES
(1) Penalty for Failure to Furnish Taxpayer Identification Number.--If you
fail to furnish your taxpayer identification number to a payer, you are subject
to a penalty of $50 for each such failure unless your failure is due to
reasonable cause and not to willful neglect.
(2) Failure to Report Certain Dividend and Interest Payments. --If you fail
to include any portion of an includible payment for interest, dividends, or
patronage dividends in gross income and such failure is due to negligence, a
penalty of 20% is imposed on any portion of an under-payment attributable to
that failure.
(3) Civil Penalty for False Information With Respect to Withholding.--If
you make a false statement with no reasonable basis which results in no
imposition of backup withholding, you are subject to a penalty of $500.
(4) Criminal Penalty for Falsifying Information. --Falsifying certifications
or affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL
REVENUE SERVICE.
<PAGE> 1
NOTICE OF GUARANTEED DELIVERY
9% CONVERTIBLE SUBORDINATED NOTES DUE DECEMBER 15, 1997
AND WARRANTS TO PURCHASE COMMON STOCK
OF
SUBMICRON SYSTEMS CORPORATION
This form or one substantially equivalent hereto must be used to accept the
Exchange Offer (as defined below) if the certificates for 9% Convertible
Subordinated Notes due December 15, 1997 (the "Notes") of SubMicron Systems
Corporation, a Delaware corporation (the "Company"), or the certificate(s) for
Warrants to purchase shares of the Company's Common Stock (the "Warrants") are
not immediately available. Such form may be delivered by hand or transmitted by
telegram, telex, facsimile transmission or letter to the Exchange Agent. See the
Company's Offering Circular dated July 8, 1996 (the "Offering Circular").
AMERICAN STOCK TRANSFER & TRUST COMPANY
(the "Exchange Agent")
800-937-5449
EXTENSION 237
(For Information)
By Mail or Hand:
AMERICAN STOCK TRANSFER & TRUST COMPANY
40 WALL STREET
NEW YORK, NEW YORK 10005
Facsimile Transmission Copy Number:
718-234-5001
Confirm by Telephone to:
718- 921-8237
THE ELIGIBLE INSTITUTION WHICH COMPLETES THIS FORM MUST COMMUNICATE THE
GUARANTEE TO THE EXCHANGE AGENT AND MUST DELIVER THE LETTER OF TRANSMITTAL AND
CERTIFICATES FOR THE NOTES AND WARRANTS TO THE EXCHANGE AGENT WITHIN THE TIME
PERIOD SHOWN HEREIN. FAILURE TO DO SO COULD RESULT IN A FINANCIAL LOSS TO SUCH
ELIGIBLE INSTITUTION.
<PAGE> 2
Ladies and Gentlemen:
The undersigned hereby tenders to the Company for exchange ______ Units,
each Unit consisting of (i) $1,000 principal amount of Notes and (ii) Warrants
to purchase 60 shares of Common Stock, pursuant to the guaranteed delivery
procedures set forth in the Offering Circular, the record holder thereof to be
entitled to receive 135 shares of the Company's Common Stock, par value $.0001
per share, upon exchange of each such Unit pursuant to the terms and subject to
the conditions set forth in the Offering Circular (the "Exchange Offer"), the
receipt of which is hereby acknowledged. See "The Exchange Offer -- Procedure
for Exchange" in the Offering Circular.
<TABLE>
<S> <C>
Certificate No(s). (if available) Name(s) of Record Holder(s)
Notes
--------------------------------------- ---------------------------------------------
Warrants
------------------------------------ ---------------------------------------------
Address(es)
---------------------------------
---------------------------------------------
Area Code and Tel. No.
---------------------------------------------
</TABLE>
GUARANTEE
The undersigned, a member firm of a registered national securities
exchange, a member of the National Association of Securities Dealers, Inc. or a
commercial bank or trust company having an office, branch or agency in the
United States, hereby guarantees that the Certificates representing the Notes
and Warrants tendered hereby, together with a Letter of Transmittal and any
other required documents, will be received by the Exchange Agent at its address
set forth above, no later than five Nasdaq trading days after the date hereof.
------------------------------------
(Firm)
------------------------------------
(Authorized Signature)
------------------------------------
(Name)
------------------------------------
(Title)
------------------------------------
(Address)
------------------------------------
(Area Code and Telephone Number)
Date: , 1996
NOTE: DO NOT SEND NOTE OR WARRANT CERTIFICATES WITH THIS FORM.
SUCH CERTIFICATES SHOULD BE SENT WITH
THE LETTER OF TRANSMITTAL.
<PAGE> 1
[SUBMICRON SYSTEMS CORPORATION LETTERHEAD]
July 8, 1996
To: Holders of 9% Convertible Subordinated Notes Due December 15, 1997 and
Warrants to Purchase Shares of Common Stock of SubMicron Systems
Corporation.
Ladies and Gentlemen:
Pursuant to the terms of the enclosed Offering Circular dated July 8, 1996
(the "Offering Circular"), and the accompanying Letter of Transmittal (the
"Letter of Transmittal", and together with the Offering Circular, the "Offering
Materials") SubMicron Systems Corporation (the "Company") is offering you the
opportunity to exchange (the "Exchange Offer") 135 shares of the Company's
Common Stock, $.0001 par value (the "Common Stock"), for each Unit you hold of
(i) $1,000 principal amount of the Company's 9% Convertible Subordinated Notes
due December 15, 1997 (the "Notes") and (ii) Warrants to purchase 60 shares of
the Company's Common Stock (the "Warrants").
The Exchange Offer commences on July 8, 1996 and will expire at 5:00 p.m.
on August 5, 1996, unless extended. The Company has conditioned the Exchange
Offer upon, among other things, at least 11,400 of the 19,000 Units (60%) being
tendered for exchange and not withdrawn. As described in the Offering Materials,
the terms of the Exchange Offer are subject to amendment.
The Company has decided to offer to exchange shares of its Common Stock for
the Notes and Warrants pursuant to the terms of the Exchange Offer for the
following reasons: (i) the consummation of the Exchange offer will substantially
reduce or eliminate (depending on the amount of Notes and Warrants accepted for
exchange) the cash interest payments on the Notes and the noncash amortization
charges related to the discount on the Notes and deferred debt issuance costs,
and (ii) the Exchange Offer could result in a substantial reduction in the
leverage of the Company. The Company will, however, recognize a one-time noncash
charge in the quarter in which the Exchange Offer is consummated based on the
market value of the additional shares of Common Stock issued above the current
exchange ratio of the Notes plus transaction costs, less the market value of the
Warrants exchanged.
Neither the Company nor its Board of Directors makes any recommendation to
you as to whether you should accept this Exchange Offer and tender your Units or
refrain from doing so. You must make your own decision whether to accept or
reject the Exchange Offer.
The Exchange Offer is described in detail in the Offering Materials, which
include the Company's Annual Report on Form 10-K for the year ended December 31,
1995, the Company's Quarterly Report on Form 10-Q for the quarter ended March
31, 1996, the Notice of the Annual Meeting of Stockholders and Proxy Statement
for the Company's 1996 Annual Meeting of Stockholders and the Company's Current
Report on Form 8-K dated March 26, 1996, as amended, as Exhibits to the Offering
Circular, and the Letter of Transmittal. PLEASE READ THE ACCOMPANYING EXCHANGE
OFFER MATERIAL FOR A FULL DESCRIPTION OF THE TERMS AND CONDITIONS OF THE
EXCHANGE OFFER.
<PAGE> 2
The Offering Materials are comprehensive and have been written, in part, to
satisfy certain legal requirements. If you have any questions regarding the
terms and conditions of this Exchange Offer, please contact R. G. Holmes, 6620
Grant Way, Allentown, PA 18106, telephone 610-391-9200. Please direct your
technical questions regarding, for example, the procedure for tendering Units,
to representatives of American Stock Transfer & Trust Company, which is acting
as the Exchange Agent for the Exchange Offer. The Telephone number for American
Stock Transfer & Trust Company is set forth in the Offering Circular and Letter
of Transmittal.
Very truly yours,
/s/ David F. Levy
--------------------------------------
David F. Levy
President and
Chief Executive Officer
DFL/scv
Enclosures
<PAGE> 1
Contact: R. G. Holmes
Chief Financial Officer
(610) 391-9200
Robert J. Okunski
Director of Investor Relations
(610) 391-9200
FOR IMMEDIATE RELEASE
SUBMICRON SYSTEMS CORPORATION OFFERING TO EXCHANGE
SHARES OF ITS COMMON STOCK FOR
PRIVATELY PLACED NOTES AND WARRANTS
ALLENTOWN, PA, July 8, 1996 -- SubMicron Systems Corporation (Nasdaq "SUBM")
announced today that it has commenced an offer to exchange 135 shares of its
Common Stock for each Unit consisting of $1,000 principal amount of its 9%
Convertible Subordinated Notes due 1997 and Warrants to purchase 60 shares of
its Common Stock at $14 per share. Each $1,000 principal amount of Notes is
currently convertible into approximately 86 shares of Common Stock. The
Exchange Offer is being made pursuant to an Offering Circular dated July 8,
1996 and related Letter of Transmittal (which together constitute the
"Exchange Offer").
Subject to the terms and conditions of the Exchange Offer, including that a
minimum of 60% of the 19,000 Units outstanding are tendered (i.e., a minimum of
$11.4 million of the $19 million principal amount of Notes outstanding and a
minimum of 684,000 of the 1,140,000 Warrants outstanding), SubMicron will accept
for exchange any and all Units of Notes and Warrants properly tendered and not
withdrawn prior to 5:00 p.m. New York City time on August 5, 1996, unless
SubMicron extends such date. As set forth in the Exchange Offer, the Exchange
Offer is subject to amendment, extension or termination.
The Company has decided to offer to exchange shares of its Common Stock for the
Notes and Warrants pursuant to the terms of the Exchange Offer for the
following reasons: (i) the consummation of the Exchange Offer will
substantially reduce or eliminate (depending on the amount of Notes and
Warrants accepted for exchange) the cash interest payments on the Notes and the
noncash amortization charges related to the discount on the Notes and deferred
debt issuance costs, and (ii) the Exchange Offer could result in a substantial
reduction in the leverage of the Company. The Company will, however, recognize
a one-time noncash operating charge in the third quarter based on the fair
market value of the additional shares of Common Stock issued above the current
exchange ratio of the Notes plus transaction costs, less the fair market value
of the Warrants exchanged.
SubMicron Systems Corporation is a leading supplier of advanced wafer processing
equipment to the semiconductor and other related industries. The Company has
world-wide operations consisting of SubMicron Systems, Inc., a manufacturer of
automated wafer cleaning, etching, and stripping systems; Universal Plastics,
offering manual and semi-automatic wet chemical processing stations and parts
cleaning systems; Systems Chemistry Incorporated, focusing on bulk chemical
distribution, management and recovery systems, and Imtec Acculine, Inc., a
provider of chemical process vessels and thermal control of process chemicals
to the equipment segment of the semiconductor industry.
###
